Lannett Co Inc

Welcome to the Lynette Company Fiscal 2021 Fourth Quarter and Full Year Financial Results Conference Call. My name is Adrienne and I'll be your operator for today's 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 1 on your touchtone phone. Please note this conference call is being recorded. I'll now turn the call over to Robert Jaffe, Investors Relations for Lynette Company. Robert Jaffe, you may begin.

Good afternoon, everyone, and thank you for joining us today to discuss Lynette Company's fiscal 2021 fourth quarter and full-year 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 Lehr, who leads our Insulin Biosimilar Initiatives. This call is being broadcast live at www.lynette.com. A playback will be available for at least three months on Lynette'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 fourth quarter and full-year financial results, for the company's reasons for including non-GAAP financial measures in its earnings announcement. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is also contained in the company's earnings press release issued earlier today. In a moment, 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. That said, I will now turn the call over to Tim Crewe. Tim?

Thanks, Robert, and good afternoon, everyone. Thank you for joining the call. We hope you remain safe and well as we all manage through the persistency of the pandemic. I'll start today reviewing some of the highlights of the past year that are relevant to our future before turning to the key elements we see in that future. First and foremost, in 2021, we continue to launch products and build our future portfolio. We launched about a dozen new products, highlighted by a few significant contributors, including levothyroxine tablets, levothyroxine capsules, and clopromosine. The products we launched last year added new revenue streams and further diversified our offerings, reducing our exposure and reliance on key products. We also grew our base product pipeline with continued investment in a robust internal product development program. For example, our recent mycophenolate approval was achieved in just under 10 months, the third such product we developed to achieve so-called first cycle approval in the past few years. We have made great strides in our internal efforts, including significant changes to our portfolio selection. Such changes take time to be fully reflected in our financials, but we believe meaningful value is being built. we are working on our existing strategic alliance partners to expand our agreements to include new products. For example, this past year, Insulin Aspart was added to our HEC agreements. And more recently, Generic Spiriva Handyhaler was added to our Respirant agreements. Together, these products represent multi-billion dollar markets with relatively few competitors expected. We also formed a new strategic alliance partnership to launch Seville Flooring, a product with relatively few competitors and a market size of about $190 million based on IQVIA data. We look to launch SevaFluorine in the back half of the fiscal year. The second key accomplishment last year was, even while we launched new products and grew a pipeline, we also maintained firm control over expenses and exhibited operating discipline. We implemented and completed a cost reduction plan that included consolidating our R&D function into a single location. and lowered operating costs by approximately $15 million annually. A third key accomplishment was that we significantly improved our capital structure. This last year, we paid off our Term A loans with cash on hand, and later successfully completed a full refinancing transaction of the Term B loans. The refinancing transaction, as we have often highlighted, was significant for several reasons. First, we extended the maturity of our debt to 2026, from 2022, which is now after several of our larger and more meaningful pipeline assets are expected to launch and can contribute to reduction in our debt. Second, we upsized our credit facility and substantially freed up cash flow, primarily due to the elimination of mandatory principal payments until maturity. Third, the new debt does not have any leverage covenants. Fourth, as a result of this refinancing, In combination with working capital initiatives, we have improved our cash position. Thus, we now have more ready resources to invest in growth opportunities. Of course, another accomplishment to note was that our teams, particularly in our plants and labs, showed up to work every day throughout the pandemic and maintained a reliable supply of our affordable medicines. This, of course, despite all the extra challenges in doing so this past year. We are quite proud of all of these accomplishments. Of course, there are also real challenges. While competition is a fact of life in the generic industry, the competitive environment we encountered last year was particularly impactful because it involved some of our most profitable products. We offset some of these pressures with the aforementioned new product launches and cost reductions, but the decline significantly exceeded the offsets. On top of a particularly competitive environment, COVID-19 continued to impact our financial performance with more downstream influences. For example, as we have said, the pandemic resulted in fewer elective medical procedures being performed. This reduction limited sales and use of our cocaine-based product. As a branded product, our Nobrino NDA carries a higher than average gross margin for us, so changes up or down in sales have a disproportionate impact on our bottom line. Fortunately, we believe many of the negative past year are beginning to attenuate, while the positive factors continue to foretell meaningful opportunities. With that as a background and leading John to note the specific financial results, I'll turn to our outlook for the upcoming years. We expect our overall net sales and gross margin to continue to face pressure by recent and anticipated competitive pricing of certain key products. partially offset again by the benefit of new product launches. We also expect sales of our Nebrino NDA to be impacted by a continuation of further elective surgeries being performed. Once the pandemic subsides, we would expect to see an increase in these types of procedures, and along with that, an increase in sales. While we are forecasting a down year in sales and profits, we see fiscal 22 as a trough year. our key products have already been impacted by notable competitive pricing pressure. Thus, those products have less further downside. At the same time, the relative future potential of our pipeline continues to increase. I also want to note that while we believe our generic AdverDiskus product has the potential to launch in calendar year 2022, we did not include any sales of the product in our FY22 guidance. Similarly, Zomotryptin is also not contemplated in our FY 2022 forecast as a result of ongoing delays from our API supplier. Nevertheless, we do expect both products to be meaningful contributors in fiscal 2023. So now let's turn to our pipeline. We continue to launch products from the approximately 13 ANDAS pending at the FDA, including partner products, plus four additional products that are approved and pending launch. We also have more than 20 products in development and expect to add more from both external and internal efforts. We continue to target more valuable products than has been our historical average. With regard to our large durable product pipeline, we currently have five disclosed assets. First, with our partner HEC, we have two insulin assets. Insulin Aspart, a fast-acting insulin product and insulin glargine, a long-acting insulin product. Combined, the two products participate in a double-digit billion-dollar U.S. market, as reported by Acuvia. Second, our drug device respiratory portfolio with a partner, Respirin, now has three assets, generic adverdiscus, which is filed with the FDA, along with generic floventiscus, and most recently, generic Spreva hand healer. Combined sales of these products also represent a multi-billion dollar U.S. market as reported by Acuvia. As we have said, all of these products are differentiated from traditional generic products because of the significant technical expertise required for development and substantial plant investments made by our partners that are needed to manufacture them. So for all of these products, we expect only a handful of competitors. I'll discuss next the significant progress we are making advancing these large, durable product opportunities. With regard to generic adverdiscus, we have been in regular contact with the FDA regarding this priority application since it was accepted in May of this year. We are encouraged by their level of engagement. We anticipate a mid-cycle review update from the FDA sometime in the next few months. Thus, we expect to provide a better sense of how the application is progressing on our next investor call in November. Currently, we continue to anticipate more than one FDA cycle and believe, as just noted, an approval and U.S. launch of the product is possible in calendar year 2022. For those new to the Lumet story, generic adverdiscus is one of the larger assets in our filed pipeline. It is also currently the closest to expected commercialization in our partnered respiratory portfolio. The second most advanced product in our respiratory portfolio is generic flovent discus. The last patient for the pivotal clinical trial for this product has been dosed, and we anticipate the analysis of the trial to be completed within a few months. We are currently planning for an ANDA submission before the end of the current fiscal year and a possible launch in calendar year 2023. Next, as noted, we recently expanded our opportunities with Respirant to include generic Sporiva hand inhaler. The development arc for this product should be approximately 12 to 18 months behind the generic Flovent Discus product. However, as there were various IP matters involved, we are not commenting today on the specific launch timing expectations. Finally, as we have previously said, we are evaluating and in negotiations for additional product opportunities in inhalation respiratory space, particularly dry powder inhalers and metered dose inhalers. There continues to be additional multi-billion dollar market opportunities to pursue with both current and future partners. Now turning to our two biologic insulin products, starting with biosimilar insulin glargine. Clinical material for the drug product has now been manufactured in the new dedicated manufacturing site, which is a very significant milestone. We still expect to submit an IND around the end of the calendar year and commence the pivotal clinical trial early next calendar year. However, we have recently added a few months to the clinical timeline due to current COVID-19 restrictions at the study site in South Africa. We have also added a few more months to our timelines to address interchangeability with the FDA, which I'll discuss in a moment. Thus, we currently think the biologics license application will be filed in the first half of calendar year 2023, and we would expect to launch in the first half of calendar year 2024. Also note, China's version of the FDA, the NMPA, has approved HEC's insulin glargine for China, That product is made in the same new plant where we have now just made our insulin-glargine for clinical trials. The months we have added to the development plan to address the interchangeability with the FDA is related to an important recent FDA approval of the first biosimilar and interchangeable insulin-glargine, Beatrice's semigly. We believe that interchangeability approval is good news for Lynette and HEC's insulins. It demonstrates the FDA will approve interchangeable insulin products, which, over time, should improve affordable access to these important medications. Regarding biosimilar insulin aspart, the development of the product continues, and we currently anticipate a potential launch of the product about 15 months following insulin glargine. Again, insulin aspart will be produced in the same facilities, working with the same teams and technologies as insulin glargine. So we're able to leverage many of the earlier Glargine investments in development and manufacturing that have been made by both Lynette and HEC. Like our respiratory portfolio, we see several opportunities to leverage our insulin assets. There are other dosage forms of both Glargine and Aspart, such as vials, and other distinct insulin products. These opportunities, again, represent multi-billion dollar markets, as reported by Acuvia. We also see opportunities to leverage our USA clinical data, Penn development, and related IP, along with the manufacturing capacity at HEC, to form a strategic alliance with third parties looking to accelerate their access to insulin products in international markets such as Europe. While discussions on such opportunities are very preliminary, such relationships could yield meaningful value for both ourselves and our partners. Finally, a few brief comments on Made in America and ESG. While we see a future that includes several high technology products from overseas sources, today we are mainly a U.S. domiciled generic medicines company. Lynette adheres to strict U.S. laws and U.S. environmental guidelines with regard to development and manufacturing compliance for U.S. made products. Most of our larger generic competitors are already based overseas and don't face the same set of regulations and ship most of their products from the far side of the globe. We are proud that today we serve the U.S. market from the U.S. market and do so with an enviable track record and reputation for being a high quality and reliable manufacturer. We point out these characteristics that make Lynette increasingly unique as a generic supplier so that our investors and customers think of Lynette when they consider Made in America and various ESG related initiatives. To sum up today's remarks, Our accomplishments in fiscal 2021 were significant. We faced head-on a highly competitive market environment. We launched new products and made important advances in the development of key products in our pipeline. We expanded existing agreements that added three large durable assets to our respiratory and insulin franchises. We refinanced our debt, improving free cash flow, and extended our maturities beyond the expected launch dates of our large pipeline assets. We continue to believe that the exciting products in our advancing and expanding pipeline still have the potential to transform our firm into a billion-dollar company by 2025. With all of that, I turn the call over to John. John?