Lannett Company Inc (LCI) 2015 Q4 法說會逐字稿

Hello, and welcome to the Lannett Company FY15 fourth-quarter and full-year conference call. My name is Joe, and I will be our operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded. I would now like to turn the call over to Mr. Robert Jaffe, Head of Investor Relations for the Lannett Company. Mr. Jaffe, you may begin.

Thanks, Joe.

Good afternoon, everyone, and thank you for joining us today to discuss Lannett Company's FY15 fourth-quarter and full-year financial results. On the call today are Arthur Bedrosian, Chief Executive Officer, 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 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 hope you enjoyed our latest theme song, A Moment Like This. Before I begin, I would like to mentioned that Lannett was recently recognized by Fortune Magazine as the fastest growing Company in the United States. All of us at Lannett appreciate the honor, and look forward to maintaining this status.

Turning to our financial results, we reported another solid quarter, driven by strong sales across multiple product categories, and strong gross margin. On June 1, 2015, we completed the acquisition of Silarx Pharmaceuticals. Our financial results for both the FY15 fourth quarter and full year include approximately one month of operations for Silarx, which were not material.

For the FY15 fourth quarter, net sales were $99 million, with gross margin of 72%. Net income was $34 million, equal to $0.91 per diluted share. For the full year, net sales were $407 million, with gross margin of 75%. Net income was $150 million, equal to $4.04 per diluted share.

We have now reported 14 consecutive quarters in which net sales and adjusted earnings per share exceeded the comparable prior-year period. With that brief overview, I'd like now to turn the call over to Marty to review the financials in more detail. Then, I will provide an update, and we will open the call to questions.

Marty?

Thank you, Arthur, and good afternoon everybody.

As Arthur mentioned, we reported a solid FY15 fourth quarter, with net sales increasing 23%, to $99.3 million, from $80.6 million in last year's fourth quarter. Net sales for our largest product category, thyroid deficiency, grew to $38.9 million, or 39% of our total net sales. Our two other largest categories, gallstone and cardiovascular, had net sales of $16.3 million and $9.4 million, respectively, representing 16% and 10% of our total net sales.

As to net sales of our remaining categories, pain management was $9 million, migraine was $6.3 million, glaucoma was $5.2 million, antibiotic was $3 million, muscle relaxant was $2.4 million. This is a new product category, which we reintroduced into the marketplace earlier this year. Obesity was $1.1 million, and other represented $7.6 million. Gross profit rose 29%, to $72 million, or 72% of net sales, from $55.9 million, or 69% of net sales. Research and development expenses increased to $7 million, compared with $6.6 million in the same quarter of the prior year.

Selling, general and administrative expenses increased to $13.9 million, compared with $12 million. SG&A expenses for the FY15 fourth quarter included acquisition-related expenses of $1.6 million. Operating income grew 37%, to $51 million, from $37.4 million in the fourth quarter of last year.

The effective tax rate was 34%, compared to 37% for last year's fourth quarter. The lower effective tax rate was due primarily to changes in the Philadelphia local tax laws, as well as higher Federal domestic manufacturing deductions recorded in FY15, related to a shift in our product mix.

Net income attributable to Lannett Company increased 44%, to $33.9 million, or $0.91 per diluted share, from $23.5 million, or $0.64 per diluted share, for the fourth quarter of FY14. Now, turning to our results for the full year of FY15, compared with the prior year. Net sales increased 49%, to $406.8 million, from $273.8 million.

Continuing with the remainder of the income statement, and for completeness and comparative purposes, I will provide both GAAP and adjusted amounts for last year's results. As you may recall, in last year's first quarter, we issued 1.5 million shares of our common stock, in connection with the signing of the contract extension with Jerome Stevens Pharmaceuticals. Accordingly, cost of sales included a nonrecurring pretax charge of $20.1 million related to this contract extension.

Gross profit was $306.4 million, or 75% of net sales. This compares with gross profit last year of $154.4 million, or 56% of net sales. Gross profit, excluding the JSP contract renewal charge, was $174.5 million, or 64% of net sales. R&D expenses increased to $30.3 million, compared with $27.7 million in the prior year.

SG&A expenses increased to $49.5 million, compared with $38.6 million. SG&A expenses for FY15 included acquisition-related expenses of $4.3 million. Operating income was $226.5 million, compared with $88.1 million. Excluding the JSP contract renewal charge, last year's operating income was $108.2 million. Net income attributable to Lannett Company was $149.9 million, or $4.04 per diluted share, compared with $57.1 million, or $1.62 per diluted share. Adjusted net income in FY14, excluding the contract renewal charge, was $69.7 million, or $1.98 per diluted share.

Our balance sheet at June 30, 2015 remained strong, with cash, cash equivalents and investment securities totaling $213.8 million. As previously announced, we completed an amendment to our revolving credit facility during the fourth quarter FY15, which increased our borrowing capacity from $50 million to $120 million, with an accordion feature for an additional $30 million. The increased credit facility, together with our strong balance sheet, provides additional financial resources and flexibility to fund our acquisition and our organic growth strategy.

Now, turning to our guidance, for the FY16 full year, we currently expect net sales in the range of $425 million to $435 million; gross margin, as a percentage of net sales, of approximately 71% to 73%; R&D expense in the range of $33 million to $35 million; SG&A expense ranging from $57 million to $59 million, which includes approximately $5 million in acquisition-related expenses; the full-year effective tax rate to be in the range of 34% to 35%.

Regarding the phasing of quarters in FY16, we expect net sales each quarter to increase over the prior quarter. We anticipate EPS growth to follow the net sales trend, with the exception of the first quarter, which we expect to be slightly lower than the fourth quarter of FY15, because it includes the majority of the $5 million of acquisition-related expenses and SG&A. And lastly, capital expenditures in FY16 in the range of $60 million to $70 million, which includes $30 million to continue the partial fit-out of Company-owned buildings. As mentioned on our last conference call, we are not anticipating any significant price increases in FY16.

In addition, while we have a deep pipeline, including a large number of product applications currently pending at the FDA, our guidance does not include sales from these products. Nor does our guidance include any benefit from any potential acquisitions or strategic alliances.

With that, I will now turn the call back over to Arthur.

Thank you, Marty.

For the quarter, we recorded strong sales across a number of product categories. As I mentioned earlier, during the fourth quarter, we completed the acquisition of Silarx Pharmaceuticals. The purchase price was approximately $42 million, and was paid using our existing cash. I'm delighted to report that the integration is proceeding smoothly, and is nearly complete.

We were interested in Silarx for several reasons. First, the products we acquired diversify our product offerings. Silarx currently markets 44 products, all of which are complementary to Lannett's offerings, with no overlap. Second, its pipeline at the agency includes four Paragraph Four opportunities among its eight product applications pending. In addition, they have a number of compelling products in development. Third, Silarx adds R&D expertise, and fourth, it provides needed manufacturing and warehousing capacity. It is worth mentioning that Silarx has expertise in dosage forms fundamental to an aging population, and we expect to increase the development of these products.

Last week, we announced the approval and launch of Aripiprazole, our generic ABILIFY oral solution, an anti-depressant drug. This is the first approval from the Silarx pipeline. We believe our product is one of two generics on the market. The brand version of the product, which had annual revenues of approximately $70 million, was recently discontinued.

We hope to capture significant market share before additional competitors enter this market. We're pleased that the Silarx acquisition is already adding value, and our current expectation is that the acquisition will be accretive to earnings per share in FY16.

On the business development and M&A fronts, we continue to evaluate the potential acquisitions, both domestically, as well as in the European market, and seek out other opportunities for both products and companies. Our team continues to look at opportunities that are a strategic fit, and accretive to our Business. We are particularly interested in opportunities that expand and complement our existing product portfolio, and further vertically integrate our operations. We also continue to seek out opportunities to enhance shareholder value through an acquisition in a tax favorable jurisdiction.

With regard to our pipeline, including Silarx, we currently have 28 ANDAs, including 9 with a Paragraph Four certification pending at the FDA. We continue to develop a number of other products, which are in various stages of development. We expect to commit several additional product applications in the near future. Our plans call for continued significant investments in R&D, and while biosimilars are challenging opportunities, we are in discussions to co-develop three forms of insulin with an alliance partner.

I want to welcome our new Silarx team members to our growing family. I thank them, as well as our entire staff, for doing an outstanding job. We remain very positive about Lannett's future. Marty and I would now like to address any questions you may have. Operator?

(Operator Instructions)

Elliot Wilbur from Raymond James.

The theme song threw off my rhythm a little bit. Sorry about that.

First question I wanted to ask, Arthur, is around the Silarx acquisition. You mentioned that the integration is going well. But maybe you could provide us just a little bit more details, in terms of the actual capacity that you obtained? And what the level of near-term investment there is going to be, vis-a-vis the build-out of your other two buildings? Obviously, there is a pretty significant step-up in year-over-year CapEx plans.

And I don't know how much of that is just reflective of incremental investment in Silarx, versus investment in some of the other facilities that I think was pushback over the course of the last fiscal year. But maybe you can give a little bit more detail there?

And then, thinking about that acquisition as a platform, not really sure what the capacity, or what the utilization of the existing capacity, is on the liquid side. But curious if it really puts you in a position to really go after much larger and higher volume product opportunities on the liquid side of the business? Or is -- are they relatively tight on capacity there? And you'd have to be looking at potentially adding additional lines, before you made another move into the liquids market?

Okay, did you expect me to remember all of that lengthy question?

(multiple speakers) The theme song threw me off a little bit, but I recovered. (laughter)

Threw you off? You are on the top of your game, who are you kidding?

Let's see. First of all, we did buy those two RS buildings that we've talked about previously. The problem was, in fitting them out and waiting for FDA approval was going to take at least a couple of years. And the problem, or the benefit, actually, is that we're very busy, and we're manufacturing, and running at capacity in our existing plant. And at the margins we make on our products, the last thing I want to do is not supply products to my customers. So my customers, and the commercial aspect of our Business, comes first.

So it was holding up R&D. So by making the research and development team wait for commercial time on my equipment, we were delaying our applications. The Silarx facility actually was giving me not only a facility with 111,000 square feet, roughly 56 employees, an ongoing facility that's been in business 28 years with no regulatory problems.

So I was able to consider moving research and development up to that facility, as well as dosage forms, not only in the oral solutions market, but also on solid orals that they develop up there, as well. So it immediately relieved the problem for me in my facilities here in the Philadelphia market. It actually would save me the investment in fitting out the buildings in Philadelphia, under our original timeframe, which was considerable. And over a 10 year span, I think it was somewhere in the neighborhood of $180 million.

Now, we have a facility we are able to pick up a lot cheaper, and use immediately, and not have to await FDA approval. So those are were of the drivers behind the Silarx acquisition. I have to admit, when we got involved with the Company, we were pleasantly surprised that at the time, they had nine applications at the agency. This is a very small company, as you can imagine, and yet four of the nine were P4 challenges, something I thought showed a lot of courage on his side.

And he made a good job of picking the products. On the market Conley had a period of exclusivity for one of his drugs. He did get the approval for the generic of the ABILIFY, so now there's eight products remaining at the agency.

So we picked up a measure of expertise that we didn't realize was there. So not only are we getting a facility, a manufacturing plan, a place we can do R&D that will alleviate some bottlenecks here in the Philadelphia plants, but I'm getting a talented group of people who brought a different approach to research and development for ANDAs than we were using here.

So overall, I think the investment in that facility is going to be marginal, in the sense that it is already up and running. We certainly have to make some cosmetic additions to it, to cover the different products we want to make there; move some of the liquids that we make at our Cody facility to that class, as well; remove some of the liquids that we were planning to make in Philly, and did make here, as well, to that facility.

So there's really a reconfiguring of our operations going on, with regard to Silarx's operation, but no major investment in the facility is seen, vis-a-vis any CapEx, for example. And I believe the only additions there are probably going to be additional staff, to support the R&D effort that we plan on developing from there.

We also picked up some talented officers. So we have two offices joined our team from that company. One is heading up scientific affairs. His background is involved in R&D. And of course, the founder, or cofounder, of Silarx, Rohit Desai.

So we really made an unusual find in thinking about this company. Previously, it's sometimes the companies on [unending loans] are the ones you don't pay attention to, and this is one of those sleeper companies we just didn't think was as valuable as we discovered when we looked into it.

So I hope that answered all your questions. If I missed something, let me know.

No. Thanks. If I could just -- a follow-up question for yourself, and for Marty, as well. In thinking about the full year FY16 outlook on the top line, and on gross margin, obviously, the message seems to be one of relative stability versus the second half of FY15. But maybe you could just talk a little bit about some of the key product categories? And what you are expecting there? If, in fact, that we should see relatively straightforward carry-through, run rates in the second half of the year, throughout FY16? Whether there's any particular category that you are expecting more movement, up or down, versus what we saw in the fourth quarter?

I can start, Elliot. I can start with some numbers here. I think, for the most part, it's pretty consistent with the second half of our FY15.

Some of the main products, and we've discuss some of this in some of our investor presentations, things like our largest single product, Levothyroxine, we see that as looking fairly similar in FY16 as FY15. Digoxin, as you know, the second half was much lower than the first half, and we expect that second-half run rate to continue now into FY16. Cocaine topical, we expect to see some increase there. We're looking there at that -- for C-Topical right now, we're looking at sales somewhere in the high 20s, maybe 27, 28, 29, something like that.

On Ursodiol, we do -- we are expecting some growth in Ursodiol. The product is holding up, and so we do expect some growth there. And then, of course, you do have some incremental business in FY16 from the Aripiprazole approval that we announced, and Arthur discussed in his prepared remarks. And Arthur, if you want to add anything to that, in terms of color?

No, that's -- I think you covered it, with regards to all the products. I know a lot of people are wondering whether this was going to be a down year, and we are not anticipating a down year, per se. And everybody keeps bringing up the sustainability of price increases.

They seem to be sustainable. I'm not saying that there hasn't been some weakness, here and there. But overall, I'd say all the price increases have been sustainable, and we are going into almost our third year, now, with some of these increases. So we think it's a more rational market we are in.

If I could follow that up with one final question. Arthur, you've been on the record, several times in the past, as famously, or perhaps infamously, predicting the end of the favorable pricing dynamic cycle. At the end of 2016, do you still feel that way?

Yes. My instincts tell me that the larger generic drug companies, because they're all public, need to show growth. And one way to grow the business, if you don't have periods of exclusivity, is going to be grabbing market share. We saw a recent example by one of the larger companies, with one of the products called econazole, where they went into the market, tried to pick up, and did successfully pick up an additional $200 million in revenue, but they did it by lowering the price.

So this was a company that is normally raising prices, went out there and behaved in the manner I was afraid they might behave in December of 2016. Now, I have not always been right, and I certainly hope I'll be wrong on this one. But it is just a feeling I have that the kind of price increases we've seen are starting to come to an end. In some cases, I don't see them growing to the level that we've seen them grow in the past. But there's still price increases out there.

We -- when you ask a wholesaler what's going on, they'll tell you that someone is raising the price weekly. So the trend continues. But again, I think by December 2016, it may come to an end. And I say may. Again, I'm no prophet. We are operating accordingly. We're trying to keep our overhead lean, and making sure we can live with lower margins if we have to.

All right. Thank you.

Matt Hewitt from Craig-Hallum Capital.

First one for me, on the last call, you had given preliminary guidance for the year, one, that you are very low single-digit growth. You've obviously increased that today. I'm wondering if you could break down the increase that we're seeing today, between the ABILIFY approval versus the Silarx contribution?

The -- overall, the increase year on year, if you go to the midpoint, the $430 million midpoint, it's $24 million of additional business, year on year -- I'm sorry -- yes, $24 million. So, about half of the $20 million is the base Silarx business that we acquired. So at that point in time, Silarx was running about $12 million annually.

The remainder of the difference, the other $12 million, is -- and part of it is Aripiprazole. We're not giving a specific number for that, that we're thinking. But it's somewhere between $5 million and $10 million, in that range. And then the remainder of the growth is the legacy Lannett business.

Looking at that contribution, the $5 million to $10 million, given that it was a $70 million market the brand has exited, I haven't seen any indication that the other generic company that received approval had inventory at risk. You, per your press release, were launching, so you clearly were ready. I'm confused at the disconnect between the $70 million market, with the $5 million to $10 million that you are anticipating or forecasting for.

The reason for that is, first of all, we are always very conservative, and it's always to end a promise. And we don't know just exactly how much of the brand market was lost, because it's been about five weeks since the brand company removed their product from the market to our launch. So it's possible people that came to renew their product prescriptions weren't able to get the ABILIFY product, and were switched to something else. And those people now may be lost to us.

Optimistically, we're hoping to capture a lot more of that market, maybe in the neighborhood of $20 million, $30 million for ourselves, if that market continues to exist. But we don't know; it's hard to tell. This is an unusual situation. So better to be conservative in our forecast than to be optimistic.

It's too early.

It's just -- yes, it's too early. But you're right, the market should still be there. The refills now coming in should be filled with the generics that are available.

Okay. And then sticking with that topic, one more question. Because the brand has left, is it safe for us to assume that you didn't need to follow normal pricing patterns, where you enter the market at 20% discount? Is it safe to assume that you've entered at that existing price, and so you'll capture the full market with that full price, at least over the near-term?

No, the reason for that is, the other company that also received their approval had already booked orders at a lower price. And even though he didn't fill those orders initially, because both our Company, meaning Silarx and their company, received tentative approvals, nevertheless, the damage was done, so to speak, because they had that low price out there. We were curious to see what they're going to do with their pricing, now that the brand is off the market, and just the two of us have launched.

But at the moment, it looks like they're filling the orders that they committed to at the lower price, which handicaps us from introducing our product at a higher price. We were higher than them in our initial launch, but we were handicapped by -- my Sales Vice President says, you are as smart as your dumbest competitor. (laughter)

All right. One more for me, then I will hop back into queue.

Regarding C-Topical, it looks like you had nice bounce-back from some of the issues last quarter. How much of the $9 million or so in the fourth quarter was just some catch-up from orders that were missed in the third quarter, versus run rate? And should we anticipate growth off of this Q4 number? Or will it step back a little bit in Q1?

We had some additional impact on C-Topical in the fourth quarter, roughly about $2 million or so.

And that was upside of the normal run rate? Or you've grown the business by $2 million, just so I understand that?

No. The $2 million was doubling up.

Catch-up.

Because of catch-up. Yes, exactly.

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

Andrew Finkelstein from Susquehanna.

Can you talk a little bit more about your gross margin assumption and outlook for the year? Obviously, if there's price competition on individual products, that can swing you within your range. But to what extent are your revenue range and gross margin range correlated? And are there any particular changes on individual products, or other factors we should have in mind, in trying to predict where you might end up within that range?

And then, as you look at business development opportunities, has recent market volatility changed anything in your approach? Or how you might think about your willingness to execute on transactions? And at what valuation? Thanks.

Sure, Andrew. So this is Marty. I'll go first here.

So as far as the gross margin, which was your first question, I believe. The -- from our perspective, we -- as far as predicting FY16, it's essentially looking at our last two quarters now, and in particular, our fourth quarter. And we see that run rate continuing. And that, as you can see, is pretty much spot on where we put our full-year 2016, our range at. So right now, that's our best indicator as to what to expect for FY16.

As far as sales goes, as we said, we do expect to see sequential growth through the quarters of FY16. That's basically just driven by additional volume, as the business grows, and product lines grow. There isn't anything unusual there. As I mentioned in my prepared remarks, or in my comments earlier with Elliot, Ursodiol is showing some good growth in FY16, from our expectations, our perspective. So that's probably the one product that is doing very well, at least as far as guidance is concerned. And with that, I think I'll hand off over to Arthur. Maybe you just want to repeat, Andrew, the second part of your question there?

In terms of business development, given markets have become more volatile, and particularly, you talk about international deals, as well. Does that volatility, and changes in your own valuation, affect your approach at all, in terms of what you might execute on? And at what valuation?

Funny you bring that up. That question came up earlier today, that I was speaking to one of my colleagues. And the feeling is, all the anxiety that's going on there is all international. It really does not impact the generic drug space we're in.

So in terms of the drug marketplace, here or in Europe, we don't see any particular changes in the valuation. We know some of the valuations were heady. So let's just say, maybe some of the headiness has now ended, and they will probably stay around this area. But, we don't see any particular change, though.

The company we've been looking at in Europe continues to be attractive to us, and it's been growing nicely. And in the United States, we've been looking at a few companies here, and we're hoping that we can do some acquisitions. And the valuations of those companies are similar to the way everyone is valuing them.

Now, if you look at the past few days, you can say when the valuations dropped. But would I pay more if the market went up another 1,000 points? Probably not. So am I going to pay less because it dropped? Probably not.

We value things based on what we think our business is worth, and what that acquisition is worth to the Lannett shareholders. That is probably the best way I can answer that. We're very -- we've done a lot of due diligence here. Let's just say a lot of searches, a lot of studies, a lot of investigations, a lot of forecasting. And we've got a lot of experience at it. And if nothing else, even though you don't close on every transaction you look at, we have gained a lot of experience in looking at how we value something, and what it turns out to be worth later on, in the real world.

So I think my staff here -- and I complement Marty for putting the staff together that he's put together -- has really done a great job in valuing companies. Andrew, any other questions?

No. That's good. Thanks very much.

Scott Henry from Roth Capital.

Starting on thyroid deficiency, I didn't quite hear that category, Marty. Could you give me that number again?

Let me just find my script here. Thyroid -- I don't have it. Scott, why don't you ask your next question? Okay, here we go, sorry. Thyroid was $38.9 million.

Okay. And did you give any comments on what you expect for that category, in the next 12 months? And along with that, obviously, this is an important product category to you. Are you hearing anything, out in the marketplace, that could change the competitive dynamics over the next 12 months? Or would you expect pretty much more of the same?

First of all, in the numbers piece, I'll just add that -- I'll just say that we -- for FY16, we expect to see a similar sales dollar number, something in the range -- something in the $150 million to $155 million, a number like that, for FY16. That's pretty consistent with FY15. (multiple speakers)

And I haven't heard anything about -- we've spoken before about another brand entering the market sometime next year. Besides the Levo play, we haven't heard of anybody else entering the market. And we still don't see any particular change in the market.

There has been some shifting amongst some of the suppliers, where the distant third company picked up some market share from the number one supplier. We have had no impact on our sales of that product, though. So we continue to grow it every year, and I expect that this year, as well.

Okay. And to Levothroid, we would still expect that to be a brand? Nothing has change on that front?

That's correct.

Okay. And then shifting -- as well, cardiovascular, Marty, I apologize, but that number? I just wanted to make sure I took it down correctly.

Yes, cardiovascular was $9.4 million.

Okay. Which was up over Q3? Is that just a timing issue? Or should I expect it to decline off that $9.4 million number?

The -- in the fourth quarter, what popped it up a little bit was Digoxin. That category is primarily Digoxin. So as you may recall, we had a weak third quarter for Digoxin. So we saw the second half of FY15 being $15 million. That, we thought, is a pretty reasonable run rate for what we're expecting now in FY16.

Okay. And how -- if I recall, there was potential for supply issues on Digoxin. Is that still the case?

Not with us, but we're in very good shape. But we do know that one of our newer competitors took a customer away, and then was unable to supply that customer after three months. And that customer went to another competitor of ours. So we know some people have had supply issues on the raw material, but we are okay. We have no issues there.

Okay. Shifting down, I'm just staying on some of the product categories. Pain management, Marty, I know you said you were thinking $27 million to $29 million for C-Topical. What about the entire category? Is it significantly north of that? Just trying to get an idea of what kind of contribution we're getting from some of the other products.

I would say for FY16, the other products are fairly consistent with 2015, for the other products. So the growth in the category is primarily C-Topical. Essentially more -- no, it -- the other products aren't as large as C-Topical. So the whole category is moving as C-Topical moves.

Okay, perfect. That's helpful. And then, if I'm -- so Ursodiol, that is in the gallstone prevention line, I assume, obviously.

Right.

Now, you talked about some growth in that product. I just want to get a sense -- because the numbers are so volatile, from quarter to quarter. Are you thinking about growth off of the fourth-quarter numbers? Obviously, third quarter was a large number, closer to $20 million. Fourth quarter was $10 million. How should I think about that category? Or should I just take the annual [$15 million], and think about some growth off of that?

No. Your fourth quarter was -- Scott, fourth quarter was $16 million. Yes, as I read in my commentary, it was $16.3 million, which was about what we were expecting three months ago, or four months ago, now, for that category. The -- so that gives you a full-year number of about $66 million.

Yes, that makes sense, now. I had that number in the wrong place.

Yes -- that's more -- okay.

That helps. So that clears that up. Okay. I think that should do it for me. Thank you for taking all those questions.

(Operator Instructions)

Rohit Vanjani from Oppenheimer.

Congratulations on the quarter. For the liquid ABILIFY, I think another competitor was the first to file. Is there any an economic share with that competitor that allowed you to launch?

Yes, there was.

Could you talk about any kind of details around --

Nothing that we're going to repeat here. But there was a relinquishing of their position to the two tentative approvals to Silarx and to our competitor. So the two of us did agree to share some of the economics with the Company that held the first to file position.

Okay. And then, so do you anticipate a reeducation period for that liquid ABILIFY? Or will there be any cost to you, if you do integrate that, to re-educate the market to bring back scripts?

No, not really. That's something the pharmacist would be best suited to do. They certainly know that the generic is available, they know the brand isn't. So when they get a refill for the brand prescription, they have no choice but to shift them to the generic product that's available. So it should enhance the substitution, let's say.

The only concern is that the doctors are not prescribing the product anymore for anybody new, because no one is detailing it. But the market that exists, the $70 million brand market, was just recently abandoned by the brand company. So, we are -- optimistically, I'm expecting a big market share. But again, we don't predict things like that, because it's hard for us to make those predictions.

Optimism is not something we want to give out on the call. We'd rather be conservative, and let our sales people say, this is what we think we can do. And then if there is a change in the marketplace, we will be happy to take advantage of that. But it's one of those unusual situations where the brand left so quickly from the market. So that's why I'm more optimistic than if they left the market a year ago, for example.

And then, for Digoxin, I think last year, the guidance was $50 million. Are you seeing aggressive discounting in that market, with the latest competitive entry, I think, from Sun?

I wouldn't say aggressive. There's been some discounting. But essentially, the prices have held up. Let's put it this way. They're nowhere near the prices that existed a few years ago. So while it may be getting a little more competitive, I wouldn't call it aggressive.

Okay. Ant then, deal talks with the Italian company that you mentioned a couple of quarters ago. Where does that stand?

They know we were doing some due diligences, and they agreed to stand by. So we will continue to have discussions. As a matter of fact, we speak to them, I would say, monthly. And we are waiting for some additional paperwork from them. So just to give us -- they had a better year than they anticipated this year. We're waiting for some of those financials.

Okay. And then the last one for me. Have you received any target action dates from the FDA?

Not that I'm aware of. And quite frankly, some of the ones we did receive didn't really turn out to be of any use to us. But I believe that they've supposed to be sending some additional ones out. But no, we're still complaining about the same problem, a lack of communication.

And some other issues, too, in regards to misunderstandings on guidances. Meaning, they don't even know what the guidances say when we submit applications. We're running into issues where they're constantly wrong. And they refer to guidances, and then when you read the guidance, you realize it doesn't say what they say it says.

So we are finding a lot of delays there, and it's hard to understand why. They can read just like we do. But we already went through a lot of frustrations in that scenario. We hear a lot of promises. And my regulators, I don't want to sit here and criticize them, but we just don't see the improvements.

Okay. All right. Thanks for taking the questions. Appreciate it.

Matt Hewitt back online, with a question from Craig-Hallum Capital.

Just one follow-up for me. The $5 million of acquisition-related expenses here, in the first quarter. How much of that is, I guess, follow through on the Silarx, versus new spending for bankers, consultants, new deals that you are working on, whatnot?

It's -- Matt, it's predominantly the latter. It's predominantly just consulting some other folks we have involved. We do have somebody in there, some consultants helping us with the integration of Silarx. But it's a bit more towards the consultants, and legal people, and things of that nature, related to the things we're working on.

Okay. Great. Thank you.

Speakers, at this time, I am showing no further questions. I will now turn the call back over to Robert for closing remarks.

Actually, Arthur, do you want to close, or do you want me to?

Yes. Let me thank everybody for their participation today, and we look forward to speaking to you again.

Thanks, everyone. The call is over.

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