Q4 2020 Lannett Company Inc Earnings Call
Welcome to them that company, that's got 2024th quarter and for your financial results Conference call. My name is Adrian and not the operator for today's call. At this time all participants are in listen only mode.
Later, well conduct question and answer that's true.
Good afternoon, everyone and thank you for joining us today to discuss blend that companies' fiscal 2024th quarter and full year financial results.
On the call today, or Tim crew, our Chief Executive Officer, and John Kozlowski, The company's Chief Financial Officer.
This call is being broadcast live at Www dot lend that dotcom <unk>, a playback will be available for at least three months I'm on its website.
I would like to make the cautionary statement and remind everyone that all of the information discussed on todays call is covered under the safe Harbor provisions of the litigation Reform Act.
The company's discussion will include forward looking information, reflecting management's current forecast certain aspects of the company's future and 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 measures used by other companies.
Investors are encouraged to review and that's press release announcing its fiscal 2024th quarter and full year 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 contained in the companies.
Earnings press release issued earlier today.
This afternoon, Tim will provide brief remarks on the Companys financial results as well as recent developments and associated initiatives.
Then John will discuss the financial results in more detail, including the company's fiscal 2021 guidance. We we'll then open the call for questions with that said I will now turn the call over to Tim crew Tim.
Thanks, Robert and good afternoon, everyone, we hope you're all safe and healthy.
I'm pleased to report that our net sales and adjusted EPS for the fiscal 2024th quarter exceeded expectations.
For the fourth quarter, we reported net sales of $138 million with an adjusted gross margin of 35% an adjusted EPS of 31 cents per diluted share.
For the fiscal 2020 full year, our strong financial performance reflects the solid contributions of our inline products improvements we made to operational efficiency.
Well the launch of 18, new products, including six two products launched in the fourth quarter.
12 of 18 products launched that year war own products and including the Breanna, Our first approved and D.A. based on clinical trials.
Our employees, especially those involved in development and production of our medications deserve a special acknowledgement.
Over the last several months of the pandemic output from our plants has actually increased including record production level set last quarter at our senior facility.
And that's despite the strains and added safety measures required for those working in production during the pandemic.
This is a testament to our employees commitment diligence and their recognition of the important work they do.
Fiscal 2020 was also marked by efforts of our experienced and tenured management team to strengthen key areas of our business.
We improved our capital structure by successfully completing an 86 million dollar convertible notes offering.
And continued to pay down or debt.
From $768 million to $708 million in the last 12 months ended June 30 Twentytwenty.
We also implemented various working capital initiatives to enhance our cash position, which stood at $144 million at the end of the fiscal year.
Notably, we tremendously improved the quality and expected value of our future pipeline.
In part by establishing new strategic relationships and expanding existing alliances.
But we also added for the rigor and discipline to our internal R&D efforts and progressed the development of many of those programs.
As a result of all of this the company managed and overcame the challenge of losing the most profitable product in the company's history with rocketing just prior to beginning fiscal 2020.
I'll provide updates and additional details on several of these opportunities at the moment.
But first I want to briefly discuss our outlook for the coming here in some of what we considered in developing our guidance.
First with respect to our topline in gross margin, we expect to benefit from the continuing launch of new products as well as a full year of contribution from the 18 products, we launched in fiscal year 2020, including the six we launched in the fourth quarter.
On the flip side due to a competitor recently entering the market. We expect our overall net sales and gross margin to be pressured by recent competitive pricing compression and lots of share of our largest product from last year. So if anything.
Along with the normal erosion of our base portfolio. We also expect our results to be impacted by slower than anticipated expansion of debris no sales largely associated with fewer elective surgeries being performed during the cold crisis.
Finally, we anticipate a normalization of are looking to verify whichever sales, which initially benefited from corporate related treatment potential.
With regard to operating expenses, we expect SGN HIV significantly low in the coming year versus halfway 20, as a result of the restructuring and cost reduction plan announced and implemented last month.
The measures and the plan have largely been completed and we expect annualized cost savings of approximately $15 million.
While we are forecasting a down year on profits, we see our mid to longer term prospects unchanged with significant growth potential.
Additionally, through a disciplined approach to our cost structure and aggressive launch freight and thoughtful management of our balance sheet, we will manage the reduce contribution from our largest product. So if anything just as we successfully demonstrated our ability to do so last year with the previous loss of our then largest product leave with Roxanne.
Again, our expected value of our future portfolio increased significantly last year.
Less differentiated product like from fencing was always forecasted to declined substantially.
And we have been noting the anticipated expectation offenders in competition in our past earnings calls.
So our belief in the exciting products in our pipeline that had the ability to transform our growth trajectory remains in place.
We still expect to be a billion dollar company by 2025 with a gross margin percentage and the low thirtys and a similar improving profit profile due to greater operating leverage.
John will discuss our fiscal 2021 guidance in more detail shortly.
I also want to briefly comment on our balance sheet.
As I mentioned, a moment ago the initiatives to improve our working capital helped raise our cash position to approximately $144 million at June thirtyth.
An increase of more than 40% over the prior quarter.
Our plan is to use a portion of that cash to pay down in Seoul, our term loan A's, which mature later this year in November.
It's worth noting that our remaining debt the term loan fees and the convertible notes have no underlying financial covenant ratios.
Nevertheless, our goal remains to pursue overtime a gross debt level that is no more than three times, our adjusted EBITDA.
Meanwhile, we have more than two years before term loan B is mature in November 2022, and this facility has a relative low cost of capital for us today.
Having said that we continue to monitor debt markets and evaluate options and intend to extend our maturities proactively at the right time.
Regarding product launches in the first two months of fiscal 2021, we have already launched four new products, including let o'kane Lexus team of orphan, all and notably again leave authorizing tablets a product that we commenced marketing nearly two full years ahead of the timeframe associated with the original agreement.
With our new strategic partner.
The three boxing remains a very large public opportunity, although obviously not as lucrative for us as in the past given the change to the current market dynamics.
In addition to the four products launched fiscal year to date.
Our plan is to launch at least another eight products over the balance of fiscal 2021, including possibly zolmitriptan nasal spray toward the end of the fiscal year.
No. We are now focusing not only on the quantity, but also the quality of our launches as evidenced by our strong launch a pause economies of last year and leave with rocketing tablets. This year.
Turning to business development.
Our team remains busy driving the expected value of our forward portfolio.
They continue doing license products like stickers on Dbi, which we recently announced a number of other exciting opportunities are in the works.
We are also collaborating with our existing partners to extend distribution terms.
Agreements on for identified public comments all in generic add there have all been extended and we're working on others.
These extension speak to our successful partnering through demonstrated commercial successes.
Turning to our pipeline.
We now have more than 20 products in development with another 14, andas pending at the FDA, including partner products.
Plus another three or so products that are approved and pending launch.
Regarding our Biosimilar insulin glargine partnered product.
On June 9th we spoke with the FDA and receive guidance on the clinical advancement program of the product.
Specifically, the FDA provided positive feedback on the clinical and so-called CMC advancement of our Biosimilar Glargine.
Based on the meeting with the FDA, we are developing the product as a biosimilar to U.S. lantus.
As a reminder, our partner HCC is a large and well capitalized company with expertise developing and producing multiple insulin products for multiple markets.
He has constructed another new plant with much greater capacity designed around us Sta compliance and focused on insulin analog such as insulin glargine.
Once we produce insulin glargine in this new plant and demonstrate once again comparative analytical similarity it is likely only one additional healthy volunteer study may be required for approval.
This trial would be essentially a larger trial the healthy volunteer study already completed and will be conducted at the same site as the previous study, which the FDA review.
This guidance is a positive development at least two fronts.
First we may see several months of development time since certain safety and efficacy trials are not expected to be required and we had included the possibility of such studies and our previous development plan.
And second there are obviously significant cost savings related to not having to conduct the extra studies.
We are targeting patient enrollment for the healthy volunteer study to begin next calendar year.
If development activities remain on track the planned biologic license application is anticipated to be filed in calendar year 2022.
According to our internal projections, we believe a U.S. launch of the product is quite possible in fiscal 2024.
And based on standard assumptions, given an acute via market sales of about $9 billion.
And considering various pricing analogs of four to five competitors.
Just a 10% market share could be worth more than $200 million.
As we've said before insolence are a very large product opportunity the worldwide market as measured in tens of metric tons of insulin produced an insulin usage has been increasing.
It's important to note that while infant as a biopharmaceutical and when that expects to introduce insulin glargine as a biosimilar.
The market dynamics of insulin are different than other biosimilar markets.
Major insulin players such as Eli Lilly noticed and Sanofi have larger dedicated facilities to support insulin and insulin analogue production.
Very few companies outside the free majors have developed the necessary technical expertise and have the financial resources to develop influence for advanced regulated markets like the U.S.
Lets partner HTC, we see as one of those few companies.
By the time, we expect to file this product our partner will have invested hundreds of millions of dollars and insulin opportunities globally.
Well net provides the development regulatory and commercial expertise to leverage is exceptional investment.
And we expect few additional competitors enter the market after our expected insulin glargine BLA filing in 2022.
This situations in contrast, with other by Pharmaceuticals, which can be made in smaller facilities, producing just tens of kilograms and material versus the tens of metric tons for insulin.
In the less in Europe, some non insulin products have several biosimilar approvals or applications.
Such competitive intensity is much less likely for insulin.
Turning to generic add there we have restarted pivotal teekay trials, which were early interrupted by the pandemic, but we remain on track to file an NDA late this calendar year.
Depending on the quality of our submission and Ft review time, we believe the US launch of the park is possible next fiscal year.
Based on standard assumptions, we anticipate some sales in flight 2020 too and substantial net sales for fiscal year 20 to 23.
Generic add various another potentially durable product for us and similar to insulin Glargine. We believe few companies have the technical expertise and financial resources to participate in this market.
On the related note we've identified the respiratory market as one we intend to focus on this market is large and growing and we seen opportunity do in license additional inhaler products that extend their offerings.
Meanwhile, we have made progress on expanding our existing respiratory relationships and are developing new ones.
Finally, while legislative efforts are evolving we are still engaged in seen extensive and seemingly rare bipartisan congressional efforts designed to support us based pharmaceutical companies.
We see Congress evaluating a variety of options that include tax relief and our preferred status to us based suppliers of medications to certain government agencies, which are frequently large purchasers of generic drugs.
Whatever legislation should eventually emerge we believe one that has us headquartered manufacture is well positioned to benefit from such legislation.
To sum up.
Our net sales and adjusted EPS for our fiscal 2024th quarter exceeded expectations.
We provided fiscal 2021 guidance that reflects the continuing launch of new products as well as recent and anticipated competitive pricing pressures on certain key products.
We have largely completed a cost reduction plan that is estimated to generate approximately $15 million an annualized savings.
We plan to pay off in full our remaining term loan a balance in November.
Once paid our remaining debt has no financial covenant ratios.
We began remarketing leave with rocketing last month.
Just a little more than a year since the loss of our earlier supplier.
We are looking to build a pipeline of products that is focused on durable value.
The development for Biosimilar insulin glargine make progress more quickly and less expensive than we originally anticipated.
All in a positive meeting with the FDA.
Such products anchor our belief that we can achieve $1 billion of sales by 2025.
We remain on track for found the and up for generic add very around the end of calendar year.
Finally.
I'd like to again acknowledge our suppliers customers employees and management teams for their commendable efforts during the coated pandemic I. Thank them for their hard work and dedication during these challenging times.
With all 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.
The reconciliation of the GAAP to non-GAAP numbers can be found in today's press release.
Now for the financial results on a non-GAAP adjusted basis.
For the 2024th quarter.
Net sales increased to $137.9 million from $133.8 million for the fourth quarter of last year.
Gross profit was 48.9 million or 35% of net sales compared with 59.8 million or 45% of net sales for the prior year fourth quarter.
Interest expense decreased to $11.3 million from $16.0 million in last year's fourth quarter.
Due to repayments of term may and term b loans as well as lower interest rates and lower fixed interest rate on our senior convertible notes.
Net income was 13.4 million or 31 cents per diluted share compared with 14.7 million or 37 cents per diluted share for the fiscal 2019 fourth quarter.
Adjusted EBITDA was $142 million for the full year.
Our adjusted EBITDA was $35 million for the fourth quarter, which was consistent with the first three quarters of the year and demonstrated the stability of our business throughout fiscal 2020.
Turning to our balance sheet.
June Thirtyth 2020, cash and cash equivalents totaled approximately $144 million, an increase of more than $40 million from the end of Q3.
The increase was largely due to initiatives we implemented in the second half of the year to improve our working capital.
Our outstanding debt at year end was as follows.
Total debt was approximately $708 million.
Debt net of cash was $564 million and net secured debt was $477 million.
We continue to expect to be within our financial covenants up to the maturity date of the term may loans.
Our term a loans mature in November of this year.
At maturity the outstanding balance will be approximately $42 million.
Which we plan to pay off in full with our existing cash on hand.
Even after the plan pay down of the term a loans, we're comfortable with our expected cash on hand to continue to fund our operations.
Turning to our guidance for fiscal 2021.
Which is based in part on a few key assumptions.
These include steady recovery of market demand to pre cobot 19 levels and no additional competitors for financing until our fiscal 2021 fourth quarter.
With that said for the upcoming year, we expect.
Net sales and the range of 520 million to $545 million.
Adjusted gross margin as a percentage of net sales of approximately 29% to 31%.
Adjusted R&D expense in the range of 29 million to 32 million.
Adjusted SGN expense, ranging from 55 million to 58 million.
Adjusted interest expense and the range of 41 million to $42 million.
The full year adjusted effective tax rate and the range of 21% to 22%.
Adjusted EBITDA in the range of 100 million to 110 million.
And lastly capital expenditures to be approximately 15 million to $20 million.
Regarding the phasing of the quarters, we expect net sales in Q1 to be slightly lower than our recently completed Q4, an increase modestly over the course of the year.
Gross margin in Q1 to be at the lower end of the guidance range and increasing in quarters two through four.
And operating expenses to remain steady throughout the year.
With that overview, we would now like to address any questions you may have operator.
Thank you.
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And our first question comes from any Roper Raymond James Your line is open.
Thanks, Good afternoon.
Thats a couple of quarters, where we couldn't talk about me, but the rock seeing were agonizing. So I'm glad that it's it's back in the mix and Thats, where I'd like to address my first question.
Tim I think at one point in time, you had suggested that.
With the relaunch of the product that you thought revenue level somewhere slightly north of 50 million were obtainable and I'm just wondering given.
The level of competition in that asset and the loss of market share.
Still under Sandoz is watch.
Whether or not you think that that number is is.
Still still doable and if there's anything you could share currently on kind of the run rate of that product.
At the at the moment sort of versus that annualized expectation.
Good evening Elliot and yes, we are indeed excited to be back into the lever for oxy market. The market is smaller than it was when we are last and that remains substantial particularly relative to our size as a a generic player in the market.
The current situation is still dynamic as you know we stepped into a declining share of a declining markets.
And.
I'll be directed to place holder right now, we're holding perhaps 25 million as a target for the year as we step into we think there is upside in that number but until things settle out a little bit more it's on it's a it's we're holding that number number for today.
Okay.
And.
With respect to.
Gross margin expectations in fiscal 2021.
Obviously those numbers have.
Continued to come in slightly below external expectations last couple of quarters lot of potential reasons for that maybe would be helpful. If John perhaps you could just help us bridge.
2021, full year expectations versus where you exited.
Fiscal 2020, and what shorted the key swing factors there or is it.
The contribution from LIFO revenue will product mix or simply primarily due to lowered expectations for refinancing, but the top couple of swing factors. There in terms of thinking about the the the delta there would be helpful.
Yes, Hi earlier, so I think you've listed a mall. So we'll start with financing. The fact is with competition coming in.
Early this quarter.
Our psychosis category, which is basically made up of from Trinity is going to come down.
Significantly we're looking at run rate that or are let's call. It.
Seven to 8 million range for the quarter.
That being one of our higher margin products, and then introducing launches likely with rock for number very.
Excited about but they do have.
Actually for partnered products lower margin percent. So we've always talked about.
Gross profit dollars.
But ultimately we're 2021 with the mix that we're looking at.
Our margin percent are coming down to that 29% to 31% range.
Okay, and then last question I guess for you John before I hop back in the the Q.
Called out favorable performance on.
Working capital lines in the quarter.
And I'm just wondering.
Are these initiatives it led the favorable performance in Fourq Q.
Sustainable such that we see kind of a a permanent change in your operating cash flow to adjusted net income metrics going forward.
Yes, the short answer it is it if it is a permanent change the initiative was around our gross net deductions.
Looking at our overall receivables. So we were going to we were very happy with the result.
Specifically at the end of Q4 somewhat some of that is timing from Q3 pull through coded sales, but that was a small portion, but the the balance of that should be sustainable through 2021.
And if I can just put a finer point on that Elliot would have been notable that we reduce several whack of some of them more commoditized generics over the last ended the fiscal year, which is a big part of the gross to net to the references.
Okay, and if I, if I may what does that do for cash flow is it simply just limited to.
Reducing some of the the fee for service percentage on that on the products is that.
The bulk of it.
Well I would probably the best way to describe it is that it.
It is.
For our Dsos I'd say it gets the point, where we're receiving cash a little bit quicker do the differences between both of them that the whack at our net pricing. So it's.
Our receivables when you look at the balance sheet have come down for the end of Q4 and those types of levels, then should be sustainable through the year now of course. These these types of initiatives our helped to offset headwinds when we're consistently launching products specialty products like legal Roxanne.
Okay got it alright, thank you.
Thank you.
And your next question comes from Craig Hallum average maturity Securities. Your line is open.
Good afternoon, guys have a few I want to start with.
Glargine, Tim what are your thoughts on interchangeability for Glargine as a gating factor for success I know my on a seeking it we don't know if they'll get it.
Lilly still have great shop, the product, but that's because evan branded infrastructure and contracting et cetera. So it remains to be seen how important interchangeability would be for success and achieving numbers. Like you suggested so can you talk about the importance of interchangeability and how that's factored into your thinking and whether you believe it to be important in or out or not.
Well interchangeability would certainly ease the penetration into marketplace to that might come into a different sort of cost structure, we're not expecting interchangeability in our approach we are comfortable that.
It's a bit of a tempest in the teapot, if I may given the fact that insulins had been trading off formulary for years between the various providers out there.
They're somewhat interchangeable brands, if you will and so we're focused on simply a position our product as an affordable alternative and therefore believe we can garner 10% or Marcia okay.
Can you talk about what the profit due to your gross margin percentage I know you're focused on dollars more so but what that and.
I ask about generic Advair and actually if you could talk about how both of these projects would influence your gross margin percentage.
You're specifically asking on insulin glargine, yes first.
Yes, so those sorts of products, obviously in the branded arena.
Todays pricing Cascades are very very high gross margin.
As it is disclosed in our.
Natural documents, we have a 50 50 share with HSBC, So I think.
This sort of gross margin yield for that product should be a bit north of where we are as a company today.
And the real question, then becomes how much additional investment on BSG Nay side may be required to support those share levels at the lower ranges I'm.
Of the belief that there is again, a fair amount of interchangeability as a pragmatic matter as you see formulary as a flip back and forth.
As you go to higher share penetration you might need to do more with the managed care and environment, but we would see this is accretive to our current margins, but not substantially so.
Okay on generic Advair, you willingness to speak to peak sales like you did on Glargine.
So.
We had earlier suggested in some of our public documents.
95 million dollar opportunity at 20% share I think given the progression of the filing at least of.
A simplified now and ongoing articulation of the expectation of the Hikma file we would moderate that expectation somewhat I still think thats possible number, but I would think 25% less 30% less might be a good holding.
Estimate for US now I want to give an exact number I just think it's probably a little bit lower offset by the fact is you dig into some of the details and what the review cycles might be we remain optimistic provided we pass our PK and get a submission to the ended this calendar year.
We note that it appears that our clinical trial was done on a much smaller patient base, which can not not for sure but can suggest.
A little less variability, which could speed Sta review process. So we think if we can get a file in there. There's a chance that we can catch up and then the higher number projections would become more relevant but if were delayed.
Relevant to other market entrants, then something lower than that we've discussed in the past, okay and gross margin percentage on that one compared to your current margin level.
That will be.
Probably at or a little below our current margin expectation given the fact, we don't have quite parity sharing on that on that product for the market share and sorry, Tim just to get this right. Your current gross margin you're talking about your guided level for fiscal 2001, or you're just reported level.
For these.
21, Okay, and lastly on respiratory notable comments about your interest there I know, it's not brand new interest but.
Is your interest and in the markets that have.
You are players are you willing to jump into things like albuterol that might be crowded, but still custom good gross profit potential there.
If you mean albuterol rest fuels.
Those are more crowded I would still say despite clearly an emergence of of a series of competitors in the end the space in the Dbi space. What have you you're not talking about a lot of competitors and you're still talking about markets that have enormous volume and so if we can be one of four or five or even.
In six and those sort of large volume markets that is an order of magnitude better than your average sort of a generic that we market in the us today. So again, it's about a bit of an optic of are you looking down from the billions of dollars in sales from a large standing that generic company are you looking up from somebody.
Selling several hundred million and from where our optic is we still don't see a ton of people able to conquer and invest behind the drug device.
And then drum that is out there there is progress being made we're happy to see it because it's also paves the way for ourselves as we come into market and we think there'll be relatively large relative to our size in the marketplace.
All right since late August I figured I'd sneak one last one in here, it's about gross margin that clearly an important topic here given how you've guided.
Thanks, so much versus prior year for the reasons you described conceptually as we think about gross margin in the future should we assume that the fiscal 2001 levels a decent level to think about until you can get these two larger what in particular glargine off the ground.
Markedly increased margin is that really the only driver that we could envision.
Of notable size of potential increase for gross margin.
First I think we yes, I think we've made several comments over the years quite frankly that something in the low to mid Thirtys is a good target the generic industry.
You need to have either brands or exclusive generics to drive that number up higher typically in our marketplace.
And so the.
[music].
The loss of our largest product, which was an exclusive product, which although it is priced well below a brand can still have margins in the 90% range.
Is not likely to repeat itself in the near term for our portfolio or even the midterm and so our expectations are looking back over history and looking forward over time.
Two in a mix of both internally developed products, which will be smaller but much higher margins.
Along with some larger partnered products that have margin shares to be in that sort of low thirtys overtime. Okay. Thanks, a lot gentlemen.
Thank you have good night.
Your next question comes from Karen Nat Sherman from BMO capital markets.
Hey, guys.
First in terms of the guidance Tim.
Why do you not assuming additional consented being competition until the fourth quarter. Why are you confident in that and what are your expectations for additional competition for positive con dissolve and how did you bake that into the guidance for this year I'm curious how much downside risks there could be if additional competition hit on those products.
So good evening, Gary for some of our larger products. There is kind of a blended approach. So we think about public commonwell sumatriptan into benzene and in general with not ever knowing for certain timing of other competitors.
We are expecting or have budgeted not expecting budgeting paas economies all erosion in the first half of the fiscal year and Sumatriptan include vendors in the back half of fiscal year I don't know that any one of those assumptions will be right I feel pretty comfortable that our blended assumption will did pretty well be pretty close.
Okay, and how much that cause the kind of though contribute in fiscal two plenty you've given us I think that number in the past on a quarterly basis.
Yes, yes, the infectious diseases for the year was 73 million most of that was driven by pause accountable.
Good portion of it turned so.
For $21 million per quarter.
That's about 60 70 million of that with without one product I.
I think it's also important to note the public common zone Sumatriptan do have margin shares. So there is a natural cushioning of the downside decline in financing having declined women's declined there was obviously inherently less downside moving forward.
Okay, and I wanted to clarify for loop benzene, where the anti psychosis category, you're assuming about a seven to 8 million run rate per quarter, just want to confirm that was the number that you said.
That is correct.
Okay.
And then Tim understanding that you just announced a restructuring to generate $50 million of cost savings that mostly at the Seymour plant. If the business continues to see pressure on the topline how much additional flexibility do you have with opex or at any of your other facilities.
Did you go down to the bone or do you think that there's still room potentially.
To cut if you need to.
Well, we're not planning any more cuts at this particular time I would note that changes we made largely had seymour was more focused on the sort of competitive context of the U.S. generic a player against.
Other arrayed competitors from overseas have different government support different.
Cost structures. So we don't plan to do more but the chase to reduce your costs and improve your efficiencies is on ending we still may buy in have in our plan some capital from machines, it's been faster and lower our cost so.
Well from a stacking perspective at our current volume, which is in the 3 billion unit range. There. We think we're right sized should volume Erode then clearly there's opportunities to further reduce the.
The structure of the cost that is supporting those products, but thats not our focus at this point.
Our focus is trying to remain competitive with the products that are in that portfolio.
And that plant.
Okay, and then are you able to still be aggressive looking at different distribution partnerships to try and fill in some gaps over the next few years, how competitive because the market been with those types of transactions and now that we're seeing a little bit more margin pressure from the mix shifting in that direction and I know you focused on gross profit.
Dollars, but any rethinking about that strategy going forward.
Essentially I would say no.
The underlying offering that we provide too.
Potential partners.
Is really still resonating with them, we talked about extending some of our our terms and some of our existing agreements. We've talked about a number of recent product launches, including new also products added to our portfolio from those partnerships. So our basic offering.
Of providing that sort of front end capacity still resonates with a lot of a partners out there that as we've also discussed have fewer strategic choices and they used to have it we're not the only people out there are searching for those assets.
But as you talk about sort of run of the Jill run of the mill generics that can create nice value.
Yeah, we do very well in that space, that's that's distinct and apart from and.
A drug device combination or a biologic Vincent more I think those are more challenging for us we don't need very many of them too to get to where we want to go but for the core generic markets, we still find ourselves doing extremely well even little orphan all we launched this quarter is another example of a great generic.
Product that we're able to bring in house and get some substantial share shortly after starting that conversation. So we see a BD flow of products to remain healthy we have a few things. We're working on that we hope will make additional impact for us this year and beyond.
And don't see any real.
Material challenges to two to two what that looks like going forward.
Okay, and then just lastly to get the billion.
Target in 2020 size.
Is that all organic what you have today or does that include BD as well and if so.
Roughly what portion of that Delta to get there. Thanks.
So the vast majority of that to go a number our products, which we are either developing or has in house.
Relative to BD relationships.
We don't have any inorganic in terms of acquisition of of assets of any note. We do of course have some products that were working on next year that we haven't started or identified that we'll have to have some value to justify the R&D investment next year in the or beyond the could still impact.
2025, the buying large when we talk about that billion dollar aspiration is anchored on products that we have identified have signed agreements or internally developing.
But of course do require the success and some of those.
Larger and more durable assets with the partners that use more sophisticated technologies and therefore fewer players in the market.
Okay. That's helpful. Thanks.
And thank you.
Matt Hewitt, Craig helium capital your line is nothing.
Yes. This is Lucas on for Matt Hewitt here at Craig Hallum, just a couple of questions here, there's been a lot of discussion about repatriating drug manufacturing and obviously when that has you as space facilities.
Could you maybe just provide an update on where things are sitting from a capacity standpoint, and if maybe you've seen some entities you know reaching out to you looking to.
Move their production here to the lines.
Well good evening the the made in America initiative as I mentioned in my opening remarks is.
Very active we continue to engage with all of our state representation. We have three states. We operated ins that comes with a series of of aligned congressional Representatives, we've always had conversations with leading senators.
And representatives that are actively engaged in this conversation I do think when we started the conversation back in March and April we thought we'd made more progress and seeing some legislation, but the lingering effects of the of the co bid.
Crisis has has slowed down those.
Those initiatives and specifically there was never a bill executed in Congress, where.
Related to the relief for some of these initiatives were expected to be attached. So there is some theres. Some executional work yet to be done, but again, we see very abroad alignment.
You do need some of those incentives to be in place for those initiatives to make sense you have seen sporadic singular sort of incentives to certain groups that they are working on we do reach out to those sorts of folks but were more hopeful to see things that are thoughtful about.
Sourcing of products, not just to manufacturing site, but within allied.
Trading partner that has signed trade agreements for example, which would would be a little less supportive of Asian based Apiay is.
We are hopeful of seeing some initiatives that might consider.
The the domicile of the company manufacturing this product so that if it's made in America.
The taxes are also paid in America versus.
Those profit, sometimes being moved overseas and then any number of appropriate tax scheme. So, but so I think we need to see that legislation anchor in incentive.
For you will see significant movement in this direction, but we're hopeful something will happen that will be positive for us and as you indicate whatever happens given when that's not only.
Made in America plant base.
Not only our us domiciled base, but the fact that a disproportionate portion of our portfolio does not rely on overseas.
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Actually distinctively to the industry, we probably have on the lower percentages of of CPI is coming out of Asia. So we do think we're well positioned but we need to see that legislation actually emerge there's lots of voices on that space.
And we think as the the coated crisis attenuates hopefully you will see concrete legislation that people can organize around me, we'll hope to benefit from it.
Okay. Yeah, that's really helpful. And then I guess just one last question here, while we're talking about Colvin crisis, I guess have you seen any impact on the ft A's ability to review and.
On the review timelines at all.
So we've noted before that we've been quite impressed with the FDA is the ability to maintain their engagement and review of products. In particular, I think that has been on deterred by the crisis. They have successfully moved much.
Their work remote as have lead and has much as much of the industry has and that continues us fairly unabated in fact, they seem to making the point of getting more approvals out than ever which is a good at the end of the day when you're a company like us that's trying to launch a lot of new products.
To our portfolio I do think there are some consequences that create some conflict relative to overseas inspections, which is already a bit of the on level playing field to begin with and its exacerbated by the difficulty in travel now to do onsite inspections. The FDA has spoken about doing more remote work in that space as well, but thats the one.
Area, where we see certain opportunities, perhaps not moving as quickly as we might like them too because they may be tied up to in some form of a site inspection again, our plants here in the US those sites can be inspected so that can actually work, okay for us for today, but by and large we think the FDA doing a great job.
In conjunction where with where we see what role managing against in the marketplace.
Okay. That's all I had thanks for taking the questions.
Thanks Lucas.
And the next question comes for Scott Henry from Roth Capital.
Thank you and good afternoon, a couple of questions.
First with regards to fully benefiting.
Particularly when you look out at your fiscal year 21 outlook.
What percent of that anti coaxes category.
Is for example, if anything maybe not a specific number but just trying to get an idea of are there any other levers in there or is it really on for Tennessee.
It's really on fulfilling the the majority of Vanesa psychosis is a subset of the product there is.
A few other dollars in their small percentages single digit percentages associated with a few others, but it's mostly to financing.
Okay great.
And then I saw that there was and I believe a $19 million asset impairment in the quarter.
Could you talk about what that was in relation to.
Yes, some of that's just through the main our portfolio rationalization, it's regarding the IP R&D for both the K. you acquisition, Anna Sui Lorex acquisition, So just a few products.
As we were.
Just rationalizing the products that were in development.
We have spent some time this last year in particular as Scott really.
We're locking down what we want our internal portfolio to be we talk about having more.
Quality and less worried about the quantity of our launches and so this past year weve.
Done some shuffling of.
Of that portfolio taken advantage of the pause.
And.
In the ability to do clinical trials.
Or bio studies for our products with the cobot crisis to kind of reset where we wanted to go and.
And as a result of that ongoing portfolio review, we backed away from some earlier products, where we saw less ongoing market value.
In turn it did any any one product.
Count for.
Third or more of that.
$18 million.
Right off.
It was a combination of a few different products.
Nothing that we.
Discussed.
As part of.
Previous earnings call.
Fair enough I, and then with regards to the 18 product launches.
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How are they performing relative to expectations set an off covance impacted that but just trying to get an idea of what levers are driving.
The growth kind of away from what you looked at as the organic target into and a low of a lower number leased and 21.
Well, our 18 launches were diverse has always led of course by pods economies, all which was.
Breakthrough launch for US we want to do more of those obviously.
But we had a lot of other medium sized launches over the course of the year, whether it's the amphetamine.
IAR salts, whether it was.
Some of the be AC products that we launched early in the year.
Per panel all what have you so by and large our products are single digit millions.
For our portfolio, we've talked about trying to get out twentyish products, a year or the generate $70 million that suggest an average of around three or so.
But we'd like to get that Meaner median up to a higher number which is what we're doing now as we discuss just a few moments go relating to some of the in process. R&D that was was terminated so we do believe shots on goal matter because sometimes it's hard to predict we wouldn't predict deposit channel to be as large as it was we thought they'd be another player too and it goes the other way were products without.
Might be a bit larger werent larger by the time, we arrived the marketplace. So.
We're still looking to get $70 million are so products out on an annualized basis.
And looking to do with perhaps.
Slightly higher quality launches, so we see less commercial risk as opposed to development risks. Most these products as you know from a generic perspective, you can get to overtime and it's less to do about your.
Risk on on development elements in it is about who else shows up when you get there and so trying to do more precise job considering our strengths and the competitive context is something we're looking to do more and more we feel really excited about the out your portfolio from internal development, we obviously feel.
We're very excited about the business development portfolio from those efforts, but it takes time on the internal side and we're just starting to bear fruit on those efforts.
Okay final question on the CNS category was strong in 2020.
Fiscal year.
But it tends to be little more volatile a lot more levers how should we think about CNS for fiscal year 2021.
Well if you see in Q4, CNS is up and Thats due to specifically due to one of our more recent launches the.
I mean salt so as we look in 2021, we're expecting that category to grow.
Starting in Q1, where we're getting a.
Quarter.
Okay, great. Thank you for taking the questions.
Thank you.
And then.
And the answer session I'll turn the call back over to management for final remarks.
Thanks.
Alright, so Tim again, I'll close out with my customary shout out to all of our employees customers and partners working extra hard in extra challenging time to provide high quality low cost medicines for patients everywhere. We look forward to sharing of progress on our next call and good night.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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