Good morning. My name is Patrick, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Impax Laboratories' Third Quarter 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question-and-answer session. Thank you.

I would now like to turn the call over to Mark Donahue to begin the conference.

Mark?.

Thank you. Good morning, everyone. Welcome to Impax's third quarter 2015 financial results conference call. A copy of the press release issued this morning, as well as a copy of the slide presentation, are available on the Investor Relations section of the Impax website at impaxlabs.com.

Also, a link to a webcast of this call and slides are available on our website. Our discussion today may include certain forward-looking statements, and actual results may differ from those presented here. The factors that cause such a difference are outlined in our SEC filings and on our website.

Our discussion today includes certain non-GAAP measures as defined by the SEC. Management uses both GAAP financial measures and the disclosed non-GAAP financial measures internally to evaluate and manage the company's operations and to better understand its business.

Further, management believes the inclusion of non-GAAP financial measures provides meaningful supplementary information to and facilitates analysis by investors in evaluating the company's financial performance, results of operations and trends.

A reconciliation of GAAP to non-GAAP measures is available in our third quarter 2015 earnings release and in today's slide presentation. The agenda this morning will include our President and Chief Executive Officer, Fred Wilkinson, providing an overview of third quarter highlights. He will also provide an update on our four key areas of focus.

Then Bryan Reasons, our Chief Financial Officer, will provide additional details on the financial results and discuss our updated financial guidance. We will then open the lines up for questions-and-answers. Also joining us for the Q&A session is Michael Nestor, President of the Specialty Pharma Division. With that, I'll turn the call over to Fred..

Well, good morning, everybody, and thanks for joining us. Obviously, this quarter was an extremely exciting quarter for the company and for our employees. One of the highlights and probably the largest highlight of the quarter was the resolution of a warning letter at our Hayward facility that occurred in early September.

This event is clearly a transformative event and is a testament to the progress we've made towards improving our quality and compliance systems in Hayward with all of these initiatives being instituted across the entire company. We were pleased that the FDA then moved quickly to approve three generic products from that facility.

And we continue to work with the Agency on our backlog of ANDAs that were developed by the R&D team in Hayward. Overall, we had strong financial results in third quarter, delivering 40% revenue growth, primarily driven by higher volumes and new launches.

This was driven by the addition of generic and brand products from the Tower acquisition, higher sales of several key in-line generic products, new product launches through the first nine months, and that included RYTARY and seven generic products.

All of this helped to more than offset the loss of RENVELA revenues that were seen in the same quarter last year. With the resolution of the warning letter in Hayward, as previously announced, we accelerated some spending into third quarter to prepare for new product launches and to maximize each of these opportunities.

At the same time, we kept our focus on managing our costs in all other areas. Through these actions, we achieved 21% growth in our adjusted earnings per share despite margin pressures from the absence of RENVELA and higher sales of lower-margin products this year.

Another exciting event in the third quarter was the receipt of a positive opinion from the CHMP recommending the approval of NUMIENT for patients in Europe suffering from Parkinson's disease.

So for the rest of my prepared remarks, I'll now address the four key areas of focus that we set up for the company at the beginning of the year, that being quality, commercial programs, R&D, and business development.

The successful lifting on the warning letter in September signifies that the investment we made in people, quality systems, and compliance processes worked to achieve the right result.

We remain committed to fostering a culture focused on compliance and quality throughout the organization, and we'll continue to build out the critical systems that are a backbone to a world-class compliance program. Our Hayward facility delivered three generic product approvals since the warning letter was resolved.

Worth noting was that one of these products was approved without a subsequent inspection. Our Middlesex facility, which we acquired through the Tower acquisition, is having a productive year as well, with five generic products approved in 2015.

As a reminder, this site is about 18 months ahead of the Hayward facility in the removal timeframe of its warning letter, and is also contributing to the combined companies' program of expanding our portfolio through internally develop products.

In July, the MHRA performed an inspection in the Taiwan facility related to the European file of NUMIENT, which is IXP066 (sic) [IPX066]. At the conclusion of this inspection, we were informed that we had no critical or major deficiencies and subsequently received the GMP certificate in mid-September.

We mentioned in our 2Q earnings call that we're sharpening our focus on improving supply chain efficiencies. In third quarter, this involved optimizing our packaging and distribution strategy by closing the standalone packaging operation in Philadelphia and the transfer of our in-house distribution capabilities to UPS.

We have now successfully transferred and closed this packaging operation and completed the transfer of all distribution to UPS. This will result in a few million dollars in annual savings and much greater efficiency in our supply chain. Slide 7 highlights that it's been a very busy and productive year for the Generics Division.

As of today, we've received approvals on 10 generic products and have successfully launched 11 generic products. We're currently on target to achieve our 2015 goal of launching up to 14 products.

While there hasn't been any approvals of any real blockbluster products this year, the combination of all these smaller product launch opportunities has expanded our commercial portfolio and helps offset the declines from a few of our more mature generic products.

Let me pause and spend a few moments updating you on a few of the products that are the focus of most of the inbound questions, and I'll start with epinephrine auto-injector. As we stated earlier, we've resolved the supply issue that occurred in 2Q and we've restocked all of our customers now during 3Q.

During that time, we've also recaptured our share back of approximately 5% and are seeing sequential growth. The recent recall of Auvi-Q may provide a small opportunity for us to pick up additional share in the short term.

And while we're in a positive supply position, we are still carefully managing our inventory to support our existing customer needs. However, we have implemented programs to increase flow from our suppliers and are exploring opportunities to increase our customer base as well as our market penetration.

Turning to oxymorphone ER, according to the IMS data, we currently hold approximately a 30-share position in a market with only one other generic competitor. As you know, the recent ruling required that a generic competitor, the other generic competitor, should be coming off the market.

This has not happened yet as the decision was appealed and is under further review by the courts. We currently, however, have sufficient product supply to take this share and are planning for increased sales regardless of what the legal environment brings.

And finally, turning to Adderall XR, as we stated previously, our strategy is to use our current supply judiciously and to work towards bridging – towards a potential ANDA approval.

As a reminder, we have two files under active review by FDA, one from Hayward and one from Middlesex, and are working aggressively toward approval and then the ultimate supply of one or both of these files. On the Specialty side, RYTARY is our primary focus and it is on track to our plan.

Weekly scripts were up over 1,900 for the week of October 30, which represents a 5.7% increase over the previous week and up close to 13% for a four-week rolling average. We held a national meeting in late August where we did some tweaking to our tactics and have since seen accelerated growth in our new and total prescriptions.

Following this meeting, we put greater emphasis on the dosing parameters outlined in our label and are providing more samples of the higher dose strengths. With this refined messaging and increased tools to assist patient conversion, our sales reps continue to see enhanced physician access and a strong interest in using our product.

This awareness and adoption has been supported by a managed care program that yields more than an 80% of the prescriptions being approved and filled by the payers.

Turning to ZOMIG nasal spray, it continues to perform well even though it has been moved to the second detailing position, which supports really the strength of our sales force and our selling programs overall. We've increased our share of the National Triptan segment to 33% from 30% at the same time last year.

And in June, we received approval for the use in pediatric patients with promotional activity starting in August, targeting 1.4 million pediatric patients in the U.S. And finally, Albenza, as you can see from this chart, TRx has increased in the third quarter as expected based on the historic seasonality.

Reminding everyone, Core grew this product very nicely from mid-2012 to the end of 2013 with their primary focus being the conversion from albendazole, which had come off the marketplace. Since 2014, shares held steady with virtually no active promotion.

We are preparing for the next phase, which involves the potential approval of the next generation of this product and the eventual promotion around this franchise. Turning to our R&D pipeline, we had 28 pending ANDAs which offer a number of product opportunities, including the generics for RENVELA, WELCHOL and Adderall XR.

We have an additional 17 products under development offering nice mix between internal and external projects across oral solid dosages and alternative dosage form products. More than half of our developed products are potential first-to-file or first-to-market opportunities.

On the brand side, we received positive opinions from CHMP recommending the approval of NUMIENT.

We are committed to realizing the full potential of this important franchise and look forward to the European Commission's decision before year-end and also to close the negotiations with potential partner or partners to help the commercialization of NUMIENT in Europe.

As a reminder, we received the official designation of therapeutic innovation, which includes 10 years of marketing exclusivity for this product. Finally, we've prioritized IPX203 as the lead product for this group and in third quarter initiated Phase II clinical program activities.

We are currently on target to enroll our first patient sometime in December. Finally, the last area of focus, our business development activities, we have been very active during this quarter, as we have during other quarters.

We completed the integration of our Tower acquisition and are now focusing all our efforts as a single company towards assuring that we maximize the strategic benefit from this combination and continue to capture the previously identified synergies. The company continues to operate with a solid balance sheet and significant debt capacity.

Our equal focus on brand and generic activities has not changed at all and we continue to pursue divestitures from several of the recent deals to further enhance our existing portfolio.

The strength of our balance sheet and cash generation, coupled with numerous pending pipeline opportunities, should facilitate our pursuit of an aggressive M&A strategy.

And in closing, we believe we are well-positioned to grow both organically and through M&A and business development activities and look forward to a strong close of 2015 and an equally strong start of 2016. With that, I'll turn it over to Bryan to provide greater depth on the financials for the quarter..

Thanks, Fred. Good morning, everyone. Moving to slide 12. We're pleased with our third quarter top line results, posting sales of $221 million or 40% growth compared to last year. We benefited from the addition of the Tower products, higher sales of several key generic products, including diclofenac gel, and new product launches.

Product volumes including the Tower acquisition increased revenues by more than 31%. New product launches, inducing RYTARY and a number of new generic products, increased revenues by 10%. I'll start with a discussion of our third quarter 2015 results compared to last year.

This 40% revenue increase was achieved despite the absence of revenues in the current quarter from authorized generic RENVELA, which we launched in the prior year. Our adjusted gross profit increased 23%, driven by higher sales, but lower gross margins decreased to 50% from approximately 57% last year.

This decrease in gross margins was a result of unfavorable product mix. The primary driver was the loss of sales of high-margin generic RENVELA during the current period, replaced by lower-margin products from the Tower acquisition, and higher sales of diclofenac gel which we share profits with our partner, Tolmar. Moving on to our operating expenses.

Adjusted research and development expense decreased approximately 5%. This decrease was the result of a reduction in brand R&D spend, the impact of our R&D restructuring we announced last year, partially offset by the inclusion of R&D expense from the Tower companies.

The decline in adjusted R&D was more than offset by higher adjusted selling, general and administration expenses. Our third quarter 2015 adjusted SG&A expense increased by approximately $9 million. This is primarily driven by higher information technology costs, expenses related to the Tower acquisition, and share-based compensation expenses.

Adjusted EBITDA increased almost $18 million to $66 million due to the previously noted increases in gross profit. Our adjusted interest expense increased $3 million due to the convertible debt offering of $600 million with a 2% coupon, which we completed at the end of this year's second quarter.

The adjusted effective tax rate of 37.9% in this year's third quarter came in slightly higher than last year's rate of 36.8% as a result of the change in the timing and mix of U.S. and foreign income. Our adjusted rate doesn't include the impact of the current expired R&D tax credit.

The full-year impact is expected to be included in the fourth quarter results when the tax credit is typically extended. We estimate that the full-year impact of the R&D tax credit would reduce our full-year rate by approximately 1.5% to 2%. Adjusted earnings per diluted share increased to $0.40 compared to $0.33 last year.

This increase was driven by higher sales, partially offset by the loss of high-margin RENVELA sales, higher SG&A and interest expense and a higher adjusted tax rate. In comparing our sequential performance, third quarter 2015 compared to the second quarter, both periods include a full quarter of results from the Tower companies.

Total revenues increased just over 3%. The combination of higher revenues and modest decline in our expenses resulted in a 10% or approximately $6 million sequential increase in our adjusted EBITDA.

Additionally, our lower adjusted interest expense of $3 million as a result of the switch to the lower coupon convertible notes from a higher interest term loan resulted in an 18% or $0.06 increase in our sequential adjusted diluted earnings per share.

On slide 13, now let's move to our segments results starting with the Generic Division third quarter 2015 performance compared to last year's third quarter. Generic Division revenues were up 24%.

The main drivers of the increase are the additions of the revenues from the Tower acquisition, higher sales of diclofenac gel, and the launch of new generic products. This was more than offset by the loss of authorized generic RENVELA.

The decline in adjusted gross profit and adjusted gross margin in the Generic Division was primarily due to loss of profits from higher-margin products, as previously noted. In addition, higher sales of lower-margin products in this year's third quarter resulted in a lower adjusted gross margin compared to last year.

Sequentially, third quarter compared to second quarter 2015, our Generics revenues increased just over 3% driven by higher sales of diclofenac gel and epinephrine auto-injector, partially offset by lower sales of a couple of higher-margin products including generic Adderall XR and fenofibrate.

The slightly higher revenues combined with the decline in operating expenses led to an almost 9% improvement in adjusted operating income within the Generics Division. Within the Specialty Pharma Division, we delivered strong third quarter 2015 performance compared to last year.

Total revenues increased approximately $28 million driven by the addition of revenues from the Tower acquisition and by the launch of RYTARY. Specialty Pharma adjusted gross profit and adjusted gross margin increased significantly over the prior-year period driven by higher sales. Adjusted gross margin increased to 84% from 65%.

The increase in Specialty Pharma sales drove a $29 million improvement in adjusted operating income compared to the prior year. On a sequential basis, third quarter Specialty Pharma revenues were up 2%. The increase was primarily driven by higher sales of the Tower products and RYTARY partially offset by lower Zomig tablet sales.

The combination of higher revenues and lower operating expenses led to a 19% improvement in adjusted operating income within the brand division. On slide 14, we made one revision to our full-year 2015 financial guidance. We lowered our estimated capital expenditures to a range of $25 million to $35 million.

This is primarily due to the delay in some projects. Concluding on slide 15, in closing, we continue to strengthen our company by focusing on a number of key priorities to drive future growth. We've made great progress in 2015 by executing on the market opportunities before us.

We remain well positioned with a solid pipeline of pending ANDAs and a strong balance sheet, whereby we can continue to target and invest both internally and externally in sustainable generic and branded specialized markets that can drive organic growth. Thanks for your attention. And I'll now turn the call back to Patrick for questions..

Thank you. Our first question is from Andrew Finkelstein from Susquehanna Financial..

Good morning, and thanks for taking the question. A couple here, if I may. First, on business development.

It's been a priority for some time, so if you can talk in any more detail about how you think about balancing, obviously, some opportunities to pick up assets in divestiture situations but are you seeing any more opportunities on the branded side than perhaps you were a few months ago, given what's going on in the market, and to what extent are you in a position to execute on multiple transactions if they present themselves? And second on the results for the quarter, could you clarify if there was any stocking benefit on either side of the business ahead of some price increases at the beginning of October? And, finally, regarding Adrenaclick with some competition out of the market and less likelihood of a generic EpiPen competitor, any expectations for what that's going to mean in terms of the net pricing dynamics and the gross-to-net for that product? Thanks very much..

Sure. So, let me start with business development. Obviously, we've been very active but quietly active. We've been talking about it quite a bit, but working behind the scenes and we haven't seen anything announced from the company in a period of time. We feel like we've been extremely judicious in the way we've gone at the business development approach.

We are about equally split between brand and generic opportunities. We are seeing, as you kind of mentioned, a few more brand opportunities cropping up than we had seen in previous quarters.

We're also very cognizant of the pressures that may be going on financially around some of the abilities to do transaction, but we've also seen some reduction in what, I think, people described as the margin or the multiple expectations that people are looking at on the other side.

It's hard to really predict when one will come across the table but we are working, again, on both fronts, both brand and generics to try to get a meaningful strategic transaction under our belt and announce as soon as we possibly can. On the divestiture side, obviously, this is a very active environment.

There are a couple of reasonably large transactions that are going on that will require some divestitures. We are deeply involved in those and are hopeful that we'll be selected as one of the candidates that will pick up either all of or part of the portfolios out of those activities.

As far as the quarter, there was no stocking activity that went on at the end of the quarter. This was natural flow. I think as you look at inventory levels, you'll see that we've had normal inventory levels through the months regardless of whether it's the end of the quarter or whether it's the first month of the following quarter.

And then regarding EpiPen, I mean, we – and our epinephrine auto-injector, we look at this marketplace very much as an opportunity for us to grow into it. As we've mentioned many times, the supply chain that Core had been working with was a bit fragile.

We experienced one of the events of that by having one of the elements out of supply during first quarter which affected us in second quarter in our ability to supply. We have firmed up that supply position and now have full supply and actually some excess inventory in the end for the first time in a period of time.

We have built our market share back up and are supporting our existing customer base. And obviously, with Auvi-Q going out and some of the opportunities there, there's a lot of interest in having us participate in that market that became available. We're going at it slowly and judiciously.

We want to make sure that we are able to supply our existing customers optimally. But we do have plans in place to be able to expand our supply flow, and hope that we'll have most of those in place as we close out 2015 and go into 2016 and get prepared for what's a little more active timeframe starting at the end of first quarter..

Thanks very much..

Thank you. Our next question comes from Greg Fraser with Deutsche Bank..

Thank you. It's Greg Fraser on for Gregg Gilbert.

First, on the generic business, can you give us an update on your generic RENVELA and WELCHOL applications and your confidence in getting those products approved?.

Okay. Sure. So, obviously, for competitive reasons, I don't think there's very few people that go out and talk about when they expect to get an approval of a product that's currently under review.

Those two products were sitting behind the Warning Letter, so those were simply not available for approval as we went through the middle of third quarter this year. With Warning Letter lift, clearly that is not an obstacle now for approval. So we are working with the agency very closely to try to successfully bring these products to marketplace.

We will not give any guidance on when we anticipate that to happen but we will – what we have said is we are actively engaged in the discussions and hope that RENVELA and WELCHOL will be part of our portfolio. We are also hopeful that this will be one or two of those products that we could be a first to market opportunity.

And so, stay tuned to see what the agency does with both our files and others..

Got it. And a couple on RYTARY. You mentioned increased tools to assist patient conversion. Can you give us some more color on that? And then I don't think you're breaking....

Go ahead..

I don't think you're breaking out sales, but if we want approximate sales based on scripts and WAC pricing, is there a good discount to the WAC that we can use?.

Yeah. I'm going to turn that over to Michael, let Michael handle both those questions..

So, relative to RYTARY in terms of how we are progressing, I think if you look cumulatively relative to prescriptions through the end of October, we're over 42,000 total prescriptions at this point. We're up about 13% four-weeks-on-four-weeks. We're up over 1,900 prescriptions a week now.

We're running ahead of our internal projections as to where we thought we would be through the end of October. So, things seem to be moving along pretty well.

Most recently, what we've done is increased the focus of our sales representatives relative to the messaging to the physician community out there about going – talking to physicians about considering RYTARY conversion for their mild to moderately advanced patients. What we find in this patient group is that the conversion is more straightforward.

It takes less time, and generally is a more rewarding experience for both the physician as well as the patient. What we had seen prior to this was that many physicians were using RYTARY in their more advanced patients.

And as any movement disorder specialist will tell you, once you've treated one Parkinson's patient, you've treated one Parkinson's patient. These more advanced patients are more difficult to treat.

They take longer, both from the standpoint of managing that kind of patient from the physician's perspective, and the patient has to be more, if you will, patient in terms of expecting an outcome. So, what we found is that by redirecting physician consideration back to that mild to moderate patient, that is a message that's resonating well.

We've backed that up with increased utilization of the dosage card that we have, which is a recommended starting point. We've increased the number of speaking programs that we've put into the community, as well, we've increased the number of samples that we have made available to physicians to be able to get patients through this trial period.

Okay?.

As far as the pricing?.

As far as pricing, generally, if you think in the typical range of WAC in the 20% to 30% range, you're probably in a pretty good area..

Great. Thank you..

Sure..

Your next question comes from David Amsellem with Piper Jaffray..

Thanks. Just a couple. So, on the business development front, can you talk about the highest level of debt-to-EBITDA you'd go up to to execute on a transaction? Secondly, just a couple on RYTARY, and I may have missed this.

I know you're not disclosing specific sales but can you give us some color on what the gross to net has been on RYTARY? It may be a useful way of helping us back into sales. And then, qualitatively, can you talk about how challenging titration has been for RYTARY and has that been an issue in terms of driving more adoption for the product? Thanks..

I'll address your debt question first and then turn it over to Michael. Yeah. We've said in the past that we're comfortable going up 4.5 times to 5.5 times EBITDA on a combined pro forma basis as long as we have a clear path to de-lever. Right now, we have no senior secured debt.

We have over $300 million of cash on the balance sheet, and we also have $100 million revolver that haven't been drawn upon. Our position hasn't changed on that. We still think that that level of debt is available in the current market. The terms have widened since the summer, obviously, but can still be very favorable on a historical basis.

And so our position in that area has not changed..

And, David, relative to the gross-to-net, again, think of it from a standpoint of 20% to 30%. From the standpoint of titration, as I just indicated, in the more advanced patient where you're dealing with a number of concomitant co-morbidities, titration with those patients is more difficult and certainly we've seen that.

I think the physician community has seen that.

Hence, for us, the iteration that physicians should utilize RYTARY in the patient population that we actually study during the Phase III clinical trial, which is those mild to moderately advanced patients where the conversion is more straightforward, where the conversion meets both – typically meets the physician and the patient expectations a lot frequently.

And, in fact, what I believe we started to see coming out of the sales meeting that Fred referred to that we had earlier in the quarter, we've started to see more of that transition..

But, Michael, isn't the target population or in terms of where you get the best managed care access more advanced patients or am I thinking about that too simplistically?.

I think you might be thinking about that a little more too simplistically, David. What we're seeing is that in the commercial sector, 87% of all the prescriptions for RYTARY that are being written are being approved, and what we're seeing in Medicare Part D is about 81%, 82% of the prescriptions that are written for RYTARY are being approved..

Thank you..

You're welcome..

Your next question comes from Tim Chiang with BTIG..

Thanks. Fred, I wanted to ask you about your generic business. It seems like your generic business is growing. And I wanted to dig down a little bit with some of the new products that you've gotten approval on.

I mean, how much share are you getting on average with these new products that you've launched?.

Yeah. It kind of depends. I mean, when we launched Lamotrigine at the beginning of the year we had a six-month exclusivity. So, we were the taker of all share. There has not been another player that has come to the marketplace since exclusivity expired. So, we're still enjoying kind of an unofficial exclusive period on that one.

So that was probably the strongest success on share take. I would say that we've been kind of functioning as most companies would depending on the number of competitors. Some of these products have been introduced into two and three competitor marketplaces, others gotten into five and six.

And so, you have very different share position based on the amount of competition out there. There's still room for these products. And so, as you've seen in most of them, we prepared for launch and we got ourselves out in the marketplace and almost all of them achieving 10-plus share in places where there is we are one of two or one of three.

We're in the 40% or 50% share position. So, really this depends upon the competitive environment. There will inevitably be an approval or two that we'll take and may not launch because the market is far too competitive, and therefore, we'll just have it in our backdrop for taking advantage of the opportunity should the market shift..

And then maybe just one follow up, Fred. You're developing a follow-on to RYTARY.

Could you talk a little bit about what the advantages of that follow-on might be?.

Yes and no. We do have a follow-on for RYTARY. It is called IPX203 that's in Phase II right now. As we mentioned, we'll be starting – first patient will be dosed sometime in December. With the results of that, I think we'll start to define a little bit more of what we have achieved, not what we hope to achieve in the product.

But this will be essentially to try to drive ourselves to even a better or more ramped up RYTARY where you might be able to use it twice a day as opposed to three to four times a day as you'd still have to do with RYTARY..

Okay. Great. Thanks, Fred..

Your next question comes from Marc Goodman with UBS..

Hi. This is Ami Fadia on behalf of Marc. Couple of questions. Firstly with respect to gross margin, you've guided to the low 50s for the full year, which means that fourth quarter needs to be higher than third quarter.

What needs to happen with respect to new product launches and with specific launches, if you may, that need to happen for us to get there?.

Yeah. So....

Yeah..

Let me address that one first. So, obviously, it's growth of brand products that helps to drive gross margin a little bit.

So, as RYTARY becomes more and more of a contributor to the company, there'd be greater opportunities, the opportunities that come out of epinephrine, opportunities that come out of Albenza and Zomig, those all are high-gross margin products for us.

And as you see those continue to grow, which all of them are, those should help essentially the gross margin evolution. On top of that, each of these launches as they go out the door – when you launch you're at your highest gross margin position.

So, each of the generic launches, we think individually and collectively will help drive the gross margin up. We don't anticipate that it will be a wild evolution of our gross margin but we still believe it will come in the year somewhere in the low 50s..

So, do I interpret that as saying that you don't necessarily need RENVELA or WELCHOL to get there in the fourth quarter?.

We do not. We do not..

Got it. Second question was on just spending progression into the fourth quarter.

Could you give us a little bit more sense on R&D especially, do we really expect to see a big bump up into the fourth quarter or are we going to end up being sort of under your guidance range?.

No. I think you should expect to see some increase in R&D spend, and it's really coming from both sides. And, as I mentioned, I think on the 2Q call, we started to shift our R&D personnel from doing mostly remediation and PAI readiness to now starting to take on more active projects.

In fact, I think we designated 10 new active R&D projects during late 2Q into 3Q. Those are now obviously working their way through the development cycle. And as you go through that cycle, there's a few more expenses related to each of those projects.

And on the brand side, IPX203 going into Phase II will add some clinical expense to our portfolio that we haven't had for the last probably 9 to 12 months as well as obviously the completion of all the work that's necessary for Numient.

So, I would anticipate that in this whole process, you will see an increase in R&D sequentially third quarter over second quarter and fourth quarter over third quarter..

Got it.

And then just last question on Adderall XR, could you give us a sense of how much inventory you have left and then how should we think about sales levels into fourth quarter?.

Yeah. So, the only statement we've provided is that we have supply sufficient to get us through the end of 2015. I think we put that statement out at the beginning of 2015. It remains true. We've got active supply well through the end of 2015 and on into 2016.

As I mentioned, we do have two files under very active review and we're hoping that we can kind of match up the approval and then the ultimate supply of one of our two if not both of our ANDAs to the eventual wind down of supply that came from Shire.

We've not given guidance as to how long it will last and what revenues will look like on individual products. So, I think we'll probably stick to that spot..

Thank you..

Your next question comes from Louise Chen from Guggenheim..

Hi. Thanks for taking my questions. I had a few here.

So, first question I have here is, in terms of the additional launches that you expect throughout the end of the year that you gave some guidance on, are any of those sizable launches? And then, secondly, on the 28 ANDAs that you have at the FDA that are pending, how many of those are longer-dated ANDAs, let's say, 24 to 36 months pending review with the FDA? And then, lastly, just a couple of question on RYTARY.

I know it's still early days. But given what you've seen with the uptake, how do we think about the peak sales potential? And then, also, on the OUS partner, any thoughts there and the potential economics for something like that? Thanks..

Okay. All right. So, let me try to drive through those questions. So, on the R&D front, I think we put in the slide presentation that we anticipate 16 to 17 launches of products in 2016. That's only a piece of forward-looking guidance that we have provided.

So, I think if you could look at them, the 28 products that are sitting down at FDA, it means the remaining of those are at least 15 months or longer. I don't have the exact dates in front of me as far as whether – how many of them are 24 to 36 months or 36 months and beyond.

But I think that does give you a picture that a majority of those products, at least half of them, do fit into the opportunity for launch in 2016.

Other question?.

peak Sales for RYTARY..

Peak sales for RYTARY..

Peak sales for RYTARY, we really have not moved up our position. We think we're on a very, very solid trajectory towards that $275 million to $350 million peak range that we had. And that's not actually peak range, to remind everybody, at a five year number, that was five years post launch.

We thought that was a reasonable approach to take on providing guidance going out, that instead of having peak sales, which could be out in 2023, we put a five-year position that said by that timeframe, we think we'll be at $275 million to $350 range and see nothing, right now, in the trajectory that would make that move at up or down..

And on the ex U.S. partner, as we indicated earlier, we've got a number of folks as a result of the positive CHMP decision in our data room. And we're hopeful that as we get the approval at the end of November from EMA that that will move us closer to actually getting a partner..

And just to clarify here, the $275 million to $350 peak range, out five years, does that include any sales outside the U.S. or is that U.S.

only?.

That is U.S. only. Yeah..

Okay. Thanks..

Thank you..

Your next question comes from Jason Gerberry with Leerink Partners..

Good morning..

Just a couple. Just a quick follow-up on David Amsellem's question.

So for those instances where RYTARY is getting reimbursement approvals, can you just confirm that there are no step edit through a generic, or in a mild to moderate patient that you have to step through a generic, just looking for some sort of understanding of sort of the mechanism by which those approvals were secured? And then, second, just on EpiPen, historically this has been a market where a lot of administrators have kind of been loyal to EpiPen, and obviously, I'm not sure, as the Auvi-Q issue kind of probably heightens those concerns about different products and potential for misuse and I believe the majority of your economics are being captured through the authorized generics.

So just kind of wondering how you shape that market opportunity and go after the dislocation there..

Yeah. Let me just kind of address both of those. So, as we've said from the very beginning of the launch of RYTARY that almost all of our patients go through a step edit, whether that's a contract to find step edit or not in that these are all conversions that are coming from immediate release carbidopa-levodopa and moving to a modified release form.

So, whether there's a requirement in our agreements or whether it's just simply the way it goes, almost – I mean, we think probably close to 95%, 98% of our patients are coming off of immediate release carbidopa-levodopa and moving to RYTARY because they're now trying to seek advantages of the product which are those that are related to now you're at a little higher dose, you've got more dosages going on, and you're trying to eliminate some of the fluctuations.

So, we don't really look at it that way and, in fact, have managed our contractual agreements to minimize the amount of rebate the we provide and accept step edit in some cases because they will be coming off of those..

Yeah. And, in fact, to amplify on Fred's point, it's part of a natural process with RYTARY. Most of the patients have been on immediate release carbidopa-levodopa. They're starting to experience wearing off or their symptoms are coming back prior to the next dose of immediate release carbidopa-levodopa and they physicians are making the conversion.

So, again, it's part of the natural process that was built into our entire clinical trial program and, therefore, not surprising for us..

Yeah. So, again critical that that's on a negative to where we're going. That's exactly what we're trying to get done, and we consider that a positive because it helps you in your negotiations with the third-party payers. Going over to epinephrine, obviously, there is a recoil that happens from any recall that goes on in the marketplace.

I think Sanofi had about a 12% share. I'm guessing that will make most people rethink what epinephrine product they're using and evaluate that very aggressively. We do anticipate most of that share will probably go over to EpiPen because it's a more known brand. That's okay with us right now as we start to build better confidence in our supply channel.

And we're now essentially trying to make sure that we can supply to those customers who have been converted over.

Where we are getting usage is in many of the school and emergency room programs, a lot of ambulance that are carrying our product, and in the 21 states where substitution is allowable of a BX-rated product for epinephrine, we see higher conversion in those areas than we do in other areas and that's where our marketing effort has been focused.

So, we....

Fred....

I think the right way to think about this is this is going to be a slow-build product for us and it's going to become a matching of our ability to supply consistently and the ability of the patients and the willingness of the patients and interest of the patients in making a conversion over to our product..

Fred, if I could just squeeze a follow-up in.

So, on the combination of those sources, be it either states that allow substitution, schools, et cetera, is that something like 10%, 15% of the market as you think about in the long run, if you kind of quantify that opportunity?.

Probably – actually much higher than that. I mean, if you think about the states that allow substitution, there's three of the larger states in the country that do allow BX substitution. So the potential is probably much higher than that. So, we haven't really put a cap on what we think we can do with this product.

And obviously, like others in the market, we are working towards (51:28) the ultimate, which is an AP rating for an epinephrine auto-injector..

Great. Thank you..

Our next question is from Chris Schott from JPMorgan..

Hi. Thanks. This is actually Dana Flanders on for Chris. Just two questions for me. First, on the Generics business.

Now that Hayward is fixed and we can start thinking about a normal flow of product approvals, how should we think about just normalized generic profitability? I know it's heavily dependent on new launches and margins have fluctuated a lot in the past, but how should we think about just run rate profitability and that ability for margin expansion off of maybe 3Q levels once launches start to pick up again? And then just the second question on business development.

I know you've talked about, in the past, challenges of finding kind of the right CNS asset to build out your branded portfolio.

So, at what point do you consider moving outside of CNS and maybe into another vertical? Is that too early to consider or if you felt the right asset came along with maybe some infrastructure or sales force, you would consider that and be ready to take action? Thanks..

Sure. So, let me address the profitability first. Obviously, new product launches have their highest profitability when you bring them to the marketplace. And that is a big focus of where we're going. I think the flow that you're seeing from generic products out of our mix, we've got two sources, actually three sources of flow.

The first is coming from Core, which is well ahead of us in their Warning Letter lift. They had multiple products approved in 2014 and then five in 2015 and have – many others are sitting there in their queue. Behind that, then you have Hayward, that's now just starting the release process of products. So, we see this as a nice evolution.

And obviously, the next step for us is to make sure that our supply chain becomes more efficient so we can drive gross margin to a little bit higher level. Almost all of our products are of either mild to extremely difficult in nature. We have not – in the past, the product selection process did not pick commodity-type products.

And so, those by nature will have a much higher profitability opportunity so long as we're one of the first wave of companies that come into the marketplace. As far as the second question, which I can't remember..

The BD..

BD..

Oh, business development. Yeah. So, yeah, so, we are still digging away at CNS. Obviously, there are some – many opportunities out there.

Ideally, for us it would be doubling down in Parkinson's disease and/or in migraine, and then expanding into some of the other areas that a neurologist spends most of their time, which is in epilepsy, multiple sclerosis and in pain. We have been evaluating, and actually for years, this company had been evaluating alternative therapeutic areas.

We have our hit list of what would excite us and what opportunities there would be. As I think I've said in previous calls, we would move into another therapeutic area but only if we could buy our way into that area in a much larger way. I can't see us green-fielding into another therapeutic area at this particular time..

Thank you..

Our next question comes from Randall Stanicky with RBC Capital Markets..

Great. Thanks. Fred, just to start off with, can you just expand on the BD environment? In your earlier comments, you talked about it being a bit more difficult, perhaps given some of the market selloff here.

Are private companies still looking for the same valuations? And how close are we to potentially announcing something? And then I have a couple of follow-ups..

Yeah. So, we've seen the valuations come down. We've also seen some of the private companies actually pull some of their activities back out of the marketplace because they were probably just seeking higher valuations than would be anticipated because the market would support that.

So, that's part of what we've done in our valuation, is we stood pretty firm to say that we're going to do appropriate buys at the appropriate price that fit our strategic objectives and our needs. Because right now, as you look at the company, we've got extremely strong growth through our internal pipeline, our internal portfolio.

And so, the need and the reliance on a set of business development activities, they're simply not there. We have set up the company very nicely, though, with our balance sheet and our cash flow to be able to participate in this marketplace even if it is a bit choppy out there in some of the financial support.

So, I think our strategy kind of stays the same as far as what we're doing. And as far as predicting when we might close a deal, I'm not going to go out on a limb and describe that now.

We are hopeful that will be part of the announcements of some of the divestiture activities, but are also deeply engaged in activities around both brand and generic acquisitions.

And you had a follow up?.

Yeah. Just two quick follow-ups. I'm not sure if you've stated what the number of target action dates you have, but if you could, that would be helpful. And then, secondly, again, I may have missed this, but we've talked about an Albenza update around lifecycle happening before year-end. We're getting close to year-end.

Maybe an update there, if you could help us? Thanks..

Now, let me start with Albenza first. We actually have said we're going to update before end of year, with the hopeful attempt or thoughts of there being approval – still looking towards that. Obviously, we're not going to accentuate or describe what our lifecycle management or our next-gen product looks like.

Just for competitive reasons, now wouldn't be the time to do that. We are hopeful still that something can happen in the very near term and are preparing for that. But as you've seen by the prescriptions, Albenza itself has been fairly strong.

As far as target action dates, actually, we've watched the noise out – being published by your side of the audience as far as number of target action dates on products. Ours sit right around in that same vicinity of somewhere between 35% and 50% of our products have target action dates.

And some of the critical products that people are watching do have dates on them. We, like others, have not been announcing those target action dates because they, again, don't really say that you're going to get an approval. They just say they're going to act by that. So....

Got it. Thanks, Fred..

Our next question comes from Elliot Wilbur with Raymond James..

Good morning, Elliot..

Hey, Fred.

How are you?.

Good..

Just I have two quick follow-up questions for you, Fred, and then a follow-up question for Michael as well. First, for you, Fred, with respect to the epinephrine product you've sort of alluded to the fixing, I guess, of the supply chain issues that have historically held that product back.

But maybe if you could just talk to us in terms of capabilities and sort of, ultimately, what percentage of that market do you think you could actually supply? I mean, you've seen a nice bump up in scripts this week. If I have the numbers right, looks like you've a little bit over 4% share.

But just based on your current capabilities, could you supply 10% of that market on a unit basis or 15% just maybe some idea of kind of where you stand there in terms of supply capability..

Sure. So, I mean, I'll be a little elusive on that, but obviously, we are working towards being a supplier under an AP arrangement, and hoping that the product will get approved in that environment at some point in the future.

So we would need to be in a position to supply much greater than 5%, much greater than 15%, and the ability to be able to be a reasonable taker in the market. So, that's our long-term plan. For short term, I think what you'll see is a slow, steady, aggressive growth that will match up our supply capabilities to the demand that we can generate.

And what we've seen is a limitless ability at this point to generate growth or more demand. We've been simply handcuffed by our ability to continue to grow on the supply side.

We see that, I think, all your numbers we could far exceed those overtime and I think the time to watch for us is during second quarter when there's a real build in the amount of epinephrine that's used..

Okay. And then just to follow up on your earlier comment on seeking an AP rating.

Are there any critical steps or developments or anything that we on the outside should be thinking about with respect to that process in the next 12 months to 18 months, or is this just something that could be behind the scenes at FDA for a long period of time and really no sort of real time line or visible metrics to those of us on the outside?.

Sure. So, I think you've seen at least one other competitor announced an anticipated delay in their timing, which shows that there is engagement with the agency on what is required. We have that same active engagement. We expect that the withdrawal of the critical product may make the agency spend a little more time thinking about this.

Obviously, Mylan has filed Citizens Petitions. We don't anticipate that they're done also with that set of activities. There are critical steps that are necessary for an approval of any product like this where you have a drug and device and we're well aware of those and we're working our program to help meet and exceed all those requirements..

Okay. Then my second follow-up question for you, Fred, as you alluded to expectation of sequential R&D increase in the fourth quarter. And just speaking specifically about the generics segment, I mean, the company's R&D spend historically has been in the $40 million to $45 million range I think for the last five years.

And then obviously in third quarter the annualized numbers closer to $56 million. And I assume it goes up a little bit from there. But assuming you're kind of spending $60 million annually on generic R&D exiting 2015.

Is that a good number to think about as sort of a new baseline going forward given that you're kind of in a catch-up mode there in terms of rebuilding the pipeline or do you think it could actually accelerate from that level?.

Well, we haven't given guidance for 2016 yet. So we probably don't want to get out in front of ourselves and do that here. But I think you can anticipate some sequential growth in that.

The out-of-pocket costs are the ones that are designated towards R&D activities whereas the people cost have been in existence during this whole sequence and whole cycle of slowing down of R&D and then reinitiating it.

So, I think what you're seeing is just a shift in the amount of dollars being spent on pure R&D versus the dollars spent on remediation and PAI readiness..

Okay. Then, one final question for Michael with regard to RYTARY as well. Obviously, we're kind of more than six months into sort of the active launch and detailing phase of the product.

Maybe you could just give us some updated metrics in terms of the number of targeted physicians that you've hit, whether there is any plan to expand the targeted physician audience and sort of the average number of repeat calls to the current targeted audience and how many of these physicians have actually written Rxs? And then just real quickly on IMS data as well.

Looking at that, still seems to be divergence in NRx versus TRx trends and still seems like NRxs are shrinking as percentage of total. So maybe just talk about what you're seeing in terms of new patient starts and whether or not the sort of the stagnation in NRxs is becoming more of a concern at this point? Thanks..

Okay. Elliot, that's quite a list there. Let me see if I can run down them for you.

So, in terms of calls data, we have about 1,800 physicians that we have targeted which comprises both MDS physicians, general neurologists, as well as select primary care physicians that essentially act like general neurologists from the standpoint of prescribing Parkinson's drugs. Those have been the center of our activity.

As you could imagine, the majority of our efforts have been focused around the Tier 1, which should be the MDS and higher prescribing general neurologists. In terms of number of physicians who are writing prescriptions, I think number of unique physicians who are prescribing new product around about 2,600 at this point.

And keep in mind that these have multiple prescriptions coming with them. So, in terms of the new prescriptions, actually if you look at the data, of late, new prescriptions have been growing quite nicely.

And I think that is coincident with our emphasis on the mild to more moderate physician which is where we think physicians will experience better results. It's all very consistent with what we hear from the physician community themselves....

And maybe just to kind of close a couple things on that. We had announced at the beginning of the year we anticipated that we'd expand the selling organization. We're in the final stages of looking at the exact numbers. But I think we're looking to go somewhere into the hundreds or a little north of hundred range.

That was anticipated based on the success that we're having with RYTARY but the desire to get a little more reach and frequency into this audience, I doubt that we'll expand the audience reach very far, but I think this will allow us to increase the amount of time we spend with them.

And I think the new to total right now – one of the things that disrupts that whole process is when you start to adjust and alter the amount of samples that are put out into the environment.

So, until you get kind of a normalization of the amount of new to totals to then the whole mix is a little bit disrupted by a little excess of samples into the community..

Okay..

Thanks, Elliot..

Our next question comes from Gary Nachman with Goldman Sachs..

Good morning. This is Divya Harikesh on behalf of Gary. I just had a question more broadly on pricing.

Given the scrutiny pricing has come under, can you comment on the pricing environment as you see it and your ability to take price within the branded as well as generic portfolio?.

Sure. Obviously, there's a lot of noise on pricing going on right now. As we mentioned in the prepared remarks, our growth in third quarter – actually, our growth over the whole year has been generated by volume and new product launches. And, in fact, in third quarter, we had a overall price decline of around 1%.

So, we had greater volume increases than we did on price. And that's driven primarily by the generic – just the general diminution of the generic marketplace, which is very slow kind of reduction in some of the prices of some of the older products. We have taken price from time to time. We generally do that based on market conditions.

We do that based on what we see in the competitive environment. And so, we will avail ourselves of the opportunity to take price but we've not done anything that we think would ever raise the scrutiny of any of the regulatory authorities..

Thank you..

Thank you. Our final question please..

Our final question comes from Sumant Kulkarni from Bank of America..

Thanks for taking my questions. First one is on business development. It's a two-parter. Could you characterize the competition that Impax is facing on pursuing alternate dosage from acquisitions on the generic side? And on the branded side, I know you're looking at assets that might be commercialized or are Phase III or Phase III ready.

How has that mix change given that you might be facing a new spec pharma reality now with keeping assets on the market successfully commercialized for a long time especially after acquisition? And my second question is, what's a normalized level of CapEx and operating cash flow that we could expect? Thanks..

Okay. So, on competition in business development, it's busy out there. And you see a lot of companies are engaged in almost every asset that we've looked at. And we go into it expecting that there'll be multiple competitors across the table from us.

As far as looking at alternative dosage form opportunities, obviously, everybody and their brother is looking at that, but it's a matter of whether you've got the right fit for the product in from the seller's perspective and it's the right fit for us on the buyer side.

And so, we've been successful at landing a couple of partnerships on the R&D front, as well as, very active in those discussions on alternative delivery forms in generics. On the brand side, it is very busy. You are correct that there are people who have put products into the marketplace for sale, and then have pulled them back.

We see that mostly from the private equity folks who were looking to seek some of the higher margin or the higher multiple opportunities that were going on during maybe first and second quarter.

But we are optimistic that there are still opportunities that are transactable, and are continuing along our line of very aggressive pursuit on both generics and on brand. So, as far as the normalization of CapEx, Bryan..

Yeah. On CapEx, you saw in the prepared remarks we brought our full year guidance down to $25 million to $35 million. And you can see historically, once we finished up the large Taiwan plant expansion, sort of where we've been, we're in the middle of our budgeting cycle right now so we're not going to give guidance on that today.

But you can see historically where we've been. And then operating cash flows....

I believe they have disconnected..

They have?.

One second. Ladies and gentlemen, thank you for your participation today. This will conclude today's conference. You may now disconnect..