Q2 2022 Lannett Company Inc Earnings Call
[music].
Welcome to you on that company's fiscal 2022 second quarter financial results Conference call.
Speaker 1: Welcome to the LaMack Company Fiscal 2022 Second Quarter Financial Results Conference Call. My name is Adrienne and I'll be your operator for today's call. At this time, all participants are listed in only mode. Later we'll conduct a question and answer session. During the question and answer session, if you have a question, please press star then one on your touchtone phone. I'll now turn the call over to Robert Jaffe. Robert Jaffe, you may begin.
My name is Adrian and I'll be your operator.
Call at this time all participants are in a listen only mode. Later, we'll conduct a question and answer session. During the question and answer session. If you have a question. Please press Star then one on your Touchtone phone.
I'll now turn the call over to Robert Jaffe, Robert Jaffe, you may begin.
Speaker 2: good afternoon everyone and thank you for joining us today to discuss what that company's fiscal 2022 second quarter financial results
Good afternoon, everyone and thank you for joining us today to discuss Lynette companies' fiscal 2022 second quarter financial results.
Speaker 2: on the call today are ten crew chief executive officer John Kowalski the company's chief financial officer
On the call today are Tim crew, Chief Executive Officer, John Koslovsky, The Companys, Chief Financial Officer, Lori <unk>, our chief commercial operations Officer, and Steve layer, who leads our insulin biosimilar initiatives.
Speaker 2: or eke have it all our chief commercial operations officer and steve layer who leads our insulin biosimilar
This call is being broadcast live at Www Dot one dot com a playback will be available for at least three months on <unk> website.
Speaker 2: this call is being broadcast live at www dot whatnot dot com playback will be available for at least three months on the next web.
Speaker 2: i'd like to make the cautionary statement and remind everyone that all of the information discussed on today's call is covered under the safe harbor provisions of the litigation
I would like to make the cautionary statement and remind everyone that all of the information discussed on today's call is covered under the safe Harbor provisions of the litigation Reform Act.
Speaker 2: The company's discussion will include forward-looking information reflecting management's current forecast of certain aspects of the company's future, and actual results could differ materially from those stated or implied.
The company's discussion will include forward looking information, reflecting management's current forecast of 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 may be different from non-GAAP financial measures used by other companies.
Speaker 2: 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.
Speaker 2: may be different from non-GAAP financial measures used by other...
Investors are encouraged to review in its press release announcing its fiscal 2022 second quarter financial results for the company's reasons for including non-GAAP financial measures in its earnings announcement.
Speaker 2: investors are encouraged to review it at press release announcing its fiscal twenty twenty-two second quarter financial results for the company's reasons
Speaker 2: the reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures.
The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is also contained in the company's earnings press release issued earlier today.
Shortly Tim will provide brief remarks on the company's financial results as well as recent developments and initiatives that Jon will discuss the financial results in more detail.
Speaker 2: shortly kim will provide brief remarks on the company's financial results as well as recent developments and initiatives that John will discuss the financial results in more detail we will then open up
We will then open up 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 have been well and say since our last call.
Speaker 3: Thanks, Robert, and good afternoon, everyone. We hope you have been well and safe since our last call.
Speaker 3: I'd like to start today by extending our thanks and appreciation to Paul Tavera, who ably served as a member of our company's board of directors for the last 10 years.
I'd like to start today by extending our thanks and appreciation to Paul Tamara who ate.
He served as a member of our company's board of directors for the last 10 years.
Speaker 3: As a trusted advisor, Paul provided insights and guidance to the management team and helped shape the company's strategic direction. We thank Paul.
As a trusted adviser.
Paul provided insights and guidance to the management team and help shape the company's strategic direction.
Thank Paul for his long service to limit.
Speaker 3: For now, our board will consist of six versus seven members, all six of whom were reelected at our annual shareholders meeting held last week.
For now our board will consist of six versus seven members all six of whom were reelected at our annual shareholders meeting held last week.
Turning to company business.
I'll begin with some context on our second quarter financial results, then provide a progress update on the restructuring plan, we announced in November .
Speaker 3: I'll begin with some context on our second quarter financial results. Then provide a progress update on the Restruction Plan we announced in November .
I'll, then discuss our pipeline, including recent developments related to the more durable assets in our portfolio.
Speaker 3: I'll then discuss our pipeline, including recent developments related to the Mojura Blasics in a tort quality.
As we have discussed over the last few quarters the pricing environment in the generic industry has been exceptionally competitive.
Speaker 3: As we have discussed over the last few quarters, the pricing environment in the generic industry has been exceptionally competitive.
Speaker 3: While there may be a number of reasons for the situation, we believe perhaps the primary cause is related to fewer approvals of new originare products, particularly important to manufacturers.
While there may be a number of reasons for the situation. We believe perhaps the primary cause is related to fewer approvals of newer generic products, particularly.
Important to manufacturers and customers alike.
Speaker 3: and relatively higher number of approvals and related launches for older and already competitively priced oral generic products.
And relatively higher number of approvals and related launches for older and already competitively priced oral generic products.
Speaker 3: Thus, the competitive pricing environment we currently find ourselves in has intensified beyond historical norms and our recent expectations.
Thus the competitive pricing environment. We currently find ourselves has intensified beyond historical norms and our recent expectations.
This is obviously an industry wide phenomenon, which has been independently reported on by research analysts covering the prescription drug sector.
Speaker 3: This is obviously an industry-wide phenomenon, which has been independently reported on by research analysts covering the prescription drug sex.
The effect of this deteriorating price environment contributed as you would expect to net sales and gross margin that were lower than our internal estimates.
Speaker 3: The effect of this deteriorating price environment contributed, as you would expect, to net sales and gross margin that were lower than our internal estimates.
Speaker 3: We experienced incremental competitive pressure across our base portfolio and a few of our key products.
We experienced incremental competitive pressure across our base portfolio and a few of our key products.
A knock on effect of the expanding supply and lower pricing has been few opportunities from that step in to help customers with supply disruptions.
Speaker 3: A knock-on effect of the expanding supply and lower pricing has been few opportunities for net to step in to help customers with supply disruptions.
Speaker 3: A market that are reliable and predominantly U.S.-based supply chain is well positioned to capitalize on.
A market that are reliable and predominantly U S based supply chain is well positioned to capitalize on.
While we believe with time, such opportunities will reemerge with notably reduced our expectations for such business over the balance of this fiscal year.
Speaker 3: While we believe with time such opportunities will re-emerge, we have notably reduced our expectations for such business over the balance of this fiscal year.
Speaker 3: Finally, while the finished dose markets appear to have been remarkably well supplied during the pandemic,
Finally, while the finished dose markets appear to have been remarkably well supplied during the pandemic.
Speaker 3: We had suffered unexpected, episodic API supply disruptions or issues, which had pushed back timelines for certain pipeline products that we had expected to launch this year, including Zoma Tripton and Ceva Florence.
We have suffered unexpected episodic API supply disruptions or issues, which have pushed back timelines for certain pipeline products that we had expected to launch this year.
Zolmitriptan in Central Florida.
In a moment.
Speaker 3: In a moment, John will discuss the numbers in more detail.
John will discuss the numbers in more detail.
I do stress, however, that we are not sitting back merely watching events unfold.
Speaker 3: I do stress, however, that we are not sitting back merely watching events unfold.
In fact, we have and continue to take several actions to mitigate the impacts of the current pricing environment.
Speaker 3: In fact, we have and continue to take several actions to mitigate the impact of the current pricing environment.
Speaker 3: First, by adding new products to our pipeline, both organically and through value-adding partnerships. I will discuss...
First by adding new products to our pipeline, both organically and through value added partnerships.
I will discuss this in greater detail shortly.
Speaker 3: Second, looking to increase the productivity and profitability of our pipeline by being even more selective in our development processes, but I will also elaborate.
Second looking to increase the productivity and profitability of our pipeline by being even more selective in our development processes, but I will also elaborate upon.
Speaker 3: Third, by digitally reducing costs when and where possible and continuing to execute upon a restructuring cost reduction plan.
Third by digitally reducing costs, when and where possible and continue to execute upon our restructuring and cost reduction plan.
Speaker 3: And fourth, by remaining prepared to leverage our reliable and predominantly USA supply chain to opportunistically address supply chain disruptions, while helping customers and generating valuable revenue.
And for my remaining prepared to leverage our reliable and predominantly USA supply chain to opportunistically address supply chain disruptions, while helping customers and generating valuable revenues.
Speaker 3: While the timing and scope of these opportunities cannot be predicted, we remain ready for them to emerge.
While the timing and scope of these opportunities cannot be predicted we remain ready for them to emerge.
At the same time, we continue to execute on our strategy of advancing our pipeline of more durable products, which we believe positions the company for growth and improved performance.
Speaker 3: At the same time, we continue to execute under strategy of advancing our pipeline of more durable products, which we believe positions the company for growth and improved performance.
Concurrently we also emphasized the importance of our cash position.
Speaker 3: Concurrently, we also emphasize the importance of our cash position.
Speaker 3: maintaining adequate cash levels to support our operational needs. So the launch of our durable pipeline remains a key focus.
Maintaining adequate cash levels to support our operational needs with the launch of our durable pipeline remains a key focus.
Speaker 3: As a point of reference, our cast position was approximately $98 million at December 31, 2021.
As a point of reference our cash position was approximately $98 million at December 31, 2021.
Turning to the restructuring and cost reduction plan, which we expect upon completion will generate approximately $20 million of savings.
Speaker 3: Turning to the restructuring and cost reduction plan, which we expect upon completion will generate approximately $20 million of savings.
Speaker 3: We are making excellent progress and we anticipate the initiatives associated with the plan will be largely completed by the end of the current fiscal year.
We're making excellent progress and we anticipate the initiatives associated with the plants will be largely completed by the end of the current fiscal year.
With regards to those initiatives.
First we have completed the streamlining of our internal R&D function, which included reducing head count and eliminating development at the Carmel, New York site and discontinuing future development programs targeting liquid generic medications, where we have seen declining returns and an adequate scale to justify further investment.
Speaker 3: First, we have completed the stream running of our internal R&D function, which included reducing headcount and eliminating development at the Carmel New York site and discontinuing future development programs, targeting liquid generic medications, where we have seen the climate returns and inadequate scale to justify further investments.
At the same time, we intend to reinvest some of the savings into lower cost overseas contract development to augment our internal efforts.
Speaker 3: At the same time, we intend to reinvest some of the savings into lower cost overseas contract development to augment our internal efforts.
Second we have completed targeted headcount reductions throughout the organization, including staff at our Seymour, Indiana plant and corporate headquarters and treat those Pennsylvania.
Speaker 3: Second, we have completed targeted headcount reductions throughout the organization, including staff at our Seymour Indiana plant and corporate headquarters in Trivose, Pennsylvania.
Speaker 3: Certain functions have been consolidated and workloads redistributed. All levels of the organization have been examined.
Certain functions have been consolidated and workloads redistributed.
All levels of the organization had been exhausted.
Even to the board level as previously mentioned.
Speaker 3: Third, we've identified and begun phasing out the production of certain low-value products at both the Carmel and Seymour sites.
Third we have identified and begun phasing out the production of certain low value products in both the Carmel Nsima sites.
Speaker 3: We've also begun the process of transferring manufacturing of certain liquid products from our Cremel facility to our main plant in Seymour.
We've also begun the process of transferring manufacturing of certain liquid products somewhat Carmel facility to our main plant in Seymour.
Speaker 3: We estimate this effort will take some time to fiscal 2023 to complete.
We estimate this effort will take some time until fiscal 2023 to complete.
The process requires among other things fairly routine technical transfers regulatory clearances, and a modest investment in equipment and facilities at the Sema plant.
Speaker 3: The process requires, among other things, fairly routine technical transfers, regulatory clearances and a modest investment in equipment and facilities at the CIMA plant.
And finally, we have completed the sale of our former operating site in Cody Wyoming.
Speaker 3: And finally, we have completed the sale of our former operating site in Cody, Wyoming in our advanced discussions for the sale of our Carmel plant.
Our advanced discussions for the sale of our Carmel plant.
Speaker 3: We are optimistic that we will sign a definitive agreement for the Carmel site in the near future.
We are optimistic that we will sign a definitive agreement for the <unk> site in the near future.
Speaker 3: We'd expect the new owner would largely retain employment and facilitate aforementioned transfer work, as well as certain product production for a period of time.
We would expect the new owner would largely retain employment and facilitate aforementioned transfer work as well as certain product production for a period of time.
Yeah.
As we have previously said the restructuring plan will be implemented in phases and most related actions will be completed by the end of this fiscal year.
Speaker 3: As we have previously said, the restructuring plan will be implemented in phases, and most related actions will be completed by the end of this fiscal year.
Speaker 3: Having said that, we expect to see some cost savings by the fourth quarter of the current fiscal year.
Having said that we expect to see some cost savings by the fourth quarter of the current fiscal year.
Now, let's turn to our pipeline.
Speaker 3: As noted last quarter, we spent a lot of time addressing our respiratory and biosimilar insulin opportunities through the potential scale, valley, and durability of these aspects.
As noted last quarter, we spent a lot of time addressing our respiratory and biosimilar insulin opportunities through the <unk>.
Potential scale value durability of these assets.
Nevertheless, we also invest significant time and energy and other diversified dosage forms beyond the regular immediate release solid oral medications, so subject to the increasing competition.
Speaker 3: Nevertheless, we also invest significant time and energy in other diversified dosage forms beyond the regular immediate release solid oil medications so subject to the increasing competition.
Given the pressure we have articulated on our current portfolio, we will provide a bit more color on products that may come to market next year ahead of the larger assets, we typically focus on.
Speaker 3: Given the pressure we have articulated on our current portfolio, we will provide a bit more color on products that may come to market next year. The head of the larger assets we typically focus on.
So looking to fiscal 2023, we are working to launch several meaningful products, including several flooring.
Speaker 3: So, looking at fiscal 2023, we are working to launch several meaningful products, including several flooring, which is a solution for inhalation.
As the solution for emulation.
Speaker 3: We had expected to launch subafloring this year, but subsequent to a successful facility inspection, an API amendment was made, pushing our target action date to August 2022.
We had expected to launch several flooring this year, but subsequent to a successful facility inspection and API Amendment was made pushing our target action date to August 2022.
So the flooring is roughly $190 million market. According to a few of you although in market generic sales are expected to be lower.
Speaker 3: of a flooring is roughly $190 million dollar market, according to IQVIA, although in market generic sales are expected to be lower. There were four of-
There are four other providers currently.
Our gross margin contribution in the low double digit millions is our current expectation for this product next fiscal year.
Speaker 3: A gross margin contribution in the low double-digit millions is our current expectation for this product next fiscal year.
Speaker 3: In addition to civil flooring, on the aforementioned generic Zomotrypton, which is a nasal spray, we are also advancing our silkypate oral suspension, which is a fairly difficult biocovolence in vitro studies.
In addition to civil flooring on the aforementioned generics because on the Triptan, which is a nasal spray. We are also advancing our sulfate oral suspension, which has a fairly difficult bio equivalents in vitro studies.
We expect to file the product this quarter.
Speaker 3: It has potential gross margin contribution in the high single or low double digit millions of dollars.
It has potential gross margin contribution in the high single or low double digit millions of dollars.
Speaker 3: if we achieve a first cycle with you, contributions may begin next fiscal year.
If we achieve a first cycle review contributions may begin next fiscal year.
Moreover, we are in advanced discussions to secure a generic legal deal with an existing partner.
Speaker 3: Moreover, we are in advanced discussions to secure a generic reality with an existing partner. Generic reality also has a challenging development program. We are in advanced discussions to secure a generic reality with an existing partner.
Generically ALDA also has a challenging development program.
Our existing partner expects to file the product within the next few months.
Speaker 3: A full year gross margin contribution could again be in the high single to low double digit millions of dollars and some of that is possible next year.
Full year gross margin contribution could again be in the high singles to low double digit millions of dollars and some of that as possible next year.
Similarly, we are optimistic that we'll add a generic <unk> to our portfolio soon.
Speaker 3: Similarly, we're optimistically will add a generic chant text to report folio soon and launch the product next year.
The product next year.
However, we are advancing an expansion of our nice Rex collaboration which is the brand we produced for nuance and which is sold into China.
Speaker 3: we're advancing an expansion of our NICE REX collaboration, which is the brand we produce for Nuens and which is sold into China.
Speaker 3: We have a fairly unique approval from the China FDA for US plans.
We have a fairly unique approval from the China FDA for our U S plant.
That expansion contract manufacturing work might add mid single digit millions of dollars and profits to our organization next year.
Speaker 3: that expanding contract manufacturing work might add mid-single-digit millions of dollars in profits to our organization next year.
Given we now have excess capacity at our cement plant. We believe we're just scratching the surface on such contract development and manufacturing opportunities to leverage our high quality and reliable plant beyond its value as a generic manufacturing site.
Speaker 3: given we now have excess capacity at our senior plant, we believe we were just scratching the surface on such contract development and manufacturing opportunities to leverage your high quality reliable plant beyond its value as a generic manufacturing site.
For those of you listening that know of firms looking for such easily accessible high quality and reliable pharmaceutical development and manufacturing do send them our way.
Speaker 3: For those of you listening that know of firms looking for such easily accessible, high quality and reliable pharmaceutical development and manufacturing, do send them our way.
Speaker 3: The point of all this is that we have many, quote unquote, irons in the fire. And we have been seeking ways to leverage our assets. Well,
The point of all this is that we have many quote unquote irons in the fire.
And we have been seeking ways to leverage our assets.
Don't expect every opportunity will be culminated.
Speaker 3: But we also don't expect our current trends to continue unabated through next year. And the team is working hard to make that happen.
But we also don't expect current trends to continue unabated through next year and the team is working hard to make that happen.
We have also for some time been emphasizing portfolio development and there is less impacted by the increasingly commoditized regular solid all generics.
Speaker 3: We have also for some time been emphasizing portfolio development in areas less impacted by the increasingly commoditized regular solid oil generic.
Speaker 3: While we still pursue transformational value in our insulin aspirations, we have continued to invest to strengthen our core business with both internal and external opportunities.
While we still pursue transformational value in our insulin aspirations, we have continued to invest to strengthen our core business with both internal and external opportunities.
Okay.
Speaker 3: Overall, we have 11 and is pending at the FDA, including partner products, plus four additional products that are approved and pending launch.
Overall, we have 11 and is pending at the FDA, including partner products plus four additional products that are approved and pending launch.
Speaker 3: We also have about a dozen products in development and more are under strategy review.
We also have about a dozen products in development and more under strategy review.
As noted above we expect to add more to our pipeline from external and internal efforts.
Speaker 3: As noted above, we expect to add more to our pipeline from external and internal efforts.
Turning now to three durable respiratory products with our partner restaurants.
Speaker 3: Turning now to three durable respiratory products with a partner respirant. I'll start with generic adler discus.
I'll start with generic Advair <unk>.
The product currently closest to commercialization.
As we discussed on our last call in November the FDA provided mid cycle disciplined review comments on the pending Nanda.
Speaker 3: As we discussed on our last call in November , the FDA provided mid-cycle discipline review comments on the pending ANDA. We have and continue to respond to the agency's comments and requests and remain delighted with their level of engagement.
We continue to respond to the agency's comments and requests and remain delighted with their level of engagement. However.
However, the SBA assigned goal date has moved to the end of the month related to an API Amendment.
Speaker 3: However, the FDA assigned goal date has moved to the end of the month related to an API amendment.
As previously disclosed we expect the product to undergo more than one review cycle.
Speaker 3: As previously disclosed, we expect the product to undergo more than one review cycle.
Speaker 3: We believe in our planning for a launch that is possible later this calendar year or early in 2023.
We believe and are planning for a launch that is possible later this calendar year or early in 2023.
Speaker 3: But we await FDA feedback before we can further refine our expectations.
But we await FDA feedback before we can further refine our expectations.
Speaker 3: We also note that since our last call, Pheva, who already promotes a dry powdered inhaler of a combination of fatigue zone and salmeterol, received an end-approval referencing at their discus. We have not heard-
We also note that since our last call Teva, who already promotes a dry powder inhaler or a combination of particular zone and some meter all received in and approval referencing advair discussed.
We have not heard of a commercialization plan.
Speaker 3: Meanwhile, the only other filer we are aware of, CIPLA, has noted in their earlier earnings calls that their file was under FDA review and they were targeting an approval in their fiscal 2023.
Meanwhile, the only other filer, we are aware of Cipla has noted in their earlier earnings calls that they're filed was under FDA review and they were targeting an approval in their fiscal 2023.
Speaker 3: Our second most advanced product in our respiratory pipeline is generic Flovent Disc.
The second most advanced product in our respiratory pipeline generic flovent discus with.
Speaker 3: We successfully completed a 450 subject PD trial last summer and a favorable initial results on the 100 microgram PK trial.
We successfully completed a 450 subject PD trial last summer and a favorable initial results on the 100 microgram PK trial.
Speaker 3: A Bt trial for the 250 microgram should begin this month.
Our beta trial for the 250 microgram should begin this month.
Speaker 3: We are currently planning an end to submission early next fiscal year.
We are currently planning an NDA submission early next fiscal year.
Regarding generic spree, the handy Heller with our partner restaurant development arc for this product should be approximately 18 months behind the generic flovent discussed product <unk>.
Speaker 3: Regarding Generic Spree, the Handy Heller with our partner Respirant, the development arc for this product should be approximately 18 months behind the Generic Pleasant Discus product. We look to initiate a pilot PK.
We look to initiate a pilot PK later this calendar year.
Next regarding Biosimilar insulin <unk>, a long acting insulin product, we are co developing with our partner Hec.
Speaker 3: Next, regarding biosimilar insulin blarge, a long-acting insulin product we are co-developing with our partner HEC.
Speaker 3: About six weeks ago, we announced the submission of an investigational new drug application with the FDA. And about two weeks ago, we announced the FDA completed the safety review of the IND and concluded that we may proceed with the proposed clinical investigation.
About six weeks ago, we announced the submission of an investigational new drug application with the FDA and.
In about two weeks ago, we announced the FDA completed the safety review of the IND and concluded that we May proceed with the proposed clinical investigation.
So while the product wont contribute to next year's sales the time it could contribute sales is certainly drawing nearer.
Speaker 3: So while the product won't contribute to next year's sales, the time it could contribute sales is certainly drawing near.
Speaker 3: We anticipate the pivotal clinical trial will commence next month and will be completed by early next year.
We anticipate the pivotal clinical trial commence next month and will be completed by early next year.
It's a trial is successful we would anticipate filing the biological license application. Shortly thereafter, and if approved by the FDA potentially launching the product by early 2024.
Speaker 3: It's a trial is successful. We would anticipate following the Biological License application shortly thereafter. And if approved by the FDA, potentially launching the product by early 2024.
The commercial opportunity for insulin largely we believe remains significant.
Speaker 3: The commercial opportunity for insulin enlarging we believe remains significant. In interchangeability we think we'll accelerate.
Interchange ability, we think will accelerate access and.
And penetration.
Speaker 3: We believe a 15% market share, which we expect have the capacity to supply, is worth approximately $300 million annually in net sales.
We believe a 15% market share, which we expect to have the capacity to supply is worth approximately $300 million annually and net sales.
Speaker 3: The second insulin product in our pipeline, BioSlimar Insulin Aspart, is a fast-active insulin that we are also co-developing with HEC.
The second insulin products in our pipeline biosimilar in some as part as a fast acting insulin that were also co developing with Hec.
Development of this product is approximately a bit more than one year behind insulin in closing.
Speaker 3: Development of this product is approximately a bit more than one year behind in Swan Gludges.
Speaker 3: The partners already producing product at a commercial scale and assuming analytics proceed as they have already, we'd expect to file an IND in the first half of next calendar year.
Our partners already producing product at a commercial scale and assuming analytics proceed as they have already we would expect to file an IND in the first half of next calendar year.
Speaker 3: We believe a 50% market share of the insulin aspect market is worth in excess of $100 million in net sales.
We believe a 15% market share of the insulin asphalt market is worth in excess of $100 million.
Net sales.
Finally activity for our business development team has been picking up as pandemic restrictions subside.
Speaker 3: Finally, activity for a business development team has been picking up as pandemic restrictions subside.
In addition to traditional product in licensing often with established partners pleased with our performance. We're also seeing new opportunities in contract manufacturing Injectables authorized generics and other types of asset monetization.
Speaker 3: In addition to traditional product in licensing, Austin with Establish Partners, pleased with our performance, we are also seeing new opportunities in contract manufacturing, injectables, authorized generics, and other types of asset monetization. We hope to be able to share some success.
We hope to be able to share some successes in these areas soon.
Speaker 3: I'll now turn the call over to John to review the substantial. John , thanks Tim.
I'll now turn the call over to John to review the financials John .
Thanks, Tim and good afternoon, everyone.
Speaker 2: I'll begin with our financial results on a non-GAAP adjusted basis.
I'll begin with our financial results on a non-GAAP adjusted basis.
Speaker 4: As Tim mentioned, our financial performance was lower than we anticipated due to the impact of a particularly competitive environment on our base oral generic business.
As Tim mentioned, our financial performance was lower than we anticipated due to the impact of a particularly competitive environment on our base oral generic business.
For the 2022 second quarter net.
Speaker 4: For the 2022 second quarter, net sales were $86.5 million, compared with $133.9 million for the second quarter of last year.
Net sales were $86 5 million compared with $133 9 million for the second quarter of last year.
Gross profit was $9 7 million or 11% of net sales compared with $31 1 million or 23% of net sales for the prior year second quarter.
Speaker 4: Gross profit with 9.7 million or 11% of net sales.
Speaker 4: Compared with 31.1 million or 23% of net sales for the prior year's second quarter.
Speaker 4: Interest expense increased to $12.9 million from $10.5 million.
Interest expense increased to $12 9 million from $10 $5 million.
Net loss was $15 9 million or <unk> 39 per share versus net income of $3 2 million or eight cents per diluted share.
Speaker 4: Net loss was $15.9 million or $0.39 per share versus net income of $3.2 million or $0.08 per diluted share.
Negative adjusted EBITDA was $1 million.
Speaker 4: negative adjusted EBITDA was $1 million.
Turning to our balance sheet.
Even with the challenges mentioned above we continue to maintain a solid cash position.
Speaker 4: Even with the challenges mentioned above, we continue to maintain a solid cash position.
Speaker 4: at December 31, 2021, cash and cash equivalence totaled approximately $98 million.
At December 31, 2021, cash and cash equivalents totaled approximately $98 million.
Speaker 4: I still expect to end the current fiscal year with close to $80 million of cash.
We still expect to end the current fiscal year with close to $80 million of cash.
Speaker 4: and anticipated delay in receiving approximately 20 million of income tax refunds.
Despite an anticipated delay in receiving approximately $20 million of income tax refunds.
Speaker 4: We originally expected to receive the tax refund in the current fiscal year.
We originally expected to receive the tax refund in the current fiscal year.
We now anticipate receiving this amount in the first half of next fiscal year.
Speaker 4: We now anticipate receiving this amount in the first half of next fiscal year.
As for our liquidity, we also have access to our credit facility, which to date, we have not drawn upon.
Speaker 4: As for our liquidity, we also have access to our credit facility, which to date we have not drawn a point.
Speaker 4: At December 31st, total debt was approximately $645.7 million.
At December 31.
Total debt was approximately $645 $7 million comprised of first lien senior secured notes of $350 million.
Speaker 4: The prize of first-leaning senior secured notes of 350 million.
Speaker 4: second lean notes of 209.4 million and convertible notes of 86.3 million.
Second lien notes of $209 4 million in convertible notes of $86 $3 million.
I'd like to note that our Q2 GAAP financial results included noncash asset impairment charges of $49 million, primarily related to the November 2021 restructuring plan and ongoing competitive pressures.
Speaker 4: I'd like to note that our Q2 GAAP financial results included non-cash asset impairment charges of $49 million.
Speaker 4: Primarily related to the November 2021 restructuring plan and ongoing competitive pressures.
Turning to our revised guidance.
Speaker 4: for fiscal 2022. We now expect...
For fiscal 2022, we now expect.
Speaker 4: Met sales in the range of $335 million to $360 million.
Net sales in the range of 335 million to $360 million down from 370 million to $400 million.
Speaker 4: down from 370 million to 400 million.
Adjusted gross margin as a percentage of net sales of approximately 14% to 15% down from approximately 18% to 21%.
Speaker 4: adjusted gross margin as a percentage of net sales of approximately 14% to 15%, down from approximately 18% to 21%.
Adjusted R&D expense in the range of 23 million to 26 billion down.
Speaker 4: adjusted R&D expense in the range of $23 million to $26 million.
Down from 25 million to $28 million.
Speaker 4: down from 25 million to 28 million dollars.
Adjusted SG&A expense, ranging from 55 million to $58 million unchanged.
Speaker 4: Adjusted SG&A expense ranging from $55 million to $58 million, unchanged.
Speaker 4: adjusted interest expense of approximately $52 million unchanged.
Interest expense of approximately $52 million unchanged.
Speaker 4: The full year adjusted effective tax rate in the range of 23% to 24% up from 22% to 23%
The full year adjusted effective tax rate in the range of 23% to 24% up from 22% to 23%.
Adjusted EBITDA in the range of zero to $8 million down from 22 million to $32 million.
Speaker 4: Adjusted EBITDA in the range of 0 to 8 million dollars, down from 22 million to 32 million.
And lastly capital expenditures to be approximately 10 million to $14 million unchanged.
Speaker 4: And lastly, capital expenditures to be approximately $10 million to $14 million unchanged.
Regarding the phasing of the quarters, we expect to begin to see the impact of the restructuring plan in the fourth quarter with net sales coming down as a part of product rationalization efforts and gross margin increasing.
Speaker 4: Regarding the phasing of the quarters, we expect to begin to see the impact of the restructuring plan in the fourth quarter. With net sales coming down as a part of product rationalization efforts and gross margin increase.
Speaker 4: More specifically, we expect Q3 net sales to be comparable to Q2 followed by a decline in Q4.
More specifically, we expect Q3 net sales to be comparable to Q2.
Followed by a decline in Q4.
Gross margin to ramp up in Q3 and Q4 from Q2.
Speaker 4: Gross margin to ramp up in Q3 and Q4 from Q2.
Speaker 4: total R&D expenses in Q3 and Q4 to increase from Q2, largely related to costs from our insulin development program and SG&A expenses in Q3 and Q4 to be comparable to Q2.
Total R&D expenses in Q3, and Q4 to increase from Q2 largely related to costs from our insulin development program and SG&A expenses in Q3, and Q4 to be comparable to Q2.
Speaker 4: With that, I would now like to turn the call back over to Tim. Tim? Thanks John .
With that I would now like to turn the call back over to Tim Tim.
Thanks, John to sum up today's remarks.
Our core strategies remain in place and our cash levels remain substantial.
Speaker 3: Our core strategies remain in place and our cash levels remain
Speaker 3: We see accelerating new portfolio opportunities emerging by fiscal 2023 to help strengthen our business.
We see accelerating new portfolio opportunities emerging by fiscal 2023 to help strengthen our business.
Speaker 3: currently estimate the combined opportunity for biosimilar insulin and insulin aspirate products at a 15% market share to be worth approximately $400 million annually in that sale.
We currently estimate the combined opportunity for Biosimilar insulin <unk> and insulin aspirate products at a 15% market share to be worth approximately $400 million annually and net sales.
However, we have revised down our fiscal 2022 guidance to reflect the increasingly competitive environment for our base oral generics portfolio.
Speaker 3: However, we have revised down our fiscal 2022 guidance to reflect the increasingly competitive environment for our base oral generics portfolio.
Speaker 3: If you're opportunistic supply requests on that portfolio, and the delay of the 7th
Your opportunistic supply requests on that portfolio and the delay of the separate flooring launch.
Speaker 3: We have made solid progress under a structured plan to become a leader, more focused organization.
We have made solid progress on our restructuring plan to become a leaner more focused organization.
The plant is expected to be substantially completed this fiscal year and generate annual cost savings of approximately $20 million.
Speaker 3: plan is expected to be substantially completed this fiscal year and generate annual cost savings of approximately $20 million.
Our pending generic Advair <unk> and continues to make its way through the FDA review process, while our IND for Biosimilar insulin <unk> has cleared by the FDA for a pivotal clinical trial.
Speaker 3: pending generic ad for discus and continues to make its way through the SD review process while our IND for biosimilar insulin blarging had been cleared by the FDA for a physical clinical trial. We thus expect to commence.
We thus expect to commence that trial next month.
Speaker 3: We anticipate both these and our other potential pipeline medicines can contribute significantly to our future sales. With that overview, we would now like to address any questions. Operator.
We anticipate both these and our other potential pipeline medicines contributed significantly to our future sales.
With that overview, we would now like to address any questions operator.
Thank you well now begin the question and answer session.
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And our first question comes from Scott Henry from Roth Capital. Your line is open.
Speaker 1: and a first question comes to Scott Henry for Rothgapital. Your line is open.
Speaker 5: Thank you and good afternoon. I guess just starting you with a big picture question. The generic industry as its name would suggest tends to be a cyclical industry.
Thank you and.
Good afternoon.
I guess just starting.
It was a big picture question.
The generic industry as it its name would suggest tends to be a cyclical industry.
<unk>.
Yeah.
Speaker 5: you know he the macro environment is a key if you work now that was a quarter ago it was worse than before do you get a sense that were were approaching kind of a bottom to that cycle that certain point people start stop filing and isn't it becomes less crowded because
The macro environment. It seems like it's it's even worse now than it was a quarter ago and it was worse than before do you get a sense that we're approaching kind of a bottom to that cycle.
Certain point people start stop filing and is in.
Comes less crowded because.
Speaker 5: the reward just isn't there. Do you get a sense if we're starting to reach that bottom of the cycle?
The reward just isn't there do you get a sense of where we're starting to reach that bottom of the cycle.
Speaker 3: Good evening, Scott. It's Tim Crewe. I certainly think there are many sectors of the generic environment which are still quite attractive, right? We're still working hard towards developing those products which are a little less subject to the level of competition and price erosion that you're speaking to. And I think at some level that's our focus of our portfolio. As it relates to the core older generics which are receiving that level of pressure.
Good evening, Scott, It's Tim crew.
I certainly think there are many sectors of the generic.
The environment is still quite attractive right, we're still working hard towards developing those products, which are a little less subject to the level of competition and price erosion that youre speaking to and I think at some level. That's our focus of our portfolio as it relates to the core older generics, which are receiving that level of pressure.
Speaker 4: As noted out there by several of the analysts, the erosion even to the last quarter was accelerated significantly over any historical norm.
As noted out there by several of the analysts the erosion even to the last quarter.
<unk> accelerated significantly over any historical norm.
Speaker 3: The last period of this level of inflation I have seen was really following on a period of price inflation, which is not the case in this situation.
The last periods of this level of inflation I had seen was really following on a period of price inflation, which is not the case in this situation. So.
Speaker 3: It would feel to us in my sense of structures that it's hard for it to accelerate anymore. But I don't know that there is a significant supply chain coming, a change in supply that's going to necessarily
It would feel to us and my sense of structures that it's hard for it to accelerate anymore.
But I don't know that there is a significant supply chain coming change in supply that's going to necessarily strengthen our expectations near term. So we are planning to deal with the environment, we find ourselves in keeping our costs down and working towards products in this much larger sea of generics.
Speaker 3: strength in our expectations in your terms. So we are planning to deal with the environment we find ourselves in, keeping our costs down, and working towards products in this much larger sea of generics, which are not subject to the sort of core level of erosion, which typically is a little outside the oral and immediate release less complex products. would you expect this.
Which are not subject to the sort of core level of erosion, which typically is a little outside the oral immediate release less complex products.
What would you expect this.
Fiscal fourth quarter.
Speaker 5: uh... could be the low water idea i think he did two things that the base business erosion but you also have the new products coming on i do you think that
<unk> to be the low water mark.
See there's two things as the base business erosion, but you also have the new products coming on do you think.
Speaker 5: starts to get better after fiscal fourth quarter. I mean, obviously there's some subjects.
It starts to get better after fiscal fourth quarter I mean, obviously.
There's some subjectivity to that answer but.
Speaker 3: It's hard for me to predict what the industry would do. I've been surprised it's gone down, passed its historical norms, and accelerated past that.
It's hard for me to predict what the industry would do I have been surprised its gone down past its historical norms and accelerated past that.
Speaker 3: We are not counting on a rebound as it relates to that market to drive our results and We'll focus in on those products in our portfolio and our development and for partners That aren't as such those levels of pressures. So we're anticipating the world is the way we see it and then looking to improve our position by bringing out the right products With the right cost structure and keeping our cost down As the markets rise and globalodo and thatdog will stay away from our companies, say, right? holders?
We are not counting on a rebound as it relates to that market to drive our results.
We will focus in on those products in our portfolio and our development and with our partners that arent subject to those levels of pressures. So we're anticipating the world is the way we see it and then looking to improve our position by bringing out the right products.
The right cost structure and keeping our costs down.
Okay, and then looking at.
Speaker 5: the specific revenue segments. It looks like thyroid.
The specific revenue segment.
It looked like thyroid.
Speaker 5: deficiency or endocrinology, it's now labeled, was a little stronger. How do you expect that category to be going forward? And also cardiovascular, do you think that's starting to bottom out or what's leading kind of the lower numbers from Q2 through the end of the year?
Deficiency or endocrinology.
Now labeled a was a little stronger how do you expect that category to be going forward and also cardiovascular.
Do you think thats, starting to bottom out or or or or what's leading kind of the lower numbers from Q2 through the end of the year.
Speaker 4: Hi Scott, this is John . So let's first start with the endocrinology. We did come up a little bit going into Q2 from Q1 and we think that will continue into Q3 and Q4. Some of that increase was just in the levo tabs, but it's not going to continue until Q3.
Hi, Scott This is John so, let's let's first start with the chronology, we did come up a little bit.
Going into Q2 from Q1.
And we think that will continue into Q3 and Q4 some of that increase.
Just.
And the Levo tabs.
Big Cats, but.
But overall, we think that's still going to be a good category for us cardiovascular theme, we did come down in Q2.
Speaker 4: Overall, we think that's still going to be a good category for us. A cardiovascular same, we did come down in Q2. Specifically, we saw the climb in Burrapano, but overall, we think that we'll come up a little bit in Q3 and Q4.
Specifically we.
We saw a decline in <unk>, but.
Overall, we think that will come up a little bit in Q3 and Q4.
Okay then.
Speaker 5: Okay, then I guess could you just give us a sense of where we would expect? You know, obviously if you're expecting I think Q3 to be similar to Q2 and then a decline in Q4, where would you expect the decline to be coming?
I guess could you just give us a sense of where we would expect obviously, if if you're expecting I think Q3 to be similar to Q2, and then a decline in Q4.
Right.
Where would you expect the decline to be coming from.
Speaker 4: We have a few different categories. I'll say first on CNS. We're modeling right now a pretty significant decline across a few different products.
We have a few different categories I'll say first on CNS.
We're modeling right now a pretty significant decline across a few different products.
The.
Speaker 4: and a few others.
Instead, I mean so.
And a few others.
On top of that we saw in infectious diseases come down pretty significantly we had modeled that and talked about that in the last quarter, but.
Speaker 4: On top of that, we saw infectious diseases come down pretty significantly. We had modeled that and talked about that in the last quarter, but we're also showing some declines going into the back half of the year. And then finally in Q4, through some of our product rationalization, we'll see an additional decrease in sales. At the same time though, our margin percents should come up a bit in Q4.
We're also showing some some some declines.
Going into the back half of the year and then finally in Q4 and through some of our product rationalization, we'll see.
An additional decrease in sales at the same time, though.
Our margin percent should come up a bit in Q4.
Okay.
Speaker 5: Okay, final question if you could. The asset impairment of I think it was $49 million.
Final question, if if he could the asset impairment of I think it was $49 million.
Speaker 5: Could you speak to what specific asset was impaired? Are there a couple products that you took a write down on? Just any specificity on this?
Could you speak to what specific asset wasn't paired it there are a couple of products that you took a write down on.
Just any specificity on that.
Speaker 6: The biggest portion of that would be the intangible assets, specifically around our portfolio rationalization. You know, we took down around 40 some million of our intangibles associated with originally with the KU acquisition. Also, it was a non-cash event.
The biggest portion of that would be.
And the intangible assets, specifically around our portfolio rationalization.
We took down our.
Around $47 million of our intangibles associated with it with originally with the Ku acquisition.
Oh it was in <unk>.
Noncash events.
Okay, great. Thank you for taking the questions.
Okay.
Speaker 1: And our next question comes from Elliot Wilber from Raymond James. Your line is open.
And our next question comes from Elliot Wilbur from Raymond James Your line is open.
Okay, What's your noon Jana Smith from Manhattan Elliot.
Speaker 7: Good afternoon. This is Hannah Smith on behalf of Elliott. We have a few questions. First, why has the tax refund been delayed and is there any dispute with respect to the
First one on the tax refunds being delayed and is there any dispute with respect to the email.
Yeah, Hi, this is John again, so no. There is no dispute I think some of that delay again, we were estimating a certain timeframe, but we've seen some of the delay might just be a COVID-19 related staffing issues, but.
Speaker 6: Hi, this is John again. So no, there is no dispute. I think some of that delay again, we were estimating a certain time frame, but I think some of the delay might just be a COVID related to staffing issues, but But ultimately we're still expecting that this calendar year, just we're not forecasting it in Q4. We're now putting that into Q1 or Q2 of next year.
But ultimately we're still expecting that.
This calendar year, just we're not forecasting it in Q4, we're now.
Putting that into Q1 or Q2 of next year.
Okay.
Speaker 7: Okay. Also, you mentioned in the press release, you expect fewer new products, the fly requests in the second half. Our clients are asking us if this is because the supply chain is concerned about your financial condition, or is there another reason?
You mentioned in the press release, you expect fewer new products the fiber costs in the second half.
Youre asking us if this is because the supply chain is concerned it out your financial condition or is there another part of the thing.
No that's not the case at all from my perspective to be clear the same.
Speaker 3: No, that's not the case at all from my perspective. To be clear, the same economics that are driving prices down in the market is expanding supply and so the supply of the industry has been remarkably resilient in this most recent period and therefore we're getting less requests because there's less shortages elsewhere. That's all that I'm trying to communicate.
Economics that are driving prices down in the market is expanding supply.
So the supply of the industry has been remarkably resilient in this most recent period and therefore, we're getting less request because theres less shortages elsewhere, that's all that I'm trying to communicate.
Mhm.
And where are.
Speaker 7: And what are you and your product rationalization efforts? Is it having a favorable impact on margins? And given where margins have fallen to, might you consider retaining these products and harvesting them for tax?
Are you in your product rationalization efforts is it having a favorable impact on margin and given where margins have fallen too might you consider retaining these products and harvesting them for cash.
We'll start.
Speaker 4: We'll start with the first part on the prior rationalization and the margin impact. As we said, Q4 is where we expect to see the biggest impact of that, so where sales will come down a bit. We expect as part of our cost savings, we'll see our margin book, the dollars and the percentages take up a bit. Others are also just on as we're consolidating the plan.
Start with the first part on the product rationalization and the margin impact as we said Q4 is where we expect to see the biggest impact of that so where sales will come down a bit.
We expect this part of our.
Cost savings, we will see our margin both dollars and the percentages.
Up a bit others are also just on that as we're consolidating the plants.
Speaker 6: as we're moving products over from Carmel in to see more. There will be an additional decrease in all of the all product declining. And ultimately, though, it is to increase our profits. And we should see the biggest impact of that as...
As we're moving product over from Carmel and to see more there will be an additional.
A decrease in our overall product decline.
Ultimately, though it is too to increase our profits and we should see the biggest impact of that as we go into next year I would also note that given the environment. These products were competing in that the selling price was pretty much at our Cogs for some of those products.
Speaker 3: I would also note that given the environment these products are competing in that the selling price was pretty much at our cogs for some of those products. And so coming out of them after we deal with customer needs for an orderly transition to another supplier will generate cash coming out of the working capital environment. So this is actually positive to our cash, not negative.
So coming out of them after we deal with customer needs for.
Orderly transition to another supplier will generate cash coming out of the working capital environment. So this is actually positive to our cash not negative.
Okay, and then last question.
Speaker 7: Okay, and last question. The revised sales guidance range at the high end to just top line to be flat for the next two quarters. What are the biggest swing factors between the high end and low end of your revised guidance? And is it primarily external meaning pricing and competition or internal meaning new ones?
Our sales guidance range at the high end suggest top line to be flat over the next two quarters. What are the biggest swing factors between the high end of my range.
This guidance.
Primarily external meaning pricing competition or internal new lines.
So again this is John so our guidance reflects I think just some of the.
Speaker 6: So again, this is John . So our guidance reflects, I think, just some of the pressures that we were seeing as we were seeing at the end of this calendar year and then going into next year. But ultimately, the ranges are, some of it would be just timing of overall launches, but ultimately, the impact of some of our expectations around the increased competition.
The pressures that we're seeing as we were.
Thing is at the end of this calendar year, and then going into next year.
But ultimately those ranges or some of it would be just timing of overall launches, but ultimately the impact of some of our expectations around.
The increased competition.
Theres also some swing as we work with our customers on the timing of the ultimate exit that can affect.
Speaker 8: There's also some swing as we work with our customers on the timing of the ultimate exit that could affect the total sales value bit for those outer quarters. So it's a mix of launches, it's a mix of price and environment, it's a mix of some of the rationalization.
The total sales value of it for for those every quarter. So it's a it's a mix of launches its mix of price environment, It's a mix of.
Some of the rationalization.
Okay, great. Thank you, Tim and John for your time.
Thank you.
And I see no one else in the queue I'll now turn the call back over to management.
Speaker 1: I'll now turn the call back over to management.
All right, it's Tim again, thanks for joining the call and as always thanks to our employees customers and partners are working hard to provide high quality low cost medicine for.
Speaker 8: All right, it's Tim again. Thanks for joining the call. And as always, thanks to our employees, customers, and partners, all working hard to provide high quality, low cost medicine for patients. We look forward to sharing our progress on our next call. Good night.
For patients, we look forward to sharing our progress on our next call Goodnight.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now.
Speaker 1: Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating in me now disconnect.
Now disconnect.
Speaker 9: Music Buzz
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