Hello and welcome to the Lannett Company Fiscal 2018 Third Quarter Financial Results Conference Call. My name is Michelle, and I will be your operator for today's conference. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that today’s conference is being recorded. I would now turn the call over to Mr. Robert Jaffe, Investor Relations for Lannett. Sir, you may begin.

Thanks, Michelle. Good afternoon, everyone and thank you for joining us today to discuss Lannett Company’s Fiscal 2018 Third Quarter Financial Results. On the call today are Tim Crew, Chief Executive Officer; and Marty Galvan, the company’s Chief Financial Officer. This call is being broadcast live at www.lannett.com. A playback will be available for at least three months on Lannett’s website. 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 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 Lannett’s press release announcing its fiscal 2018 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 quarter as well as comments on recent developments and near term goals. Then Marty will discuss the financial results in more detail, including the company’s fiscal 2018 guidance. We will then open the call for questions. With that said, I will now turn over the call to Tim Crew. Tim?

Thanks, Robert and good afternoon, everyone. After five months as CEO, I'm pleased with our overall progress. We're executing on our growth strategy and adding depth and expertise to the management team. We're proceeding with several product launches and our organization is operating efficiently and effectively. For the fiscal 2018 third quarter we just reported, net sales were 174 million, an increase of approximately 9 million over the prior third year quarter. Profitability on an adjusted basis for the quarter was in line with our expectations. A couple of key products performed better than anticipated, while others faced volume declines. Gross margin was lower largely on sales mix, due to decline of the sales of our high margin products, offset by sales of lower margin generic Toprol, a product we first began selling this reported quarter. Positively impacting the quarter was a reduction in operating expenses. With regard to our fiscal 2018, we are affirming our full year outlook for net sales and adjusted profitability, although certain items between the top and bottom lines have been tweaked. A more thorough discussion of our financial results and guidance will be provided by Marty shortly. Stepping back from the financials, on our last conference call, my first as CEO, I said our focus would be to align the team, the organization and our investments along the lines of our refresh strategies. With that in mind, I'd like to begin today by welcoming Maureen Cavanaugh to the Lannett family. Today is Maureen’s first day and she totally is looking good so far. Maureen will serve as our Senior Vice President and Commercial Operating Officer and in this role, she will oversee sales and marketing, research and development and regulatory Affairs. Maureen and I previously worked together at Teva and Bristol-Myers Squibb and she's an extremely skilled and well known industry executive with a long record of driving commercial organizational success. In addition to Maureen, two other executives recently joined our team. Grant Brock as Vice President of Operations and Alicia Evolga as Vice President of Marketing. Both are talented experienced executives in their respective areas. Grant will be focusing on increasing our manufacturing output, improving efficiency and Alicia will focus on driving our near term product launches and future product selection. Moreover, new heads of engineering, project management and site quality have also joined us this last quarter. In conjunction with these new team members, we also realize organizational structure management responsibilities of a few of our tenured officers. John Kozlowski has been named our Chief Strategy Officer, while John Abt has been promoted to Vice President and Chief Quality and Operations Officer. All of these changes are intended to provide increased managerial depth to drive operational discipline and execution, enhance efficiencies, increase the output of our development production sites and ultimately increase our sales to our customers through new product launches and customer share of works. On a related note, we also announced some changes to our Board of Directors that become effective July 1 of this year. Patrick LePore, an exceptional and seasoned pharmaceutical executive, many of you may know, has been appointed Chairman succeeded Jeffrey Farber who will remain on our board. In addition, John Chapman who has extraordinary experience as a very tenured partner has been named to our board. John will succeed James Maher as our Audit Chair. Jim will step down from the board at the completion of the audit of our fiscal 2018 financial statements. I personally thank Jeff for his steady and insightful leadership as board chair and of course look forward to working with him in the future. Similarly, we wish Jim all the best in his next chapter. He also has my personal thanks for easing my transition to publicly traded life. Turning to our strategies and investments, as I said in the last conference call, because of our mid-market position capabilities, Lannett is an attractive and read for business partner. I said we will be particularly focused, looking for new products to expand our offering and I’m happy to share we progressed this goal with several partnerships over the last few months that supplement our internal development efforts to recap these recent transactions. We launched generic Toprol in January, following the agreement executing in late calendar 2017. In February, we acquired five products in UCB. These products include Metoprolol where we already have received major customer awards and will begin shipments this quarter. In March, we entered into three separate agreements with three additional strategic alliance partners. The first was an exclusive ES distribution agreement for Diclofenac ER tablets, another product we plan to launch in the current quarter. In the second agreement, we acquired exclusive US distribution rights to Fluvastatin ER. The application of this product is pending at the FDA and we believe to be approved and launched late in the second half of the current calendar year. Under the third agreement, we have provided five of our currently marketed products to Pharmaceuticals Associates Incorporated for repacking into unit dose cups and distribution of the managed care and hospital markets. This transaction has already begun generating new revenue streams for our business. For all three of these agreements, no upfront payment is required [indiscernible]. And last but not least, today, we announced the acquisition of a portfolio of 23 approved and one pending application from Endo. The portfolio mainly consists of oral solutions with a few semi-solid products. The products will primarily be manufactured at our liquid generics facility in Carmel, New York, which has the requisite capacity, expertise and capabilities. We will immediately begin transfer activities and the associated regulatory filing and we currently estimate that we will begin launching the products for the second half of fiscal 2019. While we’re well pleased with this new blizzard of activity, we remain actively engaged in a number of so discussions and are optimistic that several of these discussions will result in transactions that drive more near term revenue. Our overarching goal is to augment internal development efforts with immediate opportunities to diversify our revenue streams, generate cash to grow our business and or pay down debt. Now, let’s turn to some other operations around and opportunities. First, I’m pleased to report in the past few weeks, we've had satisfactory FDA inspection at our main manufacturing sites in Seymour, Indiana and Carmel, New York. Lannett has a very good reputation for tight holding manufacturing standards and congratulations to our current staff for continuing this impressive history. Second, last year, we announced a $15 million expansion related to our Cody Laboratory subsidiary. As part of our focus on near term opportunities, we have decided to suspend that significant expansion while we reassess the timing of risks and opportunities associated with the investment. We continue to make substantial investments in Cody and continue to believe in the vertical integration opportunities of this business. Third, later this month, I'll be spending time with the leadership teams of our China based partner, HEC. In addition to reviewing multiple near term and product opportunities, we will be discussing the generic insulin pen opportunity. I'm increasingly optimistic that relationship will be able to deliver an affordable customer product option with a proven level of investment, well within the strategic planning timeframe. I hope to further update in this matter on our next conference call. Fourth, with regard to C-Topical products, as many of you know, in December 2017, another company received FDA approvals to market and sell a Cocaine Hydrochloride topical product. To our knowledge, that product has not yet been launched. Meanwhile, our 505(b)(2) NDA for Numbrino which is related to our brand product, continues to be reviewed by the FDA. We have a PDUFA goal date of July 2018, however, due to ongoing FDA guidance expectations, we will not anticipate approval of that by product until the 2019 calendar year. Finally, with regard to the long standing partnership with Jerome Stevens, we continue to discus with them a myriad of business matters of mutual interest to strengthen that partnership. We remain optimistic that Numbrino will be extended at the point in time that makes sense for both parties to do so. So to summarize, I’m feeling very good about the rapid progress we're making to improve our overall operations and grow the business. We have strengthened the already talented management team and in several near term revenue streams and continue to pursue a number of additional opportunities to add even more product to our portfolio. Today, our progression has been well received by our employees, our partners and importantly, our customers. With 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. For the fiscal 2018 third quarter, net sales increased $174.4 million from 165.7 million for the third quarter of fiscal 2017. Gross profit was $76.7 million or 44% of net sales compared with 85.5 million or 52% of net sales for the prior year third quarter. R&D expenses were $2.7 million compared with 8.3 million. SG&A expenses decreased to 14.1 million from $17.3 million. Operating income was $59.8 million compared with 59.9 million. Interest expense decreased to 16.2 million from $16.7 million. Income tax expense decreased to 13.2 million from 15.0 million, reflecting a favorable impact of the recently enacted tax reform. Net income attributable to Lannett increased to $30.5 million or $0.80 per diluted share from 29.2 million or $0.77 per diluted share for the fiscal 2017 third quarter. As Tim mentioned, our overall probability on an adjusted basis exceeded our internal expectations. Having said that, I might add a bit of color to our third quarter performance compared with those expectations. During the quarter, sales of a few products were negatively impacted by volume pressure, most notably in our Anti-Psychosis and migraine categories. This was partially offset by a higher than anticipated sales of two key products in our Thyroid Deficiency and CNS categories. Gross margin was lower due to a change in our overall sales mix. R&D expenses were lower due to a canceled order for prelaunch inventory totaling $3.8 million and the timing of milestone payments. In addition, as Tim mentioned earlier, we are supplementing internal product development efforts with product acquisitions and in-licensing deals to enhance our product portfolio. Lastly, our effective tax rate in the quarter was approximately 30%, a couple of percentage points higher than expected. The increase in the third quarter reflects the catch-up impact related to a reduction to our R&D tax credit and other tax reductions that resulted in our expected full year effective tax rate of 28%. Turning to our balance sheet, at March 31, 2018, cash, cash equivalents and investment securities totaled $123.1 million and our debt was 851.5 million. As a reminder, in February, we made a voluntary payment of $25 million toward our debt balance. And we remain well within our required debt covenant ratio. Turning now to our guidance, our guidance for fiscal 2018 full year on an adjusted basis for net sales and profitability is unchanged, although individual elements have been revised as follows. Net sales in the range of 685 million to 695 million. We obtained the range from $680 million to $700 million, though the midpoint is unchanged. Adjusted gross margin as a percentage of net sales of approximately 48%, down from the range of 48% to 49%. Adjusted R&D expense in the range of $30 million to $32 million, down from 36 million to 38 million and adjusted SG&A expense, ranging from $71 million to $73 million, adjusted interest expense and other in the range of $62 million to $63 million, unchanged, the full year adjusted effective tax rate to be approximately 28%, up from approximately 27%. And lastly, capital expenditures in fiscal 2018 to be approximately $50 million, changed from the range of $45 million to $55 million. As a reminder, our guidance does not include sales from product applications currently pending at the FDA. Nor does our outlook includes sales of pending ANDAs of our strategic partners or the benefits from any potential acquisitions, future strategic alliances or possible further paydowns of debt. And with that overview, we would like to now address any questions you may have. Operator?

[Operator Instructions] The first question in the queue comes from Gregg Gilbert with Deutsche Bank.

I have a couple. First Tim, I'd like to better understand the screen that you're using to bring products in other than revenue generation near term and a price that can generate a good return. What are the operational and strategic linkages that are important to you? And my second question is about Cody. Did I hear correctly that you're still committed to vertically integrating in controlled substances, but you're spending that investment or changing your mind about the magnitude of it? Just want to square those things up. Thanks.

Thanks, Gregg. And I guess we’ll see in a couple of days. First off, I’ll take the Cody question first. Yes. What he said is a reflection of our in-patient at this time. I still believe in vertical integration. I still believe in the impactful on the customer need in the pain space, however, the scale and rate of our investment, the degree of a vertical integration is what we’re reconsidering now at this time and we’ll get back to you in the coming weeks as we work that through the process. We still have certainly significant footprint in Cody, Wyoming before the expansion, we continue to support that portion of our business accordingly. As it relates to the thresholds we have on new product launches, I think it's fairly straightforward. We want to typically look for something that is accretive almost immediately. At this level of purchasing, we’re looking to minimize risk expenditure, that is to say, near term approvals or approved products that are in our thresholds. We’re maybe a bit more flexible on the margin point and the company historically has had overall blended margins, but we’re certainly looking for some more room that can support if there is later price pressure that we would still be profitable and continue to supply our customers. It’s very important to those folks that we come and bring a product to market to their patients, you are able to seeing them through thick and thin. So we obviously need some room to do that and then obviously there are certain limitations of what we do internally versus a partnership. So, often the partnerships, if it’s non-oral non-solution that needed to come with its own sort of manufacturing capacity, which is also a great thing to tap into near term as our internal capacity is still working through the acquisition of the KU products. So I think those are kind of the moving parts and I think more important would be the exact threshold. We’re seeing quite a few of opportunities that are virtually immediately accretive when you bring them into market and I think that’s a far term from some of the more expensive acquisitions you’ve seen in the recent years in the industry.

And one follow-up if I could, just on your JSP situation, sort of the elephant in the room or one of them. Is there anything you can tell us about under what circumstances you would not proceed with extending a collaboration in some way? Just want to understand whether you're sounding confident about getting something done versus something that looks a particular way. Is there anything you're willing to say on that would be really helpful? Thanks.

Yeah. It's a big beautiful elephant. We embrace that as an organization. Look, I've met with the team, we speak with them regularly, they’re terrific folks, they’re savvy managers. We have a great dialog on an ongoing basis, all the various moving parts and I believe they are very supportive initiatives that we've been talking about. I don't want to put the cart in front of the horse. Elephant side, but I'm optimistic that we'll get a chance to renew this agreement when it’s right for, there is clearly nothing more important to our business than doing so and we’ll continue to be focused on doing just that.

The next question in the queue comes from Dana Flanders with Goldman Sachs.

My first one here, just on the Endo deal that you recently announced. Can you give us just a little bit more flavor in terms of key products, concentration and then just from a profitability standpoint, how much profitability does that add? And then going back to some of the other deals you announced, can you help us just understand how much incremental revenue is captured in your fiscal ’18 guidance from these deals? Thank you.

All right. Thank you for the question. I will start with the last one first. In terms of impact to this quarter, outside of the metoprolol launch from earlier and some pretty good value coming from metoprolol later this quarter. Most of these products are just obviously ramping up into the market and so there are effects in this quarter where we needed and more substantial moving forward. As it relates to the Par transaction, you will see it in our, I guess our Q shortly. But we paid about $10 million for upfront payment and a few million dollars of milestones related to the transfer and first launch of the product. While there are 24 products in that portfolio, there is a handful of them that are obvious near term opportunities. We would be hopeful that our first year sales would be less than the acquisition price and the margins here, they are typically products with not a ton of competitors, who are actually pretty healthy and I note that while the seller had a very large plant and perhaps excess capacity and made it profitable, we have a more hopefully [indiscernible] in Carmel, New York that has that capability and has that ability and capacity to bring those products in fairly profitably, but we have a transfer process we got to go through. So those products also don’t really hit our books until nine months or so from here based on the approval transfer process.

Okay. And then maybe just a quick follow up, you mentioned, I think it was fluphenazine and sumatriptan, some weakness this quarter. Is that competition coming back in? I think previously you had been pretty optimistic about the potential of those over the next 12 to 18 months. Can you just give us a little bit more flavor on what's going on in those markets?

Yeah. For sumatriptan, the competitor did come back and we’re kind of reverting to this position we were prior to their supply disruptions, so that’s been working its way through our numbers for a few quarters now. On fluphenazine, it’s a bit more of a bouncing ball around slow erosion in our position late last year. There were some share shifts that didn't get maybe fully picked up as we went through a transition in our computer systems, right to SAP, a couple of customers brought in some additional products that -- to make sure there was no interruption to the supply of this important therapeutic areas. And that washed its way through a bit in the first quarter of this calendar year and now will be having some recovery into the final quarter of this -- of our fiscal year, starting to be bouncing calendar and fiscal. But so I'm trying to say it is there is a little bit of incremental sales in the second fiscal quarter of our year, which bled through in the third fiscal quarter of this year and on the fourth quarter comes back up a little bit, although in a level that’s declining steadily since late last year.

The next question in the queue comes from Andrew Finkelstein with Susquehanna.

I was hoping you could talk a little bit more about the gross margin dynamics in the quarter. Certainly, Toprol was a lower margin product, but levothyroxine is above average as I understand it and was strong in the quarter. So if you could provide any more color and also I think the midpoint of guidance implies a bit of a rebound in gross margin in the fourth quarter. So if you could comment on that? And then anything else you can say on your comment about guidance relative to Numbrino. It would be helpful to understand the timeline for that product?

All right. So I think fundamentally the comment on the gross margin is related to the mix. We do have more product coming in, as we both partner and watch some of our products with lower average margins and our overall margin rate. Marty, do you want to add anything to that?

Clearly the piece I would add Andrew is the fluphenazine as we said had a weaker quarter. So it’s a high margin product quarter for us. So that was somewhat off our expectations. Just like also you see rolling into the company’s gross margin percentage in the quarter.

And to see topical, again as I think I noted in the prepared remarks, the FDA continues to review our file, they have asked for some additional data, which pushes our belief of an approval to more into next calendar year that meanwhile on the sales of our existing product continues well. The other company with an entry into this space is not shot up in the market yet. So we’ve had no ill effects of that arrival. It’s continued to providing that product to our customers.

The next question in the queue comes from Elliot Wilbur with Raymond James.

Just a couple of follow-up questions with respect to [indiscernible] and possible impact on Numbrino review and timing of launch. Given that [indiscernible] has received NCE exclusivity, your vantage point, any potential impact to the ongoing review of Numbrino or ultimately launch of the product? And then similar question, do you think it will possibly have an impact on your currently marketed C-Topical.

Thanks for the question, Elliot. Two things. First of all, as it relates to the Grandfathered product in the market, typical, the FDA guidance on the arrival of an approved application of the same variety would suggest about 12-month period. As it relates to the review of the grandfathered product, the idea of course is very sensitive to supply disruption issues. This is controlled substance obviously involving cocaine. So I'm sure the FDA will be thoughtful that in general we would expect to be able to service product at least through December, assuming their product shows up in to the market beforehand. As it relates to the exclusivity in the vagaries of technical written language, if you go through the CFRs and review the nature of what that exclusivity means, it reads under the plain statute to block submissions. And since our products have earlier been submitted, we do not believe we are blocked, additional applications could be blocked, but we believe that we are able to proceed to an FDA review as we meet the requirements they have on that product.

Okay. And then two additional follow ups here. Had expected perhaps a softer quarter than we actually saw in levothyroxine, given return of one of the major players in that space. Can you maybe just talk about sort of first market dynamics there and the expected results this quarter, simply a function of delay of that particular player, not recapturing share or is has there perhaps been something that’s gone your direction in terms of actually being retained more of that business. And the last question is, if I’d get the numbers correctly, but I think you have 12 owned ANDAs and 6 partnered products that are in launch phase or early – will be launched or could be launched relatively soon. I'm just wondering if all those assets at this point in fact will be launched over the balance of this year and heading into fiscal’19.

Okay. First of all, I’m happy to announce that today is a transaction of our owned ANDAs, are north of 30 now. They are approved pending launch. That new block will take a bit longer to get through the sequencing, the ones that we've been talking about previously. We have launched a couple of products this last fiscal quarter. I think we’ll launch half a dozen or so in this fiscal quarter. That compares to a number not much more than that with the previous two calendar year. So the company has been working for some time to get capacity up and running. We’ve added some management bandwidth to focus on these issues. So all of those products will be under a very high level of scrutiny and pressure to bring to market if the dynamics justify doing so. I wouldn't want to suggest all of them will come to market, could dynamics change over a period of time, but a fairly substantial block of them will in the coming fiscal quarter. So we’re excited about that and it’s a lynchpin quite frankly of how we drive value in this company as we move into the coming quarters and years. As it relates to levothyroxine, yes, there was some spillover effect that continues to benefit us in this last fiscal quarter. Some of the share information depending upon who you look at probably peaked in the mid or higher 30s during the disruption. As that competitor came back on market, our share was drifting down, but still somewhat higher than it was before the disruption. So there is some persistency to our position, subsequent to that disruption. I’d also note some of our customers that continue to aggregate their competitors and some of that share is also coming to our side of the house, given one of our major customers in that space has added a plan that didn’t necessarily source from us. That’s also provided a little bit of a bump to our share position, but it is going to look a lot like the first fiscal quarter. In the fourth fiscal quarter, it was a little bit of upside from the matters I just expressed.

The next question in the queue comes from Matt Hewitt with Craig-Hallum Capital Markets.

Hi. This is Charlie Eidson on for Matt Hewitt. Thanks for taking my questions. A couple for me. First, you’ve shown an ability to in-license a number of products since taking the helm. How much runway is there for LCI with the strategy and what does the pipeline of additional in-licensing opportunities look like today.

Thanks for the question. It’s one of my favorite relative to the position you see for the company. As a mid-market firm with adequate portfolio, but nothing like the size of the majors, we see a fairly sizable set of opportunities in front of us, right, some of the larger well known players in the space are cashed inside the products, as we have a lot of rationalization, leaving us great opportunities to partner with their former partners as we've done with Diclofenac or Metoprolol or add new partners as we’ve done with several of the other transactions that we’ve noted on. So, I see a fairly substantial runway. We have relatively modest share in the market and have got great commitment to it. And I believe we’re building the team and we’ve got a company here with the right capabilities to avail ourselves to that situation. I mean at any given moment, obviously, we have dozens of conversations ongoing, not all of them, will come to fruition and bear and we’ll be spending time to make sure we balance the full value of internal development against the sort of opportunistic situations on external parties that we are absolutely open for business and it’s a space we get calls literally every week on opportunities, almost all of them with reasonable financials and will continue to execute that as we drive forward in the coming quarters.

Okay. That's sound great. And then one more, you've added a number of people to your operations and commercial teams over the last couple of quarters. Can you talk about how long you think it will take them to get fully acclimated to where things are moving like you want them to move?

Well, there is something around the table right now. We’ll let them. We’re hoping to bring them up to speed in matters of weeks obviously. Some stuff makes immediate impact, some of this is a bandwidth issue. The company is considerably larger today than it was just a few years ago and we've been working with that same management team for a period of time. So some of the areas get that reserved, right. So, some of it is simply the bandwidth of experienced management joining the team we have here to make things move more quickly. These are not young, I'm sorry, children, but it’s seasoned executives that can make immediate impacts. Obviously, the new ones into the company and the situation, history and contacts will take some time, but they’re ready now and as such to help drive our progression forward. And again, I add that in context to a great team that is already here, this is an intention to provide additional bandwidth particularly around these areas where we've been less than ideal in getting new products into the portfolio or into the market from our organization, while the rest of our moving parts have done quite well, but we are a little underserved on the teams in that space and therefore we add some production, operations, quality, marketing, commercial, et cetera. And so far so good, and looking forward to the coming quarters from the extended team.

The next question in the queue comes from Gary Nachman from BMO Capital Markets.

Hi. Good afternoon. Tim, on these other deals that you're looking at, are most of them similar to Endo, with mostly marketed products, any real pipeline that you're looking at, just clarify that. And as your internal R&D spend is coming down, how will you be able to appropriately fund the pipeline? How do you think about managing that going forward? Just I think it's an important point to elaborate on.

Yes. Thank you for the questions. As it relates to the spend, I think there's a lot of moving parts, right. We haven’t got any reduction in our staffing, I’ve heard you do say the products that we're developing on portfolio. There are some moving parts about the timing of specific projects. There is issues around specific timing of bio studies and what have you. And of course, we just expense $10 million and $12 million a quarter in 23 products. So that doesn’t hit the R&D lines, but there's both income statement investment and there's also balance sheet sort of investment. So I would not align with an impression we’re doing anything other than spending more on R&D. We are spending some time balancing what we can do now versus later. Because of this interest in availability of products that are available right now, a disproportionate number of products have been approved products. We’ve done a couple of in-licensing of pipeline, but as you get in the pipeline, we have our own internal capabilities. So you’re not necessarily accelerating the time to market as quickly. So we'll judiciously add some pipeline efforts, particularly around technologies that we’re looking to access or specialized manufacturing capability, but again right now, with this large pool of things that are very early in our wheelhouse, that is coming to us and we're executing on and we’ll continue to do so until that runs dry, I don’t see that happening any time soon.

And then just a couple of follow-ups on Levo, how has pricing held up with our products as those are reentered, is everyone still I guess behaving nicely and when are you guys expecting an additional competitor to enter the market and any visibility on your side when you think that might happen?

I'm not going to comment on market pricing for a whole host of competitive and compliance reasons. We are pleased with where we are with the product and are meeting our expectations. As it relates to moving forward, there's a whole lot of moving parts of bringing this products in to market. I don't want to bore our audience to too extensive length. There is obviously ongoing rumors and expectations of people coming into this market, but that's been going on for a long time. I just always have to reiterate the couple of reasons why that hasn't happened recently, as a result of a number of logistical and technical challenges, including the product’s neurotherapeutic index, making customers and patients reluctant to switch from a firm supplier, the very broad range of extremely low dose and very high volume product presentations, making it very hard to rely and manufacturer as our partner JSP has done so well for so many years. As a result of multiple brands and entities in this space, multiple so called AB ratings to create flexibility for the customers, a substitute from whatever physician brand preference may exist out there. And again, we're companies that has the product with our partner with three of those 80 ratings and a long history of reliable supply despite volume, low dosage and Neurotherapy. So eventually, some days, it will show up, but it’s not the sort of product in our world we would expect significant and rapid deterioration in the position.

And the next question in the queue comes from Scott Henry with Roth Capital.

Hi. It’s Scott Henry at Roth Capital. A lot of questions have been asked. Just really want to focus, if you can, we were into the fourth quarter of the fiscal year, any thoughts on fiscal 2018, not looking for guidance, but just directionally on the topline, do you view it as an up year, a down year, a flat year, and within that context, how do you think about Levo in that year.

Well, that sort of sounds like you spoke well, albeit a bit circumspect relative to what we say at this time. Layering some, we will get into little bit more clarity once we have the chance to review all of the moving parts with our broad – I would note that this year we’re going to be large enough that even modest erosion on the base part of our business is notable. I would note that we discussed it at length this year, the sort of supply disruptions that we benefited from that we don’t expect to repeat next year. And so, as you deal with that sort of normalization, just with levothyroxine, that starts with a number of things you got to make up before we start layering in all of these approved and unlaunch products, some of which will at launch at [indiscernible] we exit this quarter and into next. And so there is a bit of a moving series of adjustments that we are not comfortable to providing any color on this time. Marty, if you can add a little?

Yes. The only other piece, Scott, as I would add is that, as Tim said, the anomalies of our current fiscal year and not necessarily going to repeat next year, right. But another point I mentioned and I think it is early to talk specific number, but the other piece of, the way we look at fiscal 19 from a gross margin perspective is the point I wanted to mention is that the, we have a stronger first half of the year from a gross margin perspective and a slower in the second of the year as you may want to call those. I would say, as you start up thinking about fiscal 2019, look to the gross margin we’ve had like, in this quarter, the 44%. I know what you’re working to see for the quarter. There are margins in fiscal, or gross margin in fiscal ’19, will be on that lower end, much like what we’re seeing in the second half of fiscal ’18. I just want to make that point from a direction perspective.

That's helpful and I appreciate the color on that. Just separately, just a pure modeling question, I'm looking at the line items you're putting in and urinary kind of fell off the map, I don't typically see that sequentially a change of that magnitude. Is it something happened there? Is urinary going away or how should I model that going forward?

Yes. So as far as modeling it Scott, in the quarter, we had a couple of things that impacted that – that drove that very low number that you’re seeing, $33,000. It’s two things that actually happened there. We had some pricing adjustments that we had to make with a particular customer that affected that number. So and volume number, if we look at the volume, it is down about 25% or so to 30% as compared to the second quarter and also compared to last year's third quarter and what that is is a temporary production backlog that we’ve had at the end of our third quarter and that number will – we expect that number to go back up to a normal run rate that we’ve been experiencing when you get to the fourth quarter.

Okay. So it sounds like Q2 is more representative than Q3?

Correct.

We have no further questions in the queue at this time. I will turn the call over to management.

Well, thank you everybody for joining us today. We look forward to sharing our progress on our next scheduled conference call. Thanks again for joining.

Ladies and gentlemen, this concludes today's teleconference. Thank you for participating. You may now disconnect.