Lannett Company Inc (LCI) 2014 Q3 法說會逐字稿

Welcome to the Lannett Company fiscal 2014 third quarter financial results conference call. My name is Janette, and I will be your operator for today's call. (Operator Instructions).

Please note that this conference is being recorded. I will now turn the call over to Robert Jaffe. Mr. Jaffe, you may begin.

Thanks, operator. Good afternoon, everyone, and thank you for joining us today to discuss Lannett Company's fiscal 2014 third quarter financial results. On the call today are Arthur Bedrosian, President and CEO, and Marty Galvan, Chief Financial Officer. This call is being broadcast live at www.lannett.com. 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.

This afternoon, Arthur will provide a brief overview, and Marty 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, I will now turn the call over to Arthur Bedrosian. Arthur?

Thanks, Robert, and good afternoon, everyone.

I am pleased to report outstanding financial results for the quarter. For the fiscal 2014 third quarter, we recorded the highest net sales, gross margin, and net income in our Company's history. Compared with last year's third quarter, net sales doubled to $80 million, gross margin more than tripled, and net income grew six-fold to $23 million, equal to $0.63 per diluted share.

We're pleased to have reported six consecutive quarters of record net sales, as well as the ninth consecutive quarter in which net sales and adjusted EPS exceeded the comparable prior year period. Similar to preceding quarters, the primary drivers for our excellent third quarter performance were the combination of price increases on key products, and strong sales on existing products. Our momentum has continued throughout our current fiscal year and we continue to expect our 2014 to finish strong. With that said, we have revised our estimates for the current year due to recent price increases, and the timing of related upfront customer credits. Marty will discuss our full-year guidance in more detail shortly.

With that brief overview, I'd like to turn the call over to Marty to review the financials. Then I'll provide an operational update and we'll open the call for questions. Marty?

Thank you, Arthur, and good afternoon everyone. As Arthur mentioned, our strong momentum from the first half of the year continued into the third quarter. For our third quarter, net sales more than doubled to $80.0 million from $39.0 million in last year's third quarter. Net sales for our largest product category, thyroid deficiency, grew to $28.3 million, or 35% of our total net sales. Our two other largest categories, cardiovascular and pain management had net sales of $21.3 million, and $8.4 million respectively, representing 27% and 11% of our total net sales respectively. As to net sales of our remaining categories, migraine was $4.8 million, or 6.8% of total net sales, glaucoma was $4.5 million, or 6%, gout was $3.4 million or 4%, antibiotic was $3.4 million or 4% of total net sales, gallstone was $1.0 million, equal to 1%, obesity was $915,000 or 1%, and other represented $4.0 million or 5% of our total net sales.

Gross profit more than tripled to $56.1 million or 70% of net sales, from $15.2 million, or 39% of total net sales.

Research and development expenses increased to $10.6 million compared with $5.2 million. Selling, general and administrative expenses increased to $9.6 million, compared with $5.2 million in the same quarter of the prior year.

Operating income reflected outstanding growth increasing to $36.0 million from $4.7 million in the third quarter of fiscal 2013. Net income attributable to Lannett grew nearly six-fold to $23.0 million, or $0.63 per diluted share from $3.9 million or $0.14 per diluted share.

Now comparing the first nine months of fiscal 2014 with the comparable prior year period, net sales rose 74% to $193.2 million from $110.9 million. With respect to cost of sales, and as previously announced, we issued 1.5 million shares of our common stock in connection with the signing of a contract extension with Jerome Stevens Pharmaceuticals. As a result, cost of sales for the first nine months of fiscal 2014 included a non-recurring pre-tax charge of $20.1 million related to this contract extension.

Continuing with the remainder of the income statement, and for completeness and comparative purposes, I will provide both GAAP and adjusted amounts for gross profit, operating income, and net income.

Gross profit, on a GAAP basis, was $98.5 million, or 51% of net sales. Excluding the JSP contract renewal charge, gross profit was $118.6 million, or 61% of net sales. This compares with gross profit for the first nine months of last year of $42.2 million or 38% of net sales.

R&D expenses increased to $21.1 million from $12.6 million. SG&A expenses increased to $26.6 million from $16.6 million.

Operating income reported in accordance with GAAP was $50.7 million. Excluding the JSP contract renewal charge, operating income was $70.8 million, compared with $13.1 million in the fiscal 2013 period. GAAP and net income attributable to Lannett Company was $33.6 million, or $0.97 per diluted share. Adjusted net income which excludes the impact of the JSP contract renewal charge equal to $12.6 million after tax was $46.2 million or $1.34 per diluted share. This compares with net income attributable to Lannett Company for the first nine months of fiscal 2013 of $9.8 million or $0.34 per diluted share. The first nine months of last year included a favorable pre-tax litigation settlement of $1.3 million, equal to $0.03 per diluted share.

Our balance sheet at March 31, 2014 remains strong with cash, cash equivalents and investment securities totaling $123.5 million.

Now turning to our guidance for fiscal 2014 full-year, we have recently increased prices for certain products. These increases are expected to have the effect of lowering net sales in the fiscal 2014 fourth quarter due to related upfront credits (inaudible) result in a significant benefit in fiscal 2015. With that said, we are now expecting the following for the full-year fiscal 2014 -- net sales in the range of $261 million to $267 million, down from previous guidance of $275 million to $285 million; gross margin as a percentage of net sales of approximately 61.5% to 62.5%, revised form 61% to 63%; R&D expense in the range of $30 million to $31 million, revised from $30 million to $32 million; SG&A expense ranging from $38 million to $39 million, revised from $39 million to $41 million; the full-year effective tax rate to be in the range of 36% to 38%, unchanged from previous guidance; and capital expenditures in fiscal 2014 in the range of $24 million to $26 million, down from $28 million to $32 million which includes $10 million for the purchase and partial fit-out of two buildings recently acquired by the Company.

It is important to note that our guidance for fiscal 2014 does not include the impact of the Jerome Stevens contract extension which we expensed in the first quarter of fiscal 2014. At this point, I'd like to provide some preliminary thoughts on our outlook for next year. We intend to discuss our guidance for fiscal 2015 in more detail on our next conference call. Based on our current thinking, we anticipate annual sales to be in the range of $330 million to $350 million. Our estimate includes price and volume increases, and expected competition on certain products. We expect full-year gross margin as a percentage of net sales to be in the range of 66% to 68%. And lastly, we anticipate total operating expenses to continue to be approximately 24% to 26% of net sales. With that, I will now turn the call back over to Arthur.

Thank you, Marty. Subsequent to the quarter end, we received approval for Diazepam oral solution concentrate 5mg per ml as scheduled for a controlled drug. We are hopeful that delays in receiving approvals on our current applications will continue to shorten.

As Marty just discussed, we have significantly wrapped up our investment of product development. Thus far in fiscal 2014, R&D is nearly twice that of the comparable prior period. Our development efforts include products that we believe can generate more revenue and higher margins. We expect within seven weeks to file an additional five ANDAs. Our current pipeline of ANDAs includes 19 product applications pending at the FDA, and if no approvals are received by June 30, we will have 24 applications pending. We are awaiting acceptance letters on two ANDAs that include P-4 challenges, and we have an additional 47 products in various stages of development.

Regarding Oxycodone oral solution, we remain optimistic that we will receive FDA approval in the near-term. With our specialty pharma business, we currently have eleven sales representatives detailing our C-topical solution product. We commenced our Phase III clinical trial and the target date for our NDA submission remains December 2014.

We plan to announce a strategic alliance with a major Chinese company on Monday. Our team is looking at products as well as companies that are a strategic fit and accretive to our business. We continue to evaluate several potential acquisition candidates which includes the opportunity to globalize and further vertically-integrate our operations. In addition, we are focused on searching for a potential acquisition in a tax-favorable jurisdiction to enhance shareholder value. We are looking to augment our senior management team with talented executives to help guide the Company into its next phase of growth and development.

To sum up, we continue to be very positive about our future prospects for a number of reasons. We have a large number of ANDAs pending at FDA, a deep pipeline of products in development, and we continue to look at acquisition candidates to complement our existing business. All of us at Lannett are excited about the opportunities that lie ahead, and we look forward to reporting on our progress.

Let me take this opportunity to thank my colleagues at Lannett, and our many shareholders for their support and confidence. Marty and I would now like to address any questions you may have. Operator?

(Operator Instructions). Scott Henry from ROTH Capital Partners.

Thank you, guys. Congratulations on good results and certainly appreciate the 2015 outlook. Clears up a lot. I just had a couple of questions. I just want to understand the levers that are going on for Digoxin and Levo. Could you talk about -- when you said selective price increases, I believe Levothyroxine had a price increase. Could you talk about the magnitude of that and pricing on Digoxin as well?

Yes. Well, it was more than Levo. There was a 50% increase on Levo, and the other price increase for another product. I do believe there were three increases in this quarter of the one we're in now, the Levo being the largest, but the other one had a significant price increase as well.

Okay. And did Digoxin have a price increase this quarter as well?

No. The other product was Ursodol.

Okay. And when we look at Levothyroxine now, where is the generic relative to the brand? How is that doing out in terms of pricing -- post-price increase?

Well, on price increases, we would be roughly at 75% of the brand with this new increase.

Okay. That's helpful. And shifting to Digoxin, the cardiovascular category, I thought you said it was $21.3 million, how should we think of that number? I mean, I guess, it sounds like next quarter we'll probably see growth next quarter and then we'll start to see it kind of edge down in line with your expectations.

Yes, Scott. This is Marty. So in that number, in the $21 million, it's almost entirely the Digoxin product, and as we said last quarter, as competition comes into that category, we do expect the volume to decrease, so you should think in terms of sequentially, a reduction from the third quarter into the fourth quarter for that product.

Okay, so the third quarter, it will go down the next quarter. Okay.

Correct.

Just so we're clear, the quarter we're in now we're talking about that ends June 30.

Yes. Yes. Correct. And then I just want to understand that market. It can get pretty confusing with the script data. You are expecting -- you baked in continued par growth. Hikma as well, do we have any color when they are coming into the market? I assume that's in your guidance as well.

Well, we had always expected them to be in the -- my personal feeling was July. There's still no discussion coming out of the Company as to when they're launching as far as talking to their customers. So July still seems to be the target we're working towards. And if they don't launch in July, then they launch later on. That's possible. But that's still the same timeframe we've used for our guidance. And Caraco, we still haven't heard anything from, but they now announced closing their Detroit plant. That was the facility that actually made the product so we don't' know if that causes a further delay for them to re-enter the market, or if they moved it to another facility or not.

Okay. But you're assuming they'll come in and it sounds like that could be being conservative.

That's correct. That's the approach we're taking is to be conservative that they'll both be in the market. We felt though Hikma's West-ward division in the summer, Caraco sometime later in the year -- calendar year.

Okay, great. That's very helpful. A final question, Arthur and Marty, just so we understand, could you talk a little bit about how this customer credit works with regard to the accounting and the magnitude, just so we can get an idea of what's going on and what to expect in the numbers?

Okay. What happens is we have customers that have 60-day buy-in opportunities. So they have options. They can go ahead and accept the price increase and ask you to issue them a credit immediately for the price increase, so they'll pay for the product up front, and then ask you to give them a credit before the increase goes into effect. They have those two choices. Generally, they take the credit up front. So what happens here is we increase the price. As you know there was a 50% increase. They then turn around and ask us to give them a credit for that price increase in advance, and then they start paying the higher price. So from our perspective, we will see the bulk of this benefit in the first quarter of 2015. So in a few months, starting July, the benefit will accrue to us more openly. In this quarter, we get hit in the revenue side because of those credits. But this is routine in the way these credits work. It's just normally, it doesn't have this magnitude because we don't have the kind of volume and profits on a particular product where it will impact you so much. But generally, any time you raise the price or decrease the price, you have that same impact up front.

Okay. Thank you. That's helpful. And I guess this is kind of a tough question to ask, but if we didn't have this customer credit, do you think it would still be within your prior guidance or possibly ahead of it, given the price increase?

Absolutely. That's the only reason for this (inaudible).

Yes. So absolutely, would you be within the guidance or would you be ahead of it?

Probably both.

Certainly within the guidance. Most likely probably on the top side of the guidance.

The top end.

Alright guys. Thank you for taking all the questions. Appreciate it.

You're welcome. Thank you.

Elliot Wilbur from Needham and Company.

Thanks. A question for Art. With respect to Levo and the 50% increase, how close is that to the actual ASP that you are in fact realizing?

I don't know off the top of my head. Anyone have an answer for that one? The average selling price for the Caraco -- how close would (inaudible)?

How much of that 50% increase are you actually seeing? We know that the catalog price went up 50%, but in terms of your actual --

About 30% of it is what we're seeing. 30% of that 50% is what we're seeing.

Okay. And then sort of looking at Levo numbers just reported, and then amplifying that by the recent price increase, obviously it would seem like the incremental Levo sales alone would get you well within the range of your guidance for fiscal 2015. So I'm just trying to figure out what other elements may have more conservatism in there, or have you actually maybe just factored in the possibility of another competitor on Levo in 2015.

Yes. So, Elliot, you're going down the right path here. So we gave the thyroid category sales for the quarter so you can get a run rate for how well Levo's doing. And then we took effectively about a 30% price increase on top of that number and that's what we've kind of worked into our 2015 guidance. But to your point, we have worked into the guidance the assumption that there will be competition in categories, probably mostly on the Digoxin category in terms of a notable decrease year-on-year. We've worked that into our numbers for 2015. And as you would imagine, there's many, many ups and downs. But hopefully that helps you in what you're thinking.

Okay. And then maybe Art could just way in on this, my guess it's been known for some time that there's a couple of additional ANDAs pending at FDA on Levo, but it just doesn't ever seem like there's anything new there and I'm just wondering from your vantage point and given your competitive intelligence sources, whether or not you've heard anything new with respect to some of these other applicants.

No. The applications at the agency, no one's talking about anything. The remains just two people but we also have applications pending. Since they're not talking to any of our customers, we presume they have no clue when and if those applications will be approved. And you know our experience with the FDA is very similar. There's a lack of communication coming from the agency, so no one's able to really determine when they're going to get anything approved, and it makes it difficult, but usually the customers -- the companies that have an inkling they're going to get an approval will start talking to their key customers to see if they're going to be buying the product and how much they'll buy so they'll know how much to make. None of that is going on in the Levo market at all.

Okay. Or if I could, if I could just maybe get you to share with us your thoughts on potential strategic activity and the deal market. It seems like, at least for larger companies, it's almost impossible to find good deals out there, or at least transactions at good prices. And it definitely seems like it's a seller's market. So I'm not sure if you share that belief based on some of the things that you're looking at, but you talked about the possibility of looking to do something globally, and I'm wondering if that's just a reflection of the fact that maybe asset prices in the US are just kind of beyond what you're comfortable paying. Or is it maybe related to something more financially-driven such as potential for a tax inversion or some sort of transaction along those lines?

Well, no, actually in the United States, we found about four potential acquisitions. We've talked to a few of them and we're close to one of them. So I'm finding no difficulties there. Yes, to some degree it's a seller's market, but only from the standpoint that if it wasn't a seller's market, I'd be buying those companies for less money, but we're still not going to overpay by the standards of the industry. They're all good companies. They're all accretive. They're all within our sweet spot. As far as I could tell, almost all of them are all privately owned, second generation companies that we know for some time and we've had a lot of discussions. So we found about three or four of those that you might say we've lined up.

Overseas we came across a French banker who found an opportunity for us in Italy that so far is turning out to be very rewarding. We're talking to each other about doing some alliance on products. They want to buy three of our products to distribute and market in Europe. And we want to buy one of their products and one of their technologies for the US market. And we're also hoping to merge the companies. They like Lannett. We like them. They weren't for sale as a company and the relationship seems to be growing. So globalization could be in our future with respect to that.

On the inversion front, Marty is the driver on that one and we certainly have approached a company that would be the size company we need to approach to do an inversion because we certainly are concerned about the recent deal that was announced that might put a damper on inversions going forward after December 2014. Now you know, we're not going to do an inversion just to do one. We're looking at one that is actually is in our sweet spot, makes a lot of sense from every other angle except tax concerns, and then it adds to it the tax benefit. So it's really one of those unique opportunities you find and I will say that at least their CEO has entertained listening to an approach, so hopefully that will lead to something.

So we're very comfortable that there's plenty of opportunities in the US -- at least four. One overseas and we weren't actually looking for overseas. The inversion, though, we were looking for and have found one of a size that would work for us because it has to do with our market cap. So I don't see overall where we're having any difficulties. Remember at our size, it's easier to acquire a company. It's harder for the Mylans and the Activis and the (Klevers) to find a company that's going to move their needle.

Sure. It makes sense. And since I know you have a hand in this, just curious, was that the original version of Oops, I did it again by Britney Spears or a remix on the conference call? I couldn't quite tell.

Some analyst gave me the idea for it, but I don't know where the music came from. One of my colleagues downloaded it. It wasn't very nice to listen to (inaudible) quality of the recording.

Well, thanks for sharing that. Thank you.

Okay. Thank you.

Rohit Vanjani from Oppenheimer and Company.

Hi Art and Marty. Thanks for taking the questions. Just on the mergers, you were talking about an Italian company potentially doing a merger and an inversion. Is it both of those companies you could potentially do or is it just one or the other?

No, the Italian company will eventually a merger. Right now we're talking about products for both sides -- exchanging products so to speak. We have an interest in one of theirs. They have an interest in three of ours. And they also have some API formulations that we're talking to them about. So our discussions have been rather serious with regards to the products.

There's also an interest on their part to possibly merge with Lannett but that was put off. We felt let's get the product deal done because that's more interesting to both of us immediately. And then we will talk about a potential merger. They felt comfortable. They liked Lannett and we felt the same way about them. It had nothing to do with a merger. They're only EUR66 million so they're not large enough to do an inversion.

But the other company that we approached is large enough to do an inversion, and they are located in one of the favorable countries tax-wise, so we're certainly approaching them.

You know, our approach is really we can't ignore what our competitors are doing. We can't ignore that we're in a business that we're paying a 37% tax rate when all of our competitors are paying considerably less than that. Shareholders would be concerned if we ignored this. But the overseas, the inversion -- that's called a little bit more of a long shot. Short term, the other acquisitions I think are more realistic and more likely to be the first thing we announce.

Okay. With the Italian, I more meant is there room for both of those where you do a merger and an inversion with the other company but -- sorry, go ahead.

Yes. Marty tells me that we could both. He's a tough guy and we can handle it.

And if you just did the merger alone, you would still realize that lower tax rate?

No, if we first -- the Italian company, no. There would be no change in the tax rate. It's only the other company where they're large enough where we could do an inversion. And that would have a significant impact on our tax rate. And with these kinds of profits, we have to really consider this inversion issue. It's a serious consequence if we can do it in terms of shareholder value.

And then on the Digoxin market, are you still anticipating (Parr) grabbing a 20% share by the end of the year?

In units, yes. I'm still okay with that.

Okay. And then any expectations for what you said Hikma mid-year and then Sun Caraco at the end of the year even though they're having facility issues at Detroit. Any estimates on what share they're going to take?

No. Actually, they've not even announced when they're going to get it to the market. It may be a year before they're a player in the market place. Again, I'm not a prophet, but they're not talking to anybody. Now they've closed the facility they make the product at, and they were planning on making it there as far as we could tell. So if this throws a monkey wrench in their plans, well that benefits us of course. But again, I really don't know any more than that.

And then again, on the pipeline, the Thalidomide, have you filed that ANDA?

Yes. That's been filed now over a month.

Okay. And you're still expecting a 10-month approval timeframe on that?

Roughly. We believe in that (ADUFA) plan so we'll see.

Okay. And you're still expecting Oxycodone and one other product in fiscal 2014, is that right?

Well, the Oxycodone for sure. But my optimism is getting stretched to its limits. That should have been approved already. We just sit here and wait. We've certainly pushed the agency and reached out to -- Congress has been very helpful to us to help us get an answer here. So I am expecting that by the next couple of weeks to have some kind of an answer on that one -- to be approved.

How long has that already been at the agency, the Oxycodone product?

April was two years. And that was an expedited review that they gave us so it should have been approved over a year and a quarter ago.

So a couple of quarters ago, you were talking about five product approvals in fiscal 2014. Oxycodone you definitely think is going to happen, but then four other products we can say in first half fiscal 2015.

Well, one we just received so I was expecting five. That was not one of the five I was expecting, by the way, to be frank with you. So of the five I expected, one may get approved by June 30, and then one was a surprise that we received earlier than we were expecting.

Okay. And then have you, for the Diazepam, have you talked about how big that market is or what share you can grab or anything like that?

Not yet. We haven't really made a determination on that because we're still trying to determine how much of that product is not recognized by IMS or Walter Kleuwers data because it's not prescription-driven, but institutionally-driven. So we're still working on that detail.

Okay. And the last question from me is have you seen anything on the Doxy front? I think Hikma had warned investors last quarter that sales of generics could slow because of first that competitors come into Doxy and that the FDA moved it off the drug shortage list. Are you seeing anything there?

Not really because our Doxy is the monohydrate form so we don't really expect any change there. We never really got the real benefit for the hyclate which will be item that was in short supply and big demand. But monohydrate, the one that we sell, we do sell a 20 milligram hyclate but the dental product, that was never a big item either. So no, we don't really expect any change downward in our products.

Okay. Alright. Thanks for taking the questions.

You're welcome. Thank you.

Matt Hewitt from Craig-Hallum Capital.

Good afternoon, gentlemen. It's actually Matt Tiampo for Matt Hewitt. A couple of quick questions from me. First and quickly, I apologize for this but I missed the -- Marty, your comment on migraine. Do you know how much revenue from migraine in the quarter?

Yes, so I'll pull that.

Sorry about that.

Migraine was $4.8 million.

Thank you. And then, Arthur, I want to talk about the roll-out of C-Topical and the extra reps. It looks like pain management had a pretty nice quarter. Was that mostly C-Topical?

No. It was really across the board. C-Topical is doing well but the numbers are too premature to determine whether the eleven reps are really making as big a contribution as we expect. It's really been, what, maybe five months now at best -- part of it in training so maybe three months actually out on the road. So we will know a little bit more by June 30 in terms of rep. But the feedback we're getting and the meetings that they're having with the physicians, and certainly some of these physicians have large centers where they do a lot of these procedures is very upbeat. Certainly a lot of the joint presentations we've made with the company, the parent that does the balloon simulplasty and the Eustachian tube plasty, that's been very rewarding.

Good. And is the plan still to go to 20 reps over the balance of the year?

Yes it is.

Okay. Thanks guys.

They're actually looking for the additional reps. That's how optimistic we are that we will engage them.

Perfect. Thank you.

You're welcome. Thanks.

John Newman from JMP Securities.

Hi guys. Thanks for taking my question. Just have two questions for you. The first one is what does the guidance for 2015 assume in terms of ANDA approvals? Does it assume that (Thalvin) gets approved? And the second question I have related to the credits that you gave up front on Levo, have you taken any sort of a reserve or do you normally take any sort of reserve when you do price increases just to account for product returns that were purchased at a lower price at the new higher price? Thanks.

I'll answer half the question. I'll have Marty answer the second half of your question. No, there's no new product approvals in that guidance. We always do the guidance based on existing products that we already have approved. Any approvals that come next year will just be on top of that guidance. And Marty, do you want to take the second half?

Yes, John, on the second part of your question, the reserves, as far as returns, we do figure that in. When we make our sales, we do make reserves for anything that we anticipate based on historical -- based on our experience. We do reserve for our returns, these price protection programs, things of that nature. When you see our external reporting as you know and we'll see the numbers on Friday when we release our Q, there's rather extensive reporting of all those reserves in the footnotes. But yes, the answer is yes. We take all those reserves into account as we make the sale. Yes.

And do you tend to see -- I don't know if you expect this -- do you tend to see more product returns when you take larger price increases? Or is it a little bit more consistent than that?

It's only consistent and it's a very small portion of our products are returned. So no, no one's buying it at the high price -- or buying the material that they already bought -- returning it at the high price. That doesn't work. Usually they're selling the product on a routine basis, so they just raise the price on their existing floor stock, and start charging more money for it. That's where their real benefit is, not returning it to us. But we don't have anything like that. Not to say there aren't companies out there that have been rumored to do things like that. We're talking about customers. We tend to know our customers. We don't have any of those types of bad actors, you might say.

Right. Right. And just one more question on thalidomide, can you talk a little bit about the REMs program that you have in place and how you think the agency is thinking about that and whether you would anticipate any sort of unforeseen challenges if you do get Thalidomide approved in terms of rolling out that REMs program?

Okay. Well, first of all, when I get it approved, not if.

Okay.

REMs program was done by an outside firm and we spent a considerable amount of money doing this -- not that we couldn't do a REMS, but we wanted to make sure there wasn't going to be any challenges so that the REMs we company we used have submitted a lot of REMs to the FDA. They're well known to the FDA, so I don't see any reason for this REMs to be challenged whatsoever. Now we know that Celgene will challenge the STEPS program which is incorporated within the REMs, which is how the product is delivered to the patient at some point, and we believe our process circumvents that (inaudible) so we don't see any issues. Now we certainly know that Celgene, and our experience with them being very litigious, will litigate with us and it will end up the same way the last one did. We ended up settling with them. I'm not allowed to go into the details but I think you can read between the lines.

Great. Thank you very much.

Okay. Thank you.

And we have no further questions at this time.

Okay. Well, thank you again for joining us today. We're always available to answer further questions and look forward to reporting on our continued progress the next call. Thank you.

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