Q4 2019 Earnings Call
<unk> fourth quarter financial results conference call.
My name is Adrian out your operator for today's call.
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They will conduct a question answer session.
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Ill now turn the call are Robert Jaffe Investor Relations for when that company. Please go ahead.
Thanks, Andrew Good afternoon, everyone and thank you for joining us today to discuss blend that companys fiscal 2019 fourth quarter financial results.
On the call today are Tim crew, Chief Executive Officer.
Marty Galvin, the company's Chief Financial Officer, and John Kozlowski, who will become the company's CFO upon marty's retirement at the end of this month.
This call is being broadcast live at Www dot well not dot com a playback will be available for at least three months I'm going that's web site.
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.
The company's discussion will include forward looking information, reflecting managements 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.
Investors are encouraged to review and that's a press release announcing its fiscal 2019 fourth quarter financial results for the company's reasons for including non-GAAP financial measures in its earnings.
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.
Please note that also included on the company's website, there's additional information regarding the company's net sales excluding we both thought rocks and for fiscal 2019 historical net debt payments on its term a and term b loans as well as a reconciliation of fourth quarter adjusted EBITDA.
This afternoon.
Tim will provide a brief brief remarks on the company's financial results as well as comments on recent developments and associated initiatives, then Marty will discuss the fiscal 2019 financial results in more detail followed by John who will provide the company's fiscal 2020 guidance. We will 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.
You may wish to get comfortable has we have much to review on this call and that's have longer than average commentary.
I'd like to start today by extending our best wishes to Marty who will soon begin a well earned retirement after a long and illustrious career.
The last eight years, Marty has been a mainstay here on that.
He played a significant role in the company's strategic growth and direction and he's been a good friend and trusted advisor to me.
His impact on our company and those he's worked with we'll be lapping.
At the same time life goes on and after a thorough search of internal and external candidates I'm very pleased to welcome Joncas Laskey as one that's next CFO effective August 31st.
John joined on that 10 years ago and over that time. He has served as our vice president financial operations and corporate controller.
Chief operating officer, and most recently as chief of staff and strategy Officer.
The us is experienced at our company is both wide and deep.
Moreover, he has worked with Marty for eight years.
So we anticipate a smooth transition.
On one other leadership no we've announced the appointment of Dr., Melissa rubber Winski to our board of directors that was effective July 1st.
The addition of Melissa further strengthens our board she brings extensive pharmaceutical experience, particularly around research and development.
She has held several senior level positions with smaller entrepreneurial companies as well as work for leading pharmaceutical firms such as Pfizer and pharmacy <unk> pharmacy up John .
Turning to our financial results for both the fiscal 2019 fourth quarter and full year, our net sales gross margin and implied profitability all exceeded our guidance.
Through fiscal 2019, we recorded sequential quarterly increases in our product sales when we exclude leave a proxy.
Net sales of this core business grew from approximately $101 million.
$205 million.
$218 million.
$234 million.
In the first second third and fourth quarters, respectively.
This progression equates to a growth rate of 33% from the first two last quarter.
And as just noted for the fourth quarter, our first full quarter without believe abraxene.
Total net sales were about $134 million.
And adjusted net income was approximately $15 million.
Which equates to 37 cents per diluted share.
Our adjusted gross margin for the quarter was about 45%.
The highest of any quarter in fiscal 2019, despite the absence I believe abraxane in our fourth quarter sales.
And our fourth quarter adjusted EBITDA was a strong $46 million.
Our fourth quarter did benefit from higher than expected customer orders in June in advance of the July 4th holiday, which fell mid week.
Even without the better than expected sales in the fourth quarter, our portfolio of products, excluding leave with roxane exhibited solid quarter over quarter growth.
In the quarter, we successfully launched for solid products that collectively contribute to continued to contribute to our growth aspirations.
These products are.
And finally mean IR tablets.
Methylphenidate VR tablets, that's generic concerta.
Dantrolene IR capsules.
An aspirin interpret them all VR capsules.
Turning briefly to the balance sheet.
Since January 2018, we have reduced our total outstanding debt by approximately $187 million.
Of which approximately $87 million was comprised of voluntary payments.
Our cash balance at June Thirtyth was just above a $140 million.
Which reflects our cash position after we purchased about $38 million of our term a loans during the quarter.
But before the $20 million payment we made in July related to our recent in licensing of a new lead with Roxanne asset.
At June 32019, the outstanding balances of our term a and term b notes were $154 million and $164 million respectively.
So debt net of cash was $628 million.
Turning to our strategies and investments.
Over the last 18 months, we have focused on growing our core business launching new products, while building out the R&D pipeline and expanding our strategic alliances.
We have successfully executed on our plan over that period as evidenced by over 40 products acquired or in license and most importantly, the 25 products, which we launched.
Sales from these products has diversified revenue base.
And we still have about 60 products in our aggregate pipeline, which supports our ongoing so-called launch parade.
Which is significant relative to the roughly 110 products we have in market today.
Our plan has been to improve the returns of our inline portfolio through enhanced supply readiness and portfolio optimization.
While at the same time addressing numerous near term opportunities.
We will continue to press both components of that plan.
However, we have also begun layering in both internal and external products have the potential to drive significant growth to our business over the medium term and beyond.
In general these products have a slightly longer road commercialization may require investment that is larger than that we've typically made and have the potential to cause some lumpiness to our results at least in the near term.
We previously disclosed some of these opportunities such as insulin glargine, no brainer solidified and the new future supply and distribution agreement for legal proxy.
But we have also completed and are working on other transactions for other potentially meaningful products that for competitive and other reasons. We are not addressing publicly at this time.
We hope to announce in those transactions before the end of the calendar year.
Now turning to a couple of quick comments on our cost reduction effort and our capital structure.
First on cost reductions, we have completed virtually all actions related to our previously announced cost reduction plan.
In July we completed the last material element of that program ceasing operations at our Cody EBI <unk>.
Labs business and selling the associated equipment.
The ceasing of operations at Cody comes before we achieved any real traction in the pain management business.
The fact is we sold very little of such products.
A silver lining perhaps given the current environment.
And while we generally do not comment on pending litigation.
I believe it's worth noting that today the company is the defendant and only one opioid lawsuit.
That case involves our criminal kremers urban subsidiary and a single hospital.
Moreover, we believe kraemer urban was named an error in that too.
We are not named in any other opioid lawsuit.
Second regarding the capital structure, we continue to evaluate how best to further improve our situation and at the appropriate time, we plan to refinance our debt.
We are now pleased to be working with credit Suisse Afirma with extensive experience in leveraged finance markets to help us assess our opportunities.
Finally, I'd like to provide an update on some of the key products in our pipeline.
Our Nebraska and da continues to progress at the FDA and remains on track for an approval later this fiscal year and we expect to launch shortly thereafter.
We are also on track to qualify our Carmel plant as an alternative manufacturing site.
Given we have ceased operations at Cody.
Regarding for the mine.
The CPI matter not noted in the complete response letter is still being addressed.
Accordingly, we now hope to launch the product in fiscal 2021.
Regarding our insulin Glargine Biosimilar project with HSBC.
We completed dosing in normal healthy volunteers in a PK PD study.
The analysis is in process and we expect results by the end of next month.
Following the analysis, we will request a pre R&D meeting with the FDA to discuss their guidance and next steps for the progression of the drug.
Regarding leave with Roxy.
As we recently announced we formed a strategic alliance with set approach to be exclusive us distributor other lead both roxane product.
So the pros product is approved and currently being marketed by Sandoz.
We will take over marketing of the product no later than August 1st 2022.
Obviously, we know the legal proxy market well and it remains the most widely prescribed drugs in the us.
So we believe this transaction has excellent potential for our company.
Meanwhile, our relation with set of products and their parent company continues to grow.
Today, we announced that we expanded the relationship to include and then Biosurgery agreement and under the New agreement, we are providing our expertise to help set approach build commercialization capabilities in the USA.
While that capability is being built we also expect when that will have an opportunity to mark in the us market in the us several the parent firms oncolytic and hormonal products, including Injectables.
Where they have development and manufacturing capabilities.
And last but certainly not least I am very pleased to announce today that we have earlier entered into an agreement with Sino Therapeutics Inc., a China based.
Specialty pharmaceutical company to be exclusive us distributor of public kind of L. delayed release tablets 100 milligrams.
A few days ago Sino Therapeutics received final approval from the FDA for the product.
We believe this is the first and only known approved AB rated generic Pacific Continental and thus will be pleased to provide in conjunction with our partner this first and lower cost alternative for both customers and patients.
For perspective, the brand's annual US sales were approximately $325 million for the 12 months ended June 2019, According to Ikea.
In the near future, we expect to begin shipping the product sales, which are included in our fiscal 2020 guidance.
We now expect a product to be a meaningful contributor to our business. So we plan to issue a press release tomorrow before the market opens.
To sum up.
We believe we have made solid progress rebuilding our business.
And we feel quite positive about our prospects.
We are excited about our portfolio our pipeline our growth strategy and our ability to execute against our plans.
We had this view despite the challenges and the loans that we and many in our industry face.
Our optimism is based on several factors.
First the generic industry provides an important and valuable service by significantly lowering the overall cost of pharmaceutical health care.
Generics represent 90% of all pharmaceutical volume, but only a fraction of all pharmaceutical sales.
Two again paraphrase Mark Twain, as we did some quarters ago.
We believe the news of the industry's travails has been exaggerated.
Second the generic industry today represents a very large opportunity relative to our size, where we have low single digit aggregate share.
And third we believe limit is rather unique.
What our company is and what is not differentiates us from many others in our space.
We are a mid sized companies, we do not have to hit a so called home run to have meaningful growth.
We are focused on the U.S. markets have technical expertise across multiple disciplines and are very open to collaboration.
So we are an attractive business partner to both smaller and larger companies here in the USA and abroad.
And we're focused on reliable supply.
Our us based manufacturing footprint.
And associated flexibility this flexibility that is free of the global complexity and fragmentation that beset some of our competitors makes it easier increasingly preferable for customers to do business with us.
We believe we can respond quickly to opportunities as they arise.
We believe our coming fiscal year, it will be a solid one.
And one from which we will continue to build.
We look to continue the strong growth of our current portfolio that was demonstrated during fiscal year 2019.
The growth of that portfolio. This past year demonstrates the strength and durability of that portfolio as well as our ability to ability to launch new products.
Our goal is to achieve top line compounded annual growth rates of our reset business of over 15% across the next three years starting in fiscal 2020.
With our strong base business and multiple shots on goal to add new products. Some with significant upside. We believe we are well on our way.
With all of that I turn the call over to Marty Marty.
Thank you 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.
Our earnings release also includes a schedule of our net sales by medical indication.
Now for the financial results on a non-GAAP adjusted basis.
Well the 2019 fourth quarter.
Our first full quarter with LDL by Roxane.
Net sales were $133.8 million compared with $170.9 million for the fourth quarter of fiscal 2018.
Gross profit was $59.8 million or 45% of adjusted net sales.
Compared with 76.0 million or 44% of adjusted net sales for the prior year fourth quarter.
R&D expenses were $8.6 million compared with $8.3 million.
As DNA expenses were $17.0 million compared with $17.4 million.
Operating income was $34.1 million compared with $50.3 million for the prior year fourth quarter.
Interest expense was $16.0 million compared with $16.6 million.
Income tax expense was $3.9 million compared with $9.6 million in the prior year period.
Net income was $14.7 million or 37 cents per diluted share.
Compared with 20 $524.5 million.
Or 64 cents per diluted share for the fiscal 2018 fourth quarter.
And adjusted EBITDA was $46 million in Q4.
Turning to our balance sheet.
At June 32019, cash and cash equivalents totaled $140 million.
During the quarter, we purchased approximately $38 million of our term a loan.
This amount includes $7.3 million of purchases late in May after we announced the purchase of $30.5 billion of term a loans on May 21.
At June 32019, our debt was approximately $768 million and debt net of cash was 628 million.
We continue to expect to be within our financial covenants up to the maturity date of the term a loan.
I'll now turn the call over to John to discuss the company's guidance for the fiscal 2020 full year John .
Thanks, Marty and good afternoon, everyone.
For the fiscal 2020 full year on an adjusted basis. We currently expect net sales in the range of 525 million to $545 million, which would represent a 15% to 19% increase in sales over 2019 full year sales, excluding LIBOR play Roxanne.
Our net sales guidance reflects a continuation of the growth of our solid base business as well as sales of recently launched products previously approved but not yet launched products and other products that we really assume will be approved and launched in the period.
Adjusted gross margin as a percentage of net sales of approximately 40% to 42%.
This is lower than our gross margin in fiscal 2019.
Due to product sales mix, which includes the loss of leaving the Robertson.
Anticipated competition on some products and the expected launch of a number of partner products, which generally have a slightly lower gross margin than internally developed products.
Adjusted R&D expense in the range of 34 million to 36 million, which is consistent with R&D expense in fiscal 2019.
Adjusted EPS DNA expense, ranging from 63 million to $66 million, which is lower than SGN names fiscal 2019, largely due to the full year impact of our cost reduction plan, which has been completed.
Adjusted interest expense in the range of $56 million to 58 million, which is substantially lower than in our fiscal 2019, primarily due to the voluntary and required payments, we have made to lower our debt and a recent drop in interest rates.
The full year adjusted effective tax rate in the range of 22% to 23%.
Adjusted EBITDA in the range of 145 million to 160 million.
And as Marty mentioned earlier, the full range of this guidance is within our financial covenants.
And lastly.
Capital expenditures in fiscal 2020 to be approximately 20 million to $25 million.
These ranges incorporate our cost reduction efforts.
As a reminder, the savings will be realized in our cost of goods sold as well as operating expenses.
Regarding the phasing of quarters, we expect net sales adjusted EBITDA and EPS in fiscal 2021st quarter to be lower than Q4, largely due to the timing of customer orders related to the July 4th holiday.
We anticipate Q1 net sales to be lower by approximately 10% compared to Q4.
Over the course of the remainder of the year, we expect sales adjusted EBITDA and EPS to ramp up quarter over quarter.
With regard to gross margin percentage, we expect we expect slight declines over the course of the year with Q1 slightly lower than Q4 again. This is related to anticipated product mix and the impact of partner products.
However, we expect gross profit dollars to increase modestly from Q2 through Q4 and operating expenses to remain relatively stable over the course of the upcoming year.
With that overview, we would now like to address any questions you may have.
Operator.
Thank you well now begin the question and answer session.
If you have a question.
Okay.
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And our first question comes from Gregg Gilbert from Suntrust. Your line is open.
Thanks, I have a few Marty good luck.
And whatever is next and John welcome to you.
Tim can can I get I talk a little bit.
Can I get you to talk a little bit more about that new distribution deal financial terms, how long would deal last perhaps relative margins.
Im sure folks want to understand to what degree drives the guidance for fiscal 20.
Thanks, Craig.
In general the relationship has some level of parity to the proceeds and we guide that the gross margin.
Results of our forecast would be within the ranges of our historical gross margins.
Of the net portfolio, so it should be an attractive asset.
We've been talking about $75 million of annual a new product launches over the course of each fiscal year. This product should be a good contributor to it we have other products.
Planned for the balance of fiscal year, it's a somewhat back loaded. So we'll have to see if we get ahead of that number but it's it's a significant agreement that there are some technical things around the product.
Sure into extrusion technologies that we hoped not see too many people over the coming over the coming months and quarters and we're excited about it and glad to have it into our portfolio and expect to launch pretty shortly.
And how long does that feel last.
That agreement.
Seven years or more I'll have to double check Okay, and then I wanted to clarify on the 15% CAGR can you just confirm what the starting point number is and can you confirm that that goal does not include any external sort of BD staff other than the one you just announced.
We're kind of basing that on the our sales of our base products, excluding leave with Roxane, which totals.
Now 400.
400 and.
So before I believe the 440 50 Sevens 457 of last year's base business without legal proxy and is effective starting immediately for 22020 122.
We also.
Do not have any inorganic sort of BD in that we do have other in license products are part and parcel of our business plan, whether internal or external so it is it's based on those parameters.
Okay.
And lastly, just.
You kind of address the opioid overhang or perhaps your belief that there is a lack of one.
It should be a lack of an overhang for for your company, but the capital structure plans obviously.
Loom large can you talk about.
What options should at least in broad strokes are considering and any timeline or sense of urgency you have around answering that question. Thanks.
You are asking the plane, which litigation you referring to Im sorry, Greg I missed the first part.
Yes, I was saying the capital structure improvements that you're talking about.
Up an advisor to.
To look at all options, what's what's most important to you what types of options you are considering and perhaps any insight into timeline. Thanks.
So thanks, Greg while we've been thinking about our capital structure pretty much for the last several years.
We believe that with our improving performance in the marketplace. Our options continue to expand and so we felt that was right to to get more.
Engaged in what that would look like in the market relative to what is available to us clearly we have the term a loans coming due at the end of next year. So pragmatically. It's time now to start exploring those engagements. We did feel it was important to put up a good quarter without leave with roxane to take over some of the overhang of our viability, which had been out there historically.
We believe our bonds are trading closer to par and they've been in the past and that's reflective of cost to capital looks quite reasonable to kind of refinancing we extend.
Those term loan debts, but we'll work with the experts in the space to figure out which mechanic makes the most sense of the very very many options that exist out there.
Okay. Thanks, gentlemen.
And your next question.
So Gary Nachman of BMO capital markets.
Hi, Good afternoon, My best to you as well Marty and welcome John for me too.
So first with that greater than 15% growth target are you anticipating any major competitive dynamic.
For any of your significant products over the next few years that we should think about.
With LIFO be included in that in 2022.
Thanks, Gary.
We we have nothing specifically changing I would say as it relates to our aggregate forecast in that sort of growth plan. Its really just a totaling up from the bottom.
Up to all the products that we've got stacked and rack to launch.
Offset by the sort of typical erosions, we'd anticipate in our in our base businesses.
We have larger than.
Double digit erosion, if the product has few competitors, particularly high margin for older products that are more road and we have lower single digit percentage erosion. Each each product has its own story. So there's no change in our.
In our forecasting it's the blend of the business in the portfolio in the products that we have.
That we believe risk adjusted gets us comfortable with.
A CAGR or in excess of 15% I'll leave a thrashing should come in to that planning period towards the end of the.
Of that of that three year period.
Okay, and maybe just on Levo, just could you explain how the arrangement work.
And under what scenarios could you start distribution potentially earlier than August 2022, and then what would the margins be for that product, what sort of range, where they fall into.
So thanks.
The the the relationship as Weve indicated.
Starts in 2022 on exploration of that agreement would be very clear that is what we're marching towards.
As a practical matter given our own personal experience in this space when those contract expirations I'd get closer.
It can be pragmatic in the interest of customers and patients in the product.
To to think about some sort of orderly transition much as we did previously with our lead both rock scene asset earlier. This year. So we have many conversations about that but we simply acknowledge it's typically in everybody's interests.
To do something that is thoughtful relative to patients and customers to avoid disruptions.
From a margin perspective.
Given where we are with that asset, but we'd expect it to look like in the future years, we'd expected to have a lower percentage of that historically had for us and perhaps even a little lower.
Then our prevailing gross margins for the current business.
Okay I was back to the comment of its lots of gross margin dollars or are quite happy to add it.
Okay, and then last quick one I know you have this 75 million target for new product launches annually.
Did you also still have a target a filing about 20 new products per year.
And then how many of those would be internally generated versus partnerships that either you have currently or that you're thinking about the future.
Thanks.
So Gary we spoken to.
Thinking about.
10 products from internal development and 10 products from external sources is how we build our pipeline year on year.
We do believe that volume is important because there's always some gives and takes in any particular product in our portfolio. So we do like to have a number around in that range to have enough shots on goal that number is obviously less important than the quality and the value of any individual product, so while that might ebb and flow for any given year. We can certainly get to 20 products if were indiscriminate, but we don't plan to be indiscriminate.
And so that keeps us closer to that sort of 20 range half internal half external.
That gives us good shots on goal. So if any particular product comes up light we increased the chances and other product comes up strongly and I think for example, public handles a great example of that product some months ago, we signed that we thought it would be a good product.
But as the market evolves.
And fewer people showed up in the patents fell away, we think it's going to have more value than we did earlier forecast.
Our fair balance, we would hope for more sales out of methylphenidate.
Concerta.
When we first signed up that deal, but more people showed up the market and and that product value. While still significant has come down. So we always try to think about having shots on goal to some diversity for some ups and downs and net net I feel comfortable with that $75 million annual new goal.
Okay, great. Thank you.
Thanks, Gary Thank you.
Your next question comes from Elliot Wilbur from Raymond James Your line is open.
Thanks, Good afternoon quick financial question, but first one there congratulate Marty on his.
Well deserved retirement.
Thank you for.
All the.
Wisdom and knowledge that you have shared with us over the many years that we work together very much appreciate it.
So I think with respect to inventory trends for some reason I have in my mind.
Numbers.
Quite a bit below what we've seen.
Couple of quarters, given the absence of the world. The Roxane, So maybe just a little bit of insight.
The sort of wider inventory numbers remain flat rather than than trending.
Downward.
Thanks Elliot this is a this is John .
So actually our inventory did increase going from Q3 to Q4 and.
What you've seen is it's we're we have a wrist strategically increasing that inventory for certain products as we look to capitalize on market opportunities and for the lead with Xerox and product. Our turns were were lower on that product. So you. We didn't see a significant decrease as we as we exited that market.
Okay, then follow up financial question.
For for the team as a whole I guess.
Tim you mentioned the hiring of an advisor to assist with the debt restructuring, but I guess as I think about numbers kind of played out. The next couple of years here terming phase, where we paid off as you head towards maturity of the.
Or as you head into next year as you head into the maturity of the term fees I mean, you're going to be well under fourx leverage kind of curious based on discussions you've had to date sort of what receptivity you find out there in terms of.
In terms of.
Potentially being able to refinance it at more favorable terms I guess I asked the question because obviously the business.
A lot of positive.
Directional movement in numbers, a lot of favorable trends, but certainly hearing a lot of commentary from other competitors, who have maybe very different issues about how difficult it is to secure debt financing.
Businesses, they like to spend or just.
Just two recent refinance some of their.
Maturing.
Debt as well.
Thanks Ali what exactly why we've brought them on board to further understand our options, we thought the cost to refinancing would be prohibitive or simply expensive, notably more expensive than our current capital structure. If we try to go to market sooner as we noted we believe our.
Sustained performance here over the last several quarters and our optimism for the future.
Should allow us.
Some degrees of freedom to discuss those options.
We'll we'll work closely with those advisors to figure out with those best options are there is lots of them.
With the maturities being a year and three or so out practically we need to address them. So so we will.
And we always kind of take a look at our term b loans in the sense of our cost of capital that might suggest could cost us a little bit more than today.
To to to get some.
Relief for flexibility or capital structure, we do pay.
A fair amount of amortization and we'd like some flexibility around that relative to all the opportunities we see to build our business on a daily basis.
But we'll we'll work closely with those advisors in the coming months to see what they think and what they hear and keep everybody abreast of any changes. We do feel there is a chance now for us to have a meaningful conversations with folks in that space and we'll see what they have the same.
Okay last question for you.
Yes.
In previously talking about revenue expectations from new product launches.
Basically guided to sort of.
FFO rough range of $3 million to $5 million per rep per product, obviously, the deal you announced today in the legal deal significantly above that.
Just curious.
Your perspective.
What.
May have changed or what May have led you to these deals is it just good scouting on your part pass relationships or maybe.
The company.
Give me a little bit more visibility into getting more inbound calls in terms of folks looking for radio.
Platform to be able to leverage their development efforts office.
Well. Thanks for the question Elliot has a favored one for us.
We will continue to execute on the sort of.
Depomed, Bunts and singles, but the meat and potatoes, perhaps of the generic business, which often involves products have a modest size. We think that gives stability to our portfolio gives us certainty to some of our returns.
And and what you just articulated is exactly what I mentioned in my opening comments that we're starting to layer in opportunities that take a bit more time may take a bit more money on that may give a bit better return.
If we looked over the last year, we weren't really in a position to lay out $20 million for leave with Roxane as we did.
After we had lost the earlier asset.
And of course at some level success begets success, we're doing well with our products and market were very very public about our commitment to the U.S. generic market space, we're not the only ones out there, but not everybody says that.
And we have the mentality of our of our cross functional teams, whether its quality manufacturing R&D regulatory commercial finance all of them. We bring those teams of the table, we make a pretty good pitch in a very.
Significant commitment to those partnered products that they care a great deal about that means a lot to us given our scale. So we're looking to take a couple of swings here and there we want to remain true to the to the less volatility of the poor old generic business that we have built.
Our business around the last several quarters, but we do have a little more breathing room, we think to take some.
Slightly different.
Attacks into opportunities that have a slightly different risk profile that still we believe executable in the relatively near term and that's what we'll be doing and we'll hope to hear more from us on that in the coming quarters.
All right. Thank you.
And our next question comes from Scott Henry from Roth Capital.
Thank you and good afternoon.
Marty.
Best of luck to you, it's really been a pleasure on personal and professional level. So I think on the same here. Thank you.
I do have a couple of questions here.
First I may have missed it but typically you provide some color on kind of the quarterly trajectory and the next quarter and I think if I recall last first quarter was was a tough comp.
Just trying to get an idea of how we should think about Q1 relative to the full year guidance.
Well. Thanks, Scott This is John and you're right last year.
Q1 was a decline versus versus Q4, and we're expecting the same thing in this quarter, we talked a little bit about the timing of orders and its positive impact on Q4 and the.
The negative to that would be in Q1, we are seeing some pressure we talked about a 10% decline in the sales.
But just like 2019, we would expect.
For the for the remainder of 2022 to continue ramp up both in sales and EPS quarter over quarter.
Okay. So you would see it.
Yes up sequentially each quarter in 2020.
Yes, that's how we're looking at it.
And if I can add is obviously a bit of a there was a bit of a wildcard here on paas ICANN is all based on how that market develops in the coming months.
A lot of other product launches are back ended so we'll be looking closely how this particular product does relative to our overall expectations, but again as the first and only in the market today, if that sustains for any period of time.
There's obviously upside in that space, but we need to see what occurs who comes out how quickly we supply when other folks launch et cetera, but it is something we're keeping an eye on that could have some positive lumpiness to our to our results.
Okay, and then when we model out interest expense because it is a material number.
Should we think about that as kind of flat throughout the year should we model and pay down throughout the year how.
When you when you factored into your guidance how are you thinking about that.
Income it does come down slightly throughout the year, but it's relatively flat.
Okay. That's helpful. And then I did have a couple of questions on some of the categories, where there was a little more variability.
Hi Inn, I guess, when I look at cardiovascular.
$31 million versus 23 million in Q3 and then.
Anti psychosis 28 million versus 21.
Anything different there or is that just an example of some of the buying patterns.
I think thats a.
Direct example of some of the buying patterns when we talk about the timing specifically with the anti psychosis.
It directly affected some of those some of those categories.
Okay, and then contract manufacturing.
I really low in Q4.
That again is that this variability or is that.
An area that perhaps isn't a priority right now.
No Thats actually just another example of timing just in the opposite direction in the previous quarter, we had seen an increase and.
The offset to that was in Q4.
Okay.
Alright, Great and then I think that should do it for me. Thank you for taking the questions.
Thank you.
Your next question comes from the ACA Hewitt Craig Hallum. Your line is open.
Yes. This is Lucas spare now see on for Matt Hewitt Craig Hallum.
It looks like you're guiding to gross margin of 40% to 42%. So roughly in line with what we had modeled could you maybe walk us through some of the puts and takes that are needed.
To hit that gross margin. Thanks.
Thanks Lukas this is John .
When we look at 2020 is a reflection of our own product mix, we're forecasting some competition for some of our key products.
But we also have projections in there for launches of some type of partner products, which is also then showing some pressure in our in our margins as we get into the second half of the fiscal year.
But as we mentioned we know what were forecasting slightly lower margins our profit dollar should increase throughout the year.
Okay. That's helpful and I believe at some conferences over the summer you had kind of talked about new products layering in at like a 35% gross margin I mean is that still kind of what you're thinking or has something changed on that front.
Hi, Thanks, I guess its Tim here I think 35 ish is probably right for the blended of all the partnered products. Some are higher some are lower I think thats in general close now again a couple of.
Good quarters on a positron as all or or other products in the pipeline could could swing that a bit but in general I would think about it is just a bit lower than the company's average which is pulled up a bit by a couple of higher margin products that we have currently in the portfolio.
Okay that makes a lot of sense and then one final question here the contribution from the Sino Therapeutics agreement that you announced on this call I mean, how much of that was factored into the guidance that you just provided.
So again it looks its Tim here, we think about our new product launches, adding 75 ish million dollars on an annual basis.
And POSITANO pods economies, all would have been one of those.
It's come a bit earlier and at a bit higher rate than we would've had in our original forecasts, but the year is young.
There's a bunch of backloaded products that could slip or not be as valuable or become more valuable. So we're not really changing at this point.
Our 75 million, it's how we get.
To the guidance that Weve provided and were happy to be a bit ahead of it.
For this particular product, although as I noted earlier our products, we launched just a few weeks or months ago.
On methylphenidate and.
As they put them all both good products, but not as valves you once hoped they would be so it really is about this basket of enough shots on goal of enough interesting products that on on balance we feel comfortable to $75 million. We don't want to say because this products can be X million dollars higher we're going to add to the $75 million don't get that closer to the end of the of the years experience.
Okay. Thank you very much that's all I had.
And this concludes the question answer session.
Ill now turn the call back over for final remarks.
Alright, it's Tim again, I'll close out with our shout out to all of our employees customers and partners. So important to the success. We have just described we look forward to sharing our progress at our next regularly scheduled call have a good evening.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.