Lannett Company Inc (LCI) 2010 Q2 法說會逐字稿

Welcome to the Lannett Company fiscal 2010 second quarter conference call. My name is Monica, and I will be your operator for today's call. (Operator Instructions). I will now turn the call over to Mr. Robert Jaffe. Mr. Jaffe, you may begin.

Thank you, operator. Good afternoon, everyone, and thank you for joining us today to discuss Lannett Company's fiscal 2010 second quarter financial results. On the call today are Arthur Bedrosian, President and CEO, and Keith Ruck, Chief Financial Officer. Please be advised that this conference call is being broadcast live on the Internet at www.lannett.com. A playback of this call will be available for three months and may be accessed on the Internet at Lannett's website.

I would like to make the cautionary statement and remind everyone that all of the information discussed on the call today is covered under the Safe Harbor provisions of the Litigation Reform Act. The Company's discussion today will include forward-looking information reflecting management's current forecasts of certain aspects of the Company's future, and our actual results could differ materially from those stated or implied. This afternoon, Arthur will review the Company's business highlights; then Keith will discuss the financial results for the quarter in more detail, followed by Arthur's concluding remarks. We will then open the call for questions. With that said, let me now turn the call over to Arthur Bedrosian. Arthur?

Thank you, Robert, and good afternoon, everyone. Our fiscal 2010 second quarter performance was primarily impacted by a change in product mix, including a decrease in sales of OB Natal One, our prescription prenatal vitamin, and certain pain management products. I'll discuss this in more detail in a moment. Also impacting the quarter was a nonrecurring state income tax charge resulting from a change in Pennsylvania tax law. Keith will discuss this in more detail later in our presentation. With regard to the OB Natal One product, the manufacturer of the brand version ceased marketing and promoting its product in December of 2008. Since no one has been detailing the brand product in the marketplace, we believe this has led to an overall decrease for the demand for our OB Natal One product.

Even though we now command 95% of that market, the market size has dropped considerably. We are exploring the development of a plan to market our drug as a branded generic. As mentioned on our last conference call, we were unable to distribute several of our pain management products due to a DEA quota issue. Since our subsidiary, Cody Laboratories, was unable to produce and ship products to Lannett for the months of October and November, the idle manufacturing costs deteriorated gross margin by approximately 2% compared to the first quarter of 2010. These quota issues have been resolved, and we expect sales of these products to rebound in the current quarter.

Offsetting these declines, we recorded strong sales of our Levothyroxine and Pilocarpine products, and we were able raise the prices of certain other products. We continued to invest in product development. Currently, we have 16 product applications pending at the agency and an additional 47 product candidates in various stages of development. With that, I'd like to turn the call over to Keith for an overview of our second quarter financial results. Keith?

Thank you, Arthur, and good afternoon, everyone. For the fiscal 2010 second quarter ended December 31, 2009, net sales were 28.7 million compared with 29.2 million in the same quarter of fiscal 2009. Gross profit was 8.1 million, compared with 11.0 million for the same period in the prior year. Research and development expenses increased to 2.7 million from 1.8 million in the 2009 fiscal second quarter. Selling, general and administrative expenses decreased to 4 million from 6.7 million in the same quarter of the prior year. Operating income was 1.3 million compared with 2.5 million in the fiscal 2009 second quarter. Net income was $55,000, or break even on a per share basis, compared with 1.6 million or $0.06 per diluted share for the prior year's second quarter. I'd like to take a moment to provide some detail on the state income tax issue Arthur mentioned earlier. In fiscal 2010 second quarter, the Company recorded a non-recurring, non-cash state income tax charge due to a change in the apportionment factors in Pennsylvania tax law.

The impact of these change caused the Company to decrease the value of its deferred tax assets, resulting in a significant increase in the effective tax rate for the quarter. For the quarter, we recorded income tax expense of $1.2 million, or an effective tax rate of approximately 95%. We expect our overall tax rate will be approximately 45% for the full year ended June 30, 2010. Turning now to the financial results for the first half of fiscal 2010, net sales increased to 60.2 million from 54.8 million for the comparable period of fiscal 2009. Gross profit was 19.6 million, compared with 20.0 million for the same period in the prior year. R&D expenses increased to 5.8 million from 3.7 million in the first half of fiscal 2009. SG&A expenses decreased to 7.8 million from 11.6 million in the same period of the prior year. Net income grew to 2.9 million, or $0.12 per diluted share, from 2.8 million or $0.11 per diluted share for the first half of the prior year.

Turning to the balance sheet, the Company has more than 20 million in cash, cash equivalents and short-term investment securities available for sale, and approximately $8 million of long-term debt, including the current portion. With that brief financial overview, I will now turn the call back over to Arthur. Arthur?

Thank you, Keith. Several of you asked for an update on our plans regarding the Company's shelf registration. Let me start by saying, we believe the outlook for Lannett is bright. It is in that light that we continue to evaluate a number of potential acquisition opportunities to enhance Lannett's growth. We have also held discussions with other generic firms to joint venture or contract manufacture certain scheduled drugs using our expertise in that area. While we are not currently a party to any binding agreements, the acquisition candidates include products, technologies and a small company similar in size to ourselves. Any potential acquisition must, among other things, be complementary to our business.

By securing the SEC approval for the shelf, we do not need to fear that an opportunity to pass us by due to a lack of cash on hand or the ability to raise cash. At the same, time we are also evaluating plans to expand and upgrade the capabilities and facilities of our pain management business. The pain management space is underserved and has excellent growth potential. We believe an investment in our Cody Laboratories subsidiary would allow us to, over time, garner a larger portion of the market of pain management products. While we have a strong cash position, our Board authorized the filing of the shelf registration in order to fund an acquisition strategy, as well as other expansion initiatives. Let me assure you that we will look at a number of factors before selling any stock, including the price.

Management and the Board are significant shareholders in Lannett, making our interests very much aligned with the Company's shareholders. Moving on to the pain management business, in mid-December we received FDA approval for Hydromorphone hydrochloride tablets in 2, 4 and 8-milligram strength, products that have relatively large market opportunity. We continued marketing our Hydromorphone product, and we expect to increase the manufacture of the active pharmaceutical ingredient for this product at our Cody facility in the fourth quarter of fiscal 2010. Last week, we announced that we expect to file a new drug application with the FDA for a morphine sulfate oral solution. This is a somewhat unusual situation for several reasons. We have been manufacturing and marketing morphine sulfate for oral solution for some time, and will continued to so during the FDA's review of our application. The FDA has indicated that it will conduct its review on an expedited basis, which typically takes about six months.

Before opening the call to questions, I'd like to thank our customers, employees and shareholders for their continued support. With the time available, we would now like to address any questions you may have. Operator?

Thank you. (Operator Instructions). Our first question comes from Scott Henry of Roth Capital.

Thank you, and good afternoon. I guess I will start with just a couple of kind of the line item questions. I guess, first of all, when should we expect to get a quarterly file filing so we will get a little color on specific product lines?

We hope to file by Wednesday, Thursday the latest, Scott.

Okay, and then the gross margin declined, it looks like about 10% -- a little less than that. Would you expect that to fully come back when the pain franchise comes on board, or it's just a kind of a steady creep upward?

I would expect to pick up more than a couple percentage points by this third quarter with the quota issues resolved now and Cody back online producing its shipping to Lannett. I will state that if you are comparing our margins for this quarter against the December of last year quarter, we had the launch of the OB Natal product in that quarter. We sold over $4.5 million alone just in that quarter, and it was royalty free. Now we are selling -- this past quarter it was about 1.5 million of the OB Natal product, and it has a royalty on it.

Okay, and when you think -- I sort of heard the comments earlier about looking at perhaps marketing OB Natal One, would that be you doing it specifically or perhaps with like a CSO? I mean, how would you think of that?

Well, actually, we talked to a CSO, and we got some quotes from them as well as direct marketing. We found that with the OB Natal One, the prenatal vitamins, it's generally a sampling issue. If you give a lot of samples to the doctor, he gives them out, to the patients and then he tends to prescribe the same product. So we are contemplating doing some sampling of that product to see if we can generate some additional sales. Since we command 95% of the market, we think anything we spend in developing that product line will come back to us as opposed to the two small competitors and a third one that, I believe, that just entered the market, might garner from our efforts. So we are planning to do something. The detailing, I'm not sure, is something we will probably pursue, although we are looking at the cost of it, because I'm not sure that's the way to go with this product. Everything we've been told, it seems like this is more of a sampling issue.

Okay. All right. And then looking at a couple of the other lines, just a little variance here and there. Product royalties, the last quarter they were 1.4%. This quarter they are down to 1.0. Is that just normal variance, or how should I think about that line?

The OB Natal One product had a decrease in the royalty rate of about 5% starting on October 17. So that will be something we will experience going forward. And then there's other royalties on that line, and it will depend on obviously product mix.

Okay, and then SG&A and -- it looked like R&D kind of dipped down sequentially. Would you expect that to rebound? And I guess conversely, would we expect SG&A to kind of drop down a little bit?

Yes, R&D has gone up since the -- or sorry, has gone down slightly from the first quarter. But that's just the timing on some of the buyer studies and development costs of some of the products in the pipeline. I do expect that to raise up a little bit in the third quarter. SG&A at 4 million doesn't really have a whole lot of one-off type of expenses. And this quarter, we did have our annual issuance of some stock options and what have you, which are increasing the non-cash stock comp in that line. But the 4 million a quarter is probably a decent run rate going forward.

Okay. Then perhaps shifting over to what I would consider the things that matter -- the real material drivers, Digoxin and Levothyroxine -- I mean, starting with Levo, do you see anything out there that would indicate the change in the competitive dynamics? Any new competitors? Or is it fair to say we could continue to see kind of slow, steady share growth in that category?

Slow, steady share growth. What's happened is we didn't see any of the innovator companies dropping out of the market, so we are presuming that they believe they met the new specs. But unfortunately, this is the time frame when they would be testing their new formulas ,so they may end up having problems in this month. But so far, we haven't seen any difficulties. Some of the innovators have been back ordering somewhat, for example, some strengths; (Inaudible) had some strengths that had been back ordering at some level. So we're not sure if that's just a quirk in their distribution or it's indicative of some problems they're having. But we didn't see the bump up we thought we might see if they dropped out. But no one new has entered the market, and we do continue to see sales growth on the Levothyroxine. Now the Digoxin is a little bit different. There our growth hasn't really diminished, but the margins have. We have had additional competition price-wise, so there's been some price erosion on the product where we've had to lower our price to meet another competitor on the market -- an older competitor, one that's been out there for some time, seems to be getting a little aggressive on their pricing. And so that's hurt us a little in that area, but we haven't really lost any unit sales to speak of.

Okay, and focusing a little closer on Digoxin, seeing a competitor increase share, but it's still a small minority -- it's not significant. Looking out, what are your thoughts towards the middle of the year? Should we expect to see more significant competitive end roads in kind of the summer time period? Or how are you looking at it long-term, holding aside the encroachment by the one player out there?

Well, we recently looked at the data just this morning. We still command 85% of the market according to the (Inaudible), and the competitor is commanding 15%. There is another company, as you know, that was supposed to launch last year that was impacted, and they've had some difficulties from what we understand. Their raw material supplier bowed out of that product, so they had to requalify another raw material supplier. So we do expect some competition to come in probably in the summer. I don't see any real changes to our Digoxin market between now and June 30. But clearly, once they enter the market, if they are irresponsible they do it on price, they are not going to gain any customers, they are just going to cause the prices to decline. We will have to see what they do, and we will certainly be ready to match the prices.

Okay.

I don't expect anything until after June.

All right. Well, thank you for taking the questions, guys.

You're welcome. Thank you for calling.

The next question comes from Tom [Hamburg] of [Carl M. Henning].

Arthur, I noticed on October 2 of this year, you announced the 150 million shelf registration. And then on November 20, you come up with a stock repurchase program. It seems like you are talking out of both sides of your mouth. I've been in this business for 45 years, and you are the only Company I know of that's got a shelf registration and a repurchase program at the same time. Can you enlighten us as to just what you are doing there?

Well, first of all, the buy back program has been in existence for probably three years going on four, so it's always been there. The shelf registration, as we said earlier, was to prepare so that we could make some acquisitions. It takes a few months to get that shelf approved through the SEC. It's not something I could do at the last minute because an opportunity arises. So we wanted to prepare to do acquisitions. We see some opportunities out there, and we needed to make sure that we had the shelf in our (inaudible), so to speak, so if we wanted to do execute we could quickly raise funds either by borrowing money, selling bonds or selling shares. When we saw the price stock decline, and because we did have the buy back in place, we decide to do support our stock. We felt our stock at that level -- I believe it was falling in the low 4's -- was an attractive investment for Lannett.

So clearly at that time, if we see our stock getting weak, we are going to use our cash to invest in what we think is a good opportunity. We think Lannett stock deserves to be above the $4 level, certainly. So there's really no conflict. It wasn't like we were doing these two things at the same time, but I can understand how it appears if someone doesn't understand the background. But if you look at our press release, we did remind the market that we had this buy back in place.

Well, it was a reauthorization, as I read it.

Right.

So how many shares have you brought back since November 20?

Actually, we haven't purchased any shares. We weren't able to get any shares when we went to purchase them.

Okay. With a delay in receiving the quarter from the DEA from Cody there, you're back in operation now for what -- two and a half months? Have you regained any of that market share that you lost?

Well, we actually didn't loss any market share. I mean, what we had is we lost sales opportunities for two months, but we didn't lose any customers. We carry inventory levels pretty high. We try to make sure we have good service levels. So we didn't really run out of stock per se on everything. Those thing that we ran out of, our customers waited for us to get it back into stock because they had healthy inventories. So I didn't lose anything in terms of my future potential. But I certainly lost the actual sales from Cody -- two months where they were completely idle -- and the products they would have shipped to me those two months I would have sold because I had orders for them, those orders got postponed. So I lost two months of sales, but I did not lose any customers.

Okay. At what point -- you talked about the possibility of expanding Cody. Cody has been in a lost situation at day one. At what point do you see Cody breaking even?

Right now -- I have seen their numbers for January. I can tell you they are already break even herein January back -- now that they've got quota they are producing. They are expecting to stay at least break even. They expect to be actually slightly profitable for the rest of our fiscal year.

Okay. Okay. Thank you.

You're welcome.

Our next question comes from Greg Hillman of First Wilshire Securities.

Yes, good afternoon. A couple things. Keith, first of all, the tax rate for fiscal 2011, what do you expect that to be? Is that going to go back to 39%?

I would expect it to, barring any other unforeseen events. But, yes.

Okay. And then moving on to the issue of DEA quota again. In terms of Hydromorphone, exactly what is your quota currently for 2, 4, 8-milligrams?

I can't guess it off the top of my head, but let me say this. We work with the DEA closely, and we have adequate quota for our needs right now. The way the quota system works, the DEA doesn't allow you to get all that you ask for. You submit your request to them and you have an anticipation of what your sales will be. They give you less than you ask for, and they tell you if you what more, just come back and ask for it. So the difficulty sometimes is coordinating our paperwork, making sure we get the requests in on time, so we don't have any periods of time where we are not capable of manufacturing anything. That doesn't always happen here, but I'll give you an example of some of the difficulties. We had Hydromorphone material in stock. It was not made by Cody. It was someone else's material that we had to reject. In order to reject it, we needed to get a quota to return it back to the DEA, turn in the quota, return the material back to them. The vendor had to get a quota to buy it back from me.

After we returned the material, we then had to get another quota to buy fresh material back from them that they were using to replace the initial batches that we rejected. And all of this time, you are losing weeks, sometimes months. It's a very arduous process to get these quotas really tight. We have a very good handle on it, but I am not going to tell you that I am never going to be able to tell you this can't happen again. But we've really not lost any market share. We are gaining market share on the Hydromorphone. We are a significant factor in the marketplace. So with all of these difficulties, sometimes we are prepared for them or we anticipated having some delays and we are able to take advantage of it; and other times, we get caught blindsided.

There's no way to really make sure you're never going to have a problem, because I didn't know I was going to reject someone's raw material. I mean, if that didn't happen, I would have had the material for two extra months.

Okay.

I rejected it. I couldn't give the material back until I go through this process.

Okay.

It doesn't usually happen that you reject raw material, but it does.

Okay, but you make your own API for Hydromorphone now, right?

That's correct.

Okay. And then just in terms of your capacity to make 2, 4, 8-milligram tablets of Hydromorphone, what is your capacity right now in those tablet forms? How are you going to increase it?

I have plenty of capacity to manufacture tablets. I'm only returning at maybe -- probably two-thirds of my capacity at the moment. So I have plenty of machine time here. The material is on hand. The quota of material is not an issue. Cody is manufacturing more batches for us. So I don't see an issue going forward where we're not going to be able to supply the market or we have any limitations on us that we can't fix.

Okay. Well, are there any other -- I guess that's probably the biggest wildcard in going forward the next quarter of quarters. But are there any other major wildcards -- so the three major wildcards would be like Hydromorphone, Levothyroxine and Digoxin? Would they be the three major like question marks?

No, I wouldn't say question marks. I mean Levothyroxine we think is going to continue to grow, and that's doing very well, and it's a profitable product. Digoxin, we have 85% of the market. I mean, I don't want to be a pig. I'm doing very well. There is some competition that I see in the future. I can't ignore that we are in a very price-sensitive business. But the Hydromorphone business, I see that expanding. The total market, I think we reported previously, is roughly 170 million with both the brand product and the generics that are on the market.

Right.

I believe we are one of two suppliers that are offering all three strengths currently, so we are capturing market share. We intend to keep that market share. Cody benefits from it. I benefit because it vertically integrates my product, which is all going back to the original plan for us acquiring Cody. The acquisition of Cody wasn't a company with ten products in their line, manufacturing everything. It was essentially a start-up company. And what we've been doing is helping them grow and helping them support our product line.

They will be making the morphine sulfate for my morphine sulfate solution, so I will be vertically integrated on that, and our C-topical product will be made by them eventually before the year end -- before our fiscal year end. So I'll have three products vertically integrated which will enhance our profits. That's why we acquired Cody and that's what we are working towards.

Do you know what the market size is for the generics for morphine sulfate and C-topical?

Not off the top of my --

Is it smaller?

I know we have about a 50% market share for the morphine sulfate solution. And we have filed a new drug application, so we know that Roxane has gotten their application approved. We will be getting ours approved. We just finished a bioequivalency study on a product, so we are ready to rock and roll with that one too. We've been working for it on that one. So I don't see us losing any market share to anybody. We are an aggressive Company and we sell to a lot of people, so I believe we will continue to see increases in the morphine sulfate. And of course, as it is a vertically integrated product for me, it should be more profitable than it would be ordinarily, and that hasn't shown up in our numbers yet.

So you have three products that are vertically integrated?

Will have. I have the Hydromorphone, the morphine sulfate shortly, and the C-topical before the June 30 year end.

Okay. Thank you.

You're welcome.

Your next question comes from George [Gasper] , a private

Thank you. Good afternoon, Arthur. A question Philadelphia expansion progress. How are you doing on implementing that activity? I believe that you were signing contracts back in December to move ahead. What's your game plan here?

Well, as you know, we have fallen a little bit behind in schedule in getting into the building; but the good news is we've been negotiating lower prices in order to achieve that, and we have gotten better quotes for all of the work that we are having done there. We plan on being in that facility by March in terms of our offices. Our warehouse will probably be in there by the end of February, early March. Everything is on time at this point. We are not behind schedule in terms of the time we sign the contract. Work has already begun in the facility. They have already started to put up all the rooms, and they've cordoned off the area in the warehouse. We are working on the vault that will be installed in that building. So everything is on schedule. We don't see any particular delays or any unusual problems coming up there.

Arthur, were there any expenses in the quarter that were running through on this particular project?

There were no expenses. Everything is capitalized right now. The acquisition of a building, and we actually didn't start incurring costs for the fit out until the January 2010 time frame.

Can you give us an idea on the capacity expansion that will result from everything you are doing in Philly?

Well, for example, we are in a building right now on State Road. That building is 31,000 square feet. Most of it is dedicated to manufacturing. We will be moving our warehouse out of our [Inaudible] building which is on the other side of the highway, and they occupy 28,000 square feet in that building. So we will pick up an additional 28,000 square feet for manufacturing. That warehousing operation will be moved into the Townsend Road, the new building, and that capacity will increase for us overall as we see future opportunities and products being approved by the agency. We are very optimistic that without that capacity we wouldn't be able to offer good service levels. and our good service levels is one measure of our success. We sell to everybody because we do service them well. So we anticipate what our needs are going to be and we've really been kind of on top of it.

With the FDA backlog delay slowing things down we backed off moving into the building a few year ago, but now everything seems to be ramping up, and we are getting ready for an onslaught of approvals and a place to manufacture those products, and that's why we are doing this work. So by the end of March, we will be out of this building. The manufacturing space will take longer to fit out within that building because you have all the validation work that has to be done. It's an FDA-approved facility, so we don't expect any issues with regards to that, but we still have to do a lot of FDA validation work for the site -- the equipment we install in there, the manufacturing that's moved over to that building from here -- and that will happen during the course of one more year going forward.

Thank you. And also on cash position, can you just give me again the change in cash for the quarter to quarter?

Sure, hold on a minute. The end of last year --

For the September quarter to the --

The end of September we had 24.7 million of cash and investments. We are down to 20.8, and a great deal of that -- I generated some cash from operations this quarter . But I purchased the Townsend Road facility for 3.4 million, and I spent over 1 million -- I forget what the balance is, I think it's about 1.6, 1.7 -- for capital expenditures here at Lannett, as well as Cody doing fit out for API

Okay. So basically that's what I was trying to drive at here. Your cash was down, but you actually paid cash for the facility that you bought in Philly?

Yes, it's a timing thing. We are going to be financing it through a Pennsylvania -- I'll say an opportunity development fund. But they cannot close on the financing until the building is fitted out. So I expect in April, once the facility is completed and we can put the financing in place that I will get most of it back.

Okay. And then one last question, on the Mickey Mouse going on in Washington DC on the healthcare program -- the healthcare bill, that is -- Arthur, do you have any thoughts on how you see the generic market plus or minus a healthcare bill or no healthcare bill? How do you see the brand side of things for you and the generic side?

Well, I'm probably one of the unusual people that applauded the brand industry for doing the kind of work they do to bring new products to the market that treat illnesses that weren't treated heretofore or make or create cures for some illnesses. So I'm encouraging the innovator companies to continue to what they do, and I think any attack on them or their profits is certainly misguided. Because if you harm that industry that plows all their profits back into research, you essentially are going to harm your future in having these products come out of those same companies. So I don't like that healthcare is looking at the innovator companies and questioning their profits. I hope they make a lot of money, and I want them to keep using that money to plow back into research.

On the generic side, I do see the emphasis for cost savings, which enhances the ability to buy generics from the generic industry, because we are the ones that are going to reduce the costs of these products. We certainly expand the market somewhat when we reduce costs on products so that more people can afford to buy them, especially those that aren't covered by insurance. As you know, a lot of insurance companies don't charge a co-pay sometimes for a generic. So I see the healthcare industry always rewarding the generic industry in terms of lowering costs. We probably don't get enough credit for the cost lowering. But on the other hand, I think going after the innovator companies like I've been seeing in Washington is absolutely misguided. They are losing sight of the fact that these companies need the cash to develop more products to cure more diseases.

Okay, fine. Thank you kindly.

You're welcome.

(Operator Instructions). Our next question comes from Larry Brown, a private investor.

Hi, two questions on the stock issue. One is, remember the November reauthorization, I thought the stock was in the -- just crossed the $6 for the first time back into the $5. I'm sorry, did I hear that correctly? You said the Company has not actually bought any stock under its stock authorization program?

That's correct. We are not able to always by stock, as other people have realized, when you go into the marketplace. So sometimes you see the stock dip. You go in there to buy it and it's not available at that price. So we certainly did make an attempt to buy stock, but we weren't able to get any. And we felt at the time -- and I don't even remember exactly what the price of the stock was -- but we felt it was rather low, and in terms of the cash we had, we felt it was a good investment to invest in our own shares. Nevertheless, again, just so we don't get confused. The shelf was for a long-term outlook -- looking forward to opportunities where we needed to have an SEC-approved shelf so that we could raise money quickly. That's different than what we did.

I know it's confusing, but when you think of it from that perspective you can understand that I can't get a shelf approved overnight, and people are not going to wait with opportunities for me to get the shelf and be able to raise money. So we wanted to make sure that we could grow the Company once the Board decided to be aggressive in terms of acquisitions. Whether they be product licenses or other companies, we needed to be able to raise money quickly, and the shelf was one of those alternatives. But we will continue to look at our stock, and if we think it's undervalued, we are certainly going to look at how we want to invest some of our cash.

That's great. And I applaud you in terms of the long-term investor. I think a lot of these potential opportunities are very exciting now that you've positioned with Cody, et cetera, and I applaud you. One of the things I'm also happy to hear -- and I don't know if it was intentional or not -- but in the last couple of calls, one of the reasons talked about in terms of with the shelf was to, simply for the sake of increasing the float, which I noticed has not at all been one of the reasons, and I'm hoping if that's -- that that's intentional.

Well, yes, it is. Certainly we got chastised -- or I should say I got chastised -- for making that point, and I learned from my mistakes. The clear reason behind the shelf -- clear reason -- is to grow this Company. We are in a very big industry. When you look at my competitors, they are all billion dollar companies out there. We are a very small player in our marketplace. We found an opportunity to expand, to be vertically integrated in a particular area of the market that we think we need to invest in. And if we don't exploit the Cody license, if we don't promote more of our products to be vertically integrated products in our line, we are never going to be able to be a very profitable Company. So we seen opportunities come along -- and we've missed a few of them. I don't want to mention them now, but there have been plenty of opportunities where we just couldn't come up with $20 million quickly enough, and you certainly don't want to use up all of your cash that's on hand.

So we decided we needed to grow Lannett, and one of the reasons was the shelf. The issue of liquidity came up, and that was something that we considered and talked about, and I probably placed the emphasis more on liquidity than I should have. But it's not something we want to ignore, either. But I don't miss the argument that your liquidity will resolve itself -- if you make good earnings and your stock price goes up, you can always do three for two splits or something. So there's a lot of ways to deal with liquidity. But the main reason for the shelf, I've explained that today, and I hope everybody understands it well now.

Thank you so much. Long-term investor, I applaud you for what you guys are doing.

Well, thank you very much. It's nice to hear that once in awhile. Well, all the time.

(Operator Instructions). I'm showing no further questions in queue. Mr. Bedrosian, would you like to make any closing remarks?

Yes, thank you for joining us today. If anyone has any further questions, please do not hesitate to contact the Investor Relations team at Lannett. That concludes our call. Thanks again for joining us today.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may all disconnect.