Jason Shandell - President and Director Bill Peters - CFO, Treasurer and SVP of Finance.

Serge Belanger - Needham and Company David Steinberg - Jefferies.

Good day, ladies and gentlemen, and welcome to the Amphastar First Quarter Earnings Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. And instructions will follow at that time. [Operator instructions] As a reminder this conference call is being recorded.

This conference may contain forward-looking statements, including statements relating to Amphastar Pharmaceuticals. These statements are not historical facts but rather based on Amphastar Pharmaceuticals' current expectations, estimates and projections regarding Amphastar Pharmaceuticals' business, operations and other similar or related factors.

Words such as, may, will, could, would, should, anticipate, predict, potential, continue, expect, intend, plans, project, belief, estimates, and other similar or related expressions are used to identify these forward-looking statements.

These statements are only predictions and are not guarantees of future performance and they involve risks, uncertainties and assumptions that are difficult or impossible to predict.

Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time-to-time in Amphastar Pharmaceuticals' filings with the SEC. I would now like to turn the conference over to your host, Mr. Jason Shandell, President of Amphastar Pharmaceuticals.

Sir, please go ahead..

Thank you. Good afternoon and welcome to Amphastar Pharmaceuticals' first quarter earnings call. My name is Jason Shandell, President of Amphastar. I'm joined today with my colleague, Bill Peters, CFO of Amphastar. We appreciate you joining us on the call today and look forward to speaking with you and answering any questions you may have.

I will now turn the call over to our CFO, Bill Peters, to discuss the first quarter financials..

Thank you, Jason. Sales for the first quarter increased 24% to $56.9 million from $45.9 million in the previous year's period. Sales of Enoxaparin declined to $23.8 million from $26.1 million, due to a lower average selling price, particularly on the resale side of the business. Unit sales of Enoxaparin were up for the quarter.

Our insulin API business that we acquired in April last year, generated sales of $6 million in the first quarter. Other finished pharmaceutical product sales increased 37% to $27.1 million from $19.8 million in the previous year's period as increased sales of critical care products offset lower sales of Cortrosyn.

Cost of sales increased to $43.6 million from $33.4 million in the previous year's period, primarily due to costs associated with our insulin API business.

And as a percentage of sales cost of sales increased to 77% from 73% in the previous year's period for a variety of factors, including sales of API which have lower margins than our finished products business and lower pricing on the retail side of our Enoxaparin business.

However as we have mentioned previously the GPO portion of our Enoxaparin business where we retain 100% of the profits has more stable pricing. Selling, distribution and marketing expenses increased slightly to $1.5 million from $1.3 million in the previous year's period, primarily due to costs at AFP.

General and administrative spending increased to $12.5 million from $6.8 million as we have incurred additional G&A expenses as a result of the AFP acquisition and approximately $3.3 million in onetime expenses related to the settlement of an employment litigation in California.

Research and development expenditures increased to $6.6 million from $6.2 million on increased clinical trial and material expenses. Our non-operating expense plan had a onetime benefit of approximately $1 million related to currency gains.

And in the final onetime event of the quarter, we had a $3.3 million benefit from the reversal of a deferred tax valuation allowance which had previously been reserved. The Company reported a net loss for the quarter of approximately $700,000 or $0.01 per share compared to last year's first quarter net loss of $1.6 million or $0.04 per share.

The Company reported an adjusted net loss of approximately $400,000 or $0.01 per share compared to an adjusted net loss of approximately $100,000 or $0.00 per fully diluted share in the first quarter of last year. Adjusted earnings excludes amortization, non-cash equity compensation and impairments.

On March 31, 2015, the Company had approximately $68.6 million in cash and cash equivalents and $1.5 million in restricted cash and cash equivalents. The increase in cash from the previous quarter was primarily due to borrowings of $6.8 million in the quarter. Cash from operations was $1.3 million and was positive for the third quarter in a row.

We have no changes in the 2015 assumptions which we discussed on the last earnings call in March. So I'll now turn the call back over to Jason..

Thanks Bill. I'm happy to report that we had a very successful first quarter. We continue to have a good dialogue with the FDA regarding our pipeline and sales of the majority of our commercial products remain strong. As Bill reported this is the third quarter in a row that we generated positive cash flow from operations.

On the last call we disclosed that we intend to file another NDA with the FDA this year. This NDA will be a 505b2 for Intranasal delivery of Naloxone. And I am happy to report that the FDA has granted us a fast track designation for this product candidate.

Currently there is no FDA approved Intranasal naloxone and the country is facing a growing epidemic of opioid overdose, both with respect to heroine and prescription drugs.

Since there is no FDA approved Intranasal naloxone, our current naloxone product which is the only naloxone package in a prefilled syringe is being repackaged by third-parties in a kit with a nasal adaptor. This kit with our product is being used off label around the country by first responders to successfully reverse opioid overdoses.

Based on these successful programs there is a growing legal trend of providing Intranasal naloxone to opioid users and caregivers outside of the hospital setting, which may eventually lead to retail sales of our future product for consumer use.

On the legal front we settled a potential class action lawsuit, regarding alleged wage and hour violations for $3.2 million. Although we have substantial legal defenses, we believe that this settlement was reasonable given the research was needed to defend the class action and the inherent risks associated with such cases in California.

In our litigation against Momenta and Sandoz, all arguments were held before the Federal Circuit on May 4th. From the very beginning we've maintained we have never used Momenta’s 886 patent which we believe is invalid for numerous reasons in which they themselves have admitted they don't use.

What we do use is the official test of the United States Pharmacopeia known as USPTO-7 which we utilized solely to meet an ongoing requirement of FDA.

We continue to believe that Federal Circuit will affirm the District Court's Summary Judgment ruling which correctly held a further infringement contentions would be ‘futile’ in light of the Safe Harbor.

We remain confident that we'll prevail in this litigation and will be seeking full recovery of our $100 million bond plus interest for the years that this case has been pending.

With respect to Primatene, we continue to actively communicate with the FDA and we continue to target the middle of this year to re-file our NDA with an expectation of an approval in 2016. With that update I will now turn the call over to the operator to begin Q&A..

[Operator instructions] And our first question comes from David Maris of BMO Capital Market. Your line is now open..

Just bear with me, because I have a few questions. So the first is on the Momenta and Sandoz update that you just provided.

Can you give us the timeline of what the next steps are and what should investors expect for the timeline for the final resolution of that?.

Sure, as you know timelines are always a bit of reading tealeaves, but what I've been told and what the standard is typically in the Federal Circuit we would expect a decision in the next three to six months.

One thing, that did occur several days after and it is on pacer is that they have reached out to the attorney general and have asked for their interpretation of some of the statutory language and they've given them 45 days in the order that they issued last week. So with being said I still believe three to six months is a reasonable timeline..

Okay.

Then on could you tell us what the price of your Naloxone is versus what the current kit sells for and I would imagine that an off label put together in kits if you have an approved product that you could sell it for a premium I would think?.

Yes. Right now the wax for our single unit product is $32 of course different institutions get discounts off of that as do certain states at this point.

The kits we've been getting that information from different people and the kits generally but not always contain two doses of our product plus a nasal adapter plus a lot of them contain rubber gloves some of them contain an instruction booklet as well all packaged together we have heard price is anywhere from $80, $90 some even higher so I think it depends on where people are buying them and those are I would say the recent prices after as you know we did take a price increase last year so part of the commentary we were getting back from some of the states was that the price that the cities and states were paying for these kits have gone up pretty significantly..

Okay and then lastly Bill the CapEx for 2015 and if you have any thoughts on what 2016 could be relative to ’15?.

Yes.

Right now we it is a good question so as far as CapEx goes in the Q that is going to probably come out tomorrow you are going to see that the first quarter CapEx was of 3.8 million and that's a good run rate for the year we do anticipate that next year we will go up a little bit there is a couple of things that are driving the CapEx number here there right now modifications that we’re making to AFP are going to be growing throughout this year at the same time we were seeing a lot of money on finishing our facility in China so a lot of money is going into that.

We are also at the stage now where we’re buying some new equipment and planning some renovations on some of our existing facilities to accommodate some of our pipeline projects because some of these machines take one-two years to order and some of these renovations will take one to two years to do as well so at this point I will say that the 3.8 that we spent in this first quarter has been a pretty good run rate it could go up a little bit at the end of the year mostly because of this French spending but next year it should go up a little bit more as we take on some of these other projects..

Thank you. And our next question comes from Serge Belanger of Needham and Company. Your line is now open..

Hi. Good afternoon.

A couple of question on the AFP insulin business just wanted to know where you are in the process to ramp up production and if at this point or in the near future the businesses will be profitable?.

We are in the process of ramping up I will say that first quarter production of insulin was the highest that we've had since we purchased the facility and we’re definitely making progress there but we’re not up as high as we eventually planned to be by the end of this year and when the 10-Q does come out tomorrow you will be able to see because we do have the segment disclosure in the 10-Q so you will be able to see that we did have a profit on the gross profit level on this business this time of about $427,000 and that was on 6.014 million in sales for the quarter so that that's a little bit of a turnaround from the negative gross margins that we had last year so we are making progress on that effort and overall the business does still lose money but in the long run we will be making money in that business and that's going to serve the Company strategically in the long run..

And on the capacity we continue to make strides in that there is various areas that in the chain that can be improved with respect to capacity and then to the overall question for the upstream technology transfer that was part of that agreement that's a multiple year effort but will ultimately will significantly bring the cost down once the inclusion bodies are also manufactured in the French facility..

Yes, so that inclusion body process is three years..

Yes, right that's correct..

Okay.

And how will the business be impacted as mankind ramps up manufacturing of their product?.

Well.

Right now it doesn't -- what matters to us is really not how much they manufacture but how much we sell to them because they have minimum commitments that they have to buy from us on an annual basis for five years starting this year and then as a reminder they also signed an option contract in the first quarter where they could potentially purchase even higher quantities in 2016-2017-2018-2019 so for us it's not a matter of how much they make but a matter of getting up to speed so that we can supply them and our existing customers and also have additional spare capacity so that we could potentially service certain customers of ours who have filings in other countries who might move from R&D purchase levels right now to production level purchases at some point in the future..

Okay.

A couple of pipeline questions, first on Amphadase do you still expect I guess even a FDA approval and to re-launch the product this year and then I have a?.

We do..

Okay..

Sorry go on..

And my other question was on the albuterol DPI and where -- what's the timing to start the Phase 3 study?.

Sure.

So, on the first question, we do believe that all questions related to the inspection were answered last year and we do expect it anytime with respect to Amphadase and then with respect to the albuterol DPI I didn't provide an update because we all spoke just a month ago or less and so same update we’re working through our Phase 1, Phase 2 report and the data and then we want to submit to FDA our proposal for the Phase 3..

Thank you. [Operator Instructions] And our next question comes from David Steinberg of Jefferies. Your line is now open..

A couple of questions on LOVENOX you discussed the ongoing litigation with respect to Momenta’s I was wondering if you could also update us on the qui tam case relating to Sanofi and then secondly the -- it looks the erosion of your generic enoxaparin is not as severe as one would have thought and it looks like the Teva Actavis launch has been more muted is this because our contracts in place GTOs and if so when do some of those contracts come up for renewal?.

Yes. A lot of it is due to contracts that we have with GTOs and some of those are -- most of those are multiyear contracts so while some of them come up this year I think some of the larger ones that we are next year and the following years so we have we think we have a pretty good coverage there on the GTO side of the business..

And that was really our prediction form the beginning when we heard that Teva got approval because we knew that our market share on the hospital side was lower than the retail side and therefore we felt there would be less exposure more likely that Teva wouldn’t maybe go after one or two big GTOs and hopefully not ours.

So, it seems to be serving our prediction well and then on your question with respect to the qui tam I don’t have much more of an update than the last call basically the judge did issue a order and I guess I didn’t say this on the last call there was an order on a minor issue but the bigger point was in that order which was last month he said that he was in the process of lighting the opinion regarding the original source so that was encouraging obviously we've been waiting the oral arguments for last, the closing oral arguments for last October and so I think it is time for a decision as I've said in the past there is a parallel appeal with a nice circuit where they were denied a summary judgment again on a procedural issue regarding the information that was in our original notice letter so our sense is that the judge is understanding that there is this parallel process and therefore in no real hurry because there would be a potential that even if he came out and said we are the original source Sanofi would ask for a stay of the case pending the appeal so the longer he takes and the sooner the appeal happens it's sort of one big picture we still -- we breached the appeal last summer and we’re still waiting for oral arguments we do think that should be forthcoming but to sum it up I would say I'm still encouraged on the original source because if he is taking into account this appeal I think that's positive for us because otherwise he could come out and say we are not the original source and you could bundle that all up into one appeal so I sort of reading the tealeaves and encouraged that he is taking his time as this appeal is running in parallel..

Okay just two more question you put some price increases in last October and I was wondering if they were fully reflected in the Q1 results or is there some more to go and then secondly I know you -- this NDA you submitted is undisclosed but could you help us out what is the potential peak sales?.

Well first let me get down to pricing and we did take those prices up most of the price increase was in effect in the first quarter however there was one customer who had a longer notice period whose price doesn't go up or didn't go up and so I believe April 3rd so in the second quarter all of those price increases will be in effect but I will say that the vast majority of the price increase was felt in the first quarter..

And then with respect to the NDA so it's can be a 505B2 for our it is going to be Intranasal naloxone and it's difficult to really anticipate the sales because this is going to be a new market so our belief is that right now we sell naloxone for hospitals and it's in a pre-filled syringe however as I was saying the legal trend and what we're seeing is in many states where caregivers are being given Intranasal naloxone off label and first responders are using it mostly on the first responders side for heroin overdoses, what we could see but again it's difficult to know what this market is like it sort of reminds me of the FD PAN and I do think it will require a lot of sales and marketing and awareness and that's why we are seeking a partner on the retail side because we think that if there is a company that sells a lot of prescription opioids whether it is oxycodone or other such opioids we believe that that would be the right partner to market this even directly to physicians so when they prescribe an opioid they could also suggest that the patient purchased Intranasal naloxone just in case I mean there is always the chance that a mother’s child gets into her medicine cabinet and even shouldering could overdose and that's why the FDA has been very focused on one product that could be used for pediatric as well and make sure that the volume is not too much for an instant [indiscernible] so we think there is a potentially large market here and we think the marketing side of that will be important..

Okay and then just to follow up since you revealed the compound, are you in late stage discussions with anyone and secondly what sort of economics should we expect a straight licensing deal with royalty or a co-promote?.

No, the economics I would say would be something similar to our deal with Actavis where for the retail we would sell to them at a reasonable transfer price and then have some profit share on a quarterly basis that being said we are not in any late discussions with any Company's we were in some early discussions and are still exploring for the right partner..

Thank you. And our next question comes from David Maris of BMO Capital Markets. Your line is now open..

Hi. Just a couple of follow-ups on the [indiscernible] filing can you update us on the timing you mentioned midyear but what have the discussions been like with the FDA any update on the usability studies or any color that you can give us around that.

The other is can you remind us you have a Paragraph 4 filling that was filed I think to your partner what's the status of that and are there any other filings other than that Amphadase that we should expect for as an approval for this year?.

Okay.

So, let's start with the Primatene we in very good dialogue with the FDA we've been going back and forth as I have said on previous calls on the label comprehension it was very encouraging results they commended us for our work with the low literacy groups and really now it's just coming down to the behavioral studies which we’re in active dialogue with them and based on that dialogue we are still confident for the middle of this year I'm hoping on the next call to have a more material update for you.

And then on the next question was one of the Paragraph 4’s..

Yes so on the Paragraph that was an interesting one we did file a product at the end of last year and of course it was a Paragraph 4 that if we weren’t the first filer though and there have been a number of settlements with this company and therefore oh yes I am sorry Bill we ended 2013 as when we filed and not at the end of last year, last year was short they chose not to sue us so we entered into a settlement with them and therefore it did not trigger the litigation and so we never disclosed what the product was.

In terms of -- you had a final question in terms of we’re expecting to do several filings this year we've got the NDA and perhaps two to three ANDAs however for approval we’re only expecting Amphadase for this year..

Thank you. And I'm showing no further questions at this time. I'd like to turn the conference back over to Mr. Jason Shandell for any closing remarks..

Thank you, operator. This concludes our call for today. Thanks again for taking the time to listen in and have a great rest of the day..

And ladies and gentlemen thank you for participating in today's conference. This thus conclude the program and you may all disconnect. Have a great day everyone..