Akorn (AKRX) Q4 2018 Earnings Conference Call Transcript

Akorn (AKRX)
Q4 2018 Earnings Conference Call
Feb. 28, 2019 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants
  
  See all our earnings call transcripts.

Prepared Remarks:

Operator

Good morning, and welcome to the Akorn fourth-quarter and full-year 2018 conference call. [Operator instructions] As a reminder, today's conference is being recorded. I would like to turn the conference over to Jennifer Bowles, Akorn's senior vice president of corporate strategy and investor relations. Please go ahead.

Jennifer Bowles -- Senior Vice President of Corporate Strategy and Investor Relations

Thank you. Good morning, and welcome to Akorn's fourth-quarter and full-year 2018 conference call. I'm joined today by Douglas Boothe, Akorn's chief executive officer; and Duane Portwood, Akorn's chief financial officer. The fourth-quarter press release is available on the Investor Relations portion of Akorn's website.

On today's call, Doug will first provide a business update and a high-level review of his first two months as our chief executive officer. And then Duane will review the company's fourth quarter and full-year 2018 results. We will then open the call to your questions. As a reminder, the conference call and webcast are being recorded and will be available on Akorn's Investor Relations website shortly following the conclusion of today's call.

Before we begin, I would like to remind everyone that the statements made on this conference call today that express belief, expectation, anticipation or intent, as well as those that are not historical fact are considered forward-looking statements and are protected by the safe harbor provisions of the Private Securities Litigation Reform Act. Doug?

Doug Boothe -- Chief Executive Officer

Thank you, and good morning, everyone. I'm excited to be onboard and to have joined Akorn at this critical time for our company. I'll be sharing a few thoughts about my decision to join Akorn, my initial impressions and the growth potential I see for our business. I'd also like to give you a sense of my initial areas of focus as we work to strengthen the business, as well as develop a long-term strategic plan to drive sustainable growth, reduce systemwide costs and improve margins and overall profitability.

I will then turn the call over to Duane to provide an overview of our results and then we'll open up the call for questions. During my first week at Akorn, I prioritized getting out to all of our manufacturing, distribution and development sites to engage with our leadership and associates, providing initial direction and assessing the state of the business. Akorn has recently faced multiple obstacles in the form of increased competition to many of our key products, supply issues and regulatory and legal challenges. Bottom line is that I recognized the frustrations felt by our many stakeholders and that there is a lot of work to be done to return our company to a path of profitable growth.

That being said, there are many aspects of the Akorn business that encourage and excite me and that is why I took this role. Having spent over 15 years in the generic and specialty pharmaceutical space, I'm well aware of Akorn and its position in the market. And many of the fundamentals that drove the business previously are still here. First and foremost, our company has a diversified product portfolio of generic, branded, over-the-counter and animal health products.

Our niche generics business is focused on unique areas of the market, like ophthalmology and injectables, that often have higher barriers to entry, less competition and the ability to generate attractive and sustainable returns. Alongside this targeted generics business, we have a strong presence in branded ophthalmics, OTC brands and animal health, which help enhance and diversify our product portfolio. Additionally, with no single product generating more than 10% of our total revenues, we currently don't have the risk that many of our peers carry related to a more concentrated portfolio. I also feel good about the depth and breadth of our pipeline.

The company has a significant backlog of ANDAs and other assets, which provide us with a potential for future growth. As we work to successfully commercialize our pipeline, we will continue to pursue exciting and valuable new product opportunities across the spectrum of our generics, specialty brands, OTC and animal health portfolios. As part of our business review, we will evaluate our existing pipeline as there may be certain products, which no longer makes sense due to shifts in market dynamics. Our R&D and business development focus remains on innovative, specialty and generic products and our areas of expertise with a potential to create sustainable margin enhancement.

Additionally, during my many site visits, it quickly become apparent to me that our strong and motivated workforce is the foundation of our company. Strong teams have the ability to overcome challenges. And I know, our Akorn team has the desire and the capabilities we need to deliver improvements near term, while smartly investing to realize success in the long term. I have truly enjoyed getting to know our associates and I thank them for their continued dedication to Akorn.

As you can see, there are many aspects of Akorn that impress me and provide a strong foundation to build upon. Now we must put our heads down and execute to address our near-term challenges and realize our full potential. In fact, we've already started to implement some important changes already. Throughout my career, I have placed a strong emphasis on compliance, communication and culture.

At Akorn, to support our commitment to compliance, I have established a companywide QSCAP, a quality systems corrective action plan, with a steering committee, which I chair, functional lead and dedicated site personnel. The purpose of the QSCAP is to consolidate, oversee, manage and improve the timing and effectiveness of our operations, quality systems and compliance enhancement initiatives. While many activities were previously ongoing, the QSCAP is an integrated approach toward oversight, alignment, accountability and timely deliverables. We have increased the clarity of priorities and expectations at our manufacturing sites.

For example, I'm putting specific emphasis on metrics for safety, batches right at the first time, timely resolution of investigations and CAPAs, cycle time and cost per unit. The emphasis on these metrics will drive and sustain our business performance and accelerate response time with customers, while improving our cost structure. The ultimate goal of these structural changes is to continue to build a culture where our teams own safety, quality, performance and integrity. We've strengthened our leadership team, bringing in highly qualified, talented and experienced executives to complement the strong team already in place.

In late January, Christopher Young joined as our global EVP of Operations. Most recently, Chris was head of Global Operations for Allergan. Prior to Allergan, Chris was my head of U.S. and Indian Operations at Actavis.

Also Bill Ostrowski joined the team in the beginning of February as our chief information officer. Previously, Bill was CIO for Pernix Pharmaceuticals. Bill was also my CIO at Actavis. In anticipation of these leadership changes, I've simplified our organizational structure by eliminating the chief operating officer position to streamline reporting.

This was done as part of my emphasis on information sharing, transparency and accountability. After careful consideration, we've decided to explore strategic alternatives to exit our facility in India, as we work to improve our operations and simplify our global manufacturing network. This decision enables Akorn to concentrate its resources on activities with greater potential to strengthen our business near term. I'd also like to share that our Amityville Long Island facility has recently completed a two-week long FDA inspection.

This is a general GMP inspection and focused on our quality systems, manufacturing processes and laboratory controls. Four observations were provided at the conclusion of the inspection and none were identified as repeat observations. For your reference, we are providing a copy of the Form 483 as part of today's 8-K filing. We are very pleased with the outcome of this inspection.

For 2019, the priorities for the Akorn team are to execute our operations, quality systems and compliance enhancement initiatives. We are hyper-focused on improving our product availability and customer service levels, reducing failure to supply penalties that materially impact our financials and, ultimately, working to get our products through our facilities with greater efficiencies. In parallel to these efforts, the leadership team is working with its advisors to develop and implement a strategic business plan that will leverage our strengths and create value for all of our stakeholders. I believe we have the right people to meet these challenges and opportunities head on due to strong executive team and a motivated workforce already and willing to work toward a revitalization of our company.

I look forward to meeting with many of our investors, debtholders, development of supply partners and customers in an effort to get their views on our company and to listen to their concerns in the near term. 2019 is a time to get back to running our company with freedom to operate and to make decisions in the best interest of Akorn. With that, I will hand the call over to Duane Portwood for review of our financial results.

Duane Portwood -- Chief Financial Officer and Executive Vice President

Thank you, Doug, and good morning, everyone. I hope you've had a chance to read the press release we issued earlier today, outlining Akorn's fourth-quarter 2018 and full-year 2018 financial results. When discussing our results this morning, I will be referring to a number of non-GAAP figures, so please refer to today's press release for our GAAP to non-GAAP reconciliations and a listing of items included in our adjustments. With that, I'll jump into our financial results.

During the last two years, we have faced a number of challenges. From an industry perspective, increased competition has had a significant impact on many of our products. From a company perspective, our efforts to complete the merger and the litigation surrounding the Fresenius transaction took management attention and increase costs. Additionally, supply challenges negatively impacted our top-line results and manufacturing cost.

All of these factors negatively impacted both our fourth-quarter and full-year 2018 results. Net revenue for the quarter ended December 31, 2018, was $153 million, a decrease of 17.6% from the prior year quarter. The $33 million decrease was due to two primary factors. First, revenue was negatively impacted by continued competitive pressure on Ephedrine, Nembutal and Clobetasol Cream.

Second, we experienced supply shortfalls due to the extended planned shutdowns and resulting production ramp-ups in our Decatur and Somerset facilities. Gross margin rate for the fourth quarter was 16.5% compared to 44.6% for the prior year quarter. There were a number of factors that contributed to the margin rate decline. First, we had negative manufacturing variances as a result of decreased production due to the extended shutdowns and resulting production ramp-ups at our Decatur and Somerset facilities.

This contributed to over one-third of the rate decline. Second, our manufacturing cost increased as a result of our FDA compliance-related improvement activities, which contributed to slightly less than one-third of the decline. And finally, we experienced negative product mix as a result of declines in high-margin products, such as Ephedrine and Nembutal and increases in lower-margin products such as Myorisan. SG&A expense was $70 million for the fourth quarter of 2018 compared to $61 million for the prior-year quarter.

For the fourth quarter 2018, we incurred about $6 million related to data -- I'm sorry, related to the data integrity investigation, another $6 million of expenses related to termination of certain executives and another $6 million of fixed asset impairments. All these increases were slightly offset by lower marketing expenses. Research and development expenses for the fourth quarter of 2018 was $10.9 million compared to $10.6 million for the fourth quarter of 2017. During the fourth quarter, we recorded $118 million of intangible asset impairment related to a number of previously acquired, currently marketed and pipeline products given changes in the market dynamics for those particular products.

In the fourth quarter of 2017, we recorded $112 million of intangible asset impairment. Both the 2018 and 2017 impairment expenses are included in our non-GAAP reconciliation table. Earnings before interest, taxes, depreciation and amortization, or EBITDA, was a negative $174 million in the fourth quarter of 2018 compared to a negative $98 million in the prior year quarter. Our adjusted EBITDA for the fourth quarter of 2018 was a negative $20 million compared to a positive $28 million in the prior year quarter.

Please see the press release for a reconciliation of EBITDA to adjusted EBITDA. Turning to the full year, 2018 revenue of $694 million represented a decrease of $147 million from the prior year revenue of $841 million. The 17.5% decrease was primarily due to Ephedrine, Nembutal, Lidocaine Ointment and Clobetasol Cream as a result of continued competitive pressures on these products. For the year, lower volume was the primary contributor as overall price was down less than 5%.

Additionally, revenue was negatively impacted by supply shortfalls due to the extended planned shutdowns and resulting production ramp-ups in our Decatur and Somerset facilities. Gross margin rate for the full year 2018 was 35.4% compared to 51.4% for the prior year. The decline in gross margin rate was primarily driven by the following: first, we had unfavorable manufacturing variances as a result of the decreased production due to the extended planned shutdowns and resulting production ramp-ups at our Decatur and Somerset facilities; second, our manufacturing cost increased as a result of our FDA compliance-related improvement activities; and finally, we experienced unfavorable product mix as a result of declines in high-margin products such as Ephedrine and Nembutal and increases in lower-margin products such as Myorisan, as well as the previously mentioned unfavorable price experienced during the year. SG&A expense was $280 million for the full-year 2018 compared to $216 million for the prior year.

For the full year, the increase was driven by $38 million in expenses related to the Fresenius transaction and litigation, $28 million in data integrity investigation costs, $6 million related to termination of certain executives and another $6 million related to fixed asset impairment. These increases were partially offset with lower financial restatement expense. For the full-year 2018, we recorded $231 million of intangible asset impairment compared to $128 million in 2017. Both the 2018 and 2017 impairment expenses are included in our non-GAAP reconciliation table.

EBITDA was a negative $309 million for 2018 compared to $64 million in the prior year, and adjusted EBITDA was $49 million for 2018 compared to $245 million for the prior year. Please see the press release for a reconciliation of EBITDA to adjusted EBITDA. Turning to the balance sheet, although cash declined $143 million from last year, we ended the year in a strong cash position with $225 million at December 31, 2018. The major contributors to the decline in cash were $69 million of capital expenditures, $53 million of cash interest, $39 million of payments related to the Fresenius transaction and trial and $34 million of payments related to the data integrity and FDA compliance-related improvement activities.

For 2018, cash flow from operations was a use of $69 million compared to a source of $248 million for 2017. As of December 31, 2018, long-term debt outstanding was $820 million, net of deferred financing cost. On a 12-month basis, our net debt-to-adjusted-EBITDA ratio was approximately 12.3 times at December 31, 2018. At this time, we are not providing earnings guidance.

However, we expect profitability and margins to improve over the course of the year as our near-term initiatives gain traction. We do understand that there may be heightened interest in our overall cash requirements for 2019, particularly, as it relates to capital expenditures and remediation cost. With respect to capital expenditures, we expect 2019 spend to be approximately $40 million. With respect to data integrity investigation and FDA compliance-related expenditures, we expect to spend approximately $55 million in 2019, with the majority of it in the first half of the year.

Note that the $55 million includes approximately $15 million that was expensed in 2018, but wasn't paid as of December 31, 2018. Finally, during the course of our 2018 year-end close, we identified a material weakness in the internal controls surrounding the process in which we evaluate and record stock compensation expense. We take internal controls over financial reporting very seriously, and this outcome is disappointing. Fortunately, this identified weakness is narrow in scope, and we expect to quickly remediate it at no financial cost.

With that, I'll turn the call back over to Doug.

Doug Boothe -- Chief Executive Officer

Well, thank you, Duane. As an engineer by training, I love to solve problems and returning Akorn back to a high-value specialty pharmaceutical company is an exciting challenge and, more importantly, a great opportunity. Our team is focused on taking the right steps to drive enhanced performance and execution, while we develop our strategic plan to revitalize Akorn and return the company to a path of sustainable, long-term growth. As we continue to turn this business around, we'll be guided by a culture of compliance, driven by a commitment to providing our patients with affordable and high-quality products and supported by the strength and resiliency of our team.

I'm optimistic about the opportunities ahead for Akorn and believe there's a significant potential for improvement and to achieve our long-term goals. I look forward to providing you all with an update on our progress at our next quarterly earnings call. We would now like to open up the line for a limited number of questions. Operator? 

Questions and Answers:

Operator

[Operator instructions] Our first question comes from Gregg Gilbert with SunTrust.

Gregg Gilbert -- SunTrust Robinson Humphrey -- Analyst

Doug, I just had a couple questions I'll ask upfront. First, in light of a warning letter and 43s, allegations of fraud by Fresenius, data integrity investigation, etc., etc., can you close the loop for us on where you think things stand on the above? And have you met with the FDA and gotten their assurances that your plan is the right one? That is part one. And part two is, have you interacted with customers yet? And if so, what can you share about their perceptions of the company and their willingness and plans to continue to do business with the company?

Doug Boothe -- Chief Executive Officer

Yes, Gregg. Thank you for the question. Regarding the FDA, actually, one of the first activities I did do when joining the company was sending a letter to Francis Godwin at the FDA and requesting a meeting. We have yet to have that meeting scheduled.

We expect it before the end of the first quarter, most likely. Certainly, the news from our Amityville facility is positive in terms of having complete inspection, some minor observations and, of course, all our facilities right now are actively manufacturing, producing, testing, releasing products. We continue to make great progress on our remediation activities and our 43 responses, both at Decatur and Somerset. So again, with the QSCAP and the activity on place, I believe we are well on our way, but we still have significant work to do to complete the activities and also to maintain sustainable compliance throughout the tenure for the business.

Regarding customers, I did meet with several customers at the AAM meeting. I saw you there as well. So that's an activity that we will continue to be more focused on. Our commercial organization is very actively describing customers.

One thing that we are working very hard to do is to remove the fear, uncertainty and doubt about our company, which is probably the reason why we're holdings this earnings call, probably the reason why we're much more forthcoming and much more direct with information sharing, such as the information from our Amityville facility.

Gregg Gilbert -- SunTrust Robinson Humphrey -- Analyst

And maybe just one follow-up for Duane since he can't guide. Specifically, maybe he can talk about just at a high level when you think you have a solid handle on the big question of how much it'll cost and how long it'll take to get sort of back to some level of equilibrium where you're not focused as much on the past, but more on the regular challenges of a business in this environment?

Duane Portwood -- Chief Financial Officer and Executive Vice President

Yes. Thanks, Gregg. I guess, we're working through our longer-term plan now in terms of looking at our overall operation, looking at the overall P&L, look at our capital structure. And we'll come back to you in due course with kind of our outlook and the plans that we'll put in place and the actions that it'll take to execute those plans.

From a remediation perspective, as I mentioned, it gets a little bit confusing when you talk cash versus expense. But for 2019, I mentioned that we plan to spend well -- we plan to expense about $40 million related to our remediation activities and the FDA -- I'm sorry, the data integrity investigation. As far as we know, should basically complete everything that we intend to complete at this point. And again, it's more front-end loaded.

So as Doug alluded to, all of our facilities are up and running and producing. Decatur is pretty much there, although they're going through the remediation of all the FDA commitments that we have. Somerset still in ramp-up phase and the like. So I can't necessarily guide to the shape of the quarters any more than I've already alluded to, but I would expect at some point during 2019 to be back to stability.

Operator

And our next question comes from Randall Stanicky with RBC Capital Markets.

Randall Stanicky -- RBC Capital Markets -- Analyst

A couple of questions from me. Doug, how long do you think it's going to take to formally response the FDA's warning letter at Decatur? Ultimately, it's obviously tough to determine or project when the FDA will actually come back, reinspect, but how long will it take for you to respond formally? That's No. 1. Number 2, can you just remind us of the pipeline, the number of ANDAs, the size and understanding that Decatur is under warning letter.

How much of that pipeline is approvable? In other words, how much of that comes from other facilities that the FDA can approve products from and/or customers or partners such as Restasis? And if you have an update on that one as well, that would be great.

Doug Boothe -- Chief Executive Officer

Just one question, right, Randall?

Randall Stanicky -- RBC Capital Markets -- Analyst

One long one.

Doug Boothe -- Chief Executive Officer

No. First of all, regarding the warning letter response, we have already responded to the warning letter with the agency. That was responded at the end of January. Likewise, actually we continue to provide regular updates to the FDA both on a monthly basis as part of our data integrity activities, as well as part of QSCAP, we're providing monthly updates to the progress across our facilities as we continue to make progress, which we made a lot of and Duane referenced before that.

Certainly, we anticipate that the majority of the remediation activities and the improvement activities will be in place by middle of the year. And as we continue, we're also anticipating additional activities. So we know our journey on quality compliance, remediation is a long one, but we're very much well along the way and our facilities are all operating at full utilization. Regarding pipeline, again, we didn't put the chart.

I guess, we're looking at the portfolio. But essentially, about half of those items are definitely available and certainly are progressing through the pipeline. Regarding Restasis, I would say that, again, we believe we have some potential limited competition approvals coming out this year. But Restasis, we do not see as a 2019 activity for Akorn.

Operator

And our next question comes from Elliot Wilbur with Raymond James.

Elliot Wilbur -- Raymond James -- Analyst

First question for Doug, I guess, with respect to failure to supply provisions of some of your contracts and inabilities. Can you give a sense \to what extent that's impacted the business or maybe over the last couple of quarters? And how to think about those going forward in terms of potential downside risk to EBITDA in cash flow levels? I'm not sure kind of on the GPO side necessarily how easily you can extract yourself from some of those and how onerous some of those may be versus what you may see on the retail side where, of course, you might be making somebody whole on the basis of a full WACC price. And then for Duane, so if I back out some of the items around data integrity and FDA remediation spend, I mean, it looks like you're very close to cash flow breakeven. I just want to assume that was correct.

And is that still something that we could expect to occur over the course of 2019?

Doug Boothe -- Chief Executive Officer

Yes. So Elliot, thanks for the questions. Regarding failure to supply, I appreciate you bring that up because to me, that's the lowest hanging fruit right in front of us as we are -- facilities are back up in line, we are working effectively to manufacture, test, release product. We spent over $22 million in failure to supply, it's actually in our reports and $7.5 million of it was in the fourth quarter of 2018.

So as I mentioned in my initial trips out to all of our facilities and setting initial guidance, key focus on supply product availability and to address our failure to supply situation is going to be, I guess, one of the lowest hanging fruits and actually I give credit to our commercial group, who was in anticipation of the challenges late in the fourth quarter. And in the second half of last year, already we're beginning to contract out and provide advanced warning and heads up to our customers, so they can make alternative plans and not be caught short. So going back to customer conversations, this was an area that, again, customers were appreciative of us being directing us and forthcoming. With that, of course, we anticipate going back to them as our products are back available to try to get back some of that volume and business that we had lost previously.

The failure to supply reduction is a key priority for 2019 as to help improve -- it only gets up 100% profit flow-through. The question was about cash flow, Duane.

Duane Portwood -- Chief Financial Officer and Executive Vice President

Yes. So Elliot, I think you're -- at least in the first couple quarters, I think you're thinking right. In the adjusted EBITDA schedule in the press release, we call out both the failure to supply numbers that Doug just alluded to, as well as FDA compliance-related expenses. Now those numbers are included -- I don't adjust those out for adjusted purposes, but we're highlighting what's in the numbers.

The data integrity items, I do call out and do adjust out. But, yes, I think if you kind of take all that into account, we are at cash flow breakeven right now. And I don't expect that -- kind of expect fourth quarter to be the low watermark at this stage knowing what we know. But we still have some significant activity to take care of in the first half of the year.

So that's probably the right way to think about it.

Operator

Our next question comes from David Amsellem with Piper Jaffray.

David Amsellem -- Piper Jaffray -- Analyst

I just wanted to ask a higher-level question about the overall injectables business, particularly, since you're evaluating strategic alternatives for the India infrastructure. So talk about your level of commitment to Decatur longer term and your level of commitment to injectable-focused generic R&D. If you are not focused on more complex products and 505(b)(2)s and the kind of things that some of your larger peers are doing, then does it make sense to transition away from that business? Just help us understand where that fits in your overall strategy given where the business is now?

Doug Boothe -- Chief Executive Officer

David, it's Doug. So, again, regarding Decatur and our focus on specialty injectables, we absolutely continue to have a focus on specialty injectables. And I think the clarity with our India decision, as well as again now that we're pass the Fresenius activity, will get us back into looking at the specialty injectables and continue to invest in our Decatur facility. We've actually already put significant capital dollars in the Decatur.

We have commissioned entirely new QC and microbiology lab, as well as made significant operational improvements and investment in our Decatur facility, as well as we're looking at expansion opportunities as we look to really continue our investment in that site. As I mentioned, the specialty generics, niche generics and injectable space is an area of opportunity, as well as capabilities within Akorn. So I would not characterize this as lowering our initiatives and our desire there. It's actually an area for improved and refocused investment.

That being said, of course, we need to work through with the agency to get our facility back to OAI -- to VAI or NAI status, which is only a key focus of our front and all of our 2019 activity. So we can get that pipeline reinvigorated, while we'll also get the facility back to be up in a stronger compliance status, would enable improvables, as well as product transfers and/or out. So again, overall we are looking at Decatur as a hub of activity for Akorn both now and into the future.

Operator

Our next question comes from Kevin Kedra with Gabelli Research.

Kevin Kedra -- Gabelli Research -- Analyst

Wanted to ask about the OTC and animal health businesses. I mean, there are smaller businesses for you guys, but do you look at those as strategic assets? Or are they something that you might also consider as part of the strategic review? And so that point, can you remind us what are the covenants on your currently outstanding term loan? And whether you've had any discussions about refinancing that or negotiating those covenants?

Doug Boothe -- Chief Executive Officer

So I'll address the product side of it. So again, our OTC business and animal health business, as I mentioned in my statements, it's a unique portion of business for us. It provides differentiation and diversification. Also they're very, very strong brands.

TheraTears right now is No. 3 product in the category. We put significant SG&A and promotion against that product last year and we are seeing the benefits of that from a revenue expansion. And again, the animal health product, it's a nice complement given our portfolio of ANDA products, as well as we are looking at ANADA development activities on our way.

So we see that's again a portion of our business going forward, but as part of our strategic review, we're looking at all assets for the company.

Duane Portwood -- Chief Financial Officer and Executive Vice President

Yes, and with respect to our term loan, I guess, a couple of things. Our debtholders are very important stakeholders to us. And as part of that, we've hired operational and financial and legal advisors as we look at our long-term plan. We're still more than a couple years away from the maturity of the term loan B.

And I guess, as we look forward to that, we are engaging our advisors, taking a look at the long-term plan, developing it and then gaining a better understanding of what our go-forward capital structure is. And once we have kind of more insight for that, we'll communicate that to the outside, but highly engage with them. From a covenant perspective, it's essentially covenant-free. So no financial covenants as it relates to the term loan B.

Operator

[Operator instructions] Our next question comes from Matt Hewitt with Craig-Hallum Capital.

Matt Hewitt -- Craig-Hallum Capital Group LLC -- Analyst

I guess, regarding the pipeline and you went into this a little bit, but regarding the pipeline how much of those ANDAs are out of the Amityville facility? Meaning, how many of those could still be approved, while the other two facilities are being remediated?

Doug Boothe -- Chief Executive Officer

Yes. Again, roughly about half of those items are from our Amityville facility. We actually have received three approvals in the last quarter. Several of those items were in launch preparation activity mode and, as I mentioned previously, we think there's an opportunity for some limited competition genetic approvals, as well as by the way, several of our filings are with contract manufacturing organization, so not wholly dependent upon our compliance situation.

Again, other items, we're looking as potential launch items in 2019.

Duane Portwood -- Chief Financial Officer and Executive Vice President

One clarification, when Doug alluded to the half, he meant Amityville and CMOs together or about half.

Matt Hewitt -- Craig-Hallum Capital Group LLC -- Analyst

Perfect. Great. And then I know it's a little bit difficult, but I think you're around $6 billion for the TAM for the pipeline. Has that changed much and I know that there's going to be some movement as you kind of pars through the pipeline, but is that still kind of the right starting point?

Doug Boothe -- Chief Executive Officer

Yes, absolutely. I think, they're still roughly in that range. We're constantly monitoring our market, constantly monitoring the potential for our portfolio items and again as well look through the work that's required to get several of those items through FDA review, activities and/or remediation, respond to the efficiencies and such, we'll constantly see what the value of those opportunities are going forward.

Matt Hewitt -- Craig-Hallum Capital Group LLC -- Analyst

OK. And then one final one. Obviously, the failure to supply and some of the other challenges that you faced here recently, but I'm curious and I think you touched on those briefly in your prepared remarks. Have there been any areas where you've actually been able to take advantage of some dislocations in the market? Competitors have run into some manufacturing issues and as a result, you've been able to pick up some volume, maybe even some price here or there?

Doug Boothe -- Chief Executive Officer

Yes. Again, come back to failure to supply and what I call the low hanging fruit, certainly, right now we're working through a significant back order, so there's demand for our products and as our facilities are back up and running and we get our products released and we continue to manufacture at a higher rate, both the failure to supply, dollar spend should be coming significantly down, as well as we'll get more throughput, more output and we'll actually have an opportunity to expand on revenues on some of our limited competition genetic items, which we've not been able to fully supply so that opportunities out there. It's an area of immediate focus, so the team is working ourselves through. So perfect.

Again, a lot of the challenges in the second half of last year are around absorption. The facilities are not running at a rate that we're capable of providing. So we've got demand for our products, we've got the interest and the capabilities. So I expect a combination of the failure to supply to come down and greater throughput will help drive our top line and our bottom line results throughout the course of 2019.

Operator

I'm not showing any further questions at this time. I would now like to turn the call back over to your host for any closing remarks.

Jennifer Bowles -- Senior Vice President of Corporate Strategy and Investor Relations

Thank you for joining today's call, and we look forward to speaking to you next time.

Operator

[Operator signoff]

Duration: 40 minutes

Call Participants:

Jennifer Bowles -- Senior Vice President of Corporate Strategy and Investor Relations

Doug Boothe -- Chief Executive Officer

Duane Portwood -- Chief Financial Officer and Executive Vice President

Gregg Gilbert -- SunTrust Robinson Humphrey -- Analyst

Randall Stanicky -- RBC Capital Markets -- Analyst

Elliot Wilbur -- Raymond James -- Analyst

David Amsellem -- Piper Jaffray -- Analyst

Kevin Kedra -- Gabelli Research -- Analyst

Matt Hewitt -- Craig-Hallum Capital Group LLC -- Analyst

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