Lannett Company Inc (LCI) 2016 Q3 法說會逐字稿

Welcome to the Lannett Company fiscal 2016 third quarter financial results conference call. My name is Bianca, and I'll be your Operator for today.

(Operator Instructions)

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

Thanks, Bianca. Good afternoon, everyone, and thank you for joining us today to discuss Lannett Company's fiscal 2016 third quarter 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 provision of the Litigation Reform Act. The Company's discussion will include forward-looking information reflecting management's current forecast of certain aspects of the Company's future, and actual results could differ materially from those stated or implied.

In addition, during the course of this call we may refer to non-GAAP financial measures that are not prepared in accordance with US Generally Accepted Accounting Principles and may be different from non-GAAP financial measures used by other companies. Investors are encouraged to review Lannett's press release announcing its full fiscal 2016 third quarter financial results for the Company's reasons for including those non-GAAP financial measures in its earnings announcement.

The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is also contained in the Company's earnings press release issued earlier today.

This afternoon, Arthur will provide a brief overview of the quarter. Then, 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. We played "Small Town" by John Cougar Mellencamp out of respect for our colleagues in Seymour, Indiana. I hope you all enjoyed it.

Today, we reported a solid fiscal 2016 third quarter performance. As a reminder, we completed the acquisition of Kremers Urban Pharmaceuticals on November 25, 2015. Accordingly, our financial results for the fiscal 2016 third quarter and year-to-date period include the operations of KU since that date. The fiscal 2016 third quarter is the first full quarter to include KU's business.

For fiscal 2016 third quarter, net sales were the highest in the Company's history, at $164 million, and a substantial increase over $99 million of net sales in last year's third quarter.

Adjusted net income was $28 million, equal to $0.75 per diluted share, compared with $37 million, equal to $0.98 per diluted share.

With that overview, I'll turn the call over to Marty to discuss our financial results in more detail. Marty?

Thank you, Arthur, and good afternoon, everyone.

For the fiscal 2016 third quarter, net sales increased to $163.7 million, from $99.4 million in last year's third quarter.

Net sales of our largest product category, thyroid deficiency, were $38.0 million, or 23% of our net sales. Our two other largest categories, gastrointestinal and cardiovascular, had net sales of $21.7 million and $16.7 million, respectively, representing 13% and 10% of our net sales.

As for net sales of our remaining product categories: gallstone was $14.7 million; central nervous system was $14.3 million; pain management was $7.2 million; urinary was $6.5 million; glaucoma was $6.0 million; respiratory was $5.3 million; migraine was $5.1 million; antibiotic was $3.2 million; muscle relaxant was $1.2 million; and obesity was $1.0 million. Net sales of the remaining product categories, other and gout, represented $12.7 million.

In addition, we recorded $10.1 million of contract manufacturing revenues.

Continuing with the rest of the income statement and for completeness and comparative purposes, I will first provide the non-GAAP adjusted amounts and then provide GAAP amounts. The differences between non-GAAP and GAAP amounts primarily include expenses related to the KU acquisition and the settlement agreement, which I'll discuss in more detail shortly. Adjusted net income excludes the after-tax effect of these items.

Adjusted gross profit was $97.4 million, or 59% of net sales, compared with $75.7 million, or 76% of net sales.

Adjusted R&D expenses were $16.4 million, compared with $9.2 million.

Adjusted SG&A was $15.8 million, compared with $11.6 million.

Adjusted operating income increased to $65.2 million, from $54.9 million.

Adjusted tax expense was $15.4 million, compared with $18.2 million.

Adjusted net income attributable to Lannett Company was $27.9 million, or $0.75 per diluted share, compared with $36.6 million, or $0.98 per diluted share.

Now, I'll provide the GAAP amounts. Net sales were $163.7 million, compared with $99.4 million.

During the third quarter and as previously announced, we recorded a pretax one-time settlement agreement of $24 million which was recorded as a reduction to net sales. Due to the nonrecurring nature of this item, we excluded it from our adjusted results, as it does not affect our sales run rate.

Because the settlement agreement was recorded as a reduction to net sales, total net sales were $140.1 million for the fiscal 2016 third quarter.

Gross profit was $57.5 million, compared with $75.6 million for the prior-year third quarter. Gross profit as a percentage of total net sales was 41%, compared with 76%. This percentage was impacted by the settlement agreement, the effect of purchase accounting related to the KU acquisition, and the inclusion of KU's lower-margin business.

R&D expenses increased to $16.5 million, from $9.2 million in the same quarter of the prior year.

SG&A expenses were $16.2 million, compared with $11.6 million.

Acquisition- and integration-related expenses were $1.5 million, compared with $587,000 in the third quarter of last year.

In February of this year, we implemented a restructuring plan, resulting in a charge of $4.7 million.

Operating income was $18.6 million, compared with $54.3 million.

Interest expense was $27.0 million, compared with $8,000.

Net loss attributable to Lannett Company, which includes the settlement agreement mentioned earlier, was $5.5 million, or $0.15 per diluted share, compared to net income attributable to Lannett Company of $36.2 million, or $0.97 per diluted share, in last year's third quarter.

Turning to our balance sheet. At March 31, 2016, cash, cash equivalents, and investment securities totaled $238.4 million, and total long-term debt outstanding was $1.15 billion, reflecting the remaining portion of debt used to finance the KU acquisition.

As we have said previously, our primary objective is to use our free cash flow to delever as quickly as possible.

Now, turning to our guidance. Our third quarter was favorably impacted by a number of factors, including product mix and manufacturing efficiencies which are not expected to continue in the fourth quarter. We continue to expect our fiscal 2016 fourth quarter to be in line with our previous outlook, which we provided on a non-GAAP basis.

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

Thanks, Marty. We continue to enhance our near- and longer-term prospects.

We are making excellent progress integrating KU and advancing the cost savings and restructuring plan we announced in early February. Our integration and restructuring efforts continue to focus on the categories of corporate offices, research and development, distribution, and manufacturing operations.

We continue to be on track to reduce costs by $27 million in fiscal 2016 and $40 million in the first 12 months. Under the plan, cost savings are expected to climb even higher in the later years.

We have already completed a 10% workforce reduction and closed KU's corporate offices in Princeton. We have initiated activities to transfer our manufacturing and packaging operations from our Philadelphia site to our Seymour, Indiana, facility.

To date, we have begun the transfer of five of our top 10 products to the Seymour plant for manufacturing. We expect to complete the transfer of our manufacturing operations within three years, with two-thirds of the volume moved to Seymour by the end of calendar 2017.

Our plan includes the ultimate sale or closure of our Philadelphia production site. We have been contacted by several potential buyers who have expressed interest in our manufacturing facility in Philadelphia.

During the third quarter, we received approval for four products: temozolomide, for both KU and Lannett; sumitriptan nasal; and potassium chloride. We expect to launch these products beginning in fiscal 2017.

More recently, in April, we announced an agreement with our strategic partner in China to co-develop a generic insulin product, an extremely exciting opportunity. Our partner has advanced the product to a late stage of development and will be responsible for manufacturing the product.

Lannett will manage the remaining clinical and regulatory steps specific to US Food and Drug Administration license to market. Our agreement provides us exclusive US marketing rights to the product.

According to IMS, total US sales of insulin pharmaceutical products were more than $21 billion for the 12 months ended August 2015.

For competitive reasons, we are not offering additional details about the product at this time.

We continue to replace the revenues lost as a result of the key customer transitioning its purchases of certain KU product lines.

Finally, we met with and have reestablished a business relationship with a key customer of KU. In addition, we are in line to begin this relationship with the same customer for Lannett's products. We look forward to a mutually rewarding, long-term association.

We are confident our integration will be completed on time and, in doing so, creating a formidable generic drug manufacturing enterprise. The alliance we are building with our colleagues in China has already produced benefits. We have launched our second product and await FDA approval for additional products.

In pursuing our plans to vertically integrate, our [ATI] development work in [coating labs] continues. We believe this [effort] will enhance our profits and also open additional sales opportunities.

[Darmond Test Labs], our overseas biostudy labs, has successfully completed our first [physical] study. The filing of that ANDA will result in an FDA inspection of our facility, thereby reducing our costs of future ANDA filings.

In summary, these actions give us confidence that Lannett's future will be strong.

With that overview, I would now like to address any questions you may have. Operator?

(Operator Instructions) Gregg Gilbert, Deutsche Bank.

I have a few. First, Marty, can you give us a little more color around those manufacturing efficiencies you saw this quarter that won't recur next quarter?

[Well, it's really] -- the (inaudible) that we saw in the third quarter, it's really in two areas. It's the manufacturing efficiencies, as well as some favorable product mix. But I'm going to -- we have John Kozlowski with us, our corporate controller, and he'll provide a little bit more of an insight into that.

With respect to the product mix, we did see an increase in some of our more profitable products compared to our forecast. But as of right now, we're not projecting that same mix continuing into Q4.

And then, also, for our manufacturing efficiencies, our manufacturing expenses were lower than forecast in the third quarter, but we have not included those same efficiencies in our fourth quarter forecast. As Arthur has stated earlier, we have started to transfer manufacturing to our Indiana plant, and this will lead to higher synergies. But for Q4, we expect there may be some inefficiencies in our manufacturing operations due to this transition.

Thanks for that. Would you guys say that your trade inventory levels of products, whether they're from KU or from Lannett, are in normal ranges?

Trading? I'm not sure we understood there. Trading in our products, did you say?

No. The trade inventories of your product. Are they in normal levels, both from the KU side and the Lannett side?

I would say, yes, there in normal levels.

Okay.

In our case, (inaudible) just so we're clear, we always carried bigger inventories at Lannett than KU did historically. And we're following up -- we're making sure KU carries longer inventories. We carry typically a 90-day supply. Theirs was more like six weeks. So, we're asking them to increase their inventory levels to the 90-day supply. So, in that respect, it's slightly different.

Okay. And then, as it relates to moving stuff up to Indiana, Arthur, can you just highlight, at least qualitatively, what the improvements will be over time -- Is it cost? Is it flexibility? Is it tax? Is it some combination of factors? -- once we get through the transfer?

Well, the main thing is there's a lower manufacturing cost in Seymour, Indiana. And if I'm not mistaken, Marty, it's roughly, as a percent, like $10 per (inaudible) thousand, I think was the number? If I'm mistaken. Something like that. Around $10 per thousand if you were to just average the cost of production.

And as a result, that plant of course is more efficient. It's 11 times the size of our plant in Philadelphia here. And we were far too cramped within the site on State Road where we were making over 40 products, versus the KU facility at 381,000 square feet versus 31,000 in Philly, making [15] products.

So, it made sense to move the products out there. And so far, the movement of the products has been very rewarding in terms of the manufacturing of those batches there that we have to put on [stability].

So, everything is going a little bit ahead of plan and working out better than we anticipated.

But that would be where the savings is primarily: cost of manufacturing.

Great. And lastly, Arthur, with the departure of your president, are you looking to fill that position? Or, are there other structural changes you've made or are planning to make?

I'm planning to make some structural changes. I have discussed with the Board vis-a-vis whether or not to replace the president, but there's no immediate plans to search for a president at the moment.

We are working on a reorganization plan in light of the structure that we now have. We've doubled in size. So, we want to make sure we have a thought-out process and then incorporate all of this into our strategic plan so that we have a plan going forward for the number of positions that we need to fill, as opposed to doing anything quickly.

Thanks, guys.

Elliot Wilbur, Raymond James.

The Mellencamp tune was a nice touch. I got a little nervous at first. I thought it was "Crumbling Down," but then I heard that --.

No, we're not crumbling; we're building.

All right. Good. Good to hear. First question, specifically on levothyroxine. There's been a lot of noise in the market about pricing erosion around that particular asset, coming out of Sandoz and Mylan.

And I don't know if you've seen or heard of that, or if it just doesn't impact you? Or, perhaps the agreement that you struck with your key customer that you've talked about in the last couple of calls may be already essentially accounted for or adjusted for that? But if you could just maybe comment specifically on current dynamics in the levothyroxine market?

Sure. Well, you're correct with regards to the marketplace. There has been a little bit of a softening vis-a-vis from Sandoz and from Mylan; in particular, the two of them competing against each other.

But remember, we're in a commodity business. So, we have to certainly make sure we're in that same venue and same area of pricing.

But we haven't had any serious drops in our prices. Because where we do lower the price, for example, previously, where we talked about engaging a customer for a longer-term agreement, we actually picked up additional market share. So, the growth in the sales and revenue from the units apparently offset the decline, from our point of view, in pricing. The declines, by the way, were not significant.

So, yes, there's been a little bit of competition in that area, but it has not impacted our numbers because of the growth. Remember, the innovative company still has a formidable number of products on the market -- "formidable" may not be the right word -- a significant amount of business that they lose to the generic companies annually, and that seems to be offsetting any price issues.

Okay. Good. And then, I have a question for Marty, as well. Your full-year and now, obviously, fourth quarter guidance still embeds, I believe, some sort of refinancing or restructuring of one component of your current portion of your debt capital structure. And I'm just wondering is that still accurate and viable? And what's the latest thinking there?

Right. Well, first of all, Elliot, in the last guidance we provided back on March 23, we actually adjusted that outlook in terms of the interest expense itself. Back on the 23rd, what we indicated was that -- we could see then in March that there wasn't enough time to accomplish what we had initially set out to do.

So, we took out that reduction of interest expense you're referring to for the months of May and June. And we took the position that, okay, we're -- back on March 23, we said we're still focused on refinancing that note, the $250 million note, though we said back then that we expect the benefit to initiate, let's say, around the 1st of July, the start of the fiscal year 2016.

And at this stage, we continue down that path. We've accomplished a lot in the last two or three months now. We've explored various opportunities.

I'm not at liberty here to discuss specifically what we're going to do, but we certainly have homed in on a specific plan and we're definitely moving forward. And I'm just going to say at this stage, stay tuned. That's the best I can offer right now.

So, from the guidance perspective, that is not in our numbers, and we're working on the program.

Okay. Thanks for the clarification there. And then, just one last question, for Arthur. Any update you can provide us with respect to communications with FDA on ethylphenidate and the current BX rating?

Well, no. We're disappointed that even though we've reached out to sources within the agency that generally help in matters like this, they have indicated just a couple of weeks ago that they still don't know why we haven't heard. They had previously told us in February that a decision had been reached and we'd hear from them shortly.

I'm an optimist by nature. So, I'm presuming that whatever decision they might have reached, it looks like they're reviewing it. So, I'm looking at that as an optimistic point of view. "No" is the easiest thing to get from the agency.

Remember, (inaudible) is now a year since that (inaudible) study was submitted by the Kremers company originally, before we owned them. And there was supposed to be a quick turnaround in terms of whether or not there would restore the AB rating.

So, it's now been a year. The agency has the data. So, we're just waiting. And when we checked with our sources, the ombudsman department down there, they say they're waiting themselves for an answer.

So, nothing on that ends, but I'm -- no news is starting to sound like good news to me. But shoot me. I'm an optimistic by nature.

Okay. All right. Thank you.

Andrew Finkelstein, Susquehanna Financial Group.

So, I was hoping you could talk a bit more about, first of all, in terms of your outreach to customers, both with that one major customer and others, as you think about business over the next year? Obviously, I don't want to talk too much about strategy, but in the pricing environment we're in and in an environment where we're seeing some skirmishes between larger players, how has the game changed in terms of going after and securing visibility on the volumes and pricing you're going to have, as best as you can?

And then, could you also talk --? When you talk about the guidance for the coming quarter, is there anything in there for product launches? I know you mentioned a couple that are in the next fiscal year, but does the guidance still hold without a launch contribution in the fiscal fourth quarter?

Let me answer the last one first. Yes, the guidance still holds, and we're not predicting any launches to products in this quarter of new products.

Getting back to your first question, if you look at the track record, Lannett is -- I can only speak for my time at Lannett. As you know, we're a 73-year-old Company. But in the past 14 years, this Company grew in a very competitive marketplace.

We sell commodity products. We have no general exclusive. Lannett doesn't have any periods of exclusivity. And we've grown the business dramatically in 14 years without any of those benefits. So, let's just say we did it the old-fashioned way.

We then ran into that period of time where there was some price increases, let's call it -- or I call it an aberration -- where there was a number of opportunities to raise price, and we know that's come to an end, as well. A little sooner than I had predicted, but still it's come to an end.

So, we're kind of back to the old-fashioned business model where we go out and do it the old-fashioned way: work hard, deliver the goods, make sure you take good care of your customers. But we continue to see growth opportunities for the Company, albeit in a commodity business that we've always been in.

And just to follow up on that, is the key to success in that more on -- particularly, as we think about you in the near term -- gaining share with the customers you have or broadening the customer base, at least on particular products?

Well, we're always broadening the customer base, because we give good service to our customers, and you always want to be able to sell them another product. And that's generally where the growth does come.

We're a reliable supplier. So, when we supply a product to a company, we generally don't lose it because we backorder them or we're unable to supply. So, it's like building blocks: you get an item in; you get another item in; you get a third item in. Sometimes you lose an item to price, where another competitor takes the account away on that item, but your goal is always to keep adding products.

Of course, every new product we get approved on is another product to sell to existing customers. There's just a finite number of customers, as you know, out there, with all the consolidation that's going on. So, the growth really comes from selling more to the existing customers, to your point.

All right. Thanks very much.

Matt Hewitt, Craig-Hallum Capital Group.

Just a couple of questions. First, regarding the KU customer that you've been working with, where is that relationship today? I know it's tough to gauge, but when do you anticipate maybe getting back on a sales relationship with them?

Well, we've actively been working with them and submitting quotes to them. So, I'm not going to say I physically have been given an award based on the reestablishment of the relations, but it is very strong. And at all levels within the customer, they're looking forward to trying to reestablish business with us.

But sometimes, from our point of view, we can't come to terms on a product here and there. But that's normal. That's the regular give and take of business.

On top of it, we're also, as you know, relocating and moving our products from Philadelphia to Seymour, Indiana. So, in order to bid on a business, you have to make sure that the continuity will be there, that we're not going to have any product disruptions during those transitions. So, that's handicapping us a little bit.

But the customer themselves has really been trying very hard to work with us, to give us an award. So, I'm hopeful that we'll have something in our hands shortly in terms of actual business. But the relationship has been reestablished.

Okay. That's good to know. I guess more broadly speaking, Arthur, as you look across the industry, several of your peers have reported results here recently talking about normalized generic pricing. And you had even talked about this back in March. Is that still the case? I think there was fears over the last couple of weeks that maybe we were seeing greater erosion, maybe in Europe and the rest of the world but not necessarily domestically. What are you seeing?

I predicted that by --. This aberration I call the past couple of years, almost three years now, where we saw price increases really were driven by opportunity where a lot of the competition fell by the wayside for a number of reasons.

When the FDA shuts down an Indian plant and says you can't ship to the United States, it doesn't affect one product; it's affects quite a number of them.

So, we're a local, reliable supplier. Some of the customers are getting so big now, they can't afford to suddenly not have product available. You don't want to go to a pharmacy and have them tell you: Go to the drugstore next door; I don't have the merchandise. So, I think there's a greater emphasis on the domestic production and reliability, that we're benefiting from.

But certainly, there's a competition in our field. So, when you have multiple approvals coming out of FDA, as we've seen recently. So, in the KU, for example, two of our products received additional competition. And as a result, our competitor, because we had the greater market share, grabbed away at some of our customer business.

But that's the normal business that we excel in, you might say. We expect that to happen. But that's the same reason for us to continue to file applications and go after products where we believe we'll be somewhat alone in the market.

But it's the regular business cycle, but it's come sooner than the December of 2016 that I had predicted, but it's the business I've grown up in. It's always been the same.

So, I see the same level of competition that we've had for 47 years, with the exception of the period when you had all the foreign firms coming in trying to buy market share in, let's say, the period of 2005 and 2006 and 2007, where a lot of new companies came to the market here that previously were not shipping to the United States.

So, that certainly hurt, but it didn't kill the American industry. All the drug production that still goes on here continues, and we're continuing to grow in that environment.

So, it's competitive, but again that's normal for us. Price decreases are not the norm.

Got it. All right. Thank you very much.

Scott Henry, Roth Capital Partners.

I guess just starting on a couple of the product lines. I thought I heard that contract manufacturing was $10.1 million. It seems like a pretty big number for that line item. I was just hoping to get some color on, first, did I hear it correct and what it should do, going forward? And also, if you could talk a little bit about the margins of contract manufacturing?

Well, it was $10 million -- $10.1 million is the number I gave there, Scott. It's a little bit higher in this quarter than it has been running. So, I would not take that as indication of a quarterly run rate.

Contract manufacturing, we kind of do that based on a demand/supply schedule with our customers, essentially. So, it ebbs and flows unlike normal customer demand for a given product that we might sell.

As far as the -- at this stage, I'm not sure we're disclosing the margins on that business. It's about at our overall Company average. Well, it's about at the overall Company average for the Kremers business, which is in the -- it's in the 40%'s, in that sort of range. The 40% range, let's say for now.

Okay. That's great. That's helpful. And then, when I look at the other categories, it looked like cardio was down a little more than I expected, as well as this pain management. Anything going on there? Or, anything you would just point out in the third quarter categories that may not be representative, going forward? Might we see some categories jumping around a little more than expected?

I don't think there's anything particularly unusual going on in the categories. But if you want to go on to your next question, I'll look into the detail I have here and see if anything specific (multiple speakers).

Okay. Great. Then, I guess just switching gears, I read through the press release and I just wanted to make sure, to clarify. So, are you basically reaffirming your yearly guidance of $555 million to $565 million? Because you just said the Q4 would be similar, but there was upside in Q3. I just want to get an idea. Is the $555 million to $565 million, is that what we should be looking for in (multiple speakers)?

Yes, Scott. That's right. That's right.

Okay. And then, I guess with regards to the pipeline in the ANDAs up to FDA, could you give any color on how many of those ANDAs are post-GDUFA? And do you have any action dates coming up? Or, have you had any that we should be thinking about?

Well, I don't know the number. So, I don't want to guess at that. But certainly, quite a number of products at the agency are pre-GDUFA, for example, and some post.

As far as target action dates, though, our experience so far has still been rather negative. One particular example is a drug that passed its sixth anniversary at the agency. So, it's been down there six years as of February. It was given a target action date of January 22 of this year, and we still have not gotten our product approved.

So, these target action dates are not in stone. We are still experiencing delays. And I understand some of the competitors of mine in the marketplace, we're all facing the same problems like that, where they give you a date and they don't meet that date.

So, it's hard to say whether --. If I gave you all the numbers and said these are post-GDUFA, would it make a difference? Because I don't want to predict when the agency is going to approve something, because my track record, as I told my shareholders, is not very good there. But what I'd tell you, they end up disappointing me.

[They aren't approving anything.] So, clearly, we're getting the ones we said we're going to get by June. We said that I think we'd have six or seven coming out of KU; that seems to be on track. We're getting the ones we expected.

But that one that was delayed from January, that one was significant revenue. Not a blockbuster or anything, but it was significant revenue that we were counting on, and we still haven't received. So, there are continuous delays down there on these products, unfortunately.

Okay. Thank you for that color. And the final question, with regards to this development project in the insulin category, is that something we should think about in the near to mid timeline? Or, is that something that will be kind of four or five years out?

I don't want to predict what FDA is going to do, as I told you. I suck at it.

Let me do this. Let me wait until we have met with the FDA vis-a-vis the application process that I can get a better handle on. Once I'm working on the protocol, which is the stage, let's say, coming up for the next few months, I'll have a better way to handle that answer. Because right now, I'd just be speaking the dark.

All I know is that's a huge opportunity and has not been successfully introduced generically, as we know. And I believe that our partners do have a very robust process. They're going ahead and putting up an actual facility for the commercial production of the [bondings] we'll need. And we have consultants going over there in another week to actually take a look at their activities and then meet with FDA so we can get some idea on how long it will take, what the process will be.

There's some issues as to whether or not -- and when I say an "issue," there's a question, I should say, as to whether or not this might be approved as an ANDA or as a biologic. So, those are some of the questions that would help answer your initial question.

So, give me another few, let's say, a couple of months before I could get back to you with an answer on that.

Okay. Fair enough. Well, thank you for taking the questions.

Scott, (inaudible) your question, which categories did you refer to?

I referred to -- when I looked at it, it looked like cardio was a little low. Pain management was a little low. But I was really just asking if there's anything unique in any of the categories?

No, nothing unique. Of course, as Arthur is saying, there's some categories (inaudible). We're including the KU business, their product line, for the full three months. You'll see upward -- those categories will be going up. In some cases, we have new categories with the addition of the KU business, such as gastro or respiratory.

So, that's the only -- not that it's unusual, but that's the only blip you might be seeing.

Okay. Okay. Great. Thank you.

Rohit Vanjani, Oppenheimer.

So, PuraCap, I think, acquired [ersadile] competitor Epic in late March. Are you seeing any disruptions in that market to benefit you guys?

I don't know. I don't know why there'd be any disruptions when they're acquired. They're a manufacturing plant that's still in the same place. There are just new owners. So, we're not seeing any disruption.

Okay. And then, I know you said you're trying to reestablish relations with that large customer. But for the $45 million of EBITDA loss to KU, I think the last update was that you had recouped in excess of 30%. Was there any change there with other customers or any change there whatsoever in the recouped revenues?

Well, I'm not sure when you say change. First of all, we did reestablish the relation. So, we're all bosom buddies again. So, that's been done.

As far as the percentage, we did bring in additional customers to KU on that particular product. So, we did realize additional sales on the main product that we lost that was the big generator of the EBITDA.

And in that sense, a bulk of -- not all of it, but a bulk of -- the money, that EBITDA (inaudible), that we lost is starting to come back in, as we continue to do business with these new customers. [And these] weren't one-off purchases. They're continuing to grow, and we're hoping to grow that further.

Okay.

Of course, (inaudible), we're knocking out of the park, and that still remains an outlier there as to whether or not it's going to be restored.

Right. But so there was a net gain over the quarter based on other business that you brought in?

I don't know if I'd say it on the quarter. Because remember, when I made the statement, it was back in November and I said then, give me a quarter. I didn't mean any particular -- I meant 90 days, not a calendar quarter.

So, I don't want to answer the question in that way, because my idea of when I said what I said around the end of November was, essentially, give me 90 days, give me a quarter, which would have been December, January, February to my point of view.

And I believe we brought in that business in that. I'm not answering that as a calendar quarter or one of our quarters on a fiscal year basis. So, let me not confuse the listeners.

Maybe I'll just clarify it offline then. I'm sorry.

Okay.

And then, Mallinckrodt, I think, reported methylphenidate down, I think, significantly year over year, something like 28% year over year and 22% quarter over quarter. I know the last quarter was a stub period. But if you run rate that level, did you kind of see those similar declines in methylphenidate?

In our case, we saw one big decline, because the one large customer bought virtually all of methylphenidate. So, $70 million of $87 million was methylphenidate.

Okay.

So, it was virtually all of the methylphenidate was lost.

Okay.

That's what hurt so badly, that particular case.

So, we're building from that point.

Right. So, we're restoring or rebuilding what we lost. I guess "rebuilding" would be the better way.

And then, to ask the question on the pipeline a little bit differently, how many TADs do you have in 2016?

How many TADs?

Target action dates.

That I don't know. I don't have that number in front of me. I don't -- I may ask for a future meeting to have that prepared for me, but I don't usually ask regulatory. I don't track it that way, because they track it, but I could give you the answer offline. I'd have to ask them.

Okay. And the last one for me was, so you had this partnership with Sunshine Lake, which was a subsidiary of [HEC] Pharma Group. But was that different from the insulin partner that you had?

No, it's the same parent company.

Okay. It's the same parent company.

HEC Group is the parent over Sunshine Lake and the other Chinese subsidiary that they took public recently in Hong Kong that's making the insulin. They're a conglomerate. They have a lot of different branches beyond pharmaceutical.

And we've built a very strong relation with them, and they're turning to us and relying on us for the US market for pharmaceuticals, to our -- not surprise; what's the word I want? I can't think of the word I want to use. I'm grateful, let's put it that way, that they've had the confidence in us to do that, because their original concerns were: Maybe we shouldn't put all our eggs in one basket.

They're solicited by a lot of my competitors, but I pointed out to them that if you put a lot of your eggs in my basket, your basket becomes very important to me, and I'll make sure to perform because of the value of your basket. And they bought that argument.

Plus, we outperformed admirably for them already, and I think that really was the telling sign. When you get past the talk and your performance shows up, that's what drives their confidence in you. And we've been performing already.

What was the other product besides the dovidine that you have with them that's out there?

The clarithromycin. The clarithromycin, I believe we've captured a significant market share and within the first month, or so, of a launch. And of course, we give them additional other help vis-a-vis regulatory compliance, their distribution model in the United States.

So, we're more important to them than just a partner selling products in the United States. We've also given them some products to manufacture for us, as CMOs, [our ANDAs] that we're transferring to them to be manufactured in China, as well as they're making a couple of products we've asked them to make for us. Dosage forms, as well.

And we're expanding the relationship on the [HEI] side, where they've offered to actually help us in the work that we do with [coating]. One of the advantages they brag about offering is they can throw 1,000 PhD's -- excuse me -- 100. Well, they could throw 1,000. I'm sorry. They said 100. They could throw 100 PhD's at a problem, and of course that's very costly for us here in the United States.

So, the benefit to us is that they can offer us a lot more opportunities.

Okay. Great. Thanks for taking the questions.

This concludes the question-and-answer session. I will now turn the call back to management for closing remarks.

Well, I want to thank everybody, if there's no more questions. We look forward to sharing our progress on our next scheduled conference call in August. And thank you, again, for joining us.

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