Lannett Co Inc

Welcome to the Lynette Company Fiscal 2021 Third Quarter Financial Results Conference Call. My name is Hilda, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star and then one using your touchstone phone. Please note that this conference is being recorded. I will now turn the call over to Mr. Robert Jaffe, Investor Relations, for Lynette. Mr. Jaffe, you may begin.

Good afternoon, everyone, and thank you for joining us today to discuss Lynette Company's fiscal 2021 third quarter financial results. On the call today are Tim Crew, Chief Executive Officer, John Kozlowski, the company's Chief Financial Officer, Maureen Cavanaugh, our Chief Commercial Operations Officer, and Steve Lair, who leads our insulin biosimilar initiatives. This call is being broadcast live at www.lanette.com. A playback will be available for at least three months on Lanette's website. 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 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. Investors are encouraged to review Lynette's press release announcing its fiscal 2021 third quarter financial results for the company's reasons for including non-GAAP financial measures in its earnings announcement. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is also contained in the company's earnings press release issued earlier today. This afternoon, Tim will provide brief remarks on the company's financial results, as well as recent developments and initiatives. Then John will discuss the financial results in more detail. 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. We trust you all remain safe and well. Despite the pandemic and ongoing headwinds specific to our industry and our company, we are proud of our significant progression on several strategic fronts these past months. First, we refinanced our debt, providing significant balance sheet runway to execute on our growth plans. Second, we advanced the development of key large pipeline assets. Third, we expanded our pipeline of key assets, and more such assets are being actively pursued. And fourth, we maintained our operating discipline and our tracking to our near-term goals. I thank our LeadNet team, twice over actually, along with our partners, suppliers, customers, and advisors, for helping us navigate and move forward through all the turbulence of the last year. I'll begin my specific remarks with a brief review of our financial results. For fiscal 2021 third quarter, we had net sales of $112 million, adjusted gross margin of 27%, adjusted EBITDA of $17 million, and adjusted net income of $1 million, equal to two cents per diluted share. Gross margin, adjusted EBITDA, and adjusted net income were all better than we anticipated. Moreover, our cash position significantly improved to more than $80 million at the end of Q3, from $34 million at the end of the preceding quarter. While we are pleased with our overall results, we believe the most important recent news was the April refinancing transaction I earlier mentioned. We used the proceeds from the refinancing, along with some cash, to retire our outstanding term B loan balance of approximately $540 million. The financing was significant for several reasons, including, first, we have extended the maturity of our debt to 2026 from 2022, and that maturity is now after several of our larger and more durable pipeline assets are expected to launch and make meaningful contributions to our business. Second, our free cash flow improves substantially. primarily due to the elimination of mandatory principal payments until maturity. We estimate that the transaction will add approximately $50 million of free cash flow in the first year alone. Our plan is to use a portion of the extra cash to invest in additional growth opportunities. And third, the new debt does not have leveraged covenants. We are obviously delighted with this refinancing, which we have contemplated for some time, and thank our pre-existing and new investors for their support. To our view, we believe the successful offering provides investor validation of our future expected cash flows. Similarly, I'd like to note that as part of the refinancing, the second lien investors received warrants in Lynette, which have a strike price of $6.88. We believe the support of these experienced investors to accept the second lien position in exchange in part for these warrants further validates our assessment of the future earnings anticipated from our pipeline. So now let's turn to our pipeline. Most recently, we launched two products in Q3, including nivorfenol, IR tablets, three milligram, a partner product, and clopromazine, an internally developed product. Thus far in Q4, we launched venlafaxine ER tablets, 75 milligrams, and expect to launch a few more products in the next few months. In addition, we have more than 18 products in development, another 11 and is pending at the FDA, including partner products, plus four additional products that are approved and pending launch. I'll now turn to the larger, more durable opportunities in our near-term pipeline, dealing with products in the respiratory arena. As we recently announced, we achieved a key milestone with the filing of our generic Adverdiscus product on April 1st. This asset is a partner product and, of the larger products in our pipeline, is currently the closest to expected commercialization. The investments in technology, dedicated manufacturing infrastructure, and development of this asset are very significant. So we are quite pleased to be so far along in the development and expect only a handful of competitors. While we do expect more than one FDA review cycle, and we need FDA feedback to firm up our expectations, we continue to believe in approval and U.S. launch of the product as possible in calendar year 2022. And given our understanding of the market, we anticipate the product will generate substantial net sales soon after launch. Another drug-device combination product in our pipeline is Generic Flowvent Discus. The pivotal clinical trial for this product has been initiated, so we are tracking to a possible launch in 2023. As a reminder, we are co-developing this product with the same partner as Generic Adver Discus. This relationship means that the Generic Flowvent product leverages the same R&D and manufacturing platforms that support the Generic Adver product and will likely follow a similar clinical development path. For both the generic Advair and Flovent products, we are increasingly confident of our path to launch for three primary reasons. First, the FDA now has clear guidance for companies developing these complex products, and our development programs have been advancing rapidly. Second, our partners already built R&D and commercial-scale manufacturing facilities, both dedicated to inhalation products. And lastly, our partner's senior management team includes members of the GlaxoSmithKline team that was intimately involved in developing, filing, and manufacturing the Adver Innovator product. As we said previously, we're evaluating and in late-stage negotiations for additional product opportunities in the drug device inhalation respiratory space, particularly dry powder inhalers and meter dose inhalers. These markets are, as we have stated before, generally quite large, growing, and durable. Turning to our biologic insulin products, The situation is similar to what we noted for the drug device inhalation opportunities. Namely, we are relatively well advanced in the programs and the investments in technology, dedicated manufacturing infrastructure and development are even more significant. Take multiple hundreds of millions of dollars. Let me say that again, multiple hundreds of millions of dollars. Thus we expect only a handful of competitors in what is expected to be a multi-billion dollar market even at competitive biosimilar pricing. And as we have shared, our partner HEC is shouldering the significant majority of these infrastructure-related costs. With regard to biosimilar insulin glargine, we believe we remain on track to submit an IND later this calendar year, commence the clinical trial early next calendar year, submit a biologics license application later in calendar year 2022, and launch in 2023, just over two years from now. You'll recall that representatives from Lynette and HEC spoke with and received guidance from the FDA on the biosimilar insulin-glargine clinical advancement program in June of 2020. The FDA then requested that we submit a protocol and the statistical analysis plan for the pivotal trial for review, which we did in November of 2020. The FDA has since completed its review and provided feedback, which we incorporated into the design of the upcoming pivotal trial including the type and size of the trial as well as primary and secondary endpoints. Importantly, the upcoming conforming pivotal human healthy trial plan is similar to our previously completed normal healthy volunteer pilot study. It's a modestly larger study and will be conducted at the same site as the previous study. So the FDA feedback is very encouraging. since they reviewed in detail our human pilot study where our insulin glargine met all the primary pharmacokinetic and pharmacodynamic safety endpoints. And the FDA has indicated the same type of study with glargine produced at commercial scale at the completed new facility will be sufficient to file a 351 biosimilar application. Note, we believe we'll be the first glargine application to take advantage of new biosimilar insulin rules published in November of 2019. which have helped speed our progression. In the related positive development, our partner HEC has completed virtually all the required process development scale-up work required to produce insulin-glargine at commercial scale at the new insulin facility, which is an important next step. Production of clinical trial materials should occur in the upcoming quarter. On a further positive related note, in February, we announced we had expanded our agreement with HEC to include biosimilar insulin Aspart, a fast-acting insulin separate and distinct from longer-acting insulin glargine. Similar to the two asthma product opportunities, the experience, knowledge, dedicated manufacturing infrastructure, and investment supporting insulin glargine can be directly leveraged for the development of insulin Aspar. Accordingly, while we still need to get FDA feedback on our development plan, we currently anticipate a potential launch of the Aspar product in calendar 2024. As you can see, and I think our investors understand, we are now advancing forward within our overall launch parade, a steady stream of significant new product launches in the not too distant future. To sum up today's remarks, we completed a refinancing transaction where we retired our term loan B and extended the maturity of our debt beyond the expected launch dates of our larger pipeline assets. Moreover, The structure of our new debt substantially increased our free cash flow potential, around $50 million in the first year alone, that will allow us to further invest in growth opportunities. The ANDA for our generic Adverg Discus product was submitted on April 1st, 2021, and pending FDA feedback, we believe this product is tracking to a launch in calendar year 2022. The clinical development of our other large opportunity assets, including generic Flovent and biosimilar insulin Glargine, continues to advance the launch of insulin glargine possible in 2023. And in February, we added to our pipeline another large opportunity product, biosimilar insulin Aspart. That biosimilar development should track perhaps a year behind insulin glargine and potentially launch in 2024, along with generic flovent, setting up a series of potentially significant product launches in the not too distant future. With all of that, I turn the call over to John. John?