Welcome to the Lannett Company Fiscal 2019 Fourth Quarter Financial Results Conference Call.My name is Adrianne, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] Please note this conference is being recorded.I will now turn the call over to Robert Jaffe, Investor Relations for Lannett Company. Please go ahead.

Thanks, Adrianne. Good afternoon everyone and thank you for joining us today to discuss Lannett companies’ fiscal 2019 fourth quarter financial results. On the call today are Tim Crew, Chief Executive Officer; Marty Galvan, 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.lannett.com. A playback will be available for at least 3 months on Lannett'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 forecasts 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 2019 fourth 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.Please note that also included on the company’s website is additional information regarding the Company's net sales excluding Levothyroxine for fiscal 2019, historical bet debt repayments on its Term A and Term B loans as well as a reconciliation of fourth quarter adjusted EBITDA.This afternoon, Tim will provide brief remarks on the Company's financial results as well as comments on recent developments and associated initiative. 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 as we have much to review in this call and thus 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 at Lannett. 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 will be lasting.At the same time, life goes on. And after a thorough search of internal and external candidates, I'm very pleased to welcome John Kozlowski as Lannett’s next CFO effective August 31st.John joined Lannett 10 years ago, and over that time he had served as our Vice President, Financial Operations and Corporate Controller, Chief Operating Officer, and most recently as Chief of Staff and Strategy Officer. Thus, his experience 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 note, we've announced the appointment of Dr. Melissa Rewolinski to our Board of Directors that was effective July 1. 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 worked for leading pharmaceutical firms such as Pfizer and Pharmacia & Upjohn.Turning to our financial results. For both the fiscal 2019 fourth quarter and full year, our net sales, gross margins, and implied profitability all exceeded our guidance. Through fiscal 2019, we recorded sequential quarterly increases in our product sales when we exclude Levothyroxine.Net sales of this core business grew from approximately $101 million to $105 million to $118 million to $134 million in the first, second, third, and fourth quarters respectively. This progression equates to a growth rate of 33% from the first to last quarter.And as just noted, for the fourth quarter, our first full quarter without Levothyroxine, total net sales were about $134 million and adjusted net income was approximately $15 million, which equates to $0.37 per diluted share.Our adjusted gross margin for the quarter was about 45%, the highest of any quarter in fiscal 2019 despite the absence of Levothyroxine in our fourth quarter sales. And our fourth quarter adjusted EBITDA was a strong $46 million.Our fourth quarter didn't benefit from higher than expected customer orders in June in advance of the July 4th holiday, which fell midweek. Even without the better than expected sales in the fourth quarter, our portfolio of products excluding Levothyroxine exhibited solid quarter-over-quarter growth.In the quarter, we successfully launched four solid products that collectively contribute to -- continued to contribute to our growth aspirations. These products are Amphetamine IR tablets, Methylphenidate ER tablets, that’s generic Concerta; Dantrolene IR capsules, and Aspirin and Dipyridamole ER 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 30 was just above $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 Levothyroxine asset. At June 30, 2019, 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-licensed and most importantly, the 25 products which we launched.Sales from these products have diversified the 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 in-line 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 that have the potential to drive significant growth to our business over the immediate term and beyond.In general, these products have a slightly longer road to commercialization, may require investment that is larger than that we have typically made and have the potential to cause some lumpiness to our results, at least in the near-term.We've previously disclosed some of these opportunities such as insulin glargine, Numbrino, thalidomide, and the new future supply and distribution agreement for Levothyroxine. 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 some of those transactions before the end of the calendar year.Now, turning to a couple 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 API 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, our silver lining perhaps given the current environment. And while we generally do not comment on pending litigation, I believe it's worth noting that to date the company is a defendant in only one opioid lawsuit. That case involves our Kremers Urban subsidiary and a single hospital. Moreover, we believe Kremers Urban was named in error in that suit.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, a firm 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 Numbrino NDA 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 thalidomide, the API 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 HEC, 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-IND meeting with the FDA to discuss their guidance and next steps for the progression of the drug.Regarding Levothyroxine, as we recently announced, we formed a strategic alliance with Cediprof to be exclusive U.S. distributor of their Levothyroxine product. Cediprof’s 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 Levothyroxine market well, and it remains one of the most widely prescribed drugs in the U.S. So we believe this transaction has excellent potential for our company. Meanwhile our relation with Cediprof and their parent company continues to grow.Today, we announced that we expanded the relationship to include an advisory agreement and under the new agreement, we are providing our expertise to help Cediprof build commercialization capabilities in the USA. While that capability is being built, we also expect Lannett will have an opportunity to market in the U.S. market several of the parent firm’s 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 Sinotherapeutics Inc. a China-based specialty pharmaceutical company to be the exclusive U.S. distributor of Posaconazole Delayed-Release Tablets 100mg.A few days ago, Sinotherapeutics received final approval from the FDA for the product. We believe this is the first and only known approved AB-rated generic Posaconazole and thus we'll 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 U.S. sales were approximately $325 million for the 12 months ended June 2019 according to IQVIATM. In the near future, we expect to begin shipping the product, sales of which are included in our fiscal 2020 guidance. We now expect the 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 plan. We have this view despite the challenges and known 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 healthcare. Generics representing 90% of all pharmaceutical volume, but only a fraction of all pharmaceutical sales.To 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 Lannett is rather unique. What our company is, and what it is not, differentiates us from many others in our space. We are a mid-sized company so we do not have to hit a so-called home run to have meaningful growth. We are focused on the U.S. market, 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 U.S. based manufacturing footprint and associated flexibility it is flexibility that is free of the global complexity and fragmentation that besets some of our competitors, makes it easier, increasingly preferable, for our customers to do business with us. We believe, we can respond quickly to opportunities as they arise.We believe our coming fiscal year will be a solid one, and one from which we'll 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 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. With a 2019 fourth quarter, our first full quarter without Levothyroxine 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.SG&A 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 $0.37 per diluted share compared with $24.5 million or $0.64 per diluted share for the fiscal 2018 fourth quarter.And adjusted EBITDA was $46 million in Q4. Turning to our balance sheet, at June 30, 2019 cash and cash equivalents totaled $140 million. During the quarter, we purchased approximately $38 million of our Term A loans. This amount includes $7.3 million of purchases late in May after we announced the purchase of $30.5 million of Term A loans on May 21.At June 30, 2019 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 Levothyroxine.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 launch 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 Levothyroxine, anticipated competition on some products and the expected launch of a number of partnered 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 SG&A expense ranging from $63 million to $66 million which is lower than SG&A in 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 in 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 2020 first 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 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. [Operator Instructions] And our first question comes to Gregg Gilbert from SunTrust. Your line is open.

Thanks. I have a few. Marty, good luck in whatever’s next; and John, welcome to you. Tim, can I get you to talk a little bit more about that new distribution deal, the financial terms, how long the deal lasts, perhaps relative margins? And I’m sure folks want to understand to what degree it drives the guidance for fiscal 2020?

Thanks, Gregg. 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 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 the fiscal year, it’s somewhat backloaded, so we'll have to see if we get ahead of that number. But it's a significant agreement. There's some technical things around the product. And if you're into extrusion technologies that we hope to not see too many people 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 deal last, that agreement?

It’s seven years or more, I’ll have to double check.

Okay. And then I want 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 stuff other than the one you just announced?

We’re kind of basing that on the -- our sales of our base products, excluding Levothyroxine which totals 400…

It’s a four -- I believe, 457.

457 of last year’s base business without Levothyroxine and is effective starting immediately for 2020, 2021, 2022. We also do not have any inorganic sort of BD, in that we do have other in-licensed products that 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 addressed the opioid overhang or perhaps your belief that there is a lack of one or should there be a lack of an overhang for your company. But the capital structure plans, obviously a little large. Can you talk about what options, at least in broad structure considering in any timeline or sense of urgency you have around answering that question? Thanks.

You’re asking like which litigation are you referring to? I’m sorry, Gregg I missed the first part.

Yes, I was saying the capital structure improvements that you’re talking about, [audio disturbance] for an advisor to look at all options. What's most important to you? What types of options are you considering and perhaps any insight into the timeline? Thanks.

So, thanks Gregg. Well 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 it was right 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 loan 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 levothyroxine to take over some of the overhang of our viability which has been out there historically. We believe our bonds are trading closer to par they have been in the past, and it’s reflective of the cost of capital that’s quite reasonable to kind of refinance and re-extend those term loan debts, but we’re working 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 comes from Gary Nachman of BMO Capital Markets.

Hi. Good afternoon. My best to you as well, Marty. And welcome, John, from me, too. So first, with that greater than 15% growth target, are you anticipating any major competitive dynamics for any of your significant products over the next few years that we should think about? And would Levo be included in that in 2022?

Thanks Gary. You know, we have nothing specifically changing. I would say as it relates to our aggregate forecasts in that sort of growth plan. It's really just a totalling up from the bottom up to all the products that we've got stacked and racked to launch, offset by the sort of typical erosions we'd anticipate in our base businesses. We have larger than double-digit erosion if the product has few competitors and is particularly high margin for older products that are more eroded. We have lower-single-digit percentage erosion each. Each product has its own story, so there's no change in our forecasting, it's the blend of the business and the portfolio in the products that we have that we believe risk adjusted gets us comfortable with a CAGR in excess of 15%.And Levothyroxine should come into that planning period toward the end of the -- of that three-year period.

Okay. And maybe just on Levo, just could you explain how the arrangement works? 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 would they fall into?

So thanks. The relationship as we've indicated starts in 2022 on expiration of that agreement. Want to be very clear, that is we're marching towards, as a practical matter given our own personal experience in this space. When those contract expirations get closer it can be pragmatic in the interest of customers and patients and the product to think about some sort of orderly transition much as we did previously with our Levothyroxine asset earlier this year.So we haven't any 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 you know given where we are with that asset, what we'd expect it to look like in future years, we'd expect it to have a lower percentage than it historically had for us and perhaps even a little lower than our prevailing gross margins for the current business.So when it goes back to the comment of it's lots of gross margin dollars, we're quite happy to add it.

Okay. And then last quick one. I knew you have this $75 million target for new product launches annually. Did you also still have a target of 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 in the future? Thanks.

So Gary, we've 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 the 20 products if we're 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 and goals so if any particular product comes up light, we increase the chances and other product comes up strongly.And I think for example, posaconazole is a great example of that product. Some months ago we signed it. We thought it would be a good product. But as the market evolved and fewer people showed up, and the patents fell away. We think it's going to have more value than we did earlier forecasted. For fair balance, we would hope for more sales at Methylphenidate, Concerta when we first signed up that deal, but more people showed up on the market and that product value while still significant has come down.So we always try to think about having shots on goal of some diversity for some ups and downs, and net net feel comfortable with that $75 million annual new goal.

Okay. Great. Thank you.

Thanks Gary. Thank you.

The next question comes from Elliot Wilbur for Raymond James. Your line is open.

Thanks. Good afternoon. Quick financial question. But first want to congratulate Marty on his well-deserved retirement and say thank you for all the wisdom and knowledge that you have shared with us over the many years that we've worked together. Very much appreciate it.

Right. Thank you, Elliot.

So with respect to inventory trends for some reason I have in my mind that number should continue to move down and quite a bit below what we see in the last couple of quarters given the absence of Levothyroxine. So maybe just a little bit of insight into sort of why the inventory numbers remain flat rather than trending downwards?

Thanks Elliot. This is John. So actually our inventory did increase going from Q3 to Q4. And what you've seen is it's where we have a strategically increasing net inventory for certain products as we look to capitalize on market opportunities. And for the Levothyroxine product our returns were lower on that product. So you we didn't see a significant decrease as we exited that market.

Okay. Then a follow up financial question 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 playing out for the next couple of years here Term A will be paid off as you head towards maturity of the -- or as head into next year, as you head into the maturity of the -- the term B, I mean you're going to be well under 4x leverage.Kind of curious based on discussions you've had to date sort of what receptivity you're finding out there in terms of, in terms of potentially being able to refinance it at more favorable terms. I guess, I ask the question because obviously the business you've seen a lot of positive directional movement in numbers, and a lot of favorable trends, but certainly hearing a lot of commentary from other competitors who have you know maybe very different issues about how difficult it is to secure debt financing or businesses they'd like to spend or just to refinance some of their maturing debt as well.

Well thanks, Elliot. That's exactly why we've brought them on board to further understand their options. We thought the cost of 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 shouldn't allow us some degrees of freedom to discuss those options. You know we'll work closely with those advisors to figure out what those best options are. There's lots of them.You know with the maturities being a year and three or so out, practically we need to address them, 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 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 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's a chance now for us to have a meaningful conversation with folks in that base and we'll see what they have to say.

Okay. Last question for you, Tim. In previously talking about revenue expectations from new product launches, you basically guided to sort of a rough range of 3 million to 5 million per product. Obviously the deal you announced today in the Levo deal significantly above that. Just curious on your perspective what may have changed or what may have led you to these deals is it just good scouting on your part, past relationships or maybe is the company just getting a little bit more visibility, getting more inbound calls in terms of folks looking for a platform to be able to leverage their development efforts off?

Well thanks for the question, Elliot. It's a favorite one for us. We will continue to execute on the sort of I ain't calling bunch and singles, but the meat and potatoes perhaps of the generic business which often involves products of a modest size, we think that gives stability to our portfolio, gives a certainty to some of our returns. And in 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, that may give a bit better return.If we look over the last year, we weren't really in a position to lay out $20 million for Levothyroxine 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. We are 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 cross-functional teams, whether it's quality, manufacturing, R&D, regulatory commercial finance all of them. We bring those teams to the table, we make a pretty good pitch and a very significant commitment to those partners and products, that they care a great deal about, that mean 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 less volatility of the core oral 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 they're 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 a personal and a professional level.

Thank you, Scott. 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 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 now 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 you know that the negative to that would be in Q1 we're seeing some pressure.We talked about a 10% decline in the sales, but just like 2019 we would expect for the remainder of 2020 to continue ramp up both in sales and EPS quarter-over-quarter.

Okay. So you would see EPS up sequentially each quarter in 2020?

Yes, that's how we're looking at it.

And if I can add, obviously a bit of -- there's a bit of a wildcard here on posaconazole 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 all of our expectations. But again as a 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 will we supply when other folks launch etcetera. But it is something we are keeping an eye on that could have some positive lumpiness to our results.

Okay. And when we model out interest expense because it is a material number, should we think about that as kind of flat throughout the year or should we model in pay down throughout the year, how when you factor in your guidance, how are you thinking about that?

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 in I guess you know when I look at cardiovascular $31 million versus $23 million in Q3, then antipsychosis, $28 million versus $21 million. Anything different there or is that just an example of some of the buying patterns?

I think that's a direct example of some of the buying patterns. When we talk about the timing specifically with the antipsychosis, it directly affected some of those -- some of those categories.

Okay and then contract manufacturing really low in Q4. That again, is that just variability or is that an area that perhaps isn't a priority right now?

No, that's 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. All right. Great. Then I think that should do it for me. Thank you for taking the questions.

Thank you.

And our next question comes from Matt Hewitt from Craig-Hallum. Your line is open.

Yeah. This is Lucas Baranowski on for Matt Hewitt here at Craig-Hallum. It looks like you're guiding to a 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, Lucas, this is John. When we look at 2020, it 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 partner products, which is also then showing some pressure in our margins as we get into the second half of the fiscal year.But as we mentioned, you know, we're forecasting slightly lower margins, our profit dollars 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 35% gross margin. I mean, is that still kind of what you're thinking? Or has something changed on that front?

Thanks, Lucas. It's Tim here. I think 35-ish is probably right for the blend of all the partnered products. Some are higher, some are lower. I think that's in general close. Now again, a couple of good quarters on our posaconazole or other products in the pipeline could swing that a bit. But in general, I would think about it as 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 Sinotherapeutics agreement that you have announced on this call. I mean, how much of that was factored into the guidance that you just provided?

So, again, Lucas it's Tim here. We think about our new product launches adding $75-ish million on an annual basis. And posaconazole 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 and there's a bunch of back loaded 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 we've provided. We're happy to be a bit ahead of it for this particular product. Although as I noted earlier, products we launched just a few weeks or months ago on methylphenidate and Aspirin/Dipyridamole both good products, but not as valuable as you once hoped they would be. So it's really about this basket of enough shots on goal and enough interesting products that on balance, we feel comfortable to the $75 million.We don't want to say because this product can be extra million dollars higher, we are going to add to the $75 million to get a bit closer to the end of the year's experience.

Okay. Thank you very much. That's all I had.

And this concludes the question-and-answer session. I'll now turn the call back over for final remarks.

All right, 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.