Please ensure Javascript is enabled for purposes of website accessibility

Lannett Inc (LCI) Q3 2020 Earnings Call Transcript

By Motley Fool Transcribers - May 7, 2020 at 2:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

LCI earnings call for the period ending March 31, 2020.

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Lannett Inc (LCI 9.00%)
Q3 2020 Earnings Call
May 6, 2020, 4:30 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Welcome to the Lannett Company Fiscal 2020 Third Quarter Financial Results Conference Call. My name is Cheryl, and I will be your operator for today's call. [Operator Instructions] Please note that this conference call is being recorded.I will now turn the call over to Robert Jaffe, Investor Relations for Lannett. Sir, you may begin. Good afternoon, everyone, and thank you for joining us today to discuss Lannett Company's Fiscal 2020 Third Quarter Financial Results. On the call today are Tim Crew, Chief Executive Officer; and John Kozlowski, the company's Chief Financial Officer. This call is being broadcast live at A playback will be available for 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 third quarter financial results for the company's reasons for including non-GAAP financial measures in its earnings announcement. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is also contained in the company's earnings press release issued earlier today. This afternoon, Tim will provide brief remarks on the company's financial results and the impact of the coronavirus on the company's operations as well as recent developments and associated initiatives. Then John will discuss the financial results in more detail, including the company's fiscal 2020 financial guidance. We will then open the call for questions. With that said, I will now turn the call over to Tim Crew. Tim?

Timothy C. Crew -- Chief Executive Officer

Thanks, Robert, and good afternoon, everyone. We hope you and your families are safe and well. These are, as we all know, highly unusual times with COVID-19 impacting all of us.

As a supplier of medicines, Lannett is regarded as an essential services provider, vital to the health and welfare of the population. Accordingly, we have remained open during the crisis and our manufacturing plants in Carmel, New York and Seymour, Indiana continue to operate at normal capacity. With that in mind, I'd like to begin with some heartfelt thanks to first responders and essential service providers everywhere, along with our Lannett employees who have responded with resilience and dedication to the significant challenges of the pandemic. Our employees have put forth extraordinary effort to make sure we continue to supply patients and customers with our critically important medications. We are proud to share that our plant production has not faulted these past weeks.

To aid that effort, we first focused on our employees' well-being. We followed CDC guidelines and implemented any number of other measures to enhance their safety. For example, we implemented processes and procedures for working remotely for those able to do so. We have suspended all nonessential travel and on-site visitors. For our manufacturing and R&D teams, we have enhanced our safety protocols and provided additional personal protective equipment. And where possible, we staggered and rotated working shifts and increased physical spacing to facilitate social distancing. We have provided additional paid time off and other benefits focused on our operating personnel to help them cope with COVID-19-related strains. Finally, we are fortunate, of course, to already operate in a highly regulated and clean cGMP environment. As a result of this environment and our redoubled efforts, the COVID-19 impact to our employees in our business has been on hold so far, relatively minor. And we again thank our employees who made all this happen.

With that, let's take a closer result at our fiscal 20,203rd quarter financial results. We reported net sales of $144 million, a record amount in our post-levothyroxine era. The higher-than-expected sales were largely associated with COVID-19, with some patients appearing to purchase extra supplies of the medications and certain customers increasing their purchases of some of our products to address such patient demand and avoid shortages. Again, as earlier referenced, thus far, our supply chain for products and key agreements has only been modestly affected by challenges associated with COVID-19.

Adjusted gross margin percentage for the third quarter was lower than we expected, largely due to sales mix and, to a lesser extent, product price erosion. As an aside, I think it's fair to say that in the recent past, our sales and profitability has benefited from our flexible manufacturing capability. Supply disruptions are often provided opportunities for us to receive temporary awards to help alleviate certain product shortages and often the margin of these sales were above our average.

More recently, however, market opportunities were often for products with margins at or below our average. We believe it's important to do our part to assist during the pandemic by continuing to provide critical medications for patients and customers, even if the margins are low. Over time, however, we will continue to review opportunities to optimize our portfolio offering.

Turning briefly to our full year guidance. We have revised several elements in our outlook. Primarily, we have narrowed the range and held our sales midpoint, which we raised last quarter, but we have trimmed our adjusted EBITDA range. This guidance is based on certain assumptions, including, first, the continuing durability of fluphenazine and posaconazole sales. You may recall that we previously indicated that we did not expect to see new competitors for these products for the balance of the current fiscal year. This expectation remains unchanged.

On the other hand, unfortunately, we now expect a lower level of sales for our recently launched Numbrino NDA. Demand for this high-margin product will be significantly reduced during the crisis, given the far fewer elective surgeries being performed during the crisis. We expect to see more meaningful sales once the COVID-19 pandemic winds down.

Another item of note to our guidance is the slightly reduced value of the new products launched throughout this year, excluding posaconazole. And finally, our business model embraces opportunistic commercialization agreements that complement or leverage our strengths and capabilities with those of our partners, both here and abroad. While we continue to progress many such opportunities, our high-touch approach to such agreements has obviously slowed somewhat during the pandemic. John will discuss our financials as well as revise guidance in more detail shortly.

Regarding product launches. In the first half of our fiscal year, we launched eight products. And since January 1, we have launched six additional products, including propranolol ER, nizatidine oral solution, valproic oral solution, generic Adderall XR, lactulose oral solution and Numbrino, for a total of 14 products fiscal year-to-date.

Over the next several months, we'll have several more products in the queue for launch, a portion of which we will commence marketing before June 30. However, given the current competitive environment and timing of operational readiness, the sales of our new product launches for all of fiscal 2020, excluding over $50 million of posaconazole that we expect, will be perhaps $6 million to $8 million lower than we expected in our February guidance.

Most recently, we received FDA approval for three ANDAs. The first is a triple combination of from brompheniramine maleate, pseudoephedrine hydrochloride, and dextromethorphan hydrobromide syrup, that's a mouthful, in 2-milligram, 30-milligram and 10-milligram, respectively, per five ml. We also received approval for clobazam oral suspension 2.5-milligram per ml. These two product approvals are notable less due to their future expected sales value, but for the fact they both received first-cycle review approvals 10 months from their submission date.

Only approximately 15% of ANDAs reviewed by the FDA currently achieve first-cycle approvals. Such approvals are an encouraging sign for both the quality of our submissions and the speed we can get them to market.

In addition, the brompheniramine file was our first internal suspension dosage form approval. We have other more valuable suspension products under development, which we look forward to commercializing in coming years.

A third approval was hydromorphone hydrochloride oral solution, a legacy ANDA filed several years ago at a time when market conditions were more favorable. Given the current unfavorable market conditions, we are not currently planning to market the product.

Regarding our pipeline, we now have more than 20 products in development. And about 17 ANDAs pending at the FDA, including partner products, plus another six or so products that are approved and pending launch.

Turning to our biosimilar insulin glargine and generic ADVAIR product candidates. Both these product opportunities are significant and, together, possibly transformational. Not only is the addressable market for each product quite large, but only a relatively small number of players have the technical expertise in requisite resources to develop and manufacture these complex products. Fortunately, our strategic partners possess both and are committed to the product success. As both products advance, and we continue to assess the market dynamics and risk factors, we are becoming increasingly optimistic.

Regarding insulin glargine, we are set to speak with the FDA on June 9, 2020, to plan to discuss next steps for the product's clinical advancement. At the meeting, the FDA will provide guidance regarding the ongoing development program, including the design and the endpoints of any additional human studies required to find a biologics license application and subsequent approval of insuline glargine as a biosimilar.

Turning to generic ADVAIR. We now look to file an ANDA later this calendar year as the COVID-19 situation impacted the ability of an overseas European clinical site to operate normally. Nonetheless, we currently expect the pivotal PK trials to begin within three months.

Finally, it's worth noting one of our existing combination products, generic lopinavir/retonavir is being studied by the World Health Organization as a possible treatment for COVID-19. We currently market the only approved ANDA for this combination, and our product is in the solution form. While we have been able to recently supply for demand that increased substantially on a percentage basis, the absolute volume so far is not significant. The product is currently a modest contributor to sales. However, should the medication prove effective as a treatment for certain COVID-19 patients, we have the capacity and flexibility to ramp up production quickly. Note there are other solid dosage forms showing tentative approval in the FDA orange book.

To sum up, we are currently operating to the same production expectations as we were prior to the COVID-19 public health crisis. We reported excellent net sales with strong demand across multiple product categories. We introduced six new products since January one and expect to launch several more in the coming months. We have held net sales guidance, but we have lowered our expectations for gross margin based on emerging sales mix, competitive pressure for certain products and some COVID-19-related impacts on products like Numbrino. As a result, we have trimmed our adjusted EBITDA guidance.

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.

And last, as a company with its headquarters and all of its own R&D and finished dose manufacturing based in the U.S., we are proud to be able to do our part, not only to employ Americans but also help support national security interests looking to expand the supply of domestic medicines.

With all of that, I turn the call over to John. John?

John Kozlowski -- Vice President of Finance and Chief Financial Officer

Thanks, Tim, and good afternoon, everyone. As was mentioned earlier, I will be referring to non-GAAP financial measures. The reconciliation of GAAP to non-GAAP numbers can be found in today's press release. Also, in March of last year, our supply agreement with Jerome Stevens for levothyroxine expired. So in addition to providing year-over-year comparisons, I'll include some color comparing our third quarter financial results to our fiscal 2020 second quarter.

Now for the financial results on a non-GAAP adjusted basis. For the 2020 third quarter, net sales were $144.4 million compared with net sales for the third quarter of last year of $172.8 million. Excluding levothyroxine, net sales in Q3 of last year were $117.6 million.

Q3 net sales increased by $8.3 million over Q2 net sales of $136.1 million, largely due to the additional purchases by patients and customers that Tim mentioned earlier. And to a lesser extent, a partial quarter of sales from the launch of four new products during the quarter.

Gross profit was $52.3 million or 36% of net sales compared with $77.0 million or 45% of net sales for the prior year third quarter. Again, the third quarter of last year included significant sales of levothyroxine, a product that had a higher-than-average gross margin. Our gross margin percentage declined slightly in Q3 as compared with Q2, primarily due to sales mix. However, our growth profit dollars increased in Q3 by approximately $2 million compared with Q2. Interest expense decreased $12.7 million from $17.0 million in last year's third quarter due to repayments of Term A and Term B loans as well as lower interest rates on the lower fixed interest rate on our senior convertible notes.

Net income was $11.7 million or $0.27 per diluted share compared with $26.6 million or $0.68 per diluted share for the fiscal 2019 third quarter. And Q3 net income and adjusted EBITDA of $11.7 million and $36 million, respectively, was consistent with Q2.

Turning to our balance sheet. At March 31, 2020, cash and cash equivalents totaled approximately $101 million. Our outstanding debt at the end of the quarter was as follows: total debt was approximately $724 million, and debt net of cash was $623 million, and net secured debt was $537 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. Our cash is more than adequate to pay off the Term A loans in full.

Turning to our guidance. We have tightened the range for net sales and lowered our gross margin estimates for the full fiscal year. We expect R&D and interest expense to be lower and SG&A to increase. As a result of these changes, we have trimmed our estimated adjusted EBITDA for the full fiscal year.

Our guidance is as follows: For net sales, we have tightened the range to $535 million to $545 million from $530 million to $550 million. The midpoint remains the same. Adjusted gross margin as a percentage of net sales of approximately 37% to 39%, down from approximately 39% to 41%. Adjusted R&D expense in the range of $31 million to $32 million, down from $34 million to $36 million. Adjusted SG&A expense ranging from $65 million to $67 million, up from $63 million to $66 million. And interest expense in the range of $50 million to $51 million, down from $51 million to $53 million. The full year adjusted effective tax rate in the range of 21% to 22%, unchanged. Adjusted EBITDA in in the range of $137 million to $147 million, down from $145 million to $160 million. And lastly, capital expenditures to be approximately $15 million to $20 million, down from $20 million to $25 million.

With that overview, we would now like to address any questions you may have.


Questions and Answers:


[Operator Instructions] Our first question comes from Gary Nachman from BMO Capital Markets. Your line is now open.

Gary Jay Nachman -- BMO Capital Markets -- Analyst

First, Tim, can you just give a little more on what the biggest drivers are behind the pressure in gross margin, more than you guys have anticipated? And how should that trend into next year when hopefully COVID passes?

John Kozlowski -- Vice President of Finance and Chief Financial Officer

Yes. So this is John. I'll start with by saying that our gross margin percentage is down slightly compared to some of our expectations. But again, our dollars had increased over Q2 to Q3 by $2 million. Some of it was based on our overall sales mix as we saw sales had increased above our original forecast and a lot of that was due to COVID. And some of them were for products that are higher volume but have slightly lower-than-average margins. And on top of that, we did see some overall pricing pressure. That's one of the reasons why we have reduced our guidance to between 37% and 39%. We're expecting Q4 to be slightly higher, but down from our original projections.

Gary Jay Nachman -- BMO Capital Markets -- Analyst

Okay. And is the lower EBITDA guidance just from gross margin? Or is there something else in there, maybe the SG&A, you took that up a little bit. So talk about what that additional spend is going toward. Is it commercial G&A-related?

Timothy C. Crew -- Chief Executive Officer

Gary, it's Tim. The one of the big moving parts for us as you look forward to the full year number in the fourth quarter is cocaine, or I should say, Numbrino now in our portfolio. That's branded like margin product with little expense to support given its history. And that product is coming down to trivial numbers for the duration of the of the pandemic. So that's probably the single biggest component of it.

We also noted that some of our new product launches have been more competitive, some more competitive showed up, and they typically would have a bit higher gross margin than our average in-line product portfolio piece. So those two pieces are the ones that are kind of drifting us down. They're not significant in terms of total dollars, but they add up $1 million here and $1 million there and result in the changes we've discussed.

John Kozlowski -- Vice President of Finance and Chief Financial Officer

So Gary, this is John. For the SG&A, some of that was just some additional legal expenses that we had in Q3 that came up slightly. But for Q4, we're thinking we'll have a more normalized rate.

Gary Jay Nachman -- BMO Capital Markets -- Analyst

Okay. And then just a couple more. Just can you tell us which products were stockpiled in the last quarter? And just give us a sense of which buckets they're in. And should all those reverse for the most part, now going into the fiscal 4Q?

And then just what is the expected development plan for the insulin product? Just any sense that you have before you have that meeting with FDA, what you guys might need to do there?

Timothy C. Crew -- Chief Executive Officer

So the additional sales that came from some of the customer and patient desires to slow the number of visits to pharmacy and address potential shortages was fairly broad-based in our portfolio. Not all customers ordered all products, but it was not really targeted to any particular area. The one exception to that, I would say, would be Pantoprazole, which is a very high-volume product for us. And it's seeming to be a bit of an alternative these days to ranitidine, and that product is particularly low-margin for us. So it's one of the mix issues that were referenced in some of those sort of changes.

Was there another question besides insulin?

So then as it relates to great. And so then as it relates to the insulin clinical plan, as we say, we're meeting there on June 9. We are excited to be able to sit down and get the FDA's take of what we believe to be a very clean profile from what we've generated so far. What exactly they will require is kind of the key component to our future expectations. If it goes well and they see things our way based on the data we provide, we could be looking to file this product comfortably in calendar year 2022.

If the data packet is less persuasive to them, then or they have other sort of issues that they raise that could push things out perhaps a year. We're feeling pretty good about our data package. And of course, this space with the billions and billions of dollars of expense, with not a lot of lower cost alternatives out there, tend to get a great deal of governmental support to find ways to bring affordable alternatives to market. And so we're pretty optimistic regarding that meeting, but that meeting needs to occur. And as soon as we have that meeting, we'll report back to everybody on what we heard.

Gary Jay Nachman -- BMO Capital Markets -- Analyst

Okay, great. Thank you.


Our next question comes from Elliott Wilbur from Raymond James. Your line is now open.

Young Min Lee -- Raymond James -- Analyst

Guys. This is Lucas Lee on for Elliot. So the question I have is on solifenacin. So I think you've indicated that we shouldn't expect any competition until at least June. So I was wondering if there's anything you could share on the competitive outlook after that?

And as a follow-up, on the BD front, it seems like things have been relatively quiet on that partnering front. So I was wondering if you could give us some general color on the deal environment. And if companies are more or less willing to engage in discussions and whether you see more or fewer opportunities these days?

Timothy C. Crew -- Chief Executive Officer

So thank you. The solifenacin market remains stable to our ability to determine what is in the competitive pipelines. We are not expecting, as we noted in the call, any competitors prior to the end of our fiscal year. We have not sit down to provide guidance in full budget for 2020. When we get there, we'll sharpen that expectation. Again, as we sit today, there is nothing that we're anticipating in the immediate near term. And we're hopeful that, that position will maintain for a period of time. Although pragmatically and realistically, that will not sustain itself for any number of additional years.

As it relates to the BD environment, we're always working at it. Our queue remains quite meaningful. We've had no deals to necessarily announce, either because of materiality or awaiting a product launch. We have been looking to start to raise the sites on those BD transactions. I think the market or the environment in terms of the global supply of generics still respond quite well to the partnering opportunities that we bring. We performed well with our partnerships. We're engaged in those partnerships, and we don't differentiate between an internal product and external product in terms of how our R&D or supply chain or our commercial teams interact with those opportunities. So we feel pretty good about maintaining that pace that we've had.

COVID-19, I noted in my remarks, has created some slowing of our ability to really engage collaboratively in a cross-functional way on the sites in the markets of those partners. So I think some of our dark horse candidates that we hope to bring forward in due course may have lost a month or two, but in the scheme of a strategic plan and a financial fiscal planning perspective, we're remaining quite optimistic about our deal flow on the BD side.

Young Min Lee -- Raymond James -- Analyst

Thank you.


Our next question comes from Greg Gilbert from SunTrust. Your line is now open.

Gregory B. Gilbert -- SunTrust Robinson Humphrey -- Analyst

Tim, I was hoping you could comment a bit on your ability your company's ability to file new allocations and new studies. I know that you're more reliant than some others on the BD, and you've already covered that. But it seems like the FDA is moving at a relatively normal pace on things. It seems like the supply chain is functioning pretty well. But I'm a little concerned about the ability for the industry to replenish the pipeline with filings. Can you comment on that?

Timothy C. Crew -- Chief Executive Officer

Yes. From the supply chain perspective, as you note, minimal disruptions from an FDA-review perspective. Quite frankly, they're doing a great job with applications that are in front of them and dealing with requests to streamline or expedite some particular issue to help bring products to market.

On the clinical side, we have a Bio study or a clinical study. Clearly, that requires a human interaction at a site that needs to have people in fairly close proximity to each other. And there's clearly a slowdown in that particular area. We are seeing clinical sites opening up again in Europe, where we often conduct some of our trials in our efforts. So we do not expect it at this point to be a sustained slowdown, but we would note that over the last several weeks, we haven't been conducting any clinical trials.

Again, we don't expect it to persist for a long period of time, but that is a bit forward-looking relative to things we're not experts in relative to the COVID-19 impacts. So again, we don't think it's going to be material over time, but it's certainly been a slowdown for now.

Gregory B. Gilbert -- SunTrust Robinson Humphrey -- Analyst

Okay. On the operating expense side, many companies have talked about, like you have working at home and less travel, etc, which has brought operating expenses down. And my question is, why are we not seeing that with you? Or are we, but other expenses are popping up. And as you think about new ways to do business and how folks work, is there an opportunity to reduce opex overtime beyond COVID-19?

John Kozlowski -- Vice President of Finance and Chief Financial Officer

Yes. This is John. So we have in Q4, we do have expenses coming down compared to Q3. Some of that is just in regards to timing of overall milestones. But some of it is within our SG&A. And as we move into next fiscal year, of course, those are things that we're currently evaluating. And as we plan to have our next earnings call in August, we'll be able to provide some insights into 2021.

Timothy C. Crew -- Chief Executive Officer

And if I could add there, Greg, we run fairly lean to begin with. We've been through an exercise this last year of taking a lot of expenses out of our operating environment as we dealt with the loss of that larger product some quarters ago now. Our salary expenses and our R&D expenses and our legal expenses are the vast, vast majority of how we spend money. We don't have the SG&A you might see in a branded environment where you've got a lot of other sort of levers to pull perhaps in that expense line that is related to how you may generate revenue.

So while we certainly will see some travel savings from the situation, and we're very proud of the fact we're operating quite clearly, we don't, at the end of the day, have a ton of what you would call discretionary expenses that would and clearly indicate an opportunity to relook at this point in time.

We are always looking for efficiencies in our plants. That's kind of a bigger exercise for us, and that is really unchanged to the new operating environment rather the generic environment where you need to find ways to make products faster at less expense on an ongoing basis.

Gregory B. Gilbert -- SunTrust Robinson Humphrey -- Analyst

Great. And one last one, Tim, you closed with the comment about the U.S. centricity of your model. Other than pride, how can that help you? I understand that the legislation being floated on the subject. But how can that status help you going forward other than by reducing risk of more complicated supply chain that others had to deal with?

Timothy C. Crew -- Chief Executive Officer

Well, exactly. Our first positioning on our supply chain has always been on its reliability, and we've demonstrated that over the many previous quarters. Right now, I think, quite frankly, the whole industry is doing pretty well. The COVID-19 is not, to our experience, seeing huge disruptions out there. There have been some targeted issues. But broadly speaking, over time, that U.S.-centric supply chain is, we think, positioned to continue to have reliable supply in a market that has always been struggling at one point in time, at one product or another with supply. So that's the foundation of where we sit.

However, there are a lot of voices and constituencies that are starting to think about what is the appropriate strategic interest in a more domestic supply chain. We note that the percent of our portfolio that is obviously made in the U.S., but also sourced with so-called TAA-compliant API, is far higher in the industry average. Industry averages are probably 25% to 30%, 40%, I don't know. And we're probably less than 25% of our supply comes from a non-TAA-compliant environment. That's a bit of a reflection.

We have a bunch of older molecules made in the Philadelphia plant before the rise of the Asian pharmaceutical capacities, as well as an acquisition in KU that had EU routes, right? So our positioning is fairly strong as it relates to TAA compliant and U.S.-based manufacturing. And based on my conversations with a lot of political constituencies over the last several weeks is I think something is going to happen.

What that would look like? I don't know. I want to make clear, I do not think we're turning back the time of primarily domestic-supplied medicines. But I think you're likely to see some government programs or some incentives that appropriately increase the potential for products like the ones we make. And I think whatever that happens or whatever whenever and whatever that happens, we should have some marginal benefit.

So pride is absolutely a part of it. Supply chain is the foundation of it and some optimism for some opportunity is a third part.


Our next question comes from Matt Hewitt from Craig-Hallum Capital. Your line is now open.

Lucas Grant Baranowski -- Craig-Hallum Capital -- Analyst

Yes. This is Lucas Baranowski on for Matt here at Craig-Hallum. Just a couple of questions here. I guess, first off, going back to Numbrino, it sounds like the launch for that has slowed down in the very near term. But would you expect that to experience a strong ramp as soon as things begin to reopen and elective procedures come back? Or would you expect there to be maybe a little bit of a delay as people still shy away from going to the doctor?

Timothy C. Crew -- Chief Executive Officer

Well, thank you. The expectation on Numbrino is, I would expect there will be a bit of a pent-up demand as we've had this homeostasis of such elective surgeries. Because of that pent-up demand, I think what you realize demand is likely to look normal. Even if it's a bit slower to reestablish itself, there'll be so many delayed ones. I think it's going to look more like normal demand to us.

We note that our product has been successfully transferred to our site in Carmel, New York. We have plenty of API. And we are optimistic that as this COVID matter winds down, which we can't predict any better than the next person, obviously, but are pretty confident we'll return to a market that is reflective of our earlier expectations.

And from there, we start working on reimbursement codes and seeing what opportunities the label provide us to continue to drive utilization appropriately for that market within its label. So we think this is a temporary slowdown, we think we come back as the nation comes back and everything else in this sort of space.

Lucas Grant Baranowski -- Craig-Hallum Capital -- Analyst

And then going back to the last question regarding domestic manufacturing. How are things looking at your facilities from a capacity perspective today?

Timothy C. Crew -- Chief Executive Officer

Well, I guess, capacity is quite adequate to what we produce. Capacity, recall, is always a bit fungible. You add a machine, you change a configuration and your capacity can grow. The mix of the products can then make a difference, but we have more than adequate capacity for what we see in our internal launch plans from our internal products in the certainly intermediate terms.

And then, of course, a number of our products come from partners who have their own supply chain. So as it relates to our overall ambitions to grow our businesses, we don't see capacity at this point in time to be a constraint.


Our next question comes from Scott Henry from Roth Capital. Your line is now open.

Scott Robert Henry -- Roth Capital Partners -- Analyst

And I apologize if this has come out already. I've been jumping around a little bit. But did you disclose the nature of the asset impairment, the $14 million charge?

John Kozlowski -- Vice President of Finance and Chief Financial Officer

No, Scott, we had not. So that was regarding a partner product of ours, methylphenidate AB. So we had talked before, on our February call, that we expected sales for that product to be coming down. And this quarter, we had an event that would impair basically the future payments associated with that asset. So it was around the methylphenidate AB product.

Timothy C. Crew -- Chief Executive Officer

As you know, that's a product these days with more than nine providers that expanded the sort of competitive set about the time we came to market with our AB-rated product, and it hasn't met our expectations.

Scott Robert Henry -- Roth Capital Partners -- Analyst

Okay. Great. And I'm just curious, for your color on I recognize that a lot of patients are kind of stockpiling some of their medicines, which gave the boost in Q3. Now the question is, do you think they're just holding more inventory at home such that Q4 will be a normal quarter? Or will they work down some of that inventory at their home? Just in your opinion, any color you can give.

Timothy C. Crew -- Chief Executive Officer

So my view of that is the consumption of generic medicines is pretty consistent in good times and in bad. It's efficient. It's affordable. It's important to health. So the underlying consumption, I think, it's important to note is not dramatically changing. There have been some products that probably had some additional utilization as a result of the number of folks affected here, but across United States population, again, the differences in the underlying volumes, I think, is largely on a macro basis, not changing dramatically.

What did apparently occur is as the crisis started building steam, patients move from 30-day prescriptions to 90-day prescriptions. You'll see that in some of the, call it, IMS databases. But and as a result of patients bringing that product onto their shelves, some of the customers needed to kind of restock their shelves and their warehouses.

It's my belief that, that movement of inventory could have some ebbing and waxing and waning, I should say, over the coming months and even quarters. But it's not going to really change the underlying consumption right now. At the end of the quarter, if the patients want to go back to another 90 days, you'll have to order another 90 days, right? So it's kind of this quarter-by-quarter rotation. And we're not completely clear of what will happen relative to the sort of patient reactions in the customers, the downstream restocking. But in general, we think consumption is steady, and there may be a little bit of noise from quarter-to-quarter relevant to those order patterns.


I show no further questions in queue, and I will turn it back to management for closing comments.

Timothy C. Crew -- Chief Executive Officer

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


[Operator Closing Remarks]

Duration: 42 minutes

Call participants:

Timothy C. Crew -- Chief Executive Officer

John Kozlowski -- Vice President of Finance and Chief Financial Officer

Gary Jay Nachman -- BMO Capital Markets -- Analyst

Young Min Lee -- Raymond James -- Analyst

Gregory B. Gilbert -- SunTrust Robinson Humphrey -- Analyst

Lucas Grant Baranowski -- Craig-Hallum Capital -- Analyst

Scott Robert Henry -- Roth Capital Partners -- Analyst

More LCI analysis

All earnings call transcripts

AlphaStreet Logo

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Lannett Company, Inc. Stock Quote
Lannett Company, Inc.
$0.63 (9.00%) $0.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/14/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.