Lauren Stival – Senior Director, Investor Relations, and Corporate Communications Mike Anderson – Chief Executive Officer Mike Kanan – Senior Vice President and Chief Financial Officer.

John Boris – SunTrust Jason Gerberry – Leerink Partners Matt Kaplan – Ladenburg Thalmann Jim Molloy – Laidlaw Jason Butler – JMP Investment Bank Scott Henry – ROTH Capital.

Good morning, ladies and gentlemen, and welcome to the Flamel Technologies Third Quarter 2016 Earnings Conference Call. Please note that this call is being recorded. I would now like to turn the conference over to Lauren Stival, Senior Director, Investor Relations, and Corporate Communications. Please go ahead..

Good morning. This is Lauren Stival, and I want to welcome you all to the Flamel Technologies’ third quarter 2016 earnings conference call. Before we begin, I will start with some cautionary statements.

The following presentation regarding Flamel Technologies SA includes a number of matters that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements.

These risks include risks that products in the development stage may not achieve scientific objectives or milestones, or meet stringent regulatory requirements; uncertainties regarding market acceptance of products and the impact of competitive products and pricing.

These and other risks are described more fully in Flamel's public filings under the Exchange Act, including the Form 10-K for the year ended December 31, 2015, which was filed on March 15, 2016.

Except as required by law, Flamel undertakes no obligation to update or revise any forward-looking statements contained in this presentation to reflect new information, future events, or otherwise.

We will be using a slide presentation for today's call, which can be accessed by going to the Investor section of our website and selecting the Events and Presentations page. After prepared remarks, we will be opening the call to a question-and-answer period. On the call today we have Michael Anderson, CEO; and Mike Kanan, CFO.

At this time, it is my pleasure to turn the conference over to Mike Anderson, our Chief Executive Officer.

Mike?.

Good morning, ladies and gentlemen. As always, we appreciate your joining us on today’s call. I trust that you all have seen our press release from this morning. And if you’ve not been able yet to take a look at it, it’s available on our Investor website. I plan on addressing a number of topics this morning.

First and foremost, our Phase 3 REST-ON trial which we initiated during the third quarter and are very excited to have underway. We have had a number of numbers surrounding timelines in patent landscape, which I will do my best to address.

I’ll also discuss the market dynamics of our base business, Bloxiverz, Vazculep and Akovaz, as well as our fourth potential UMD and provide an update on our other pipeline assets. Lastly, I’ll briefly discuss our cross-broader merger. And subsequent name change which will be effective as of January 1 of 2017.

At the end of September, we announced that we had initiated our Phase 3 trial for FT218, a once nightly version of sodium oxybate for the treatment of excessive daytime sleepiness and cataplexy in patients suffering from narcolepsy, as noted in our press release this morning. The trial will be referred to as the REST-ON trial.

Patient screening and enrollment is efficiently underway in both Canada and in Europe. We expect the first patient to be dosed in mid-December if not sooner. As of this weekend, clinicaltrials.gov started to reflect in updated status of our trial as recruiting.

As some noted this was quite delayed, please note that Flamel does not control updates that are made to clinicaltrials.gov. On October 6, we announced that we had come to a final agreement with the FDA on the protocol for our REST-ON study through the special protocol assessment process or SPA process.

As many are aware this process took a little bit longer than initially anticipated due to the 45-day timeline for response that the FDA sticks too strictly whenever they approached us for clarification on anything. At no time where our protocol, the powering or endpoints in question throughout the process.

And so we ultimate made the decision to start screening enrollment at the end of September in Canada and Europe. Once we have what we knew would be the final exchange with FDA, knowing the challenges that we may encounter with enrollment.

And in order to keep the timeline for enrollment targeted to about a year, we felt that we made the right choice by beginning that screening process. Our clinical team has done a great job getting the ball rolling with this trial and we will have a dedicated website to the REST-ON trial launched some time at the end of this month.

In addition to a number of other projects in the works to drive both awareness and recruitment, our efforts at keeping the trial on track are ultimate importance to us. And our team is doing everything within their power to ensure that we are driving patient enrollment.

In order to assure the timeliness of this enrollment our team along with our CRO have identified several creative ways to promote the trial. As an example, our clinical team recently presented at the Annual Narcolepsy Network meeting which was held in Orlando at the end of October.

The feedback from both patients and caregivers that this meeting was extremely positive and generated a large amount of interest and excitement.

In addition to the presentation, we hosted the patient advisory group meeting to gain feedback from both patients and caregivers about our trial and what they would most like to gain from our potential product. Feedback from these patients has provided remarkable insight as we completed the design of the trial.

Our trial has been designed to explore ways of meeting the needs of those patients who suffer from narcolepsy. Now regarding the much talked about IP landscape. This is always been of course a focus of investors. For a long time it centered around our potential infringement on JAZZ’s REMS patents.

And now with six out of the seven in validated by the PTAB, the focus is shifted to the method of use patents relating to concombinant dosing with valproate or divalproex sodium. To begin with I think the inner party reviews and resulting in validation of the REMS patents is a perfect example of how quickly things can change.

Regardless of this decision we always communicated that we plan to develop our own unique REMS and this is still the plan. We're developing what we hope is a unique and better alternative to what's currently being offered and any in all differentiation is important as we move through this process.

Although the PTAB has turned down an IPR review or the concombinant news related to valproate twice it will be examined again in 2017 during the case with Hikma. This patent is something we're aware of and have sought extensive legal counsel for.

While we can't discuss our strategy for competitive reasons, we do feel like we have a case in the event of a litigation situation. Now shifting focus to our base business. We successfully launched Akovaz during the third quarter and we're pleased with our sales of $5.6 million for the quarter.

A large portion of our business during the quarter was actually generated from sales to repackagers with whom we have strong existing relationships given our Bloxiverz and Vazculep products. This is well over what the Street had estimated for the quarter. However, given these sales are not reflected in our IMS.

It appears as still we are not tracking to exit the year with 20% to 30% market share. We still intend to end the year at 20% to 30% market share. We have started contracting with a number of GPOs, we feel confident in our ability to begin building share in this very large ephedrine market.

We currently have no indication that the unapproved marketer of ephedrine will be exiting the market. While our competitor has announced that it is working to resolve the issues that led to a Form 483 being given to it. It is unclear whether or when it's pending NDA for ephedrine sulfate will be approved by the FDA.

Although at this time, we have no reason to believe that it won't be. As it stands this is the largest market of our existing three previously unapproved products. And we're pleased with our performance during Q3. Revenues for Bloxiverz were down quarter-over-quarter, with a number of factors playing a role in this decline.

Although, we were able to maintain about a 40% share of the neostigmine market. The overall volume for the medication declined as sugammadex gained some ground as an alternate option. This in addition to some price erosion lead to lower revenue during the quarter, these events were all anticipated as we laid out in the beginning of the year.

And thus far we have done very well in maintaining both share and price in a three player market. Neostigmine remains the gold standard in the operating room and the tail on this product should continue to be strong.

Sales of Vazculep have been stable over the last three quarters and we have no reason to believe this market will change, although there is always the risk of a generic competitor entering the market. Our original model for 2016 contemplated an additional approval in June of this year.

However, we have yet to see competition which of course has benefitted our sales of Vazculep. We have discussed in the past the potential to bring forth another unapproved drug for development. And we have identified this candidate.

We expect feedback from FDA before the end of this month at which time we will know the necessary steps to proceed and the extent of clinical work that will be related to getting the product approved.

As you may recall our first three product approvals required no clinical work but rather allowed us to recite existing literature to support efficacy, safety and thoughts.

We can't be sure that this will happen with all future products but any clinical work that would be required will be factored into our decision to proceed with any given product on a final basis. Because we're still waiting for some answers from the FDA it's too early to discuss the filing timeline.

As you know this strategy is far more opportunistic than strategic given the lack of IPs around these products. And we're constantly evaluating the markets to ensure these products will generate a return with which we can grow our cash position to reinvestment and return value to shareholders.

We do have additional unapproved products that we have reviewed and/or considering. Currently we have $150 million in cash on the balance sheet with no bank debt. So I'd like to reassure you that we are looking at a number of opportunities to grow inorganically.

Our FSC business is underperforming our initial guidance and we've taken steps necessary to assure and it can be leveraged to generate revenue and return.

Moreover we have put forth a large effort of progress several months to ensure that we have brought in strong sales leadership and have strengthened our marketing efforts which should increase product awareness and brand recognition.

In addition to using cash to fund a potential acquisition, we continue our R& D efforts as they relate to our proprietary technologies specifically Micropump and LiquiTime. The products currently under feasibility reviews represent large potential opportunities.

I know there is some frustration in the lack of clarity as it relates to identifying these products that we don't believe hyping products so early in the stage with ultimately be beneficial to our shareholders. The real value is in recognizing that the company has platform in place that can be leveraged to develop new products.

We have spoken earlier about our decision to look for funding partners for divestiture opportunities for both Trigger Lock and Medusa. We don't have any meaningful update for you on those divestitures or partnerships. But work is underway and will be utilizing outside help to aid in that progress and that process.

Hopefully, we can have an update for you on our next conference call if not before. Now I'd briefly like to touch on our pending cross-border merger from France to Ireland. During the third quarter, we received shareholder approval through our proxy to move forward with reincorporating our domicile in Ireland.

Where our head of European operations our clinical team and others are located. This reincorporation also comes with the name change which we want to discuss in advance so that investors and relevant parties will be prepared for the change and recognize it come 2017.

As of January 1, we will be called Avadel Pharmaceuticals Plc, an acronym for advanced delivery. In addition our stock ticker on the NASDAQ will change to AVDL. There will be no changes to our SEC reporting requirements, our capital structure or shares outstanding.

It is simply a name change and will have no bearing on shareholders other than utilizing a new name and ticker symbol. We will not be using this name until 2017 and will remain and conduct business as Flamel until January 1 of 2017. With that, I’m now going to hand the call over to Mike Kanan, our CFO to discuss our financial results in more depth.

Mike?.

Thank you, Mike and thank you all for joining us today. As Mike mentioned, we are very pleased with our top line result. I'm also pleased that we've been able to once again increase our revenue guidance for the year.

As you saw in today’s release we came in above consensus with total revenues of $32.1 million for Q3 2016 compared to $47.3 million in Q3 2015 and $38.9 million in Q2 of this year. Both these year-over-year and sequential quarter-over-quarter revenue declines were due to Westward's generic entrance into the neostigmine market in December of 2015.

And as Mike mentioned, a small decline in the overall market volume of neostigmine which I’ll touch on shortly. I'm very pleased to say though that some of the neostigmine decline was offset by our on-time and successful launch of our ephedrine product, Akovaz was generated almost $6 million in revenue in Q3.

Gross margin was 91.1% in Q3 2016 compared to 95.6% in Q3 last year and 89.9% in Q2 of 2016. This decline compared to the prior year was a result of our pediatric focus products which carried lower margins than our Éclat products. In addition to slight increase in gross margin from Q2 was due to the launch of Akovaz in August to our portfolio.

Research and development expenses for the third quarter of 2016 totaled $8.1 million compared to $7.2 million in the third quarter of last year and $7.6 million in Q2 2016 as expected that the increase is due to the ramp up in spending related to our REST-ON sodium oxybate trial.

SG&A was substantially higher at $12.7 million in the third quarter of 2016 compared to $4.6 million in the prior year and $11.3 million in Q2 2016. In the third quarter of 2016, we incurred a one-time compensation charge up $3.4 million or $0.06 per diluted share associated with the cross-border merger.

Of this amount about $2.4 million was in SG&A and $1 million was in our R&D. Excluding this one-time charge SG&A was actually lower in Q3 of 2016 than it was in Q2 of 2016, as we completed some of the projects associated with improving our computer systems and expenses for professional fees related to our cross-border merger.

We expect our Q4 run rate for SG&A to approximate Q3 after adjusting for this one-time item. As many of you know as part of the acquisition of Éclat and FSC, we are required to pay 20% of our gross profit on Bloxiverz, Vazculep and Akovaz indefinitely to a certain related party and 15% of FSC sales to a related party.

Each quarter we true-up this long-term contingent liability and as a result we incurred a $20.8 million non-cash charge on a GAAP basis at Q3 2016. This true-up was included as an adoption to operating income on a GAAP basis. In addition, we are royalties on total revenues of the Éclat products to certain related parties.

Each quarter we also true-up long-term contingent liability and as a result, incurred a charge on a GAAP basis of $1.8 million in Q3 of 2016. This true-up is included in the line item called interest in other expense. I'd like to point out that although we took these large non-cash charges.

They are indicative of a positive long-term outlook for our Éclat portfolio. We revised upwards our sales forecast for Akovaz and Bloxiverz to better reflect our view of these markets. It’s important to note that the more favorable future market conditions higher for these products. The higher of this charge may be in any one quarter.

These charges are reflected on a GAAP basis only, and are not reflective of the cash payments we make on a quarterly basis. Cash payments for these royalties can be found in our statement of cash flows. Moving on to our tax expense, we continue to see the negative impact of where we earn our income on the effective tax rate.

As I’ve said in the past all of our pretax profits were earned in the U.S. and our tax at the U.S. corporate effective rate of 35%. This U.S. tax rate is further increased by the fact that the majority of the contingent consideration expenses I just discussed are currently not deductible for tax purposes.

So we have a very high effective tax rate in the U.S., outside the U.S. 40% to 50% of SG&A and nearly all of our R&D expenses are incurred in France and Ireland where we generate net operating losses. While we expect that these investments will generate income in the future specifically in Ireland.

The fact is that the economy will not let us take the benefit of these losses until we start seeing a sustainable return on these investments. The good news is that Akovaz was primarily developed and successfully launched out of Ireland.

We expect that the increase in continuing success of Akovaz could help to relieve some of the negative pressure on the tax rate. Until then we will continue to assess opportunity to optimize our tax situation and we’ll update you as we make progress.

On a GAAP basis, net loss and loss per share for the third quarter were $22.3 million and $0.54 per diluted share compared to a GAAP net loss of $28.1 million and $0.69 per diluted share in the same period last year. Now, let me talk briefly about our non-GAAP results.

I believe our non-GAAP results paint a better picture by which to measure our performance provides more comparability quarter-over-quarter. Particularly given the large non-cash charges we take for related party contingent consideration.

Adjusted operating income was $2.5 million in the third quarter of 2016 down from $24.4 million in the prior year period and down from $9.8 million in Q2 of 2016.

Adjusted operating income excludes the impact of these non-cash charges in the fair value of our related party contingent consideration liabilities which as you know can vary significantly each quarter. We also exclude amortization of intangibles and any gains or losses on ForEx all of which are non-cash charges.

As a reminder, adjusted operating income includes the cash component of the royalty payments we make for the related parties that I just mentioned. Adjusted net loss for the third quarter of 2015 was $3.5 million versus an adjusted net income of $13.1 million in the year ago period.

Adjusted loss per share was $0.08 in the third quarter of 2016 which includes that $0.06 charge I mentioned for the one-time compensation matter associated with our cross-border merger.

This compares to an adjusted earnings per diluted share of $0.32 in the third quarter of 2015 and adjusted loss per diluted share of $0.02 in the second quarter of 2016.

This decline in non-GAAP EPS compared to the period last year and the second quarter of 2016 was all driven by the lower revenues, the higher SG&A and the R&D reasons I previously discussed. Please refer to the appendix in the slide presentation for a reconciliation of GAAP to Non-GAAP results.

Moving on to our sales by product, total revenues for Bloxiverz were $15.6 million in Q3 2016, compared to $25.6 million in the prior quarter and $41.2 million in the prior year period. As you may recall in the second quarter 2016 we changed our revenue recognition method to a point of sale model versus the sell-through model.

Excluding the impact of that revenue change Bloxiverz – Q2 2016 sales would have otherwise been $21 million compared to the $15.6 million in Q3 of 2016. As touched on earlier, the entrance of Westward in later December 2015 and the overall volume decline resulted in the decline in revenue.

Our share for the neostigmine market remain at approximately 40% in Q3 we relatively stable compared to the Q2 but pricing declined in the mid single-digits. Although we initially estimated Bloxiverz’s pricing would see a decline of approximately 30% we only lost about 20% of our price since January.

For the fourth quarter of 2016, we expect sales of Bloxiverz to be relatively flat with Q3. Sales of Vazculep were $9.3 million in Q3 compared to $10.4 million in Q2 of 2016 and $3.6 million in the prior year period.

Excluding the impact of the revenue change in Q2 sales remained relatively flat quarter-over-quarter and again relatively in line with the first quarter of 2016. Akovaz’s revenue were $5.6 million and includes sales to a large repackager. We’ve also started to contract with a number of GPOs which should drive strong sales in Q4.

We continue to build inventory and will soon be in a position to supply a substantial portion if not all of the market. We expect our market for Akovaz as Mike mentioned to end the year at 20% to 30%. FSC sales included – are included in the other line and then did not meet our expectations in Q3.

We are certainly disappointed to-date with this performance but as previously announced we have brought in new senior level sales management to reorganize existing territories and train new sales reps. Additionally, the delayed launch of a Flexichamber has had a negative impact on the year-to-date sales performance.

We continue to feel this piece of our business has substantial potential and with the new sales leadership and reenergize in train sales force. We are now better positioned to realize the total value proposition that FSC can bring to its customers. We also continue to aggressively look for new products to fall into the sales force.

Moving on to our cash flow summary, at September 30, we ended the third quarter with $149.7 million in cash and marketable securities down slightly from the $154.9 million at June 30. We expect cash flow to be neutral to slightly positive for all of 2016.

Let me reiterate that we have more than adequate liquidity to fully and completely fund our clinical programs and for use in selected strategic and organic growth opportunities. Now moving on to guidance. I'm pleased to once again raise our 2016 revenue guidance as a result of better than anticipated market conditions in our Éclat portfolio.

We are increasing our full year 2016 revenue guidance to $133 million to $143 million from our previous guidance of $125 million to $140 million. And we are maintaining our previous 2016 R&D guidance of $30 million to $40 million.

This guidance assumes stability in our Bloxiverz and Vazculep products in the 20% to 30% market share for Akovaz by the end of the year. With that, I'll now turn the call back over to Mike before take some questions.

Mike?.

Thank you very much, Mike. We do appreciate your participation on today's call. And with that, we’ll open up to any questions that you may have.

Operator?.

[Operator Instructions] We'll go first to John Boris with SunTrust..

Thanks for taking the questions and congrats on the results. First question just on the REST-ON trial with patient being dosed around mid-December can you just reiterate what your timeline is for completion of the trial and trial readouts and then from the patients that you interacted with down in Florida at the Narcolepsy Network meeting.

Can you just give some commentary on the profile of the product that essentially enthuse them about the asset and then lastly for 2016 what is your assumption about generic competition on neostigmine, phenylephrine and ephedrine? Thanks..

Sure. So let’s address the first question related to the timing on the REST-ON trial, as we mentioned we expect John to dose the first patient in mid-December and there is the opportunity to do it quicker than that. And if that be the case then clearly we’ll call that out.

We are still on track and believe that we will be successful in completing this trial by the end or at least having all the patients enrolled and on drug by no later than the end of 2017.

We contemplated this time – by the time we wrap up mark the data and which would occur some time in Q1 of 2018 – sorry by the end of the quarter and then given our need to go sit back down with the FDA and talk about at a pre-NDA meeting to make sure everything's all wrapped up appropriately that we would file at least at this point some time around mid-year of 2018 and of course being the 505(b)(2) it would be a 10 month PDUFA.

So that where it sits today a lot of things can happen if we can speak up enrollment process up and frankly that is the gaining issue. Obviously that's something we want to do. And we taking and as you may recall from our Investor Day in the commentary from Dr. Swick and Dr.

Roth will utilizing some created ways to be able to get people’s attention and to promote the trial for patients. So that – so much and that’s it for that. As it relates to competition for neostigmine and Akovaz and Vazculep in 2017 while we have not obviously put forth our projections for the year as we’ll do some time around year-end.

We would contemplate additional competitors for each of those products over the course of 2017. And we’ll factor that into our expectation for revenue. As you know Akovaz is a particularly interesting product it’s a quite large market, the market opportunity as we began this larger than any either of the previous due products.

Today we are unable to supply the entire market we expect to be able to supply the entire market some time in Q1 and so the opportunity percentage itself than we hope to be ready.

So did I answer you questions, John?.

Sure, did Mike. Thanks..

And we’ll take next question from Jason Gerberry with Leerink Partners..

Hey, good morning, and thanks for taking my question.

Mike, just curious can you provide us an update on this fourth UMD product that you're contemplating what's the size and market dynamics of that look like in the past you kind of provided us with some rough parameters on volume and competitor our market dynamics so curious if you can provide any color there..

Yes, so Jason, once we hear back and get responses from FDA we will put that context to it. It's a little bit smaller. I would put it today is about the same size or in the same ballpark is the Vazculep market. Again, we’ll wait to hear what the FDA comes back as part of our discussions.

At the end of the day, when we began this process of developing these drugs, we relied on FDA guidance that it would remove promptly on – within our unapproved products from the marketplace. Well, that has not been the case.

There’s still been excellent opportunities for us, before we begin getting involved and calling out specifics related to the product we want to make sure that there are no unexpected requirements for extensive clinical work that would make it unprofitable for our shareholders.

And you really don't know that until the FDA comment, so hopefully we'll be able to use for the fourth one will be able to recite utilize existing literature but that's not a given and it won’t be given as we continue with these down the road..

Got it. And Mike, it sounds like maybe there was a slight change in your tone regarding opportunistically looking at other UMD products going forward. So has something changed in the opportunity set out there just kind of curious what prompted that and then last question for me to in terms of Akovaz so if you can supply the entire market 1Q 2017.

How are you thinking about the FDA timeline for jettisoning be an authorized products..

Especially if that particular product has prolonged delayed to approval..

So let me address first question first and I don’t know that I think we’ve had to see change in our thinking on an approved products. Each one has been little outside how we scripted it. They've all worked out quite well actually.

But at the end of the day we're influenced by the notion that we haven't had to do extension clinical work and we have continually gone back to look at this whole long list of unapproved products to see not only have there been changes in the marketplace but also whether or not we think that a viable molecule might have sufficient literature or data supporting its efficacy or safety or toxicity that we might could make a compelling argument to the FDA with.

So that’s kind of where we stick with it. We've been following a couple of products for ever since the company began and we've watched those and watch them and there have been a few little ships in markets that have changed. It cost us to look at those I guess it words more favorably than we did in the past.

So that’s sort of where we sit with those today. But we've always thought that if you – that these were always great opportunities for creating cash flow and that's really what they are. So you know we’ll continue to look at this market.

We won't just walk away because we also have to be mindful of our resources both from a financial perspective and a people perspective to get those developed and approved.

As it relates to Akovaz, as you know the unapproved competitor had a pending application which was passed over by the FDA according to the company it’s the result of a Form 483 at a facility that it operates. We've been able to look at that through the same methods that other people have.

We're not sure what will eventually happen and we certainly haven’t modeled that we would have that market all to ourselves. But I can tell you that we are going to make an effort to try to remind FDA that it has guidance.

That it published that it has published that says to people if you have an approved product that the FDA will look to remove unapproved products. I think and I can't speak for FDA I think the FDA is more concerned with hospital types of products.

They're more concerned with the availability of the products supply or at least seems like that way sometimes than they are in the product itself with the quality of the product. But that's just from our perception. Long story short we – because of our history with other products where we have in fact built inventory.

And at least in the case of Bloxiverz several years ago had to throw balls away when a second product was approved. We didn't prepare that way for third product. Thinking we'd never the market we're not issuer now we're going to make every effort to be able supply to the entire market.

We have already begun contracting with GPOs, we have as of November 1, have in the neighborhood, contracts with 80% the GPOs now on either an exclusive or shared basis so our products will begin picking up. Did I answer your question..

That’s great. Thanks Mike..

Thanks..

And we’ll go next to Matt Kaplan with Ladenburg Thalmann..

Hey, Mike. Congrats on the progress..

Thank you, Matt..

So just wanted to dig a little deeper into the sodium oxybate Phase 3. Can you give us a sense in terms of I guess with your plant launch U.S. sites in the first quarter how many sites will you have – you have up and running now and what do you expect to have by year end? And I guess in the first quarter again in the first quarter in terms of….

Matt, so we haven’t quantified site by site some of that information ultimately will be updated on clinicaltrials.gov and we are not prepared to do that today, what I can tell you is that in Canada and Europe we have a handful or more of sites we are actively recruiting today.

We have new sites that are coming on and beginning to recruiting process, almost weekly at this point and but we expect by the end of the year to have most of them in operation..

Great and you expect to enroll patients in other countries besides Germany and Europe?.

Absolutely. Yes, we have I think the number is 10, European countries where we will be enrolling patients where a clinical trial is approved and so Germany just is first..

Okay, great, good.

And can you remind us what you're thinking about in terms of this study and how it will prove out that differentiation of sodium oxybate versus Xyrem?.

I think I was asked earlier and I made quite good answer in talking with patients what we hope the benefits would be and I think that at the end of the day the opportunity for patient to get full nights worth of sleep without having to get up at two or such clock for 2.5 to 4 hours speaks for itself. But it's not simply a question of convenience.

There are other issues that we will be looking at and quality of life issues that narcolepsy patients suffer from and they're a little bit all over the lot, for example as you may recall from our Analyst Day and listening to our lead investigator here in the U.S.

[indiscernible] lots and lots of narcoleptic patients there, patients who when they wake up, get up and go eat. They have patients who suffer from nocturnal enuresis they wet the bed and are unable to get up. And also there's an impact on caretakers of those patients. Remember that you have many of these older patients who are married have partners.

And so they are impacted by the same things that impact the patients. On top of that most people are diagnosed with narcolepsy after many visits to other specialties and misdiagnosis and so forth.

A lot of these are in the 16 to 18 to 20 range when they become diagnose so for a child are from get off to college where he's got to make the second cocktail put at the bed stand, there are many issues that we'll be looking at if we do this. What we believe this is we're successful in obviously we're very, very confident that we will be.

Then what we are going to be able to offer a meaningful quality of life issues to go well beyond the idea of [indiscernible] after get that second dose. There are lots of issues, there are safety issues, there’s all kinds of issues to go along with it. And when you talk to patients that's the kind of relief they're looking for.

We even talking to college age patients. And they're concerned about leaving a second dose on the bed stand living in a dorm. I mean, these kinds of things are things that you don't typically think about and they may not be physiologically related, but there’s plenty of issues here that can be addressed by having a once nightly dose of sodium oxybate.

And that's what we hope to be able to demonstrate..

Okay, very good.

And then can you give us your thoughts, current thoughts on the FSC products and the opportunity there given they’re underperformance? And what you expect and when do you expect the Flexichamber come?.

Yes. As both Mike and I alluded, our FSC success after about seven months, eight months, has not been what we had hoped it would be by this time.

When we acquired FSC we acquired it because it gave us the infrastructure that was necessary to be able to begin building a commercial business here and not be just dependent on either; A, unapproved products or B, sodium oxybate, which are both kind of binary events in a way depending up on how you look at them.

With that, it’s a little bit more intricate than we originally believed, but we've taken steps now to be able to resolve all the things that we – have impacted that. And I’m going to talk about two of them, basically one of the four assets that we acquired with FSC.

The two that we have considered the most valuable from day one have been Karbinal ER which is an extended-release of carbinoxamine liquid that’s an antihistamine, the only one available log prescription, a great alternative for pediatricians to prescribe for patients to have use the late grower or one of the OTC iterations and have failed.

And then there's a pretty robust generic carbinoxamine immediate-release business with which now we have over 50% of that market. But when we started we weren’t 100% convinced, we had the right targets and we were pulling the right product out of the bag first.

We engaged in a quite comprehensive analysis done by IMS that looked at – the market looked at the potential of each individual provider. And that’s a result of that exercise we have now more closely aligned our sales representatives with the targets that we should be talking about.

And we have given specific direction of which product comes out of the bag first, second and so forth, predicated upon the value of an individual position, so that was the first step. The second step is that we felt like we needed to make some changes.

And in some territories, from an effectiveness perspective, we've made those, we brought in as we talked earlier of new management. So Bloxiverz is actually done pretty well.

You have to remember it’s a seasonal product, allergies come in the spring and the fall, and both this last spring and this fall we've seen a significant improvement in the product. So that it is seasonal to a great degree.

The second product that we thought was going to be able to move the needle and we still do, as Flexichamber which is the spacer device used for in MDIs. When we got into the Flexichamber, there were some design issues that we felt like we would be more comfortable changing.

We have made those design changes now and we anticipate launching that product in the 1st of January. It has taken us a little longer than we had originally anticipate to make those changes with Flexichamber. But we’re convinced now that we've got it the way we wanted, and we’ll be launching that in January.

With all the changes in personnel and targets, we're looking at alternative ways to increase whether it’d be co-promotes. We have a number of discussions ongoing with other parties.

So we think it's a really viable business, and the best thing I’d point out about FSC is that we never intended that the four products that we bought would be a step of the FSC portfolio.

We have always believed that we would be able to offer LiquiTime projects of our own and we able to inorganically grow and locate other products that are either underserved or on the radar screen, and so we're actively involved in both of those efforts now.

So we think FSC, we've made changes that were necessary and we should begin seeing the movement that we expected initiatives..

Great. And last question, give us an update in terms of the LiquiTime partnership with Perrigo and then LiquiTime internal programs as well….

Yes, okay. So we will shortly talk about some LiquiTime internal projects that we’re finishing up feasibility on rather than to announce projects. And then have something go wrong. We’ve opted not to do it that way.

We have several products that we’ll be talking about shortly as it relates to Perrigo, guaifenesin product continues on and we are working with Perrigo to replace the ibuprofen product that we've talked about previously. Because we have a view now that FDA saw interest in approving like extended-release ibuprofen. We sold over-the-counter.

So as a result of that the partnership is still alive although it’s taken a little bit of a backstreet in part because of those changes that we’ve had to make, but also there's been some changes as you know at Perrigo as well..

Right. Thanks for the update..

Sure..

We will take our next question from Jim Molloy with Laidlaw..

Hey guys, thanks for taking my question. I had a question on the strategy, the FSC. I mean when you acquired it, the 10 or 15 guidance.

What’s the – what we guys resulted so far in 2016, you guys been able to hit that number, when do you think you can get to that level?.

We're not going to hit that number, Jim. Well, I don't think we called that out specifically like that. We're not going to hit $10 million to $15 million next year. And frankly it's not going to be neutral to our cash flow, but we – again, these things we just talked about we think will remedy of that although it won’t be instant.

So we will provide some new updated guidance specifically on FSC as we get closer to the end of the year on our plans for 2017..

What drove the increase in the – I know that the prior increasing guidance of 10 to 15 from – from FSC coming in, you raising guidance yet again.

What’s the main driver on that?.

Hey, Jim. It’s Mike Kanan. The increase for the guidance, all of this is sales performance mess in FSC. And by the way, some of this FSC mess was due to a substantial amount of returns that we got in some of these products that were unexpected, that really happened as not on our watch that we had to account for.

But the offset to all, this was better than anticipated market for Bloxiverz. Remember, we expected a much larger market share decline and a price decline in Bloxiverz as we set guidance in the beginning of 2016. And this is just not panned out for us in terms of the market share of prices.

We’ve seen a lot less price decline and market share decline than what we originally thought. So all of this FSC mess has been made up and then some by a stronger performance in Bloxiverz, and frankly a little bit better performance in Akovaz than what we originally thought.

So although FSC is not hitting the mark, we're certainly over performing what we thought in our basic Éclat business. So we're pleased from that standpoint..

It’s excellent to see it. The Akovaz is higher than – I think you guys said earlier in the call you expect this to five times a real numbers on stocking.

You expected to grow from here in the fourth quarter?.

We do. I mean, we did almost $6 million in the third quarter, $5.5 million I think, roughly. We do expect a substantial increase in the fourth quarter as we get this thing more fully launched we get our supply in order. And we get our contracts with GPOs straightened out and entered into. So the fourth quarter will be much higher than the third quarter.

We haven’t guided specifically, but it will be higher on a substantial amount in the fourth quarter than the third quarter..

Excellent. And then, Mike, staying with you on this the tax the time to calculate the tax and then you spoke with myself and number of folks on how to do the backing envelope roughly to get to where the tax will be.

Should we be excluding Akovaz from Éclat sales?.

Now, I mean, I think the Akovaz certainly helped us from a tax standpoint in Ireland because a majority of that product is what has developed and obviously launched out of Ireland.

But if you're thinking about the fourth quarter non-GAAP effective tax rate I would say that we expect a fourth quarter non-GAAP effective tax rate to remain about consistent with the year-to-date non-GAAP which is just more than 100% in the fourth quarter.

We're going to see some benefits start coming through as we ramp up Akovaz, but until we can get Akovaz fully ramped up in the 2017. Then I would say the fourth quarter rate should be roughly the same as the year-to-date rate on a non-GAAP basis.

So the back of the envelope I may have said previously doesn’t work completely anymore because the Akovaz has been launched out of Ireland..

Okay, great. And then last question, I know that you guys are working diligently on trying to find products to bring in.

Is there any kind of timeline you might be able to give us guidance as when you might think, you have a good idea when something else would be coming in?.

Yes, we have almost in any given time, several conversations ongoing but it's just didn’t possible to project that view. You can get them done quick or you can sometimes say they don’t turn out at all..

There’s certainly no deal is done until it’s done, since it’s hard to project, but okay. Thank you very much for taking the question..

Thank you..

Welcome, Jim..

[Operator Instructions] We'll go next to Jason Butler with JMP Investment Bank..

Hi, thanks for taking the questions.

Just wanted to follow-up on your M&A or strategic focus, can you just talk about where your priorities are when looking for new assets? Are you looking maybe hospital-based assets or looking to leverage FSC? Or are you willing to build out a border commercial infrastructure to go into other indications of therapeutic areas?.

Well, Jason, I think our first effort and priority would be to leverage the FSC infrastructure that we have its capable of taking on more and we have some conversations ongoing, so that's number one. Other areas, the sleep area is an interesting area to us, I mean, we're going to be in there, the sodium oxybate.

And so as a result that's an area and then that's a slight [indiscernible] of a neurological play, but mostly focused on the sleep. And then we also – as kind of an overlap as we've talked about the geriatric space, which we think ultimately may be the largest underserved market of them all. So those are kind of the priority areas.

We're also opportunistic if the opportunity arises, and we just – we want to be focused in what we are doing..

Great.

And then just on the neostigmine market, can you quantify what the impact has been in terms of the volume from sugammadex? And then can you give us any color on what you're hearing from institutions or even physicians about why they're trying sugammadex versus using neostigmine, and how you think that may play out in terms of the overall market for 2017?.

At the end of Q3, you just look at number of files, sugammadex had about 10% share that we just continued to grow some in October. But if you look internationally when it kind of maxed out was somewhere to be and in 20%.

I think the two things that have helped sugammadex is; number one, as you know – well, the label has some issues it is thought to be faster acting. So you can theoretically get patients out of the OR quicker.

And number two is, ironic not ironically, but surprisingly they priced sugammadex at almost paradigm with neostigmine with three players at it, which is not something you usually see. That could be an effort simply to get its stock and get it in there and subsequently to be raised, but at the end of the day that’s what it is.

So that I think is what it is. I think neostigmine is still considered to be the gold standard and we expect it to continue to be..

Great, thanks for the questions..

Thank you, Jason..

Thank you, Jason..

And we will take our final question today from Scott Henry of ROTH Capital..

Thank you, I'll be quick. Most of my questions have already been answered.

For starters, did you give us a specific FSC number for the quarter or would you?.

Well, it will be – Scott, it will be in the 10-Q when we file it..

Okay..

You will be able to see. You will be able to see the results of the FSC once we file our 10-Q..

Okay, I will look out for that.

And just a final question, did you specifically give us a target for when you will provide 2017 guidance? Should we expect that in fourth quarter earnings or kind of on its own before the end of the year?.

My guess it will be right after the first of the year, but I don’t think we learned that out yet, Scott..

Okay, perfect. Thanks..

I think a large piece of what we're waiting for frankly is to see what happens with our competitor in the ephedrine market..

Yes..

That will be an impact of – depending on what happens with that 483 and the timing on that..

Yes..

So, it’d be premature for us to say anything about 2017 yet on ephedrine given the size of the market and given the uncertainties our competitor have..

Yes..

So over the next few months will no more..

Okay, great. Well, thank you for taking the question..

Thank you..

You’re welcome, Scott..

And with no further questions, I'll turn the call back over to our speakers for any additional or closing remarks..

Yes, thank you very much. We want to let you know that we appreciate your joining us again today and we’ll look forward to future updates as we have information to share..

Thank you so much. Bye..

And that does conclude today's conference. Thank you for your participation. You may now disconnect..