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Welcome to the fourth quarter and year end 2004 Bentley Pharmaceuticals earnings conference call.

My name is AnnMarie and I will be your coordinator for today.

At this time all participants are in listen-only mode.

We will be facilitating a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS) I would now like to turn the presentation over to your host, Mr. Michael Price, Chief Financial Officer.

Please proceed, sir.

Thank you.

Good morning.

This is Mike Price, and I'm the Vice President and CFO of Bentley Pharmaceuticals, and I do want to welcome you to our fourth quarter and year end 2004 conference call today.

Jim Murphy our Chairman, President and CEO is here with me also.

Thanks for joining us this morning.

If you have not received a copy of today's press release please call Porter, LeVay & Rose at 212-564-4700 and they will make sure that you get one immediately.

Before I begin, I would like to remind everybody that all of the statements that we make on the call today are subject to the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995.

Of course all forward-looking statements involve risks and uncertainties, which we have explained in detail in our filings with the SEC and most recently in our annual report on form 10-K.

We have also familiarized ourselves with the requirements of regulation FD, and we're confident that our disclosure are in compliance with that regulation.

Now I would like to turn the call over to Jim Murphy, Bentley's Chairman, President and CEO.

Jim.

Thank you, Michael.

Good morning, ladies and gentlemen.

I am going to begin with a review of our European operations.

Even though we were subject to tremendous price cuts sustained during the year, in some cases we had to reduce our prices on lead products up to 60%.

Yet our European operations adapted and continued to grow.

This is a testament to the strength and quality of the underlying company.

At the end of the year the Spanish government suspended the previous reference price system and established a more favorable policy towards generics.

We are positioned to benefit from these changes, since we have a large number of regulatory submissions pending approval.

We have not seen an acceleration of these approvals as of yet.

But remain hopeful for the balance of this year.

Meanwhile, we are aggressively expanding into other EU countries, where approvals will occur throughout this year.

In addition to approximately 100 regulatory filings pending in Europe, we also have 119 licensed and supply agreements throughout geographical Europe, which assures our continued growth.

Fifty-five of these licenses are now actively marketed in Europe.

And 64 are pending regulatory approval.

With these approvals we expect an acceleration of our growth, especially in the third and fourth quarters of this year.

Now turning to our domestic operation and beginning with the review of Testim, our licensed topical testosterone gel, Auxilium continues to grow its sales in the U.S.

Testim currently holds approximately 13% share of the U.S. gel market compared to 11% in the previous quarter.

And in other recent news, Testim has already been launched in several European countries, and additional markets are anticipated to be added throughout 2005.

Concerning our anti-fungal nail lacquer, while we continue to discuss the possibility of partnering the development of these products, we have drafted a clinical design for evaluating our formulations in Asia or the Pacific Rim where the incidence of nail fungal infection is very high and the cost of studies is relatively low.

We are committed to initiating these studies this year either together with an Asian partner or in the alternative on our own.

With regard to our intranasal insulin we completed a successful Phase I clinical study using our intranasal insulin spray in healthy human volunteers.

This study was followed by an evaluation of our formulation in diabetic volunteers, and again we found we could consistently deliver insulin in a very rapid fashion.

We found that the spray was well tolerated, very quickly absorbed and peak insulin blood levels were achieved within twenty minutes of nasal spray administration.

We have published the results of the first study in Diabetes Technology and Therapeutics and will be publishing the results of other studies in the near future.

We have also committed to advancing our intranasal formulations and will be conducting insulin studies in Asia either together with a partner capable of manufacturing our product or on our own.

With regard to our expansion into the United States, we are working closely with Perrigo and codeveloping products intended for the U.S. generic market and this program is well underway.

At this point now I would like to turn over the call to Michael Price, our CFO, who can review the financial results of the Company for the past year.

Thanks, Jim.

A casual observer looking at our financial statements might think that 2004 was not really a bad year.

After all revenues were up 13%, and although margins were down significantly, net income almost matched the prior year.

But many of you know that 2004 was really a difficult year for us.

Government mandated price reductions reduced our 2004 revenues by almost $14 million.

Instead of reporting 13% growth and revenues of $73 million we would have reported 35% growth and total revenues of $87 million without those price reductions.

We didn't sit around and dwell on what might have been or focus on what we didn't have.

Instead we decided to appreciate what we did have, our management team and our employees got busy, and we developed a strategy to respond to these developments that were beyond our control by focusing on our strength and laying the groundwork for future growth.

The fourth quarter of 2004 was a very important timeframe for Bentley Pharmaceuticals.

We negotiated a collaboration with the Perrigo Company that will service a platform for entering the U.S. market.

We planned and conducted clinical trials for insulin delivery, and we also conducted clinical trials to prove bioequivalence for our generic products.

We launched new products into the European markets, and we spent time planning and preparing for 2005, a year that should see a return to strong, double-digit revenue growth rates.

Revenues for the fourth quarter increased 8% in $19.5 million, and it reflected strong growth in terms of the number of units sold although at lower prices than in the prior year, and the benefit of foreign currency exchange rate movement during the quarter.

As Jim mentioned, we've executed 119 license and supply agreements, 55 of which relate to products that have now been approved and 64 that relate to products that are pending approval and will be contributors to our growth in the future.

Our licensing and collaboration revenues grew 90% to $900,000 during the fourth quarter, representing primarily royalties from sales of Auxilium's Testim.

The latest market data for Testim indicates that it has captured about 13% of prescriptions written in this market.

As you probably read, Testim was recently launched in Germany by Ipsen and received 2 additional European marketing authorizations bringing the total to 11 outside of the U.S.

As of December 31, 2004 we have about $1.2 million of Testim royalties from Auxilium recorded as deferred income on our balance sheet.

As soon as we get enough data to predict future return, we will recognize royalty revenues based on net product shipped to customers rather than on a prescriptions written basis.

This change in revenue recognition methodology should result in a onetime recognition of the related deferred income, which as of year end represents between $0.05 and $0.06 per share.

We have also received upfront payments from our licensees in Europe, and we have deferred those amounts totaling $1.9 million.

Gross margins on fourth quarter net product sales excluding sales of ATI's in Spain were 52% compared to 56% in last year's fourth quarter, primarily as a result of the price reductions in Spain.

Operating expenses for the quarter increased by almost $500,000 or 6% to $8.2 million and represents 42% of revenues compared to 43% last year.

Our income tax expense totaled about $100,000 in the fourth quarter as a result of research and investment tax credits that we were able to claim.

Unfortunately, we are still not able to offset operating losses in the U.S. against income earned in Spain because their separate tax jurisdictions.

Net income for the fourth quarter totaled $2 million compared to $1.7 million in the fourth quarter of the prior year, which results in $0.09 per diluted common share.

As I mentioned earlier, our 2004 revenues increased by 13% to $73 million, and they did include the benefit of foreign currency rate movement during the year.

The 11% increase in product sales for the year was primarily due to growing sales outside of Spain and growth of our Paraxetene productline as well as increases in products like Trimetazedine and Pentoxifiline (ph).

These increases helped to offset the impact of the price reductions.

Even at the lower selling prices, revenues from our Omeprazol products comprised 22% of our 2004 revenues compared to 31% in the prior year.

Branded product sales accounted for 26% of total revenues during 2004 compared to 29% in the prior year, and the sales of our generic pharmaceuticals increased in terms of units sold and exchange rates further increased those revenues by about $2.6 million.

Our licensing and collaboration revenues representing primarily customer royalties more than doubled to $3.5 million during 2004.

Gross margins on the product sales decreased from 58% in 2003 to 51% in 2004 and if Bentley API results were removed product margins would be about 52% for the year.

As a result of the price reductions, product returns (indiscernible) in the first half of the year reducing revenues by about $2.3 million.

Product returns decreased to the historical levels by June of 2004 and then stabilized.

Earlier this year the Spanish Government proposed a 67 point plan and temporarily suspended the previous reference price system that was implemented in late 2003.

The new plan includes a 4.2% price reduction in 2005 and an additional 2% reduction in 2006 on only those drugs that have been on the market in Spain for over a year and were not already subject to the previous reductions affected in late 2003.

We think this is good news for us.

We think these price controls will have a relatively minor impact on our financial model in 2005 and 2006.

Our selling and marketing expenses decreased by about 5% in constant currency in 2004, however exchange rates increased those expenses by about $1.4 million, resulting in a 4% increase when expressed in U.S. dollars.

Selling and marketing expenses as a percentage of net product sales decreased to 21% in 2004 compared to 23% last year.

G&A expenses increased by about 30% in 2004 and included costs for additional employees, outside services, insurance and other costs that were needed to support our growth, as well as costs associated with the implementation of the Sarbanes-Oxley Act of 2002.

G&A expenses as a percentage of total revenues increased to about 12% in 2004 from 11% in the prior year.

G&A expenses would have been about $500,000 lower without the impact of foreign currency.

Our research and development expenses in 2004 remain consistent with 2003 when expressed in constant currency but exchange rates increased those expenses by about $100,000.

Other income and expenses for the year increased by about $1.7 million and included the reversal of the previously accrued tax assessments totaling $1.5 million in the second quarter.

Pre-tax income totaled $10.5 million in 2004 compared to $11.5 million in the prior year and income tax expense totaled $4.8 million in 2004 represented about 36% of pre-tax income earned in Spain. 2004 net income totaled $5.7 million or $0.25 per diluted common share compared to 6.1 million or $0.28 per diluted share in the prior year.

We have a strong balance sheet at year end; we have more than $34 million in cash, a current ratio of 2.7 to 1 and essentially no long-term debt.

Assets now total more than $121 million, and stockholders equity is in excess of $89 million.

And we have deferred income on the balance sheet totaling more than $3.5 million that we will recognize as income in the future.

Receivables decreased during the quarter in constant currency but increased by about $2 million as a result of the exchange rate movement.

We've extended longer payment terms to one significant customer as they develop markets for our products in new territories.

We have a good relationship with this customer, and we don't believe that the receivable represents a significant risk to our business, the balance due from this customer is due in the near future, consequently we expect to see our receivables come down in the near future.

We invested about $13 million in fixed asset additions during 2004; we purchased an API manufacturing facility for vertical integration, and we've added capacity in order to accommodate the level of growth that we anticipate this year and next.

I would like to give you a little detail on the foreign currency impact on the financial statements for the fourth quarter and for the year.

The weighted average exchange rate for 2004 was EUR 0.81 to the dollar compared to EUR 0.89 to the dollar last year.

On December 31st '04, it was EUR 0.73 to the dollar compared to 0.8 one year earlier.

The continuing weakness of the U.S. dollar compared to the EURO had a positive impact on our financial statements because it resulted in higher sales of about $1.6 million during the fourth quarter and about $6.5 million for the full year.

It also resulted in a stronger balance sheet when they were translated into U.S. dollars but had the effect of adding about $5.2 million to our balance sheet during the fourth quarter and about 4.7 million for the entire year.

We had an increasing cost of sales of about $800,000 during the fourth quarter as a result of foreign currency exchange rates and about 3.1 million for the year.

Operating expenses went up by about $500,000 in the fourth quarter and about $2 million for the year.

And income tax expense went up by almost $500,000 for the year as a result of these exchange rate movements.

The net impact on our bottom line was positive by about $862,000 or $0.04 per diluted share for the year.

That wraps up my financial presentation.

Jim and I are both excited about the prospects for 2005 and we are looking forward to updating you as we progress throughout the year.

And with that I will turn it over to Jim.

Thank you, Michael.

I would like to close with a vision for the future of the Company.

In addition to the exciting expansion into the United States, I would also like to emphasize that our European operations expect to be positioned with significant growth in the year 2005 and beyond.

Many of our licenses that we spoke about previously are triggered by patent expirations or regulatory approvals throughout Europe.

Significant numbers of these will occur during the latter part of 2005 and early 2006.

Some of these licenses have the potential to provide us with revenues in excess of $10 million annually over the life of five-year exclusive supply agreement terms.

With that, I would like to now open the conference call for any questions that you might have.

(OPERATOR INSTRUCTIONS) Mark Taylor with Roth Capital Partners.

Good morning, gentlemen.

Actually this is (indiscernible) for Mark.

I have three questions.

Could you comment on the unit growth quarter-over-quarter?

Secondly, your export business or as you call the sales outside of Spain, quarter-over-quarter?

And third question regards to the receivable I assume you were talking about the 6 point, a little over 6 million dollar receivable from one customer.

When you say near future, is that, you expect that to be a first quarter event?

Let me start with your last question, and I will work backwards.

With respect to that receivable from that customer, the customer is a very valuable customer to us, and we appreciate the business arrangement that we have with them.

We feel good about the customer, don't feel like we have a collection risk with them.

We feel like we have a relatively minor exposure and minor business risk regarding this receivable.

It was about $6 million at the end of the third quarter.

It has been reduced to about $5 million at the end of the year, and I expect to see it be reduced significantly by the end of the first quarter and entirely liquidated before we get to the second quarter.

In fact, we have a comarketing arrangement with this customer whereby we provide services to them to help them penetrate and grow the markets that they are participating in.

Consequently, we owe them and they owe us; the net difference is about $1.25 quarter million.

That is really our exposure even though it appears on the balance sheet that we have a $5 million exposure to this customer.

I really think that there is really no business risk here.

With respect to growth of our revenues outside of Spain, you can see that they now represent about 25% of our revenues.

They include not only sales of Auxilium's Testim and royalty that we earn on their product which essentially doubled during the period.

But also these license and supplier arrangements that Jim and I have mentioned we have 119 of them now, 55 of which we are marketing under and another 64 of which we are going to be the contributors to our growth in the future, are going to be a big driver of our growth going forward.

Thank you.

Now specifically the export business itself, leaving out Testim royalty, how did it perform quarter-over-quarter?

You know, I think there was one thing that was missing in our previous presentations, I think something was getting lost in the translation, and that was I think there was an interpretation that our contract manufacturing revenues were essentially toll arrangements whereby we were manufacturing and supplying products to others under their own labels at a relatively low margin rate of say 15% or 20%.

And in fact, many of those revenues were subject to these license and supply arrangements whereby we have licensed our products for commercialization in other countries in exchange for a long-term supply arrangement.

And the gross margins on the supply arrangements are actually much more similar to our product sales than they are to a toll manufacturing arrangement.

And so we try to make that very clear in the presentation format this year rather than calling it contract manufacturing; we try to indicate that we have sales to licensees and others both in Spain and outside of Spain.

But I can tell you that our revenues grew by approximately 50% from 9 million to about almost 15 million as of result of revenues outside of Spain related to these license and supply agreements.

Okay.

Thank you.

One more question if I could and then I will get back in the queue.

The margins for the quarter were approximately 50%.

Given the new price environment and the way Bentley has adjusted to the new situation do you foresee the margins going up in 2005 and beyond?

I do, and our margins were about 50.5% (ph) but that includes the effect of our API (multiple speakers) that we acquired.

If we take the effects of that out, they are about 52%, which is which is still about 4 percentage points below where they were this time last year at 56.

I think that with the increases in units on production and the lower cost per unit of production that these economies of scale are going to start to kick in, and I think you are going to see a gradual increase in our margins.

Okay.

Thank you very much.

Mike Krensavage with Raymond James and Associates.

Good morning.

How much of an issue with the nasal insulin have you had with the product congealing, and does your current formulation overcome that obstacle?

Another question I have is in last year's press release you provided some revenue guidance, in this one you didn't.

When might we see some guidance for this year?

Thanks.

The formulation that we have got is an oil and water formulation it's essentially emulsion.

We do not face an issue of congealing.

The biggest problem with any liquid formulation of insulin is recrystallization.

What you want to do is stabilize insulin in a liquid form so that it can be absorbed across the transmucosal membrane.

We have found that we can keep ours stable in an emulsion format for quite an extended period of time.

And this is without the need for refrigeration.

We are also exploring minor tweakings in the formulation to try to extend that beyond it.

The first few studies that we've done was a very good formulation.

It works very well.

We did some very minor tweaking in that and we will be going back into what would be a Phase II evaluation in a much more extended way with the formulation with the minor, the same ingredients, but a minor alteration to ratios that give us a longer stability, and that will begin very shortly.

What was the second question?

I asked about the revenue guidance for this year.

Mike, we considered giving revenue guidance, and I am sure you saw it, there was an article in the Wall Street Journal last week that indicated that I think 55% of the Fortune 100 companies were not going to give any comfort with respect to guidance or guidance, and I think that it is an issue that is sort of evenly divided between people who think you should and people who think you shouldn't.

We, as a small Company that is growing rapidly and we think our growth is going to be very rapid and dramatic in '05 and '06 and beyond, we just think that in this environment that we should hold off on giving guidance at this point.

We are going to readdress that and give consideration as the year goes by.

What I said earlier in the conference call was that we expect an acceleration of regulatory approval throughout Europe and in particularly in Spain.

Once I think the Spanish Government gets into a mode where we can predict with a fair degree of accuracy how quickly they are going to respond to new registers and register pending then it might be more appropriate to come up with guidance.

Okay.

Thanks.

Mike Breard with Dominic and Dominic.

You mentioned doing work on insulin and the fungus in specific foreign countries, could you give a little more in-depth discussion of that?

When that might start, and if you are talking about India or Japan or Korea or just what the situation is there in terms of potential partners?

Yes, thank you Mike.

This is Jim Murphy.

Yes, we have been on several occasions in Japan where there is a great deal of interest in that product.

We've also been in India and other Pacific Rim countries.

We went there for a number of reasons one is because our future need and expectations in manufacturing clinical supplies in particular Phase III clinical supplies, but also having a commercial supply for the future.

As you know, India is very rapidly emerging as a country with high-quality manufacturing.

Many of those manufacturers have been inspected and approved by the EU and the U.S.

FDA so we really went in search for a supply, a better price and also some very high-quality studies have been done in India in the recent years.

And the cost of those studies have been significantly lower than you would find in the United States or in Europe.

What our intent is to design studies and carefully monitor and have those protocols reviewed by European authorities and FDA authorities prior to starting, making sure that those sites are approved and then carefully monitor those studies so that we can make best utilization of the research dollars we plan on spending.

As a result of our tours through there and discussions, quite a few companies, many of these are global, multinational, well-recognized companies have expressed interest.

Now whether that will result in a collaboration prior to the initiation of these studies, we don't know.

Or, will come thereafter or at all.

So what I said in my comments earlier, we are committed.

We will begin these studies ourselves with or without the partner.

Okay, and would that be like the second quarter, or do you have some idea when that might start?

Well, actually the protocols are already over there.

They're being reviewed.

The documentation is beginning to be prepared so that we can make a regulatory submission in there.

It should take probably three to five months for regulatory approval.

But the process is just beginning now.

Okay, and are your studies going ahead in Ireland on the insulin while this is also going on?

That's another possibility.

We can do additional Phase II studies in Ireland or in other parts of Europe, and of course we are also pursuing the filing of an IND in the United States.

All of these are very parallel in nature.

They are all proceeding simultaneously.

Okay, and just one more question on your relationship with Perrigo in the U.S.

How is that coming?

Are you making progress with the FDA in getting approval of your manufacturing plant?

And what is the situation there?

Perrigo and other consultants have worked very closely with us in helping us get our manufacturing facility in shape for passing FDA inspection.

Meanwhile, we are also working with them in developmental studies in the United States.

Following the completion of studies in the U.S., then regulatory package would be filed and submitted to the U.S. FDA.

Nothing has been submitted to the FDA as of yet, since clinical programs are still underway.

So you could have significant sales in the U.S. theoretically in 2006?

It depends on -- we've got -- in the mix of products in the Perrigo agreement some of those products are still under patent protection, so obviously those will not hit the market until after the patents expire in 2006, 2007.

Other products are already off of patent, so theoretically they, if the bioequivalency studies and the development proceed smoothly, then maybe those could even be approved before.

Before 2006?

No, before, well, before the expiration of the patents in the previous ones I talked about in 2006, 2007.

Okay, so you could have some revenues in 2006 with any luck at all?

It is possible.

I just don't want to mislead you.

Okay.

All right.

Thank you.

Steve Saba (ph) with Kilkenny Capital.

Help me out here, I am trying to figure out where the growth is going to come from in 2005.

The Perrigo products probably aren't going to come online until 2006.

Maybe you can tell me you had some approvals of metazadine, (ph) cirtraline, (ph) talapram (ph) but those apparently haven't been launched yet.

If you can tell me where is the sales and earnings growth going to come from?

And or we talking about back end loaded 2005?

Yes, it is.

What I had said earlier in the call was that we have currently approximately 100 regulatory submissions pending throughout all of Europe.

A large number of them are also have been submitted in Spain obviously.

But in addition, we have 119 licensed in exclusive supply agreements with many, many different companies all throughout geographical Europe.

As patents expire, and as regulatory approvals occur -- and that is expected to happen especially in the third and fourth quarter of 2005 and into early 2006 -- that really will trigger the growth that we are talking about in 2005 and 2006.

And to answer the last part of your question yes, it is back loaded.

Are we looking at a flat first half of the year?

No, I still think you're going to see growth.

I think it will be accelerated growth in the latter part of the year.

Okay, and as far as the API facility, when did you acquire it again if you could remind me, and when you acquired it was it not making anything?

What state was it in when you acquired it?

We acquired the API facility in April of 2004, and it was doing between $2 and $3 million a year, essentially breaking even.

And it is essentially still running at that level.

We actually are occurring slight losses with that facility at the moment.

But we didn't buy it for its existing operations.

We bought it with the idea that we want it to be able to become fully integrated.

We want it to be able to improve our margins on a go forward basis by supplying our own API with respect to our big selling products.

And we think that we have an opportunity to effect some big cost savings there.

And by doing that, we should be able to return to the margins that you saw in 2003.

Okay.

Now how and when is that going to happen, like for example why can't that happen immediately?

What does it require for that to happen?

What we've had to do is the facility was not manufacturing the API that we needed.

What we had to do is bring in new systems, develop the synthetic pathway in the system; bring in new equipment.

Through pilot scale production, then make regulatory submissions to allow us to go into commercial batches.

We have made significant progress in that one of our lead products has already gone through that process.

We've been very guarded and not talking about the specific molecules that we intend to produce.

I would think that most people could figure them out, but we just did not want to send out the wrong signal to suppliers.

We will continue to maintain primary and secondary suppliers as well.

But that progress is coming along very nicely.

(inaudible) facility, who is the regulatory body that is inspecting and qualifying this facility?

This facility has a certificate of suitability as it is called, which gives certification from the EU perspective.

Also it is certified by the U.S.

FDA for certain products.

For certain products, so it actually, it has been, it is also inspected by the FDA?

That's correct.

Okay.

At some point do you envision manufacturing and selling API or is this just for your own use?

We anticipate supplying our own needs and also being able to sell API to other customers as well.

Is this the main strategy in improving your margins again?

Yes, it is very important to improve your margins and to be able to control the destiny over the life cycle of your product for a much longer period of time.

When you look at the more successful generic companies in the world, you look at Rumboxi (ph) and you look at Sandoz and you look at Teva, as those that are really leading market players.

They all have one thing in common in that they are vertically integrated, they have their own API source and a good strong marketing and sales program, strong development program.

And that is really the path we are going down.

We recognize that if you want to be able to manage the life cycle of your product for a longer period of time in a highly competitive market you must have control of your own destiny through the API.

Thank you.

I will get back in the queue.

I would like to add one comment to what Jim mentioned, and that is that the API facility is FDA approved.

We are selling one product into the U.S. as a result of that FDA approval.

Jim mentioned that the sales are going to be backloaded, I think they are going to back loaded because we have some of those license and supply agreements are going to come into effect in the third and fourth quarters of this year; they are going to generate very significant revenue growth for us.

But during the first and second quarters of this year I think you are going to still see growth, solid double-digit growth rates in those quarters.

Brian Breckman(ph) with Brown Capital.

Specifically on the receivable, you guys are funding a partner who is buying products from you so my question is number one, just for sort of clarity who that receivable risk partner is and then what has been the revenue that they have purchased from you, let's say in '04?

I'll respond to the extent that I can; we don't want to disclose the name of the customer for confidentiality reasons and for good business practice reasons.

But I can tell you that the sales to that customer during 2004 were approximately $6 million.

The way the arrangement works is they buy the products from us, we then provide sales and marketing support to help them develop their market.

And under accounting principles generally accepted in the United States what we've done is we have netted the sales to that customer with the costs related to that customer.

So you don't see those gross sales show up in our income statement, you only see the net difference show up in our income statement.

However, because we did not having a netting payment arrangement in place with that customer, generally accepted accounting principles require that we gross up the receivables and payables in the balance sheet.

So for example if you look down in the payables section of our liability section you'll see a relatively large account payable balance that also corresponds to that receivable balance.

Okay, okay and then two really quick questions.

I think someone mentioned on the API just what was the if you added back API, what was the or subtract it, what was the organic growth of the business ex API for '04?

I'm sorry, for non API if you take out API from last year's '04 numbers?

If you reduce 2004 revenues by roughly $2 million you would then be able to calculate that growth rate.

And then finally on the tax rate, you ex'd that sort of odd or ex'd the onetime charges you took in Q2, it looks like your total tax rate was down to 35%.

I know it was 4.8 but it looks like about 3.6 if you exclude all the stuff you did in Q2.

How do you explain 35% down from 43% last year?

Can I look at it that way?

I am just trying to figure out why your tax rate was down so much.

I don't have those numbers in front of me to, I would be happy to talk about this after the call, after I have a chance to look at the numbers but I can tell you that we did have a lower effective tax rate this year as a result of investment tax credits and research credits that we were able to claim.

We made roughly $13 million worth of investments into our factories during the year, including the purchase of the API facility as well as improvements, expansion of the facility and additions of high-speed manufacturing equipment.

Okay, so just I know you aren't giving guidance but any thought to modeling out next year what is a reasonable tax rate to sort of try to figure out a model on?

I think until we can achieve profitability here in the U.S. we are not going to have the benefit of our NOLs which are very significant here in the U.S.

But in Spain I think 34, 35% effective tax rate on Spanish revenues is probably a reasonable tax rate.

Okay.

Thanks, guys.

Appreciate it.

Mike Bills (ph) with Laidlaw (ph) and Company.

Good morning, gentlemen.

I wonder if you can speak to the level of institutional interest that you've seen with the company in terms of if you have been out presenting at any conferences?

I know you are scheduled to present at a conference tomorrow.

And also, if you could just speak to of the liquidity or the lack thereof of trading volume since you have joined the New York Stock Exchange.

I think the average volume has been around maybe 50 or 60,000 shares a day.

I am wondering what management is looking to do to increase the liquidity in the shares.

Yes, we will be participating in several conferences that are coming up.

I think we just recently announced that we will be presenting at the Raymond James conference very shortly.

But we also have some other Road Shows planned.

In mid-March, for example we will be in Boston talking to a number of different institutions for a several hour conference.

We also will be in New York City, first or second week in April at various days meeting with institutions.

We've been extremely busy with intense travel over the last few months, which has really kept us off of the road.

Now that things have calmed down at years closed will give us a little bit of breathing room so we can get back out there and start talking to the investment public again and institutions.

(OPERATOR INSTRUCTIONS) Mike Breard.

You all ended up the quarter with 34 million in cash.

You've had a substantial amount of cash for several years now.

In reference to the previous question on market liquidity I would like to suggest again that you make an offer to repurchase stock in the open market.

I think if you could get your orders in there when the stock is below 10, it would certainly help the liquidity of the situation and show some confidence that the stock is under priced.

Also by keeping this tremendous hoard I think you are opening yourself up to possibly an adverse takeover where someone could buy your stock at 14 and sell the Spanish plant for $15 a share and keep your cash and keep $5 million a year in Testim royalties.

Could you comment on the use of cash in regards to buying back stock?

And also for paying a cash dividend?

Right now, as I can mentioned in the conference call, we are really going to make a heavy commitment into R&D and influence in the lacquer and looking at the delivery of other peptides.

But we are also actively searching for additional synergistic technologies and we are looking at various companies that may be a strategic fit to our product mix and our focus.

And we are looking at companies in the United States, Northern Europe and other parts of the world.

So unfortunately we have not come out and talked about that in great detail.

But at this time I think the cash that we have on hand could be better used for the stockholders to expand our technology base, accelerate our R&D and look for acquisition opportunities.

Okay.

Thanks.

Mike Krensavage with Raymond James and Associates.

I was just wondering what kind of benefit you would expect from currency?

I guess in reference to your expectations of double-digit revenue growth this year, how much of that will come from currency?

Mike, I don't have the ability to predict the directional movement of the currency.

Okay.

What about if it stayed at constant rates then?

I am looking from a constant rate standpoint.

Say again.

Whenever I made my statements I was considering the -- I was considering that rates would essentially stay where they are.

Okay then how much of the growth would come from currency then?

You know, I would have to go back and calculate that.

I don't have that off the top of my head.

Okay.

You have no further questions at this time.

I would like to turn the conference back to management for any closing remarks.

Thank you very much for taking the time to listen to us today.

If anybody has any follow-up questions that the they think of after the conference call ends, please feel free to give us a call at the office here or you can feel free to call PLR, our Investor Relations group in New York City.

Thank you very much, and enjoy the day.

Thank you for your participation in today's conference.

This does conclude the presentation.

You may now disconnect.

Have a nice day.