Welcome to Lannett Company Fiscal 2020 Second Quarter Financial Results Conference Call. My name is Adrian, and I will 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. Robert Jaffe, you may begin.

Thanks, Operator. Good afternoon, everyone. And thank you for joining us today to discuss Lannett Company’s fiscal 2020 second quarter financial results. On the call today are Tim Crew, our Chief Executive Officer; and John Kozlowski, 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 2020 second quarter financial results for the company’s reasons for including non-GAAP financial measures in its earnings announcement. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is also contained in the company’s earnings press release issued earlier today.This afternoon, Tim will provide brief remarks on the company’s financial results, as well as comments on recent developments and associated initiatives. Then John will discuss the financial results in more detail, including the company’s fiscal 2020 guidance. We will then open the call for questions.That said, I will now turn the call over to Tim Crew. Tim?

Thanks, Robert, and good afternoon, everyone. In some ways, our second quarter performance serves as a microcosm of how we manage our business in our competitive industry. Let me explain.Two years ago, we implemented a strategy designed to improve our in-line product performance and supplement our internal product development efforts with product acquisitions and in licensing agreements. This strategy has helped expand our portfolio, add new revenue streams and diversify our product offering.In short, we injected near-term sales and profits into our business. The strategy has helped mitigate the impact of regular competitive pressures and we continue to demonstrate the success of our strategy with well above market revenue growth.With that as a backdrop, let’s take a closer look at our fiscal 2020 second quarter financial results. Net sales of $136 million were higher than expected. Yet adjusted gross margin percentage for the second quarter was lower than we expected. Nevertheless, with a higher sales, gross profit dollars were only slightly lower than anticipated.Now, comparing the second quarter results to our first quarter, both the topline and net income grew meaningfully. This is largely due to a full quarter of sales of Posaconazole, a key product that we launched late in our fiscal 2020 first quarter, as well as the launch of seven new products during the second quarter.The adjusted gross profit was lower in part due to a change in mix of sales including lower Fluphenazine sales related to the timing of customer orders and lost sales related to the Ranitidine recall in our cocaine solution withdrawal. The puts and take in this quarter illustrate on one hand, our success in launching new products and on the other hand, the various challenges inherent to our industry.Turning briefly to our full year guidance. We have revised several elements in our outlook. The changes include higher net sales guidance and lower gross margin. Our expected adjusted EBITDA, however, remains unchanged.This guidance is based on certain assumptions, including; first, the continuing durability of Fluphenazine and Posaconazole sales. You may recall that we previously expected to see new competitors for both products sometime during the second half of our current fiscal year.We have reassessed the market for Fluphenazine and now believe no new competitors are likely until the beginning of our next fiscal year. For Posaconazole, we are forecasting competition to occur late in the fiscal year.Another item of note to our guidance is the planned launch of 10 or so additional products through the remainder of this year. John will discuss our financials, as well as our revised guidance in more detail shortly.Now regarding our quote-unquote launch parade, as we have said our calendar launch year was back end loaded for this fiscal year, after single but important Posaconazole launch in Q1, we have launched seven products in Q2, including prednisone, cyproheptadine, clobazam, Venlafaxine ER, Lidocaine 4% and two dosage strengths of ABC capsules, excuse me, BAC capsules. And then just noted over the balance of the fiscal year, we are planning to launch an additional 10 or so products.Now for an update on some of the key products in our pipeline. About three weeks ago we received FDA approval of our 505(b)(2) NDA for Numbrino, a branded local anesthetic product. Now we have seen new stories that incorrectly describe the product as a nasal spray. In fact, the product is a nasal solution.Numbrino is the first NDA approval in the company’s history to include both safety and efficacy clinical trials. This is a major achievement for Lannett. I’d like to acknowledge our product development teams, regulatory teams and operational teams for their perseverance and hard work over many years. We are producing the product at our Carmel, New York facility and expect to ship the product shortly.Our near-term goal is to regain customers that use our previously sold cocaine hydrochloride product, positioning ourselves as a consistent and reliable supplier. And we are now, of course, analyzing marketing and managed care opportunities based on our approved label.We further expect to launch generic Adderall XR, for propranolol LA and methadone oral concentrate in the coming months. We expect these and several other products to continue to contribute to our aggregate results.Now regarding our internal pipeline, we have been working hard at improving our effectiveness and tuning our product selection process. We are now choosing products with notably more expected future value based on our expanding capabilities and we currently have more than 20 products in development. We also have about 14 additional products that Lannett has earlier filed with the FDA, plus another seven or so products that are approved and pending launch.An encouraging hidden statistic in our recent average FDA submission to approval timelines for approved ANDAs has been a reduction by more than 50% to 15 months. The statistic relates to just three files are approved in FY’19 from those filed in just FY, excuse me, the statistic relates to just three files are approved in FY’19 from those files submitted in FY’18 and is compared to a larger set of approvals that occurred in earlier years. But we believe that is an indicator of our improving file quality in R&D throughput.Turning to some of the larger and more sustainable products in our partner pipeline. In December, we announced positive results from a human PK/PD clinical trial or insulin biosimilar project with our partner HEC.As a reminder, HEC is making substantial operational investments in their global insulin platform. Insulin glargine is one of the largest addressable U.S. markets in which Lannett has ever potentially participated, with reported sales greater than $6 billion. The study which compared HEC’s insulin glargine to U.S. Lantus met all primary endpoints.We expect to send the FDA our briefing book with the next few weeks and meet with them later this fiscal year to review the development plan for what additional studies are needed based on an in-depth review of the biosimilar data we have in hand. As you may be aware, the FDA has made several announcements this past year that seek to facilitate biosimilar filings. So we look forward to sitting down with them soon.We also remain excited about the other significant and sustainable product opportunities that are progressing in our pipeline, generic ADVAIR, another project with our partner Respirent is investing heavily in their global program is another one of the largest U.S. markets in which Lannett potentially participated. The product is currently in confirmatory PK/PD trials which are proceeding nicely. We expect to file that product ANDA later this year.And last but not least, we currently expect to launch an approved levothyroxine product, currently sold by another party no later than August of 2022.In a slightly different vein we have been pleased with our progress on some litigation matters and have a brief update. The first is related to a class action lawsuit filled in October of 2018 against the company and two of its officers. The court granted preliminary approval of a settlement in July of 2019, and hearing is scheduled in a few days to request the court’s final approval to settled litigation. Under the proposed settlement, the company has agreed to pay $300,000 without admission of liability.The second update is related to some shareholder derivative lawsuits filed last summer against certain former and current, officer and board members of the company. In this matter, we have reached an agreement in principle to resolve the consolidated and related cases. The settlement, which is subject to court approval proposes Lannett adopt some new corporate policies and pay $600,000 in a legal fees in exchange for release of our liability.Bringing these cases to conclusion should help reduce some recent growth in our legal fees and we continue to look for ways to resolve other pending litigation on terms acceptable to the company.Now, looking beyond our quarterly variances, daily operational discipline and recent growth, the company has begun to refresh its five-year strategic plan on where and how to compete as a mid-sized company in the large and growing U.S. generic medicines market. We have set for ourselves an ambitious goal to become $1 billion healthcare company. This means we need to grow at about a 15% CAGR.As we estimate the future value of the products we have now and what we expect of our existing pipeline, particularly if we are successful with a more sustainable assets in development, and what more we need to do. When we add all of that up, we believe we are well on our way to achieving our goal.We believe we are positioned for success with our dynamic teams, our creative partnerships, our operational discipline and especially our organizational nimbleness and reliability, which is greatly facilitated by a Made in America foundation, far less encumbered by the global complexity to plagues many of our competitors.To sum up. We reported net sales and net income growth in our second quarter versus the preceding first quarter based on strong sales across multiple product categories. We successfully introduced eight new products in the first half of fiscal 2020 and expect to launch approximately 10 more in the second half of the year. The planned launches include Numbrino, our first NDA approved product to include full clinical trials.Our adjusted EBITDA outlook for the full fiscal year of 2020 remains unchanged. We have raised net sales guidance based on the strength of our existing product offering and expect to new product launches. We have also slightly lowered our expectation for gross margin based on our emerging sales mix and competitive pressure for certain products.We continue to advance our pipeline of sustainable large market opportunity products and we continue to work on additional opportunities to build strategic alliances with partners that have complementary products and capabilities. Again, our goal is to become $1 billion healthcare company and achieve topline compounded annual growth rates well in excess of the industry.With all of that, I turn the call over to John. John?

Thanks, 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.A quick note before I begin. As most of you know, in March of last year our supply agreement with Jerome Stevens for Levothyroxine expired. So in addition to providing year-over-year comparisons, I will include some color comparing our second quarter financial results to our fiscal 2020 first quarter.Now for the financial results on a non-GAAP adjusted basis. For the 2020 second quarter, net sales were $136.1 million, compared with net sales for the second quarter of last year of $193.7 million. Excluding Levothyroxine, net sales in Q2 of last year were $105.2 million.Q2 net sales increased by $8.8 million over Q1 net sales of $127.3 million, largely due to a full quarter of sales of Posaconazole, as well as higher sales across several other product categories. As Tim mentioned, we launched seven new products during Q2, generating only a partial quarter of sales.Fluphenazine sales were lower in Q2 than Q1 due to the timing of orders. However, we expect Q3 and Q4 sales of our anti-psychosis product category to be closer to Q1 sales of approximately $28 million.Gross profit was $50.2 million or 37% of net sales, compared with $86.0 million or 44% of net sales for the prior year second quarter. Again, the second quarter of the prior fiscal year included significant sales of Levothyroxine, a product that had a higher than average gross margin.Compared with the first quarter gross margin of 41%, our gross margin in Q2 declined, largely due to sales mix with lower sales of Fluphenazine and no sales of our withdrawn cocaine topical and Ranitidine products. All three of these products are high gross margin products. Gross profit dollars were down only slightly.Interest expense decreased to $13.1 million from $17.1 million in last year’s second quarter due to repayments of Term A and Term B loans, as well as the lower fixed interest rate on our senior convertible notes.Net income was $11.7 million or $0.27 per diluted share. This compares with net income of $33.6 million or $0.86 per diluted share for the fiscal 2019 second quarter. Compared with the first quarter net income of $8.8 million, net income for the second quarter increased by approximately $2.9 million and Q2 adjusted EBITDA was $35.8 million, an increase from $35.1 million in Q1.Turning to our balance sheet. At December 31, 2019, cash and cash equivalents totaled approximately $119 million. Our outstanding debt at the end of the quarter was as follows. Total debt was approximately $741 million and debt net of cash was $622 million and net secured debt was $536 million. We continue to expect to be within our financial covenants, up to the maturity date of the Term A loans.Regarding our refinancing activities, we continue to evaluate opportunities and market conditions to refinance our secured debt. As a reminder, this past September, we completed a senior convertible notes transaction, which among other things, enhanced our capital structure and provided greater financial flexibility.In addition, our current cash position exceeds the outstanding balance of our Term A loans, which mature later this year in November. As of December 31, 2019, the balance of the Term A loans was approximately $63 million. At June 30th, it will drop down to approximately $49 million and by the maturity date, the outstanding balance of the Term A loans will be approximately $42 million.Turning to our guidance, we have raised our net sales and lowered our gross margin estimates for the full fiscal year. We also revised slightly downward our interest expense and tax rate. The net result of these changes is not expected to have an impact on our estimated adjusted EBITDA for the full fiscal year.Our guidance is as follows; net sales in the range of $530 million to $550 million, up from $525 million to $545 million; adjusted gross margin as a percentage of net sales of approximately 39% to 41%, down from approximately 40% to 42%; adjusted R&D expense in the range of $34 million to $36 million, unchanged; adjusted SG&A expense ranging from $63 million to $66 million, unchanged; adjusted interest expense in the range of $51 million to $53 million, down from $54 million to $56 million; the full year adjusted effective tax rate in the range of 21% to 22%, down from 22% to 23%; adjusted EBITDA in the range of $145 million to $160 million, unchanged; and lastly, capital expenditures to be approximately $20 million to $25 million, unchanged.Regarding the phasing of the quarters, we expect net sales in Q3 to be flat to slightly lower than Q2 and increasing in Q4 due to new product launches. With regard to gross margin, we expect Q3 to be slightly higher than Q2 based on product mix. We expect EPS and adjusted EBITDA in Q3 to be in line with Q2 and increasing in Q4.With that overview, we would now like to address any questions you may have. Operator?

Thank you. [Operator Instructions] And our first question comes from Matt Hewitt from Craig Hallum Capital. Your line is open.

Good afternoon. And thanks for providing the update and especially the guidance cadence here for the back half of the year. I guess, my first couple of questions regarding Numbrino. The launch is pending soon. How quickly do you think you can get back to where you were prior to pulling the product from the market? And then follow-up to that is, given your success with the trial process and in some of the nuances of getting that product to market. Does that give you confidence to seek other similar type markets where you would have to go through a similar process?

Good evening, Matt. Thanks for the follow-up. We expect to launch Numbrino in the next few weeks. We had been on the long end of the range and our target as we indicated in the prepared remarks is the recovery of former customers that used to purchase the unapproved product, again focusing on our long history of reliable supply and high product quality.We will look to explore other opportunities afforded by the approved label in due course. But our expectations in the fairly near-term is to get back into the range of perhaps $1 million a month for that product.As it relates to other sorts of 505(b)(2) products. We are primarily focused in the oral generic space as we have often discussed and have been looking to work with partners for other technologies and other capabilities. For example, the biosimilar filings that we are working with on HEC.So I would expect on a go-forward basis, we are open to products that are outside the traditional oral generics, which is the mainstay of therapy here in the United States, but we will do it very carefully and probably only with the partner in areas that have a retail orientation to that brand.

That’s very helpful. Thank you. And then maybe one more from me and I will hop back in the queue. Obviously, there has been a ton of news here recently about Coronavirus. I am just wondering if you could detail for us, maybe any exposure that you have either on the revenue side or you -- you either from a hit perspective or more importantly, I guess, whether or not there’s some opportunities for you to take advantage of this -- to kind of help with the situation? And from then API supply standpoint whether or not there is any potential for impact there? Thank you.

We are in touch with all of our key suppliers both finished dose and API. And we, of course, start with an expression of sympathy and support regarding the situation in their home market. But while there has been some travel restrictions, including our own teams, all of our suppliers have indicated no concerns with any delivery interruptions over the near-term under current expectations.As a practical matter, these outbreaks is awful is they may be typically will last some number of weeks, but our inventories last some number of months. And those inventories exist in fact at some level to be able to cover such sporadic and unpleasant events like these.We will notice in terms of helping the other direction. We have the only ANDA of a lopinavir/ritonavir solution in the market. But it’s a fairly small market. We have a partner considering it for import. But on a global stage, there are obviously numerous forms of these actors available globally and so I wouldn’t expect to see any material change to our opportunities from this outbreak, we are more interested in supporting our partners and continue to supply the products we have in market.

Understood. Thank you very much.

And our next question comes from Gary Nachman from BMO Capital. Your line is open.

Hi, guys. Good afternoon. Tim, first, what’s the status of Ranitidine when you might be able to bring that product back to market, are you assuming, it will be this year. And are you on track for the $75 million contribution from new products this year and then how much did Posaconazole contribute in the quarter? You gave us that number last quarter. That would be helpful.

So, good evening, Gary. For Ranitidine, we are still evaluating API that would meet the FDA requirements. But quite frankly, we don’t have expectations of re-launching that product anytime soon. We think that the market may move a bit to other therapies. We will continue to monitor that based on the FDA’s guidance and expectations, and the underlying chemical structure of that product. So it’s not something that we anticipate returning to the market under the current conditions and situation.Regarding our new product launch goal, we have often stated that we look to launch 20 or so products a year with the $70 million, $75 million of value. We are clearly well on target for that goal this year. We are launching numerous single-digit million-dollar products. But I have also launched a much larger Posaconazole. So we are pretty comfortable that we will be well within that achievement. This year it’s why we remain on track for our guidance despite other challenges that occur and…

And the other Posaconazole uplift?

Posaconazole itself is around…

It’s -- this is John. It’s -- it was around $40 million. You can see the infectious disease increased in Q2 from full quarter of Posaconazole.

Okay. And are you expecting that it’s going to stay sort of at that level over the course of the year. So, I mean, if I do the quick math, it’s seems like a big chunk of that $75 million is coming from Posaconazole this year. Is that the right way to think about it?

It is a big chunk of the total. There are 20 products that have single-to -- mid-digit single-to upper single-digit millions of contribution over the course of a 12-month horizon. Certainly for this year Posaconazole will be the largest contributor to that $75 million product goal. We have always talked about a portfolio of launches that have those puts and takes.Regarding its forward looking expectation, we are currently in our guidance expecting a competitor late in the fiscal year. I should be clear, we don’t have any knowledge of an imminent competitive threat, but from the risk adjusting we are doing our forecast, that’s where we placed it. If that forecast assumption is optimistic, we will have more pressure. If that forecast assumption is conservative, we will have upside.

Okay. And then just last question, Tim, with your target of a 15% revenue CAGR over the next five years or so. How should we think about gross margin trending over that period of time to the extent that a portion -- probably, a decent portion of that growth is going to come from partnerships? So we saw a little bit more weakness in gross margin than we thought in the second quarter. So how are you thinking about balancing that revenue growth with the gross margin and just making sure that you maintain it at a certain level? Thanks.

Yes. As we have stated on numerous calls, we have always tried to focus fundamentally on gross margin dollars. That being said, we obviously prefer to have more wiggle room with our gross margin percentages. But in general, over the planning period, we would think that our gross margins with the percentage of partnered products of some scale would be in the 30s at some point over a protected period of time.I think that sort of margin to my mind is reflective of industry of a balanced portfolio. And again, the margin dollars could be substantial in some of these partnered products, even if the margin percentage is not as high as some of the historical gross margins we have delivered.

Okay. And I mean, can I push you a little bit when you see the 30s, is mid 30s, the place where it could settle over the course of time. Is that a reasonable place to think about it?

I think if we were $1 billion health care company with a 35% gross margin will be pretty pleased, yes.

Okay. All right. Great. Thank you.

And our next question comes from Gregg Gilbert from SunTrust. Your line is open.

Thanks. Good afternoon, guys. I want to start with gross margin percentage, recognizing there is a mix effect that affected the quarter. John, can you talk about anything else going on in gross margin that might be more permanent nature not related to mix, permanent or temporary, let’s say, write-downs on inventory temporary or more permanent sort of pricing that you won’t get back, maybe talk a little more about the non-mix effect within gross margin?

Sure. Hi, Gregg. Well, when we look at Q2 it really was sales mix. Our declined from 41% in Q1 was related to the Fluphenazine, which we talked about, but also the removal of the cocaine solution and the Ranitidine. As we talked a little bit earlier, we expect gross margins actually to come up a little bit in Q3 and then again in Q4. So it --when we look at Q2, it really was just an overall a result of our mix of products.

Okay. And then, Tim, on your $1 billion comment, I want to ask about gross margin, but I will ask you about the $1 billion. Maybe you could further characterize how you get there. I am sure folks are wanting to understand how much of that is burden in hand, stuff you have or agreements you have. Maybe you could put a little more meat on the bones as it relates to your ability to get to $1 billion in five years, which is surely much higher than most folks are modeling?

I hope I was maybe clearing up in the prepared remarks. But listened we are running ahead of the 15% CAGR as we have noted for this year. And the pressure on that CAGR is really on the outer years you start compounding which is the same time some very large market to move new products that we have in our portfolio, believe, will come online.I mean, we are not going to assume it’s the only way to get there, but the contribution of an insulin glargine if successful makes that CAGR conversation pretty much not a consideration or concern. It’s really more about building out a diversified portfolio in terms of that CAGR or that product taking longer than you might think. We are looking to add additional products in that space with our partners in that arena.As we said the prepared remarks, when we look at what we have in hand. What we look at in our development pipeline. The quality of that development pipeline. The progression of pipeline. This isn’t taking a swag at some percent of the total market, it’s built on a product-by-product basis with some gaps to go to achieve those goals along the way. Some of those gaps involved products we have not yet filed that we will file over the three years or four years that need to come into our portfolio and launch and get some share.So we feel it’s a rallying cry for the organization that is reflective of the capabilities we are building, the size of the market we operate in and the number of projects we have in hand and the number of products we see line of sight too. So that’s why we put that out there is as our goal.

Okay. Maybe, Tim, I can get you, lastly, to just comment on industry conditions at the moment after a couple of years of extreme consolidation of the buyer set? What’s the latest tone that you are sensing in terms of the intensity of pricing pressure and frequency of bids, et cetera? Thanks.

Well, I have made the comment on several occasions that we don’t feel what we observe in our portfolio is indicative or useful to an interesting statistic. We have always believed, I continue to believe that the pricing pressures we experience are relevant to the products in our mix in the portfolio.And I believe that pricing pressure has always been related to the number of competitors that are on the products in which you compete with. So we haven’t seen any change in that dynamic. We have better quarters and worst quarters based on competitive activity or lack thereof as it relates to that portfolio.On the other side of it in terms of more strategic conversations, we still don’t see a lot of strategic buyers in that market or at least not sellers willing to provide their assets at the price point a buyer might be interested in and we see perhaps even fewer strategic partners.So from our perspective, our offering continues to resonate well with both existing and new partners. And I know that most of our partners are looking to do more with us which means less with somebody else, which further helps our relative outperformance in the market.So at the end of the day, I think, the market looks similar and it’s always been tied to competitors, you point to a supply disruption, I will point to improved pricing, you point to a supply glut. I will point to supply declines and that is a portfolio by product conversation, to my view.

Great. Thanks a lot for the color.

And your next question comes from Elliot Wilbur from Raymond James. Your line is open.

Thanks. Good afternoon. Tim, just want to go back to your earlier commentary around the outlook for Fluphenazine, just curious what gives you increased confidence that you are not going to see additional competitive entries before the end of your fiscal year that based on feedback from customers or is there something more related to API or the regulatory pathway that maybe gives you that visibility. And then just extend that a little bit in sort of talk about, are there any potential more significant longer term barriers to entry that might limit the number of venture competitors in that particular product?

All right. Good evening, Elliot. I want to readdress that we have a smooth selling today with the Fluphenazine remain the only end on the market. Our competitive intelligence is tied to competitive intelligence. It’s not based on some underlying gotcha relative to structural inability for competitors to compete. It is based on we are sitting here in January. We are constantly searching and trying to understand the status of other files and our vision to that is not being pushed out many, many months, we are talking, June, July, as opposed to where we sit here today in January.So, again, we are not aware of an imminent threat, but we don’t see enough structural reasons to preclude people from coming in due course and there is always some drumbeat out there of potential players. We just don’t see them in the immediate near-term.The product by the way does have some high handling requirements that is a little bit different. In our plant we were gowned dup and oxygen masks right for that product. So it’s not just simply made in a regular oral room, but it doesn’t have any sort of inordinate technological barriers.So we are pragmatically expecting as we have always done, that our goal to grow is to launch new product launches because inevitably will have a decline of our in-line portfolio. We see that coming in the relatively near-term but not tomorrow.

Okay. Thanks. And I want to ask an additional competitive intelligence question around the ADVAIR opportunity and specifically with respect to Sandoz’ recent decision to withdraw their filing and terminate that program. I guess quite surprising to many of us who follow that for several years now considering their investment and we seem to be sort of well past kind of a go-no-go decision on that, not knowing of course what the FDA asked for. But just wondering based on the eliminated amount of time and the information is probably emerged since that announcement if there has been anything from your perspective that might lead to some learning lessons around what you may do with your filing going forward?

So with regard to ADVAIR, we are working with incredibly experienced team on the Respirent side. And they are working with the team that’s looked at a lot of applications from a lot of different companies over the years. So we feel we have a pretty good sense of the pinch points in what’s required to develop this asset.We may be a small company but Respirent’s investing very heavily in the infrastructure issues that are necessary and we are impressed with the progress that they understand. I think we have talked earlier that the clinical programs are always little less of the trick here and I think the European filing that Sandoz had out there was based more on the clinical efforts they have done in terms of efficacy clinicals.It’s always been the PK/PD that has been the challenge and the guidance that’s come from the FDA in these sorts of products. We have always felt since we have signed up with these folks that are one of the players and we are pleased to see that market tightening. We believe we may continue to gain ground and some of the folks that are in front of us.We don’t think we are next up in the market, but we think we could be much closer to the competitive sets that are more pronounced and more visible. So we are excited about the position we hold.We will hopefully have some good news to report in the coming quarter regarding our PK/PD and then we will be able to better assess what our position is in the competitive line up. But we are feeling pretty good that we have got the right partner and the right product and the right plan, but time will tell.

Okay. Thanks. And just one final question, going back to some of the early commentary around the Numbrino relaunch and the opportunity there. I guess, I guess, the last couple of quarters, you guys have consistently sort of gauge expectations around the asset.In terms of your ability to essentially recapture the sales of the company was generating from the unapproved product, at various points along the way during the development of this asset, the company had indicated that there were potentially much larger opportunity around the product via some form of promotional strategy.And you guys -- doesn’t seem to be something you guys have kind of fully embraced as of yet. So I am wondering if you have -- you really had a chance to sort of fully vet a potential direct sales force, enhanced promotional strategy, tied to tied to this asset versus just what you have talked about more recently in terms of just kind of getting back to where you were?

So, Elliot, I think, some of the higher potential number is it someone might speak to in the past has looked at the number of uses of this sort of product in that sort of space. But as an approved product, you need to label to support it and I think to get to the more significant percentages that have been one point in the company’s history have been considered.You need to invest very heavily in clinical trials that would be successful to achieve an indication to allow promotion that would achieve this higher penetration of a share of market. So we are a bit more pragmatic again on existing use at a fairly low share basis focused initially on our training partners that we believe will appreciate our history of a supply and high quality product to recover something that for us is still a high margin product that has durability to it. So we are pleased about that sort of component of the opportunity.We do think there can be some opportunities to think about how this product is used within its label. How it gets reimbursed at the operating level of the hospitals or the surgeons that are using the product that might facilitate an easier utilization of the product, but we are early in the stages and our forecasts are currently tied to a number that is more reflective of our historical past. And once we have that wrapped up and locked and loaded we will look to for incremental investments, but we do want to modify those expectations over time.

All right. Thanks for taking my questions.

And your next question comes from Scott Henry from Roth Capital. Your line is open.

Thank you and good afternoon. A couple of questions, starting with some of the line items, anti-psychosis was a little weaker than it has been or in the past couple of quarters, how should we think about that going forward, do you expect it to, and I am just talking about this year, I recognize the Fluphenazine is in their longer term, but how should we think about that sequentially the next couple of quarters?

So for the anti-psychosis that came down in Q2, we talked about that being really about the timing of orders. We expect Q3 and Q4 to be more in line with Q1 and around $28 million.

Okay. Thank you. And then other lines that jumped out at me gastrointestinal stronger than any of the past five quarters any was strong in Q1 and is even stronger Q2. How should we think about that for the rest of the year, should it maintain those levels or drop back down?

That actually will be driving back down slightly. We saw some strong sales specifically from, like, Pantoprazole in Q2, but we are modeling that to come down in Q3 and Q4.

Okay. And then just a logistical question as far as how you calculate the EPS with the convert in there or the interest add back, what kind of adjustment are you making to adjusted net income to get to your EPS, just -- and should that be relatively constant going forward.

Yeah. The -- on the EPS calculation it’s -- the adjustments are really on the overall share count, adding back the effect of the convert and then backing out the interest associated with the convertible note. We can -- if we could actually go through that if you like in some greater detail, but that’s essentially how you get to the adjusted EPS.

Yeah. And I expect to see that in the 10-Q, obviously. But could you just tell me what the back out of interest is just for calculations, just to get a sense…

Oh! For the quarter?

Generally. Yes.

It’s about $1 million.

Okay. Great. That should do it for me. Thank you for taking questions.

Great.

And this concludes the question-and-answer session. I will now turn the call back over to management for final remarks.

All right. It’s Tim again. I will close out with our customary shout out to our employees, customers and patient -- and partners working hard, so hard to provide high quality low cost medicines for patients. We look forward to sharing our progress on our next call. Good night.

Thank you, ladies and gentlemen. This concludes today’s conference call. Thank you for participating and you may now disconnect.