Welcome to the Lannett Company Fiscal 2020 Fourth Quarter and Full Year Financial Results Conference Call. My name is Adrianne, and I'll be your operator for today's call. [Operator Instructions]. I'll now turn the call over to Robert Jaffe, Investor Relations for Lannett Company. Robert Jaffe, you may begin.

Good afternoon, everyone, and thank you for joining us today to discuss Lannett Company's Fiscal 2020 Fourth Quarter and Full Year 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 would like to make the cautionary statement and remind everyone that all of the information discussed on today's call is covered under the safe harbor provisions of the Litigation Reform Act. The company's discussion will include forward-looking information, reflecting management's current forecast of certain aspects of the company's future, and actual results could differ materially from those stated or implied. In addition, during the course of this call, we refer to non-GAAP financial measures that are not prepared in accordance with U.S. generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. Investors are encouraged to review Lannett's press release announcing its fiscal 2020 fourth quarter and full year financial results for the company's reasons for including non-GAAP financial measures in its earnings announcement. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is also contained in the company's earnings press release issued earlier today. This afternoon, Tim will provide brief remarks on the company's financial results as well as recent developments and associated initiatives. Then John will discuss the financial results in more detail, including the company's fiscal 2021 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. We hope you're all safe and healthy. I am pleased to report that our net sales and adjusted EPS for the fiscal 2020 fourth quarter exceeded expectations. For the fourth quarter, we reported net sales of $138 million with an adjusted gross margin of 35% and adjusted EPS of $0.31 per diluted share. For the fiscal 2020 full year, our strong financial performance reflects the solid contributions of our in-line products, improvements we made to operational efficiency as well as the launch of 18 new products, including six new products launched in the fourth quarter. 12 of the 18 products launched that year were our own products and included Numbrino, our first approved NDA based on clinical trials. Our employees, especially those involved in the development and production of our medications deserve a special acknowledgment. Over the last several months of the pandemic, output from our plants has actually increased, including record production levels set last quarter at our Seymour facility and this, despite the strains and added safety measures required for those working in production during the pandemic. This is a testament to our employees' commitment, diligence and their recognition of the important work they do. Fiscal 2020 was also marked by efforts of our experienced and tenured management team to strengthen key areas of our business. We improved our capital structure by successfully completing an $86 million convertible notes offering, and continue to pay down our debt from $768 million to $708 million in the last 12 months ended June 30, 2020. We also implemented various working capital initiatives to enhance our cash position, which stood at $144 million at the end of the fiscal year. Notably, we tremendously improved the quality and expected value of our future pipeline, in part by establishing new strategic relationships and expanding existing alliances. But we also added further rigor and discipline to our internal R&D efforts and progress the development of many of those programs. As a result of all of this, the company managed and overcame the challenge of losing the most profitable product in the company's history, Levothyroxine, just prior to the beginning of fiscal 2020. I'll provide updates and additional details on several of these opportunities in a moment. But first, I want to briefly discuss our outlook for the coming year and some of what we considered in developing our guidance. First, with respect to our top line and gross margin, we expect to benefit from the continuing launch of new products as well as a full year of contribution from the 18 products we launched in fiscal year 2020, including the 6 we launched in the fourth quarter. On the flip side, due to a competitor recently entering the market, we expect our overall net sales and gross margin to be pressured by recent competitive pricing compression and loss of share of our largest product from last year, fluphenazine. Along with the normal erosion of our base portfolio, we also expect our results to be impacted by slower-than-anticipated expansion of Numbrino sales, largely associated with fewer elective surgeries being performed during the COVID crisis. Finally, we anticipate a normalization of our lopinavir sales, which initially benefited from COVID-related treatment potential. With regard to operating expenses, we expect SG&A to be significantly lower in the coming year versus FY '20 as a result of the restructuring and cost reduction plan announced and implemented last month. The measures in the plan have largely been completed, and we expect annualized cost savings of approximately $15 million. While we are forecasting a down year on profits, we see our mid- to longer-term prospects unchanged with significant growth potential. Additionally, through a disciplined approach to our cost structure, an aggressive launch parade and thoughtful management of our balance sheet, we will manage the reduced contribution from our largest product, fluphenazine, just as we successfully demonstrated our ability to do so last year with the previous loss of our then largest product, Levothyroxine. Again, our expected value of our future portfolio increased significantly last year. A less differentiated product like fluphenazine was always forecasted to decline substantially. And we have been noting the anticipated expectation of fluphenazine competition in our past earnings calls. So our belief in the exciting products in our pipeline that have the ability to transform our growth trajectory remains in place. We still expect to be a $1 billion company by 2025, with a gross margin percentage in the low 30s and a similarly improving profit profile due to greater operating leverage. John will discuss our fiscal 2021 guidance in more detail shortly. I also want to briefly comment on our balance sheet. As I mentioned a moment ago, the initiatives to improve our working capital helped raise our cash position to approximately $144 million at June 30, an increase of more than 40% over the prior quarter. Our plan is to use a portion of that cash to pay down in full our Term Loan As, which mature later this year in November. It's worth noting that our remaining debt, the Term Loan Bs and the convertible notes, have no underlying financial covenant ratios. Nevertheless, our goal remains to pursue over time a gross debt level that is no more than 3x our adjusted EBITDA. Meanwhile, we have more than two years before our Term Loan Bs mature in November 2022, and this facility has a relatively low cost of capital for us today. Having said that, we continue to monitor debt markets and evaluate options and intend to extend our maturities proactively at the right time. Regarding product launches. In the first two months of fiscal 2021, we have already launched four new products, including Lidocaine, Fluoxetine, Levorphanol and notably again, Levothyroxine tablets. A product that we commenced marketing nearly two full years ahead of the time frame associated with the original agreement with our new strategic partner. Levothyroxine remains a very large product opportunity, although obviously not as lucrative for us as in the past given the change to the current market dynamics. In addition to the four products launched fiscal year-to-date, our plan is to launch at least another eight products over the balance of fiscal 2021, including possibly Sumatriptan Nasal Spray toward the end of the fiscal year. Note, we are now focusing not only on the quantity but also the quality of our launches as evidenced by our strong launch of posaconazole last year and Levothyroxine tablets this year. Turning to business development. Our team remains busy driving the expected value of our forward portfolio. They continue to in-license products like fluticasone DPI, which we recently announced, a number of other exciting opportunities are in the works. We are also collaborating with our existing partners to extend distribution terms. The agreements on Vardenafil, posaconazole and generic ADVAIR have all been extended and we are working on others. These extensions speak to our successful partnering through demonstrated commercial successes. Turning to our pipeline. We now have more than 20 products in development, with another 14 ANDAs pending at the FDA, including partner products, plus another 3 or so products that are approved and pending launch. Regarding our biosimilar insulin glargine partnered product, on June 9, we spoke with the FDA and received guidance on the clinical advancement program of the product. More specifically, the FDA provided positive feedback on the clinical and so-called CMC advancement of our biosimilar glargine. Based on the meeting with the FDA, we are developing the product as a biosimilar to US Lantus. As a reminder, our partner, HEC, is a large and well-capitalized company with expertise developing and producing multiple insulin products for multiple markets. HEC has constructed another new plant with much greater capacity designed around U.S. FDA compliance and focused on insulin analogs such as insulin glargine. Once we produce insulin glargine in this new plant and demonstrate, once again, comparative analytical similarity, it is likely only one additional healthy volunteer study may be required for approval. This trial would be essentially a larger trial of the healthy volunteer study already completed and will be conducted at the same site as the previous study, which the FDA reviewed. This guidance is a positive development on at least two fronts. First, we may save several months of development time since certain safety and efficacy trials are not expected to be required, and we had included the possibility of such studies in our previous development plan. Second, there are obviously significant cost savings related to not having to conduct the extra studies. We are targeting patient enrollment for the healthy volunteer study to begin next calendar year. If development activities remain on track, the planned biologic license application is anticipated to be filed in calendar year 2022. According to our internal projections, we believe a U.S. launch of the product is quite possible in fiscal 2024. And based on standard assumptions, given an IQVIA market sales of about $9 billion and considering various pricing analogs of 4 to 5 competitors, just a 10% market share could be worth more than $200 million. As we have said before, insulins are a very large product opportunity. The worldwide market is measured in tens of metric tons of insulin produced and insulin usage has been increasing. It's important to note that while insulin is a biopharmaceutical and Lannett expects to introduce insulin glargine as a biosimilar, the market dynamics of insulins are different than other biosimilar markets. Major insulin players such as Eli Lilly, Novo Nordisk and Sanofi have large dedicated facilities to support insulin and insulin analog production. Very few companies outside the 3 majors have developed the necessary technical expertise and had the financial resources to develop insulins for advanced regulated markets like the U.S. Lannett's partner, HEC, we see as one of those few companies. By the time we expect to file this product, our partner will have invested hundreds of millions of dollars in insulin opportunities globally. Lannett provides the development, regulatory and commercial expertise to leverage this exceptional investment and we expect few additional competitors to enter the market after our expected insulin glargine BLA filing in 2022. This situation is in contrast with other biopharmaceuticals, which can be made in smaller facilities producing just tens of kilograms of material versus the tens of metric tons for insulins. In the U.S. and Europe, some non-insulin products have several biosimilar approvals or applications. Such competitive intensity is much less likely for insulins. Turning to generic ADVAIR. We have restarted pivotal PK trials, which were early interrupted by the pandemic, but we remain on track to file an ANDA late this calendar year. Depending on the quality of our submission and FDA review time, we believe a U.S. launch of the product is possible next fiscal year. Based on standard assumptions, we anticipate some sales in FY 2022 and substantial net sales for fiscal year 2023. Generic ADVAIR is another potentially durable product for us. And similar to insulin glargine, we believe few companies have the technical expertise and financial resources to participate in this market. On a related note, we have identified the respiratory market as one we intend to focus on. This market is large and growing, and we've seen opportunity to in-license additional inhaler products that extend our offering. Meanwhile, we have made progress on expanding our existing respiratory relationships and are developing new ones. Finally, while legislative efforts are evolving, we are still engaged and see an extensive and seemingly rare bipartisan congressional efforts designed to support U.S.-based pharmaceutical companies. We see Congress evaluating a variety of options that include tax relief and/or preferred status to U.S.-based suppliers of medications to certain government agencies, which are frequently large purchasers of generic drugs. Whatever legislation should eventually emerge, we believe Lannett, as a U.S. headquartered manufacturer, is well positioned to benefit from such legislation. To sum up. Our net sales and adjusted EPS for our fiscal 2020 fourth quarter exceeded expectations. We provided fiscal 2021 guidance that reflects the continuing launch of new products as well as recent and anticipated competitive pricing pressures on certain key products. We have largely completed a cost reduction plan that is estimated to generate approximately $15 million in annualized savings. We plan to pay off in full our remaining Term Loan A balance in November. Once paid, our remaining debt has no financial covenant ratios. We began remarketing Levothyroxine last month, just a little more than a year since the loss of our earlier supplier. We are looking to build a pipeline of products that is focused on durable value. The development for biosimilar insulin glargine may progress more quickly and less expensively than we originally anticipated, following a positive meeting with the FDA. Such products anchor our belief that we can achieve $1 billion of sales by 2025. We remain on track for filing the ANDA for generic ADVAIR around the end of the calendar year. Finally, I would like to again acknowledge our suppliers, customers, employees and management teams for their commendable efforts during the COVID pandemic. I thank them for their hard work and dedication during these challenging times. 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. Now for the financial results on a non-GAAP adjusted basis. For the 2020 fourth quarter, net sales increased to $137.9 million from $133.8 million for the fourth quarter of last year. Gross profit was $48.9 million or 35% of net sales compared with $59.8 million or 45% of net sales for the prior year fourth quarter. Interest expense decreased to $11.3 million from $16.0 million in last year's fourth quarter due to repayments of Term A and Term B loans as well as lower interest rates and lower fixed interest rate on our senior convertible notes. Net income was $13.4 million or $0.31 per diluted share compared with $14.7 million or $0.37 per diluted share for the fiscal 2019 fourth quarter. Adjusted EBITDA was $142 million for the full year. Our adjusted EBITDA was $35 million for the fourth quarter, which was consistent with the first 3 quarters of the year and demonstrated the stability of our business throughout fiscal 2020. Turning to our balance sheet. At June 30, 2020, cash and cash equivalents totaled approximately $144 million, an increase of more than $40 million from the end of Q3. The increase was largely due to initiatives we implemented in the second half of the year to improve our working capital. Our outstanding debt at year-end was as follows: total debt was approximately $708 million; debt, net of cash, was $564 million; and net secured debt was $477 million. We continue to expect to be within our financial covenants up to the maturity date of the Term A loans. Our Term A loans mature in November of this year. At maturity, the outstanding balance will be approximately $42 million, which we plan to pay off in full with our existing cash on hand. Even after the planned paydown of the Term A loans, we are comfortable with our expected cash on hand to continue to fund our operations. Turning to our guidance for fiscal 2021, which is based in part on a few key assumptions. These include a steady recovery of market demand to pre-COVID-19 levels and no additional competitors for fluphenazine until our fiscal 2021 fourth quarter. With that said, for the upcoming year, we expect net sales in the range of $520 million to $545 million; adjusted gross margin as a percentage of net sales of approximately 29% to 31%; adjusted R&D expense in the range of $29 million to $32 million; adjusted SG&A expense ranging from $55 million to $58 million; adjusted interest expense in the range of $41 million to $42 million; the full year adjusted effective tax rate in the range of 21% to 22%; adjusted EBITDA in the range of $100 million to $110 million; and lastly, capital expenditures to be approximately $15 million to $20 million. Regarding the phasing of the quarters, we expect net sales in Q1 to be slightly lower than our recently completed Q4 and increase modestly over the course of the year; gross margin in Q1 to be at the lower end of the guidance range and increasing in quarters two through four; and operating expenses to remain steady throughout the year. With that overview, we would now like to address any questions you may have. Operator?

[Operator Instructions]. And our first question comes from Elliot Wilbur from Raymond James.

There's a couple of quarters where we couldn't talk about Levothyroxine, we're agonizing. So I'm glad that it's back in the mix. And that's what I'd like to address my first question. Tim, I think at one point in time, you had suggested that with the relaunch of the product that you thought revenue level somewhere slightly north of $50 million were obtainable. And I'm just wondering, given the level of competition in that asset and the loss of market share, while still under Sandoz's watch, whether or not you think that, that number is still doable? And if there's anything you could share currently on kind of the run rate of that product at the moment sort of versus that annualized expectation?

Yes, we are indeed excited to be back into the Levothyroxine market. The market is smaller than it was when we were last in it but remained substantial, particularly relevant to our size as a generic player in the market. The current situation is still dynamic. As you know, we stepped into a declining share of a declining market. And I'll be direct as a placeholder right now, we're holding perhaps $25 million as a target for the year as we step into it. We think there's upside in that number. But until things settle out a little bit more, it's where we're holding that number for today.

Okay. And with respect to gross margin expectations in fiscal 2021, obviously, those numbers have continued to come in slightly below external expectations the last couple of quarters, a lot of potential reasons for that. Maybe it would be helpful if, John, perhaps you could just help us bridge 2021 full year expectations versus where you exited fiscal 2020? And what sort of the key swing factors there are? Is it the contribution from Levo revenue or product mix or simply primarily due to lowered expectations for fluphenazine? But the top -- a couple of swing factors there in terms of thinking about the delta there would be helpful.

Elliot, so I think you listed them all. So we'll start with fluphenazine. The fact is with competition coming in early this quarter in our antipsychosis category, which is basically made up of fluphenazine, is going to come down significantly. We're looking at run rates that are, let's call it, in the $7 million to $8 million range for the quarter. And that being one of our higher-margin products and then introducing launches like Levothyroxine that we're very excited about, but they do have, especially for partnered products, a lower margin percent. So we've always talked about our gross profit dollars. But ultimately, for 2021, with the mix that we're looking at, our margin percents are coming down to that 29% to 31% range.

Okay. And then last question, I guess, for you, John, before I hop back in the queue. You called out favorable performance on working capital lines in the quarter. And I'm just wondering, are these initiatives that led to favorable performance in 4Q sustainable, such that we see kind of a permanent change in your operating cash flow to adjusted net income metrics going forward?

Yes. The short answer is, it is a permanent change. The initiative was around our gross-to-net deductions looking at our overall receivables so we were very happy with the result, specifically at the end of Q4. Some of that is timing from Q3 pull-through of COVID sales. But that was a small portion, but the balance of that should be sustainable through 2021.

And if I can just put a finer point on that, Elliot, it would have been notable that we reduced several WACs of some of the more commoditized generics over the last end of the fiscal year, which is a big part of the gross-to-net that he references.

Okay. And if I may, what does that do for cash flow? Is it simply just limited to reducing some of the fee-for-service percentage on the products? Is that the bulk of it?

Well, probably the best way to describe it is that it lowers our DSO. It gets to the point where we're receiving cash a little bit quicker due to the differences between both the WAC and our net pricing. So our receivables, when you look at the balance sheet, have come down for the end of Q4 and those types of levels, then should be sustainable for the year. Now of course, these types of initiatives are helped to offset headwinds when we're consistently launching products, especially products like Levothyroxine.

And our next question comes from Greg Gilbert from Truist Securities.

I have a few. I want to start with glargine, Tim. What are your thoughts on interchangeability for glargine as a gating factor for success? I know Mylan is seeking it. We don't know if they'll get it. Lilly is doing a great job with the product, but that's because they have a branded infrastructure and contracting, et cetera. So it remains to be seen how important interchangeability would be for success in achieving numbers like you suggested. So can you talk about the importance of interchangeability and how that's factored into your thinking? And whether you believe it to be important or not?

Well, interchangeability would certainly ease penetration into a marketplace, but it might come at a different sort of cost structure. We are not expecting interchangeability in our approach. We are comfortable that it's a bit of a tempest in a teapot, if I may, given the fact that insulins have been trading off formularies for years between the various providers out there. They're somewhat interchangeable brands, if you will. And so we're focused on simply positioning our product as an affordable alternative and therefore, believe we can garner 10% or more share.

Okay. Can you talk about what the product would do to your gross margin percentage? I know you're focused on dollars more so, but what would that and -- as I ask about generic ADVAIR next, maybe you could talk about how both of these products would influence your gross margin percentage?

You're specifically asking on insulin glargine?

Yes. First.

Yes. So those sorts of products, obviously, in the branded arena in today's pricing cascades are very high gross margin. As it is disclosed in our financial documents, we have a 50-50 share with HEC. So I think the sort of gross margin yield for that product should be a bit north of where we are as a company today. And the real question then becomes how much additional investment on the SG&A side may be required to support those share levels. At the lower ranges, I'm of the belief that there is, again, a fair amount of interchangeability as a pragmatic matter as you see formularies flip back and forth. As you go to higher share penetration, you might need to do more with the managed care environment, but we would see this as accretive to our current margins, but not substantially so.

Okay. On generic ADVAIR, are you willing to speak to peak sales like you did on glargine?

So we had earlier suggested in some of our public documents of a $95 million opportunity at 20% share. I think given the progression or the filing at least of a simplifile and the ongoing articulation of the expectation of a Hikma file, we would moderate that expectation somewhat. I still think that's a possible number. But I would think 25% less, 30% less might be a good holding estimate for us now, and I don't want to give out the exact number. I just think it's probably a little bit lower offset by the fact as you dig into some of the details and what the review cycles might be, we remain optimistic, provided we pass our PK and get a submission into the end of this calendar year. We note that it appears that our clinical trial was done on a much smaller patient base, which can, not for sure, but can suggest a little less variability, which could speed an FDA review process. So we think if we can get a file in there, there's a chance that we can catch up. And then the higher number of projections would become more relevant. But if we're delayed relevant to other market entrants, then something lower than what we've discussed in the past.

Okay. And gross margin percentage on that one compared to your current margin level?

That will be probably at or a little below our current margin expectations given the fact we don't have a quiet parity sharing on that product for the margin share.

And sorry, Tim, just to get this right, your current gross margin, you're talking about your guided level for fiscal '21 or your just reported level for these?

'21.

Okay. And lastly, on respiratory, notable comments about your interest there. I know it's not brand-new interest. But is your interest in the markets that have fewer players? Or are you willing to jump into things like albuterol that might be crowded, but still have some good gross profit potential there?

If you mean albuterol less fuels, then maybe those are more crowded. I would still say, despite clearly an emergence of a series of competitors in the MDI space, in the DPI space, what have you, you're not talking about a lot of competitors. And you're still talking about markets that have enormous volume. And so if we can be one of 4 or 5 or even 6 in those sort of large volume markets, that is an order of magnitude better than your average sort of generic that we market in the U.S. today. So again, it's about a bit of an optic of -- are you looking down from the billions of dollars of sales from a large standing generic company? Or are you looking up from somebody who's selling several hundred million? And from where our optic is, we still don't see a ton of people able to conquer and invest behind the drug device conundrum that is out there. There is progress being made. We're happy to see it because it also paves the way for ourselves as we come into market, and we think they'll be relatively large relative to our size in the marketplace.

All right. Since it's late August, I figured I'd sneak one last one in here. It's about gross margin, that's clearly an important here given how you guided down so much versus prior year for the reasons you described. Conceptually, as we think about gross margin in the future, should we assume that the fiscal '21 level is a decent level to think about until you can get these two larger -- well, in particular, glargines off the ground to markedly increase margin? Is that really the only driver that we could envision of notable size of potential increase for gross margin percent?

Yes. I think we've made several comments over the years, quite frankly, that something in the low to mid-30s is a good target for the generic industry. You need to have either brands or exclusive generics to drive that number up higher typically in our marketplace. And so the loss of our largest product, which was an exclusive product, although it is priced well below a brand can still have margins in the 90% range, is not likely to repeat itself in the near term for our portfolio or even the midterm. And so our expectations are looking back over history and looking forward over time in a mix of both internally developed products, which will be smaller, but much higher margins, along with some larger partnered products that have margin shares to be in that sort of low 30s over time.

And our next question comes from Gary Nachman from BMO Capital Markets.

First, in terms of the guidance, Tim, why are you not assuming additional fluphenazine competition until the fourth quarter? Why are you confident in that? And what are your expectations for additional competition for posaconazole? And how did you bake that into the guidance for this year? I'm curious how much downside risk there could be if additional competition hits on those products?

So, Gary, for some of our larger products, there's kind of a blended approach. So we think about posaconazole, Sumatriptan and fluphenazine. And in general, with not ever knowing for certain timing of other competitors, we're expecting or have budgeted, not expecting, budgeting posaconazole erosion in the first half of the fiscal year. And Sumatriptan and fluphenazine in the back half of the fiscal year. I don't know that any one of those assumptions will be right, but I feel pretty comfortable that our blended assumption will be pretty close.

Okay. And how much did posaconazole contribute in fiscal '20? You've given us, I think, that number in the past on a quarterly basis.

Yes. Yes, the infectious diseases for the year was $73 million. Most of that was driven by posaconazole, a good portion of it driven. So for a $21 million quarter, that's about $16 million, $17 million of that was with that one product.

I think it's also important to note that posaconazole and Sumatriptan do have margin share. So there's a natural cushioning of the downside decline. And with fluphenazine having declined, where it has declined, there was obviously inherently less downside moving forward.

Okay. And I want to clarify for fluphenazine for the antipsychosis category, you're assuming about a $7 million to $8 million run rate per quarter. I just want to confirm that, that was the number that you said?

That is correct.

Okay. And then, Tim, understanding that you just announced your restructuring to generate $15 million of cost savings that was mostly at the Seymour plant. If the business continues to see pressure on the top line, how much additional flexibility do you have with OpEx or at any of your other facilities? Did you go down to the bone or do you think that there's still room potentially to cut if you need to?

Well, we're not planning any more cuts at this particular time. I would note that the changes we made largely at Seymour was more focused on the sort of competitive context of a U.S. generic player against other array to competitors from overseas at different government support and different cost structures. So we don't plan to do more, but the chase to reduce your costs and improve your efficiencies is unending. We still may buy and have in our plan some capital for machines that spin faster and lower our costs. So while from a staffing perspective at our current volume, which is in the $3 billion unit range there, we think we're rightsized. Should volume erode, then clearly, there's opportunities to further reduce the structure of the cost that is supporting those products, but that's not our focus at this point. Our focus is trying to remain competitive with the products that are in that portfolio in that plan.

Okay. And then are you able to still be aggressive looking at different distribution partnerships to try and fill in some gaps over the next few years? How competitive has the market been with those types of transactions? And now that we're seeing a little bit more margin pressure from the mix shifting in that direction, and I know you focused on gross profit dollars, but any rethinking about that strategy going forward?

Essentially, I would say, no. The underlying offering that we provide to potential partners is really still resonating with them. We talked about extending some of our terms and some of our existing agreements. We've talked about a number of recent product launches, including new also products added to our portfolio from those partnerships. So our basic offering of providing that sort of front-end capacity still resonates with a lot of partners out there. That, as we've also discussed, have fewer strategic choices than they used to have. We're not the only people out there searching for those assets. But as you talk about the sort of run of the mill generics that can create nice value, we do very well in that space. That's distinct and apart from a drug-device combination or a biologic of insulin, where I think those are more challenging for us, but we don't need very minimum to get to where we want to go. But for the core generic markets, we still find ourselves doing extremely well. Even Levorphanol, we launched this quarter, is another example of a great generic product that we're able to bring in-house and get some substantial share shortly after starting that conversation. So we see a BD flow of products to remain healthy. We have a few things we're working on that we hope will make additional impact for us this year and beyond. And we don't see any real material challenges to what that looks like going forward.

Okay. And then just lastly, to get to the $1 billion target in 2025, is that all organic, what you have today? Or does that include BD as well? And if so, roughly what portion of that delta to get there?

So the vast majority of that to-go number are products, which we are either developing or have in-house relative to BD relationships. We don't have any inorganic in terms of acquisition of assets of any note. But we do, of course, have some products that we're working on next year that we haven't started or identified that will have to have some value to justify the R&D investment next year and the year beyond that could still impact 2025. But by and large, when we talk about that $1 billion aspiration, it is anchored on products that we have identified and have signed agreements or internally developing but, of course, do require the success in some of those larger and more durable assets with the partners that use more sophisticated technologies and, therefore, fewer players in the market.

And the next question comes from Matt Hewitt from Craig-Hallum Capital.

This is Lucas on for Matt Hewitt here at Craig-Hallum. Just a couple of questions here. There's been a lot of discussion about repatriating drug manufacturing. And obviously, Lannett has U.S.-based facilities, so could you maybe just provide an update on where things are sitting from a capacity standpoint? And if maybe you've seen some entities reaching out to you, looking to move their production here to the U.S.?

The Made in America initiative, as I've mentioned in my opening remarks, is very active. We continue to engage with all of our state representation. We have three states we operate in, so that comes with a series of aligned congressional representatives. We've also had conversations with leading senators and representatives that are actively engaged in this conversation. I do think when we started the conversation back in March and April, we thought we've made more progress in seeing some legislation, but the lingering effects of the COVID crisis has slowed down those initiatives. And specifically, there was never a bill executed in Congress related to the relief where some for these initiatives were expected to be attached. So there's some executional work yet to be done. But again, we see very broad alignment. You do need some of those incentives to be in place for those initiatives to make sense. You have seen a sporadic singular sort of incentives to certain groups that they are working on. We do reach out to those sorts of folks. But we're more hopeful to see things that are thoughtful about sourcing of product, not just the manufacturing side, but with an allied trading partner that has signed trade agreements, for example, which would be a little less supportive of Asian-based APIs. We are hopeful of seeing some initiatives that might consider the domicile of the company manufacturing those products. So that if it's made in America, the taxes are also paid in America versus those profits sometimes being moved overseas under any number of appropriate tax schemes. And so I think we need to see that legislation anchor and incentive before you'll see significant movement in this direction, but we're hopeful something will happen that will be positive for us. And as you indicate, whatever happens, given Lannett's not only made in America plant base, not only our U.S. domicile base, but the fact that a disproportionate portion of our portfolio does not rely on overseas API. Actually distinctively to the industry, we probably have one of the lower percentages of APIs coming out of Asia. So we do think we're well positioned, but we need to see that legislation actually emerge. There's lots of voices on that space. And we think as the COVID crisis attenuates, hopefully, you'll see concrete legislation that people can organize around and we all hope to benefit from it.

Okay. Yes, that's really helpful. And then I guess just one last question here while we're talking about the COVID crisis. I guess have you seen any impact on the FDA's ability to review ANDAs or on the review time lines at all?

So we've noted before that we've been quite impressed with the FDA's ability to maintain their engagement and review of products in particular. I think that has been undeterred by the crisis. They have successfully moved much of their work remote as have we and has -- as much of the industry has and that continues fairly unabated. In fact, they seem to be making a point of getting more approvals out than ever, which is good at the end of the day, when you're a company like us that's trying to launch a lot of new products to our portfolio. I do think there are some consequences that create some conflict relative to overseas inspections, which is already a bit of a unlevel playing field to begin with and it's exacerbated by the difficulty in travel now to do on-site inspections. The FDA has spoken about doing more remote work in that space as well. But that's the one area where we see certain opportunities perhaps not moving as quickly as we might like them to because they may be tied up with some form of site inspection. Again, our plants here in the U.S., those sites can be inspected, so that can actually work okay for us for today. But by and large, we think the FDA is doing a great job in conjunction with where we see what we're all managing against in the marketplace.

And the next question comes from Scott Henry from ROTH Capital.

A couple of questions. First, with regards to fluphenazine, particularly when you look out at your '21 outlook, what percent of the antipsychosis category is fluphenazine? And maybe not a specific number, but just trying to get an idea of, are there any other levers in there? Or is it really all on fluphenazine?

It's really all fluphenazine. The majority of the antipsychosis is the fluphenazine product. There's a few other dollars in there, small percentages, single-digit percentages associated with a few others, but it's mostly fluphenazine.

Okay. Great. And then I saw that there was, I believe a $19 million asset impairment in the quarter. Could you talk about what that was in relation to?

Yes. Some of that is just through our portfolio rationalization. It's regarding the IP R&D for both the KU acquisition and the Silarx acquisition, so it's just a few products as we were just rationalizing the products that were in development.

We have spent some time this last year, in particular, Scott, really locking down what we want our internal portfolio to be. And we talk about having more quality and less worried about the quantity of our launches. And so this past year, we've done some reshuffling of that portfolio, taking advantage of the pause in the ability to do clinical trials or bio studies for our products with the COVID crisis to kind of reset where we wanted to go. And as a result of that ongoing portfolio review, we backed away from some of the earlier products where we saw less ongoing market value.

Did anyone product account for 1/3 or more of that $18 million write-off?

It was a combination of a few different products. Nothing that we had discussed as part of our previous earnings call.

Okay. Fair enough. And then with regards to the 18 product launches, how are they performing relative to expectations? I don't know if COVID impacted that. But just trying to get an idea of what levers are driving the growth kind of away from what you looked at as the organic target into kind of a lower number, at least in '21?

I well, our 18 launches were diverse as always, led, of course, by posaconazole, which was a breakthrough launch for us. We want to do more of those, obviously. But we had a lot of other medium-sized launches over the course of the year, whether it's the Amphetamine ER salts, whether it was some of the BAC products that we launched earlier in the year, propranolol, what have you. So by and large, our products are single-digit millions for our portfolio. We've talked about trying to get out 20-ish products a year that generate $70 million, and that suggests an average of around $3 million or so. But we'd like to get that mean or median up to a higher number, which is what we're doing there now as we discussed just a few moments ago relating to some of the in-process R&D that was terminated. So we do believe shots on goal matter because sometimes, it's hard to predict. We wouldn't have predicted posaconazole to be as large as it was. We thought there'd be another player or 2. And it goes the other way, where products we thought might be a bit larger weren't larger by the time we arrive in the marketplace. So we're still looking to get $70 million or so of products out on an annualized basis and looking to do it with perhaps slightly higher quality launches. So we see less commercial risk as opposed to development risk. Most of these products, as you know, from a generic perspective, you can get to over time. And it's less to do about your risk on development elements than it is about who else shows up when you get there. And so trying to do a more precise job of considering our strengths and the competitive context is something we're looking to do more and more. We feel really excited about the out-year portfolio from internal development. We obviously feel very excited about the business development portfolio from those efforts. But it takes time on the internal side, and we're just starting to bear fruit on those efforts.

Okay. Final question. The CNS category was strong in 2020 fiscal year, but it tends to be a little more volatile, a lot more levers. How should we think about CNS for fiscal year 2021?

Well, if you see in Q4, CNS is up. That's specifically due to one of our more recent launches, the Amphetamine salts. And so as we look in 2021, we are expecting that category to grow starting in Q1 where we're getting a full quarter.

And that concludes the question-and-answer session. I'll turn the call back over to management for final remarks.

All right. It's Tim again. I'll close out with my customary shout out to all of our employees, customers and partners, working extra hard in extra challenging times to provide high-quality, low-cost medicines for patients everywhere. We look forward to sharing our progress on our next call, and good night.

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