Q2 2020 Earnings Call
No company, that's got 2022nd quarter Financial results Conference call. My name say training out your operator for today's call.
Hi.
But I noticed in I mean out later, we'll conduct a question answer session.
During the question answer session. If you have a question. Please press Star then one and you touched on phone. Please note. This conference is an accord and I'm not trying to color and Robert Jaffe, Robert Jaffe you may begin.
Thanks, operator, good afternoon, everyone and thank you for joining us today to discuss blend that companies' fiscal 2022nd quarter financial results.
On the call today, or Tim crew, our Chief Executive Officer, and John Kozloski, The company's Chief Financial Officer.
This call is being broadcast live at Www Dot com playback will be available for at least three month on month that's website.
I'd like to make the cautionary statement I remind everyone that all of the information discussed on todays call is covered under the safe Harbor provisions of the litigation Reform Act.
Companies discussion will include forward looking information.
[noise] management's current forecast.
Certain aspects of the company's future [noise].
Actual results could differ materially from those stated or implied.
In addition, during the course of this call we refer to non-GAAP financial measures that are not prepared in accordance with U.S. generally accepted accounting principles and maybe different from non-GAAP financial.
The company.
Investors are encouraged to review that's press release announcing its fiscal 2022nd quarter financial results for the company's reasons for including non-GAAP financial measures in its earnings announcement.
The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is also.
The company's earnings press release issued earlier today.
This afternoon, Tim will provide brief remarks on the Companys financial results as well as comments on recent developments and associated initiatives.
And John will discuss the financial results in more detail, including the company's fiscal 2020 guidance.
We will then open the call for questions.
That said I will now turn the call over to Tim crew Tim.
Thanks, Robert and good afternoon, everyone.
In some ways, our second quarter performance serves as a microcosm of how we manage our business in our competitive industry.
Let me explain.
Two years ago, we implemented a strategy designed to improve our inline product performance and supplement our internal product development efforts with product acquisitions in licensing agreements.
The strategy has helped expand our portfolio add new revenue streams and diversify our product offering.
In short, we injected near term sales and profits into our business.
The strategy has helped mitigate the impact of regular competitive pressures.
And we continue to demonstrate the success of our strategy with well above market revenue growth.
With that as a backdrop, let's take a closer look at our fiscal 2022nd quarter financial results.
Net sales of 136 million were higher than expected.
Yet adjusted gross margin percentage for the second quarter was lower than we expected.
Nevertheless, with a higher sales gross profit dollars were only slightly lower than anticipated.
Now comparing the second quarter results to our first quarter.
Both the top line and net income grew meaningfully.
This is largely due to a full quarter of sale deposit Con is all a key product that we launched late in our fiscal 2021st quarter.
As well as well as the launch of southern new products during the second quarter.
The adjusted gross profit was lower impart due to a changing mix of sales, including lower food, finishing sales related to the timing of customer orders and lost sales were related to the we're limiting recall and our cooking solution withdrawal.
The puts and taken this quarter illustrate on one hand, our success and launching new products and on the other hand, the various challenges inherent to our industry.
Turning briefly to our full year guidance.
We have revised several elements in our outlook.
The changes include higher net sales guidance and lower gross margin.
Our expected adjusted EBITDA, However remains unchanged.
This guidance is based on certain assumptions, including.
First the continuing durability of from Venezuela in public health sales.
You may recall that we previously expected to see new competitors for both products sometime during the second half of our current fiscal year.
We have reassessed the market for fencing and now believe no new competitors are likely until the beginning of our next fiscal year.
Well for Paas economies, all we are forecasting competition to occur late in the fiscal year.
Another item of note to our guidance is a planned launch of 10 or so additional products through the remainder of this year.
John will discuss our financials as well as our revised guidance in more detail shortly.
Now regarding our quote unquote lunch parade as we've said our calendar watch Europe was back end loaded for this fiscal year.
After single, but important part the tunnel launch in Q1, we have launched seven products in Q2.
And clean Prime zone, so perhaps getting.
About them and will actually be are lighter came 4% in two dosage strengths of PBC capsules excuse me be AC capsule.
And then just noted over the balance of the fiscal year, we're planning to launch an additional 10 or so products.
Now for an update on some of the key products and our pipeline.
About three weeks ago, we received FDA approval of our fiber five b to end the eight for number Reno.
Branded local anesthetic product.
No we have seen new stories that incorrectly described the product as a nasal spray.
In fact, the product is the nasal solution.
The Breanna is the first and the approval in the company's history to include both safety and efficacy clinical trials.
This is a major achievement for when that I'd like to acknowledge our product development teams regulatory teens operation teams for the perseverance and hard work over many years.
We are producing the product at our Carmel, New York facility and expect to ship the product shortly.
Our near term goal is to regain customers that use our previously sold cocaine hydrocolloid product.
Position ourselves as a consistent and reliable supplier.
And we're now of course analyzing marketing managed care opportunities based on our proved label.
[music].
We further expect to launch generic Adderall XR.
Our print allow l. eight and methadone oral concentrate in the coming months.
We expect these and several other products to continue to contribute to our aggregate results.
Now regarding our internal pipeline, we have been working hard at improving our effectiveness and tuning our product selection process.
We are now choosing products with notably more expected future value based on our expanding capabilities.
And we currently have more than 20 products in development.
We also have about 14 additional products when that has earlier filed with the FDA.
Plus another seven or so products that are approved and pending launch.
And encouraging hidden statistic in our recent average.
FDA submission to approval timelines for prove and does.
Has been a reduction by more than 50% to 15 months.
The statistic relates to just three filed their approved an f. why 19 from those filed in just a fly excuse me the statistic relates to just three files and improve F. why 19 from those files.
Submitted in flight 18.
And as compared to a larger said approvals that occurred in earlier years.
But we believe that an indicator of our improving fell quality in R&D throughput.
Turning to some of the larger more sustainable products and our partner pipeline.
In December we announced positive results from a human PK PD clinical trial or insulin Biosimilar project with a partner HSBC.
As a reminder, egcs, making substantial operational investments in the global insulin platform.
Insulin glargine is when the largest addressable us markets, which when that has ever potentially participated.
With reported sales greater than $6 billion.
The study, which compared Hccs insulin glargine to U.S. Lantus met all primary endpoints.
We expect a sense the FDA or briefing book with the next few weeks and meet with him later this fiscal year to review the developed plan for what additional studies are needed based on an in depth review the Biosimilarity data we haven't had.
As you may be where the FDA has made several announcements this past year that seek to facilitate biosimilar filings.
So we look forward to sitting down with them soon.
We also remain excited about the other significant and sustainable product opportunities that are progressing in our pipeline.
Generic advair another project whether partner rest Brent is investing heavily in their global program is another one of the largest us markets in which when that has potentially participated.
The product is currently a confirmatory PK PD trials, which are proceeding nicely.
We expect to file that part of Ganda later this year.
And last but not least we currently expect to watch and approved leave with rocketing product currently sold by another party no later than August of 2022.
In a slightly different vein, we had been pleased with our progress on some litigation matters and have a brief update.
The first is related to a class action lawsuit filed in October of 2018 against the company and two of its officers.
The court granted preliminary approval of a settlement in July of 2019.
In the hearing is scheduled for a few days to request the courts final approval to settled litigation.
On the proposed settlement the company has agreed to pay $300000 without the admission of liability.
The second update is related to some shareholder derivative lawsuits filed last summer against certain former in current officer in board members of the company.
In this matter we have reached an agreement in principle to resolve the consolidated and related cases.
The settlement, which is subject to court approval proposes lynette adopt some new corporate policies and pay $600000 legal fees in exchange for release of all liability.
Bringing these cases to conclusion should help reduce some recent growth in our legal fees.
And we continue to look for ways to resolve other pending litigation on terms acceptable to the company.
Now looking beyond our quarterly variances daily operational discipline and recent growth. The company has begun to refresh is five your strategic plan on where and how to compete as a mid size company in the large and growing us generic medicines market.
We have set for ourselves an ambitious goal to become a billion dollar healthcare company.
This means we need to grow at about a 15% CAGR.
As we estimate the future value of the products we have now.
And what we expect of our existing pipeline.
Particularly if we're successful with a more sustainable assets and development.
And what more we need to do.
When we add all of that up we believe we're well on our way to achieving our goal.
We believe we are positioned for success with our dynamic teams are creative partnerships, our operational discipline, and especially our organizational nibble nimbleness and reliability, which has greatly facilitated by a made in America Foundation far less encumbered by the global complexity the plagues many of our competitors.
To sum up.
We reported net sales and net income growth in our second quarter versus the preceding first quarter based on strong sales across multiple product categories.
We successfully introduced eight new products and the first half of fiscal 2020 and expect to launch approximately 10 more in the second half of the year.
The planned launches, including the Bruno our first ending a approved product to include full clinical trials.
Our adjusted EBITDA outlook for the full fiscal year 2020 remains unchanged.
We have raised net sales guidance based on the strength of our existing product offering and expected new product launches.
We've also slightly lowered our expectation for gross margin based on our emerging sales mix and competitive pressure for certain products.
We continue to advance our pipeline of sustainable large market opportunity products and we continue to work on additional opportunities to build strategic alliances with partners and have complimentary products and capabilities.
Again.
Our goal is to become a billion dollar healthcare company and achieve topline compounded annual growth rates well in excess of the industry.
With all of that I turn the call over to John John.
Thanks, Tim and good afternoon, everyone.
As was mentioned earlier I will be referring to non-GAAP financial measures reconciliation of the GAAP to non-GAAP numbers can be found in today's press release.
A quick note before I begin.
As most of you know in March of last year, our supply agreement with Jerome Stevens for legal Iraq some expire.
So in addition to providing year over year comparisons also includes some color comparing our second quarter financial results to our fiscal 2021st quarter.
Now for the financial results on a non-GAAP adjusted basis.
For the 2022nd quarter net sales were 136.1 million compared with net sales for the second quarter of last year of $193.7 million, excluding the both Xerox and net sales in Q2 of last year were 105.2 million.
Q2, net sales increased by 8.8 million over Q1 net sales of 127.3 million.
Largely due to a full quarter of sales of public comments all.
As well as higher sales across several other product categories.
As Tim mentioned, we launched seven new products during Q2 generating only a partial quarter of sales.
Who financing sales were lower in Q2 than Q1 due to the timing of orders. However, we expect Q3 and Q4 sales of our anti psychosis product category to be closer to Q1 sales of approximately 28 million.
Gross profit was 50.2 million or 37% of net sales compared with 86.0 million or 44% of net sales for the prior year second quarter.
Again, the second quarter. The prior fiscal year included significant significant sales of Lee with the Roxanne.
Our product that had a higher than average gross margin.
Compared with the first quarter gross margin of 41% our gross margin in Q2 declined largely due to sales mix with lower sales of flu fencing and no sales of our withdrawn cocaine topical and redeem products.
All three of these products are high gross margin products.
Gross profit dollars were down only slightly.
Interest expense decreased to 13.1 million from $17.1 million in last year's second quarter due to repayments of term may and term b loans as well as the lower fixed interest rate on our senior convertible notes.
Net income was 11.7 million or 27 cents per diluted share.
This compares with net income of 33.6 million or 86 cents per diluted share for the fiscal 2019 second quarter.
Compared with the first quarter net income of 8.8 million net income for the second quarter increase by approximately $2.9 million.
And Q2, adjusted EBITDA with 35.8 million, an increase from 35.1 million in Q1.
Turning to our balance sheet at December 30, Onest, 2019, cash and cash equivalents totaled approximately $119 million.
Our outstanding debt at the end of the quarter was as follows.
Total debt was approximately $741 million and debt net of cash with 622 million.
Net secured debt was $536 million.
We continue to expect to be within our financial covenants up to the maturity date of the term may loans.
Regarding our refinancing activities, we continue to evaluate opportunities and market conditions to refinance our secured debt.
As a reminder, this past September we completed a senior convertible notes transaction, which among other things enhanced our capital structure and provided greater financial flexibility.
In addition, our current cash position exceeds the outstanding balance of our term a loans, which mature later this year in November.
As of December 30, Onest 2019, the balance of the term may loans was approximately 63 million.
At June Thirtyth, it will drop down to approximately 49 million and by the maturity date. The outstanding balance of the term may loans will be approximately $42 million.
Turning to our guidance, we have raised our net sales and lowered our gross margin estimates for the full fiscal year.
We also revised slightly downward our interest expense and tax rate.
The net result of these changes is not expected to have an impact on our estimated adjusted EBITDA for the full fiscal year.
Our guidance is as follows.
Net sales in the range of 530 million to $550 million up from 525 million to $545 million.
Adjusted gross margin as a percentage of net sales of approximately 39% to 41% down from approximately 40% to 42%.
Adjusted R&D expense in the range of 34 million to 36 million unchanged.
Adjusted SGN expense, ranging from 63 million to 66 million unchanged.
Adjusted interest expense in the range of 51 million to $53 million down from 54 million to $56 million.
The full year adjusted effective tax rate in the range of 21% to 22% down from 22% to 23%.
Adjusted EBITDA in the range of 145 million to $160 million unchanged.
And lastly capital expenditures to be approximately 20 million to $25 million unchanged.
Regarding the phasing of the quarters, we expect net sales in Q3 to be flat to slightly lower than Q2, an increasing in Q4 due to new product launches.
With regard to gross margin, we expect Q3 to be slightly higher than Q2 based on product mix.
We expect EPS and adjusted EBITDA in Q3 to be in line with Q2 and increasing in Q4.
With that overview, we would now like to address any questions you may have operator.
Thank you, we'll now begin the question and answer fashion.
We have a question.
Chris Star.
And on your Touchtone phone.
If you wish to be the mostly Q.
Please press the pound sign I'd hash key.
PC speakerphone.
You may need to pick up the first suppressing the number.
Once again in the question. Please press star and Brian you touched on some.
And our first question comes from Matt Hewitt, Craig Human capital. Your line is open.
Good afternoon, Thank you, providing the update and especially the.
The guidance.
Cadence here for the back half of your I guess for my first couple of questions regarding of Brean. All the launches pending soon how quickly do you think you can get back to where you were prior to pulling the product from the market and then follow up to that is given your success with the trial process and in some of the nuances of gets.
With that product to market does that give you confidence to seek other similar type markets, where you would have to go through a similar process.
Good evening, Matt Thanks for the follow up.
We expect to launch the greeno in the next.
Few weeks head on the long into the range in our target as we indicated in our prepared remarks is the recovery of former customers that used to purchase the our pre product again, focusing on our long history of reliable supply and high product quality.
We will look to explore other opportunities afforded by the approved label in due course.
But our expectations in the fairly near term is to get back into the range of perhaps a million dollars a month for that product.
As it relates to other sorts of five or five b two products.
We are primarily focused in the.
Oral generic space as we have often discussed.
And have been looking to work with partners for other technologies and other capabilities. For example, the Biosimilar filings that we're working with on HCC. So I'd expect on a go forward basis. We're open to products that are outside the traditional oral generics, which is the main stage.
They have therapy here in United States, but we'll do it very carefully and probably only with partner in areas that have a retail orientation to that brand.
That's that's very helpful. Thank you and then maybe one more for me and I'll hop back into queue.
Obviously, there's been a ton of news here recently about Corona virus Im just wondering if you could detail for us maybe any exposure that you have either on the revenue side.
Well.
Either from a hit perspective, or more importantly, I guess, whether or not there some opportunities for you to take advantage of.
This kind of help with the situation and from that Apiay supply standpoint, whether or not there theres any potential for impact there. Thank you.
We're in touch with all of our key suppliers, both finished dose and EBI. We of course start with an expression of sympathy in support of regarding the situation in their home market.
But while there has been some travel restrictions, including our own teams all of our suppliers have indicated no concerns with any delivery.
Interruptions over the near term under current expectations.
As a practical matter. These outbreaks is awful as they may be typically have less some number of weeks, but our inventories last some number of months.
And those inventories exist in fact at some level to be able to cover such sporadic an unpleasant events like these.
We will notice in terms of helping the other direction, we have the only a india her on the Durbin monitor solution in the market, but it's a fairly small market, we have a partner considering that for import but on a global stage. There. Obviously numerous forms of these act is available globally and so I wouldn't expect.
To see any material change to our opportunities from this outbreak remortgaged and supporting our partners and continue to supply the products we have market.
Understood. Thank you very much.
Your next question constant Gary Nachum from BMO capital Your line is open.
Hi, guys. Good afternoon, and Tim first what's the status of Red nicotine when you might be able to bring that product back to market are you assuming it will be this year.
Are you on track for the 75 million contribution from new product. This year and then how much did posit comments all contribute in the quarter you gave us that number last quarter that would be helpful.
So good evening and Gary a four remitting, we're still evaluating.
Hi that would meet the FDA requirements, but quite frankly.
We don't have expectations of re launching that product anytime soon.
We think that the market may move a bit to other therapies will continue to monitor that based on the FDA guidance and and expectations and the underlying chemical structure that product. So it's not something that we anticipate returning to the market under the current conditions in situation.
Regarding our new product launch goal, we have often stated that we look to launch 20, or so products a year with.
70 $75 million of value, we're clearly well on target for that goal. This year, we're launching numerous.
Single digit million dollars products, but also launched a much larger paas account is also we're pretty comfortable that we'll be well within that achievement. This year. It's why we remain on track.
For our guidance despite other challenge that occur.
And that the deposit comes off that.
Hi, the Commons itself is around.
This is John its or it was around 40 million unit you can see the infectious diseases increased in Q2 from four quarter of public Carnival.
Okay and are you expecting that it's going to stay sort of at that level over the course to the year. So I mean, if I did a quick math it seems like a big chunk of that 75 million is coming from past the Cogs posit caught us off this year at the right way to think about it.
It is a big chunk of the total there are 20 products that have.
Single mid digit single to upper single digit millions of contribution over the course of a 12 month ryzen certainly for this year positive tunnels I'll be the largest contributor.
To that.
$75 million political we've always talked about a portfolio of launches that have those puts and takes regarding its forward looking expectation. We are currently in our guidance expecting a competitor.
Late in the fiscal year.
I should be clear, we don't have any knowledge of and then imminent competitive threat, but from the risk adjusting the doing our forecast that's where we placed it if that forecast assumption is optimistic we'll have more pressure if that forecast assumption is.
Conservative will have upside.
Okay.
And then just last question, Tim with your target of a 15% revenue CAGR over the next five years or so how should we think about gross margin trending over that period of time to the extent that a portion of probably a decent portion of that growth is going to come from partnerships that we saw a little bit.
More weakness in gross margin than we thought in the second quarter. So how are you thinking about balancing that revenue growth with the gross margin and just making sure that you maintain that at a certain level. Thanks.
Yes, as we stated on numerous calls we always try to focus fundamentally on gross margin dollars.
That being said, we obviously have prefer to have more wiggle room with the our gross margin percentages, but in general over the planning period, we would think that our gross margins with the percentage of partnered products of some scale.
Would be in the Thirtys at some point.
Overall protected period of time, I think thats sort of margin to my mind is reflective of industry of a balanced portfolio and again the margin dollars can be substantially in some of these partnered products. Even if the margin percentage is not as high as some of the historical.
Gross margins we delivered.
Okay, and I mean can I push you a little bit when you say the thirtys mid thirtys the place where it could settle over the course of time will set up for reasonable place to think about it.
I think if were a 1 billion dollar healthcare company with a 35% gross margin we'd be pretty pleased yes.
Okay.
Great. Thank you.
And your next question comes from Gregg Gilbert with Suntrust. Your line is open.
Thanks, Good afternoon, guys I want to start with gross margin percentage, recognizing there's a mix effect that affected the quarter.
John can you talk about anything else going on and gross margin that might be more permanent nature not related to mix, a permanent or temporary lets say write downs on inventory temporary or permanent sort of pricing that you won't get back maybe talk a little more about.
The non mix effect within gross margin.
Hi, Greg.
Well when we look at Q2, it really was sales mix.
No our declined from 41% in Q1 was related to the food financing, which we talked about but also the.
The removal of the cocaine solution and the related Dean.
As we.
Talk a little bit earlier, we expect gross margins actually two to two come up a little bit.
In Q3, and then again in Q4 so.
When we look at Q2, it really was just say overall.
The results of our mixed products okay.
And then Tim on your billion dollar comment I want to ask about gross margin, but I will ask you about $1 billion.
Maybe you could further characterize how you get there im sure folks are wanting to understand how much of that as Bert enhance stuff you have heard agreements you have.
Maybe could put a little more meat on the bone as it relates to your ability to get to $1 billion in five years, which is.
Shortly much higher than most folks are modeling.
Hi, though is may be clear enough in the prepared remarks, but.
Listen we are running ahead of the 50% CAGR is as we've noted for this year.
And the pressure on that CAGR is really on the outer years, you start compounding, which is the same time, some very large market to be products that we have in our portfolio believe will come online I mean, we're not going to.
Assume it's the only way to get there, but the contribution of an insulin glargine and successful makes that Kendrick conversation pretty much not the consideration or concern, it's really more about building out diversified portfolio in terms of that that cagar.
With that product taking longer than you might think we are looking to add additional products in that space with our partners in that arena.
As we said the prepared remarks, when we look at what we have in hand, what we look at in our development pipeline the quality that developed by pipeline the progression that pipeline. This isn't taking a swag at some percent of the total market. It's built on a product by product basis with some gaps to go to achieve those goals along the way.
Some of those gaps involved.
Products, we have not yet filed that we will file over the three or four years that need to come into our portfolio and launch and get some share. So we feel it's a rallying cry for the organization that is reflective of the capabilities. We're building the size of the market. We operate we operate in the number of projects, we have in hand, and the number products, we see line of sight too.
So thats, that's why we put that out there is as our goal.
Okay, maybe Tim I could get should lastly, just comment on industry conditions at the moment. After a couple of years of extreme consolidation of the buyer said.
What's the latest tone that you're sensing in terms of.
The intensity of pricing pressure.
Frequency of bids et cetera. Thanks.
Okay.
Well I've made the comment on several occasions that.
We don't feel what we observe in our portfolio is indicative or useful to an injustice distech. We've always believed I continue to believe that the pricing pressures, we experienced a relevant to the products in our mix in the portfolio and I believe that.
Pricing pressure has always been related to the number of competitors.
That are on the products in which you compete with so we haven't seen any change in that dynamic we have better quarters in worst quarters based on competitive activity or lack thereof, as it relates to that portfolio.
On the other side of it in terms of.
More strategic conversations we still don't see a lot of strategic buyers in that market or at least not sellers willing to provide their assets at the price point of a buyer might interest and then.
And we see perhaps even a few fewer strategic partners. So from our perspective, our offering continues to resonate well with both existing and new partners.
I note that most of our partners are looking to do more with us which means less with somebody else, which further help saw our relative outperformance in the market. So.
End of the day I think the market looks similar and it's always been tied to competitors you point to a supply disruption I will point to improve pricing you point to a supply glut Apple point to.
Supply declines and that as a portfolio by product conversation to my view.
Great. Thanks lots of color.
Your next question comes from Elliot Wilbur from Raymond James Your line is open.
Thanks, Good afternoon.
Tim just want to go back to your earlier commentary around the outlook.
During the same just curious what gives you increased confidence that the you're not going to see additional competitive entries before the end of year fiscal year that based on feedback from customers or is there something more.
Related to.
Hi, or or.
The regulatory pathway that may be gives you.
That visibility and then just extend that a little bit sort of talked about are there any potential.
More significant longer term barriers to entry that might limit.
The number of Mitchell competitors in that particular product.
All right good evening Elliott.
One of Maria Reus stress that we have a smooth sailing today with.
So if anything remains the only and on the market.
Our competitive intelligence is tied to competitive intelligence, it's not based on some.
Underlying gotcha relative to a structural inability for competitors compete it is based on we're sitting here in January we are constantly.
Searching trying to understand the status of other files and our vision to that is not being pushed out very many months. We're talking June July as opposed to.
Where we sit here today in January.
So again, we're not aware of an imminent threat, but we don't see enough structural reasons to preclude people from coming in due course, and there is always some drumbeat out there of of potential potential players. We just don't see him in the immediate near term.
The product by the way does have some high handling requirements.
That is little bit different in our plant were ground up and boxes, you masks right for that product. So it's not.
Just simply made in regular oral room, but it doesn't have any sort of inordinate technological barriers. So we are pragmatically expecting as we've always done that our goal to grow is to launch new product launches because inevitably will have decline of rewind portfolio, we see that coming in the relatively near term, but not tomorrow.
Okay. Thanks, I wanted to ask initial competitive intelligence question around the add their opportunity and specifically with respect to Sandoz recent decision to.
Withdraw their filing and terminate that program I guess quite surprising.
Many of those who follow that for.
Several years now considering their investment and we seem to be sort of well past go no go decision on that.
No we of course, what they ask for but just wondering.
Based on the eliminated amount of time and information is probably emerge since that announcement, if theres been anything.
Your perspective that might lead to some learning lessons around what you may do with your filing.
Going going forward.
So with regard to add there we are working with the incredibly experienced team on the rest print side.
And they're working with the team that is looked at a lot of applications from a lot of different companies over the years. So we feel we have a pretty good sense of the pinch points in what's required to develop this asset.
We may be a small company, but rest sprint's investing very heavily in the infrastructure issues that are necessary.
And we're impressed with the progress of the understand a I think we've talked earlier that the clinical programs always little less of the trick here and I think the European filing that Sandoz had out there was based more on the clinical efforts they have done.
In terms of.
Efficacy clinicals, it's always been the PK PD that has been the challenge in the guidance that's come from.
The FDA Andy sorts of products, we have always felt since we've signed up but these folks that are one of the players and we're pleased to see that market tightening. We believe we may continue to gain ground in some of the folks that are in front of US. We don't think for next step in the market, but we think we could be much closer to the.
Competitive sets that are more pronounced and more visible. So we're excited about the position. We hold will hopefully has some good news to report in the coming quarter regarding our PK PD and then we'll be able to better assess where what our position is into competitive Lima, but we're feeling pretty good that we've got the right partner and the right product in the right plan.
But time will tell.
Okay. Thanks, and just one final question going back to semi early commentary around the breanna relaunch and the opportunity there yes. The last couple quarters you guys have.
And we sort of gauge expectations around the asset in terms of your ability to.
The recapture the sales at the company was generating from the the unapproved products.
At various points.
Along the way during the the development of this asset.
Company.
Head.
Indicated that.
There were potentially much larger opportunity around the product via some form of promotional strategy.
And you guys doesn't seem to be something you guys have kind of.
As of yet so I'm wondering if youve.
We had had chance to sort of fully that.
Potential.
Direct salesforce enhance promotional strategy.
Two tied to this access versus just what you have talked about more recently in terms of this kind of getting back to where you were.
So I would I think some of the.
Higher potential numbers that someone might speak to in the past has looked at the number of.
Uses of this sort of product in that sort of space, but as an approved product you need to label to support it and I think to get to the more significant percentages that have been one point in the company's history been considered you need to invest very heavily in clinical trials that would be successful to achieve an indication to allow promotion.
That would achieve this higher penetration of a share of market.
So we're a bit more pragmatic again on existing use at a fairly low share basis focused initially on our trading partners that we believe will appreciate our history of reliable supply and high quality product to recover something that for us is still a high margin product.
That has durability to it.
So we're pleased about that sort of component of the opportunity. We do think there can be some opportunities to think about how this product is used within its label how it gets reimbursed at the.
Operating level of the hospitals are the surgeons that are using the product that might facilitate an easier utilization of the product, but we are early in those stages and our forecasts are currently tied to a number that is more reflective of of our historical past and once we have that wrapped up and locked and loaded we will.
Up to four incremental investments, but we do want to modify those expectations overtime.
All right. Thanks for taking my questions.
Your next question comes from Scott Henry from Roth Capital. Your line is open.
Thank you and good afternoon.
A couple of questions that starting with some of the line items.
Anti psychosis, what's a little weaker than it has been are in the past couple of quarters.
How should we think about that going forward do you expect it to and I'm just talking about this year I recognize that flu fantasy isn't there longer term, but how should we think about that sequentially. The next couple of quarters.
So for the Anna psychosis that came down in Q2, we talked about that being really about the timing of orders and we expect Q3 in Q4 to be more in line with Q O Q1 at around 28 million.
Okay. Thank you.
And then other lines the jumped out at me gastrointestinal.
Stronger than any of the past five quarters any was strong in Q1. It is even stronger Q2, how should we think about that for the rest of year should it maintain those levels or drop back down.
There are actually will be driving back down slightly we saw.
Strong sales specifically from like Pantoprazole in Q2, but we're we're modeling that come down in Q3 in Q4.
Okay.
And just logistical question.
As far as how you calculate the EPA asked.
The convert in there.
Or the interest add back.
What kind of adjustment are you, making to adjusted net income.
To get to your EPS, just and should that be relatively constant going forward.
Yes on the EPS calculation, it's the the adjustments are really on the overall.
Share count.
Adding back the.
The effect of the convert and then backing out the interest associated with the convertible note.
We can if we could actually go through that if you like in some greater detail, but that's the that's essentially how you get to the the adjusted EPS.
And I expect to see that in the 10-Q, obviously, but could you just tell me what the back out of interest is just for calculations just to get us over the quarter generally yes.
It's about 1 million.
Okay, great on that should do it for me. Thank you for taking the questions.
Okay.
And this concludes the question answer session.
I'll turn the call back over to management for final remarks.
All right. It's a 10 again I'll close out with our customary shout out to our employees customers and pace and partners and working hard so hard to provide high quality low cost medicines for patients. We look forward to sharing our progress on our next call Goodnight.
Thank you ladies and gentlemen. This concludes today's cost conference call. Thank you for participating you may now disconnect.
[music].