Lannett Company Inc (LCI) 2014 Q4 法說會逐字稿

Hello and welcome to the Lannett Company FY14 fourth quarter and full-year financial results conference call. My name is Eric. I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note, this conference is being recorded.

I will now turn the call over to Robert Jaffe, Investor Relations for Lannett Company. Mr. Jaffe, you may begin.

Thanks, Eric. Good afternoon, everyone, and thank you for joining us today to discuss Lannett Company's FY14 fourth quarter financial results. On the call today are Arthur Bedrosian, President and CEO, and Marty Galvan, our 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'd 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'll turn now the call over to Arthur Bedrosian. Arthur?

Thanks, Robert, and good afternoon, everyone. I hope you enjoyed our latest theme song, Don't Stop Believing by Journey; and I hope that you can keep on believing in our ability to deliver excellent results.

I'm happy to report that we had an outstanding year. For the FY14 fourth quarter, we recorded the highest net sales, gross margin and net income in our Company's 72-year history. Compared with last year's fourth quarter, net sales doubled to $81 million, gross margin more than tripled, and net income grew six-fold, to $24 million, equal to $0.64 per diluted share. We have reported seven consecutive quarters of record net sales, as well as the tenth consecutive quarter in which net sales and adjusted earnings per share exceeded the comparable prior-year period.

Throughout FY14, we generated strong momentum. This gives us confidence in our outlook for FY15, which Marty will discuss 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 to questions. Marty?

Thank you, Arthur, and good afternoon, everyone. As Arthur mentioned, we reported a tremendous FY14 fourth quarter and full year. For our fourth quarter, net sales, which included upfront credits related to price increases, doubled to $80.6 million, from $40.2 million in last year's fourth quarter.

Net sales for our largest product category, thyroid deficiency, grew to $27.7 million, or 34% of our total net sales. Our two other largest categories, cardiovascular and pain management, had net sales of $19.3 million and $6.8 million, respectively, representing 24% and 8% of our total net sales, respectively. As to net sales of our remaining categories, migraine was $4.7 million, glaucoma was $4.5 million, gout was $3.4 million, gallstone was $3.1 million, antibiotic was $2.5 million, obesity was $1.1 million, and other represented $7.5 million.

Gross profit more than tripled, to $55.9 million or 69% of net sales, from $15.2 million or 38% of net sales. Research and development expenses increased to $6.6 million, compared with $3.7 million in the same quarter of the prior year. Selling, general and administrative expenses increased to $12.0 million, compared with $5.8 million. Operating income reflected exceptional growth, increasing to $37.4 million from $5.7 million in the fourth quarter of FY13. Net income attributable to Lannett Company grew six-fold, to $23.5 million or $0.64 per diluted share, from $3.6 million or $0.12 per diluted share.

Now comparing FY14 full-year with the prior year, net sales rose 81%, to $273.8 million from $151.1 million. With respect to cost of sales 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 FY14 included a nonrecurring 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 $154.4 million, or 56% of net sales. Excluding the JSP contract renewal charge, gross profit was $174.5 million, or 64% of net sales. This compares with gross profit for last year of $57.4 million, or 38% of net sales. R&D expenses increased to $27.7 million, from $16.3 million. SG&A expenses increased to $38.6 million, from $22.4 million.

Operating income reported in accordance with GAAP was $88.1 million. Excluding the JSP contract renewal charge, operating income was $108.2 million, compared with $18.8 million in FY13. GAAP net income attributable to Lannett Company was $57.1 million, or $1.62 per diluted share. Adjusted net income, which excludes the impact of the JSP contract renewal charge, equal to $12.6 million after tax, was $69.7 million, or $1.98 per diluted share. This compares with net income attributable to Lannett for FY13 of $13.3 million, or $0.46 per diluted share. FY13 included a favorable pre-tax litigation settlement of $1.3 million, equal to $0.03 per diluted share. Our balance sheet at June 30, 2014 remains strong, with cash, cash equivalents and investment securities totaling $146.3 million.

Turning now to our guidance, we expect the following for the full year FY15. Net sales in the range of $350 million to $370 million, gross margin as a percentage of net sales of approximately 70% to 72%, R&D expense in the range of $36 million to $38 million, SG&A expense ranging from $47 million to $49 million. The full-year effective tax rate to be in the range of 36% to 38%.

And regarding the phasing of the quarters in FY15, in Q1 compared to Q4 of FY14, we expect higher net sales with similar total operating expenses. In the second quarter, we anticipate a decrease in net sales, mainly due to competition in Digoxin and an increase in total operating expenses compared to Q1.

Lastly, we expect quarters three and four to be at a similar level to the second quarter in both net sales and operating expenses. Capital expenditures in FY15 in the range of $40 million to $50 million, which includes $7 million to continue the preparation and partial fit-out of two buildings recently acquired by the Company. With that, I will now turn the call back over to Arthur.

Thank you, Marty. I want to briefly address two items related to Digoxin. As we previously announced, the Attorney General's office of the state of Connecticut has initiated an investigation into pricing of Digoxin. We firmly believe we have acted in full compliance with all applicable laws and regulations. We are cooperating with the Attorney General's office. I can assure you that our product pricing decisions are made independently by the Company, period.

The other item involving Digoxin relates to a recently published abstract in a medical journal of a limited study conducted in the Veterans Administration healthcare complex. In response to the study, Canaccord recently issued an analyst note on August 20 with the headline "Digoxin Mortality Data Unlikely to Affect Clinical Practice". In the note, the analyst reported that physicians will not change practice, due to a lack of options, and continue to use Digoxin, since these patients are much sicker than the average afib population.

We are already anticipated lower sales of Digoxin for the coming year, due to expected competition. However, while we agree with the conclusions reached in the Canaccord note, our guidance for FY15 reflects a further reduction to expected sales of Digoxin as a result of the abstract. For FY15, we now estimate sales of this product to be approximately $35 million, which is less than 10% of our anticipated full-year net revenues.

Looking ahead, we believe the Company is positioned for continued success. We recently formed two strategic alliances, purchased two ANDAs, and entered into an agreement with Symplmed. Pursuant to our strategic plan, over the last couple of months we received approvals for three scheduled drugs, Diazepam oral solution concentrate, 5-milligram per ML; Codeine Sulfate tablets USP, 15, 30, and 60 milligrams; and Oxycodone Hydrochloride capsules, 5 milligrams. We expect all three of these products to contribute to our FY15 performance.

We continue to build out our pipeline. We currently have 23 ANDAs, including 4 with Paragraph IV certification pending at the FDA. Of our additional 45 products in various stages of development, we expect to submit several additional product applications in the near future, and our plans call for the continued and significant investment in R&D. We believe it is important to increase our product development activities to drive future growth. Regarding our Oxycodone oral solution, I continue to press the FDA for that approval.

With our specialty pharma business, we currently have 11 sales representatives detailing our C-Topical Solution product. We commenced our Phase III clinical trial; and although we have faced delays in recruiting the physicians and patients, we are still targeting December of this year to submit our NDA. We continue to wait for an FDA responses to our suitability petition for a companion drug product for our sales force.

On the M&A front, we have had discussions with a number of parties, and while we have not been able to complete a deal, I remain optimistic. Our team continues to look at products, as well as companies that are a strategic fit and accretive to our business. We are particularly interested in opportunities 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.

To sum up, we continue to be very positive about Lannett's future. I'd like to take this opportunity to thank my colleagues for their dedication and hard work, and our customers and shareholders for their continued support and confidence. Marty and I would now like to address any questions you may have. Operator?

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

Matt Hewitt, Craig-Hallum.

Good afternoon, gentlemen, and congratulations on a good 2014.

Thank you.

First question, and it's more to get this out of the way. Digoxin. In your press release -- and I think that you worded it very carefully regarding how that drug was going to taper off in 2015. Do you have any way to know whether or not much of that decline is related to the new competition versus price or this new JAC study? Is there any way to delineate between those two?

Well, we anticipated the competition. As I had said previously, I expected West-Ward to relaunch around June, July. So far, I've been wrong. They haven't really launched the product yet. I did anticipate Caraco to come back in the market of December of this year. And then they announced the closure of the Detroit plant, wherein they make the Digoxin product. So it's possible that that entry is going to be delayed. Nevertheless, we always use a very conservative point of view. And bear in mind, we're always presuming that when these entries come into the market, they're going to take market share away from Lannett. But it's very possible they'll take market share away from Par or from Impax.

But nevertheless, when we're giving our guidance, we try to be conservative. So we took into consideration that the two new competitors could come into the market and we could lose market share to them. And that's why we made the projections more conservative going forward. I personally don't see any loss because of that study. I've not projected that. I believe Marty, in his conservative point of view, brought it down a little bit just to be conservative, like we are. But I personally don't think there's going to be any changes because of that study.

Okay. Fair enough. How about from a pricing standpoint? Some of the cardiologists that I was speaking with were saying that they were getting push back from their patients, who -- elderly, fixed income, whatever their reasoning -- they no longer could afford that on a monthly basis. Have you seen anything from that side of it?

No. We haven't. But we're not unsympathetic to this problem. The problem always we face as a business is if we're not in business, then the harm is greater to those same patients. The product remains high priced because only the brand remains.

We're facing additional costs in our business, because of the new changes to the stability work that we have to do, filing ANDAs. We're going to be filing less ANDAs as a result of the change from three months accelerated, one commercial lot to three commercial lots, six-month accelerated. Those cost increases, plus the GDUFA fees, plus the PDUFA fees that are now at $3 million an application, when they were only $1.5 million two years ago, if we don't have the money to pay for these things, how do we survive as a business?

So while it hurts the people who are on fixed incomes, we don't really have a choice as a business to operate and not raise prices when we have opportunities. Generally, as we all know in our business, we have to decline our prices because of competition, keeping in tune with the competition. Occasionally, when you have opportunities to raise the price, if you don't take advantage of that, then all you have is low priced goods and eventually you won't be in business. The cost of operating a drug company today is enormously high, and we need to be profitable to pay for those expenses.

I understand completely. And yes, I agree. All right. Shifting to a more pertinent topics, the two products that you recently acquired, I think in the press release you stated that it would be a couple months to get the one launched. I'm assuming that's just getting a site transfer completed, and then the second, a couple months after that. Are those -- is it a Q2 launch and then a Q3 launch? Is that how we should be thinking about that in our models?

First of all, the only one we're giving an estimate to is the Estradiol tablets, and that one we said probably be a Q2 launch. We haven't given a date for the other product, the Selegiline.

Okay. Fair enough. But in the Estradiol, that was the larger of the two markets, though, correct?

Yes. And that will be a Q2 launch.

Okay. Fair enough. And then maybe one more for me and then I'll hop back in the queue. You were able to get four applications -- four ANDAs applications. I'm assuming those got in under the gun for the GDUFA changes last quarter. As you look out towards this October deadline when -- the FDA has basically stated, if you wait until after October 1, then we promise that 70% of applications will be approved within 18 months. Are you looking at that as maybe the next window when you would see an uptick in your filings, or are you just getting them out as soon as you can?

No. We've had discussions about that issue internally. We're getting them out as soon as we can. The FDA's guidance is like giving you dates when they're going to approve things, and it's been our experience usually don't come to pass. So we're not going to wait around for October. If everybody does that, they may not be prepared to handle that onslaught. And a lot of people suggested that you're better off submitting your applications when they're ready and not try to play that game. So we're going to be pessimists on this one and presume the FDA will not be able to meet their projected deliveries on approvals. So we're going to have things at the agency. And my attitude is whatever's at the agency eventually gets approved and we eventually launch those products. So while I'm unable to ever say with any certainty, we're not going to have a product approved, at least I know I'm always going to have products coming into the Company being approved and being launched, so the revenue stream will continue to grow.

Okay. Great. Thank you very much for taking the questions.

John Newman, Canaccord.

I have a couple questions, actually. The first one is, question for Marty. Marty, what does the guidance for 2015 assume in terms of new ANDA approvals?

John, as far as new ANDA approvals or any product approval we've assumed, we've taken a conservative position and basically have nothing much in there at all. The only thing that might be of significance is the [Moxycodone], the solution we have in there for the second half of the year, and that's under $5 million.

Okay. The second question is for Arthur. Arthur, in terms of some of the noise regarding the investigation by the Connecticut AG, will that have any effect whatsoever on your attitude and stance on continuing to raise price, when possible, going forward on your products?

None whatsoever. Matter of fact, I think price increases are opportunistic things. You don't know when you're going to have the opportunity and when you do, you take advantage of it. We know we've done nothing wrong, so we're going to continue to operate our business regardless of any investigation. And we certainly welcome it, so that it could be closed and everybody could be assured that nothing untoward occurred here. But it's not going to drive our business decisions at all.

That's great. And the final question is an additional question on Digoxin. Given that there have been questions surrounding Digoxin for many years, there've been many studies that have been done, some of which have shown a risk in afib and/or heart failure, and others which have not, I'm just wondering, it definitely sounds like you are being conservative in terms of assuming that there is an effect from the recently published study, but I'm just wondering if we do see an effect, if you were would expect it to be sustained or if you would expect it to be transient? I just ask because we were able to speak with several cardiologists, none of whom had said the study would have any effect whatsoever on their practice, and these are all cardiologists in very large New York and Chicago hospitals. Thanks.

That's the consensus we have here, as well. When a drug is working in a patient, the doctor doesn't switch it around just because the cost went up, because he's more interested in protecting his patient, not his patient's wallet. Because you want to treat people with the disease and protect them. So if a drug is working for you, they're going to tell the patient, listen, this drug's protecting you, you're not dying. Leave it alone. Experimenting with other drugs brings additional side effects to that patient. So any doctor is most likely going to think twice before he switches a patient away just because of a study. Let's understand the focus of where that study was conducted, at the VA.

Right. Exactly. And one quick final question. Can you give us any additional color or update on the status of your ANDA for Thalomid?

No. We're awaiting the acceptance letter and then we'll send a notification to Celgene. We expect that shortly.

Great. Thank you.

Rohit Vanjani, Oppenheimer.

Just to be clear on the Digoxin, when you say that West-Ward was maybe -- last quarter when you said it was going to come in mid-year and then Sun Caraco by the end of the year, are you still anticipating that West-Ward is going to come in any time and Sun Caraco by the end of the year, or does your new Digoxin reflect delays in those entrants?

Well, in the Caraco case, I'm really thinking maybe I'm going to be wrong about December, because they announced the closure of the plant. And at the same time, they made the acquisition of Ranbaxy. So there's an awful lot on Sun Pharmaceutical's plate, the least of which is Digoxin, to be concerned with. So I'm less concerned about Caraco at this time. West-Ward has not launched, but I do expect it any day now.

Okay. And then I think last time, in the last quarter, you may have said -- or maybe when we talked afterwards -- you were saying that Digoxin was annualizing at $80 million, and then when you gave the guidance last quarter of $330 million to $350 million, you were expecting Digoxin to go to $40 million for next year. So the new guidance of $35 million, is that fair to say that you're expecting a $5 million impact from the JACC study?

Yes. This is Marty. As Arthur mentioned earlier, from a numbers perspective, we were being conservative with our outlook for the product. And that's correct. So that additional reduction is to take into account any impact that we might see from the abstract.

Okay. And then for the guidance, for the new guidance, Ursadiol, what was that product annualizing at and what does that assume for FY15 for Ursadiol?

We spoke last earnings call about an increase, a significant increase on the product. It was annualizing at about $50 million. In our guidance, though, we haven't picked up all $50 million. We've picked it up for about three quarters of the $50 million, so something in the $30 million to $35 million range, just anticipating that market conditions would go the other way again within, say, nine months or so.

Okay. And then are you valuing anything from the Sunshine Lake agreement in your guidance?

No. Nothing in there for that yet, as far as the state.

And then the last one for me is, I think the Connecticut AG, the interrogatories asked you to submit answers to their questions by 8/15. Is that correct? And if that's the case, have you submitted everything to them, to the Connecticut AG?

I don't have it in front of me, but I believe that was correct. But if you recall, the AG was on vacation. So at this point, I don't believe anything's been delivered to them. But I'd have to check with my outside counsel. But I believe nothing's been delivered yet, because I know there was some issue with him being on vacation, but they were discussing that and I'm not up to date on that.

Okay. Great. Thanks for taking the questions.

Scott Henry, Roth Capital.

Thank you. Congratulations and good afternoon. A couple questions. For starters, so the guidance basically went from $330 million to $350 million to $350 million to $370 million. Factor in $5 million pullback for Digoxin. Is the upside driver, is that mostly Ursadiol, or -- I'm just curious of any clarity on what drove that uptick.

It's not the one product, Scott, it's the basket of products. When we gave the initial thinking back on May 7, it was early stage. We had not yet completed our own internal budgeting process, and the process we do go through here. So right now, it's a refinement, essentially, of the numbers we had back then. And we had a strong fourth quarter, as we just reported; and obviously, that factors into our thinking for FY15.

Okay. Great. And then on Digoxin, you gave that guidance of $35 million for 2015, perhaps conservative. How should I think of Digoxin relative to the cardiovascular category? About what percent of that category is Digoxin?

It's certainly the bulk of that, Scott. The other products in that category is the generic [diozide] that we launched about three years ago or so now, two and a half years ago. And the Digoxin number is -- Digoxin is essentially most, almost essentially all of that category right now.

Okay. All right. Thank you. That's helpful. And the only other thing to talk about would be Levo. And I don't know if you could give any kind of clarity on what you're thinking for 2015. I guess we should still see an uptick in Q1 from Q4, I imagine. It looks like when you run the numbers, that could be $30 million to $35 million or so a quarter. I'm just wondering if I'm thinking about that correctly.

You're in the right ballpark. Yes, you're in the right ballpark.

Okay. And Arthur, are there any thoughts on future competition to Levo, just anything you may be hearing in the trade? Or even Marty, when you make your forecast, do you expect any new competition for Levo in the next fiscal year?

No. We've heard nothing in the trade. And we've made no arrangements to anticipate anything for this fiscal year.

Okay. Great. Thanks a lot, guys, for taking the questions.

Thank you, Scott.

Serge Belanger, Needham.

I guess one more on Digoxin, seems to be the topic du jour. Seeing the prescription volumes, the recent prescription volumes have been down about 30% since February. So does this $35 million that Marty mentioned assume further declines or some near-term stability?

It assumes that -- and depending upon the source that you're using for the market share, our share back in the wintertime, in January time, let's say February even, I thought it was much higher. It was up in the 50% and 60% range. And what we assumed to get to our 2015 numbers, we assumed that that market share would be dropped by 50%. So let's say whatever number you believe in terms of market share, we saw the ex-factory shipments on our side, we just assumed that our ex-factories would be cut by about half, reflecting again a loss of 50% of the market share. And then we took an additional reduction for the abstract, as we just mentioned.

Okay. And then on Levo, we've seen your two main large competitors more or less exchange market share between them. Do you know if they've lost any key customers and does that present any opportunities for Lannett?

No, but we're always looking for opportunity. But that happens -- we do lose customers, we gain customers. Sometimes it just evens out at the end. We do know that two of our competitors did exchange a customer between them. But that is somewhat routine in our business. It happens to all of us. We hopefully have less of it than our competitors, because we give better service. And if we don't, we'll struggle that way, as well.

All right. That's all for me. Thank you.

Jay Harris, Axiom Capital.

I presume that the relatively flat revenues going from the third to the fourth quarter was due to volume declines. Can I get an estimate of the order of magnitude?

We're not getting that specific, but you're right. It is essentially the volume declines. With the mix of over 30 products we have, there's just offsets up and down the line, but essentially what you're seeing, and as we mentioned in the prepared remarks when we talked about the guidance for FY15, the driver that's dropping sales from the first quarter, or what we expect to be a drop from a high first quarter going down into our second quarter, that decrease was -- the predominant piece is Digoxin coming down. And then we expect that our sales, for various reasons, will essentially be flat for the remaining quarters of the year. But it's the volume on Digoxin.

Is there any way you could say, our volume was off $1 million, $2 million, $3 million third to the fourth quarter, without referring to any products?

Well, I could. But here's where were not going to get that specific with the guidance at this stage. As I said, it's relatively flat --

I'm talking about this year that you've just reported.

I'm sorry. This past year?

Yes. The past year.

Okay. So I'm sorry. The third and fourth quarters, they're flat, right?

Yes, but when you did your conference call in May, you indicated that you were increasing prices and you were worried about volume declines.

Okay. I'm sorry. I see what you're saying. Yes. So what we saw -- what drove the fourth quarter to be stronger than we anticipated -- let me try it this way -- was volume, basically.

Understood that. But if you've raised -- I am assuming you've raised prices more than the $600,000 increase in revenues. And that's --

What happened is, when we raised prices, we expected some of the buy-in to hurt the revenues for that quarter. So you could say we were a little bit too conservative in our projected loss for that fourth quarter over the third quarter. So that the drop wasn't as severe as we thought. We also gained market share on some products that we didn't expect to get.

So you had had a positive offset in volume?

Yes.

Okay. All right. All right. Thank you.

You're welcome. Thank you, Jay.

Tom Bishop, BI Research.

When I added up the pieces of the revenue, I came up a little short. I got only $54 million. I'm guessing I missed the thyroid number. Could you give us that again?

Sure. Hold on one second. The thyroid number for the fourth quarter, it's $27.7 million.

Okay. Just a comment on Digoxin, and a question. It seems to me when generic companies follow each other with lower prices until profit margins are kind of low, that's free market competition. But when they follow each other up in price, then it's considered price fixing. To me, it makes sense that generic companies would follow each other up in price, just like they do on the way down. My question is, I understand an authorized generic came out around the time of the price increase in Digoxin, and how does your generic price relate to the authorized generics price?

We were lucky that the authorized generic supplier was a rational competitor. And when they introduced their product, they introduced theirs at a higher profit -- a higher-margin -- excuse me, a higher WAC price, wholesale acquisition cost is the numbers I'm going to reflect here. Theirs was a little higher than ours. Ours was a little higher than Impax's. So in that sense, we didn't get hurt by the price, so there's no been no price erosion. However, as we all have favorite customers, they have some accounts that were closer to them than to us and we lost some units, as we had predicted we would, once we knew who the other competitor was. We also didn't think that they would launch the authorized generic as quickly as they did. So we were a little surprised at how quickly they launched, but we did anticipate the unit loss and it turned out to be just about what we said it would be. Roughly in units, but dollars, we're not losing anything, the competition.

The prices, of course, have come down a little bit from the WAC prices I just described, but that's typical of what goes on. Because everybody has prices that they give different customers and when you average them together, that's what you're getting is the real price, let's say, versus the wholesale acquisition price. Think of it like a list price on a car. Every dealer negotiates a different price when they sell it, but the list price is the same. In our cases, the list prices were just as I described, the authorized generic was higher than we were. We were higher than Impax.

Okay. So he's complained -- the Attorney General's complaining about the prices of the non-authorized generics, even though the authorized generics is the same price?

No. We presume he's looking at those companies, too. They're not a public company. They're owned by private equity. So we may not be aware that Par got a subpoena. But I would be surprised if they didn't receive one, or Caraco and West-Ward. If you looked at the subpoena, they listed over 39 different names for Digoxin, both chemical and brand names. I'm going to tell you, I didn't even recognize those 39 names. And I've been in the business 46 years. And I've seen a lot of people sell Digoxin. So they look like they went to some database to see how many products are on the market and then took that approach. So that's my guess, at this point. So I'm presuming everybody received that subpoena, but we really don't know that.

Okay. Can you say what the branded sales of the 23 ANDAs is, or --

I don't have that total, actually. I was thinking about the 5 at the agency. That's $1 billion -- No, I don't. But if you want to contact us at a later date, I can certainly get you that.

When I first got involved with Lannett, it was around the start of the year, the company was looking -- I thought, and maybe I heard it wrong -- but for 4 or 5 approvals by mid-year, June 30, say, with 1 or 2 of them being really big. And I can't find it now, but I thought that the total of those 4 or 5 you hoping to get by year-end had $1 billion in branded sales.

That's correct. That was me saying that. You'll have to forgive me. When people ask me if the cup is half full or half empty, I tell you to pour it into a smaller cup. So I had expected, with the best advice from our regulatory people here, that we would get 5 approvals last fiscal year. Of the 5 I thought we would get, we didn't get one of them. And I did receive an approval on one of the diazepams that I was not expecting. So predicting what the FDA's going to do is certainly not one of my strong suits, but we still believe those are pending and we will get them approved.

And so there are some biggies in there?

Yes, that are still down there. For example, one of them was an anorexia drug I had anticipated I'd have by December. Now it looks like I'll be a year off. I'm still expecting it next month, but with my predictions, don't count on my estimates here. But we are expecting it. There's been a delay. We had an issue with the reviewer. We overcame it. In a meeting with the FDA, we objected to their position on something and we prevailed, but I lost another three months during that process.

These are some of the things that hurt us, when we expect something to go through and all of a sudden we run into a roadblock, then by the time you can resolve it, three months goes by. And that's doing our best, bringing in the ombudswomen to help us, my Washington counsel, took us three months to have that hearing. And of course, we prevailed, but the three months is gone. And now I'm still waiting for that product to be approved. That's another drug we thought we could do about $30 million annually with. It's not in our guidance, but we are expecting it this fiscal year.

Okay. Well, the longer it takes, the more likely, hopefully, they are to get approved soon, I hope.

That's my attitude. They always get approved eventually. It's just, I'm not getting any younger here waiting.

Me neither. Thank you.

Jacob Yahiayan, Continental Advisory.

Congratulations. This is more of a capacity question with regard to the property, plant and equipment. There is that $20 million pop up year-over-year that was attributed to the two buildings and the $7 million that you're budgeting for the buildout.

That's correct.

Thank you.

However, when we acquired those two buildings, three other companies came on the market with their facilities. I'm not going to mention all their names. I believe it is all public, but nevertheless, I don't want to be the one to reveal them. One very large brand company's facility in upstate New York, in Rockland County. There was one here in Pennsylvania. I'm not sure what county it is, but it's about 45 minutes from our facility. And another one, I would say, is in the Bergen County area, or somewhere around Little Falls. So those particular facilities, two of them we've turned down, the third one, we're taking a serious look, and we may decide to acquire that existing facility, rather than fit out the ones, the IRS buildings that we bought here in town. We're not going to not fit out the buildings here, but I can spend less money and quickly have manufacturing capacity in the other brand company's facility, as opposed to waiting two years to fit out mine.

So we're always looking at these opportunities to save time and money, and that just came up after we acquired them. Prior to our acquisition of those two buildings from the IRS, we looked for almost three years at a lot of companies that were closing down facilities and just didn't find anything suitable. But call it bad timing. But we still got the IRS buildings so inexpensively that we will still plan to move into them, just might get delayed a little.

Sure. Thank you.

Todd Ammons, Grandmaster Capital.

Quickly, on Levo itself, do you guys disclose gross margins?

No. We don't.

Okay. And do you plan on taking any price on Levo in FY15? Is that implied in your guidance, or no?

No, it's not implied in our guidance. And as we've told other people previously, we're restrained because we're at 75% of the innovator brand price, and generally in our world, you really can't sell the generic for more than the brand. And that usually is a fair discount to the brand. Usually, we're a lot lower than that, as well. But unless [App V] raises the price of the innovator product, there won't be any price increases in our future on that product.

Okay. And then can you -- as you know it, what is the market share for Levo between yourselves, Mylan and Sandoz, at this point?

The way I describe it, it's really between Mylan and Lannett. And I tend to give Mylan a little more market share than they currently have. I tend to tell people it's about a 70/30 split. If you factor in Sandoz and Sandoz picked up a customer away from Mylan, I understand Mylan might be at 68% and Sandoz might have picked up a couple of percentage points. But it really is the bulk of the market is between Mylan and Lannett, in terms of units that are sold.

Got it. And then previously Sandoz had more market share. Is that correct? And if so, what was it before they went off market?

Well, I really don't know what their numbers were, but I know they went off market because of all the recalls they had and a lot of people got tired of these. It's a drug that's now a therapeutic index drug. You need to titrate the patient. So you don't want to have to keep switching patients because of recalls and lack of a product. So I believe that hurt their market and they lost some business because of that problem. That hasn't been resolved, apparently, because I understand recently they also had a recall. I'm not trying to disparage our competitor. Don't misunderstand. But that was the reason for their market share loss.

Got it. So the 2% market share that they have now, you're expecting that to hover around that level, or do you expect them to claw back some of that market share this year?

Most people who've switched away from them don't really go back to them. That's really like the low priced drug. So if someone's strictly buying on price, if you're a wholesaler, you would stock the product, because those people that buy on price and price alone will buy the Sandoz product, let's say. It always was cheaper in the marketplace than Mylan and ours. And the reason for that is we won't match Sandoz's price. My product is a better quality product. I want to be paid for it. So that's one of the reasons why some people will buy the Sandoz product, because they're generally cheaper than my price and, of course, cheaper than Mylan's, as well.

Great. Thank you very much.

Michael Schoeneck, Polar.

Just on your CapEx guidance, I think you had said $7 million for two buildings you acquired fit out. What's the rest of the money being used for?

The rest of the money, we have some capital for fixed assets or building actually in our Cody, Wyoming API facility. And just throughout the rest of the Company, we have spending basically maintenance CapEx.

So is that a normal annual run rate of like $40 million or so as a maintenance CapEx number, or is that too high?

No, I would say the run rate, it is high, it's on the higher end this year, primarily because of the building piece I mentioned in Cody, Wyoming. Generally speaking, we've been running more in that historically high teens number, maybe $20 million annually. So maybe it's another $20 million this year that's of the more unusual nature, with specific expansion plans in Cody, Wyoming. That's what gets you to the $40 million.

So after 2015, it might go back down to the $20 million range? Is that right?

Well, I wouldn't say that. The FDA's requirements are getting tougher and tougher dealing with containment. And we don't expect prices to go down in terms of our CapEx expenditures. Just the opposite. We see them asking us to spend more and more money, even on our older facilities, to keep them current with current thinking, not necessarily GMP compliant, with current thinking. So we expect to continue to see an increase in CapEx spending.

We also are buying, always replacing equipment with more modern equipment, equipment that's more readily automated, for example, have a lot of software in -- what's the word I'm looking for -- software editions so that you could automate or control your processes better. So we're always trying to be a state-of-the-art manufacturer, not in the physical building alone, but in equipment, as well.

Okay. Is there some metric in terms of percentage of sales that you've targeted for CapEx, or is it --

We've been very conservative in our expenditures. Generally, it's more upkeep, I would call what we spend money on, unless we're fitting out a new facility. It's usually just upkeep, replacing things and providing more. For example, the FDA's asked us to start to include more -- what would you call the door locks -- self-locking doors? Airlocks. They want us to put in airlocks. They want us to put doors that lock automatically.

This issue about cross-contamination, sometimes, while we may not agree with it always, because the way our business operates, we have this negative pressure in each one of the rooms, so if you open two doors into a hallway, there won't be any chance the product in each room will migrate to the other rooms, because they're in negative pressure. So the minute you open the door, the corridor air is brought into each room. Nevertheless, the FDA wants you to have better doors, better sealing doors that close and self lock. And these things cost money. But we agree with the FDA that these improvements aren't going to hurt us. Yes, they're costly, but anything that improves the CGMP environment is something we tend to embrace.

But it's not cheap. That kind of equipment is very expensive. So we're always upgrading every one of our buildings. For example, in the lab, we're moving to more higher-speed HPLC, what they now call UPLC. So we're always replacing older equipment that is preferably well functioning, but it takes longer to do a test than the newer equipment does. Well, that also allows you not to have to expand the headcount, as well.

Okay. Thank you very much. Appreciate it.

Blake Goodner, Bridger.

Just three quick questions. First one was on Levo, just so I'm clear. I know there have been two ANDAs from competitors sitting at FDA for a while. Are those assumed -- are you making any assumptions for those in the FY15 outlook?

No. Actually, we believe there are applications there. Because we don't know firsthand, but we did know, in one case, a company in Europe had indicated they were going to get an approval. And they reached out to a competitor to distribute it for them, but we know that that competitor turned them down. When we called them, they denied they even were working on a product. So we believe that there are people that have worked on it and probably have applications stranded at the agency. So some of those backlogs and delays are probably benefiting us, as well.

But are you assuming any additional Levo competition?

Not this year.

Got it. And then with Estradiol, the recent acquisition, I just missed that before. I know in the prior press release, you said it was like $32 million in branded sales. But what exactly are you assuming for Estradiol in the newly updated guidance? Because I don't think that was in the prior guidance. Just trying to make sure I understand.

It's not even in this guidance, because unless we have a product on the shelf, we don't put it in the guidance. We're very conservative that way. Because the minute you run into delays or anything goes wrong, then everybody's been misled by us. So we try to be very careful. If we know we have the product, then it's in our guidance. If we don't, we wait till it comes in.

But we do know we'll have it in the next couple of months. We expect it in the second quarter. But what if it's at the end of the second quarter? What if we're delayed and it's the first week of the third quarter? That's why we want to be careful. It's not our product, hasn't been transferred to us yet formally, so we don't have a better feel for the manufacturing of it just yet.

Okay. And then the last question was just -- I think it really relates to a question somebody else was asking -- but just, so maybe I could break it down this way, just trying to understand the price and volume. You grew sales year-over-year by $41 million. So I guess I'm just wondering, did volume contribute to that revenue increase year-over-year, or was that all price? Can you maybe give us the breakdown? So if you look at the revenue growth year-over-year, $41 million, how much of that was price versus volume in the quarter?

In the quarter, that was all price.

So $41 million of price and volume was essentially zero?

Correct. In the quarter.

Okay.

And then for the year -- for the year, we were up 81% for the year, and 77% was price and remaining 4% was volume.

And the $100 million for next year, basically the $100 million of incremental revenues in the guidance going to the high end of the guidance, $370 million versus $273 million, can you break that down? How much of that is price versus volume in the guidance?

It's mostly price in the guidance. It's not new price. It's potentially the annualization of price increase that we already implemented in FY14. There's some volume changes. We have some volume increases. But primarily -- they're offset primarily by the Digoxin volume decrease we've been discussing.

Got it. Okay. Thanks so much.

Tom Bishop, BI Research.

I ran through the guidance quickly, and I came up with a number of $2.75 a share, based on using 38 million shares. And I'm just wondering, am I way off? Did I miss something big? Or are you having another big year?

We're not prepared, I think, to comment on the specific EPS number.

Because there's nothing in other income or expense, really. There wasn't in the past. There's nothing in there now, is there?

That's correct. That's correct.

Because you've given us guidance on almost every point.

That's right.

We've got to let you do something yourself.

I know. Okay. Well, I'm looking forward to another good year. Thank you.

So are we.

From your mouth to God's ears.

We have no further questions at this time.

I'd like to thank you again for joining us today. We are always available to answer further questions and look forward to reporting on our continued progress on our next call. Thank you.

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