Teligent, Inc.
Q2 2015 Earnings Call Transcript

Published: 24 Jul 2015

[Operator:]

Good afternoon, and welcome to the IGI Laboratories Inc. second quarter 2015 results conference call. [Operator Instructions] Except for historical artifacts, the statements in this presentation as well as oral statements or other written statements made or to be made by IGI Laboratories, Inc. are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties. For example, statements about the company's anticipated growth and future operations, the current or expected market size for its products, the success of current or future product offerings, the research and development efforts, and the company's ability to file for, and obtain U.S. Food and Drug Administration approvals for future products are forward-looking statements. Forward-looking statements are merely the company's current predictions of future events. The statements are inherently uncertain and actual results could differ materially from the statements made herein. There is no assurance that the company will achieve the sales levels that will make its operations profitable or that FDA filings and approvals will be completed and obtained as anticipated. For a description of additional risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission, including its latest Annual Report on Form 10-K and its latest Quarterly Report on Form 10-Q. The company assumes no obligation to update its forward-looking statements to reflect new information and developments. I would now like to turn the conference over to Jason Grenfell Gardner, President and CEO. Please go ahead.

[Jason Grenfell Gardner:]

Thank you, Kerry, and good afternoon, ladies and gentlemen. Welcome to this IGI Laboratories business update, covering the second quarter of 2015. I am Jason Grenfell Gardner, the President and CEO of IGI. And I am here today with Jenniffer Collins, our Chief Financial Officer. Thank you for joining us. On our call today, I'd like to give you an update on the recent progress in the business, as we continue to build our foundation. You will all doubt this, remember that this quarter started off with some significant turbulence, but through the combined efforts of our team, we've been able to address the market issues and continue to execute on our strategy. Today, I will give you an update on our underlying business and the developments in our diversified pipeline. Let me begin by talking about the results for the second quarter of 2015. Revenue for the second quarter was $8.9 million, up 37% over the same quarter of 2014. Revenue significantly outperformed our expectations for the quarter, as we were able to address some of the competitive issues with the Econazole Nitrate market that we faced in May, through the addition of new customers. We continue to keep a close eye on market conditions as they evolve, to ensure that we are well-positioned for future changes. Overall, we've seen market conditions across our portfolio stabilize in the second half of the quarter, and we're optimistic about the market trends for the rest of the year. We reiterated our guidance with today's release, forecasting $35 million to $40 million in net revenue for the full year, with a sequential increase in margin quarter-on-quarter for the remainder of the year. This experience over the past quarter, reconfirms the importance of the work we're doing at IGI to diversify and expand our pipeline and product portfolio, both through our organic R&D efforts as well as through our business development efforts. In R&D, our team has been remarkably productive this year. We filed six ANDAs year-to-date, including today's filing, which brings our total addressable market based on trailing 12-month IMS data to $1.2 billion. As we've discussed in the past, we're really beginning to see the impact of the Generic Drug User Fee Act or GDUFA on the FDA's review of post-GDUFA Year 3 filings. If you'll recall that these are submission to the FDA after October 1, 2014. We believe this is a significant advantage for IGI, as nine of our 28 filings have been submitted in GDUFA Year 3. And with up to 14 more filings anticipated for the balance of the year, more than half of our pipeline will be subject to this frankly blistering pace of review. This review pace, however, also poses some challenges, as the FDA has established some strict turnaround times to respond to their information request. For example, for some requests, we are only given 10 calendar days to respond to the FDA. As a result, you'll remember that we created a special team dedicated to ensuring that we are responding to all of FDA's enquiries in a timely manner. Of course, when we're dedicating to resources to responding, we're taking resources from the same teams that are responsible for filing our new ANDAs. That's a real challenge. However, we stepped up our recruitment efforts to support these teams to give us the best shot at aiding our ANDA filing targets for the year. During the quarter, we also filed our first Prior Approval Supplement for an injectable product. This is one of the products that we are working to bring back to the market as part of the AstraZeneca portfolio that we acquired late last year. I am particularly excited about how quickly we've been able to get this done, as well as the FDA's willingness to work with us to bring this product back. We continue to remain optimistic that we will see this product available to patients by the fourth quarter of this year in line with our expectations. To support the broader rollout of our injectable, complex and ophthalmic portfolios, we've been putting in place a lot of the necessary foundations. We've hired our first injectable development scientist, assigned five CMO, CRO agreements for injectable and ophthalmic products, and have two further tech transfer CMO agreements in the final stages. In addition, we just signed an agreement to develop an exciting product for what has historically been an orphan drug market. We see a unique compelling commercial opportunity here, and at the same time maybe we can significantly improve patient access to a lifesaving medicine at an affordable cost. You recall that a key element of our TICO strategy is that it enables us to pivot around different manufacturing capabilities, while leveraging the expertise of our organization. We just initiated two development projects that will do just that. One of them leverages our intellectual property and a differentiated delivery system to improve the commission experience and address product safety concerns. The second project combines our R&D teams know how of a particular molecule with the unique capabilities of our partner, so we can develop a product into the attractive topical firm market. Finally, with our complex business strategy, we completed a pre-IND meeting with the FDA for our first of two targets. Based on the FDA's feedback and the requirements for significantly larger clinical studies, then initially identify it, we've decided to postpone this development and concentrate on our second target, which we believe will have a greater likelihood of lower clinical development and hurdle. With all these activities, our R&D is firing on all cylinders and our pipeline is getting more diversified, including external partnerships to create value in unexplored areas. In addition to our organic R&D, we continue to work diligently to undercover further product opportunities that can be accretive to our business. To be fair, we've been involved in a number of projects over the past six months and sometimes these don't always pan out. We remain committed to putting our capital to work in a smart way and are optimistic that we will see some movement on the business development front over the coming months. It's been an exciting quarter and certainly one that outperformed our expectations. We're looking forward to continuing to execute our plan and building a diversified especially generic business. Now, let me turn the call over to Jenniffer to discuss the numbers for the second quarter of 2015.

[Jenniffer Collins:]

Thanks, Jason. Good afternoon, everyone, and again, thanks for joining us today. Our total revenue for the second quarter of 2015 was $8.9 million, an increase of 37% over the same quarter last year. Revenue for the second quarter of 2015 included $6.7 million of net revenue from the sale of our own IGI label products compared to just $3.4 million in the same period last year. The increase in net revenue was attributed primarily to additional revenue generated from our Econazole Nitrate Cream 1% product as compared to the same quarter last year. Revenue from Econazole represented 51% of total revenue in the second quarter of '15 compared to 26% in the same quarter last year. Our total revenue in the second quarter exceeded our projection of $7 million to $8 million, primarily as a result of our success in winning additional bids to sell our IGI label products. Our chargebacks, rebates, another allowances continue to increase as a percentage of gross revenue as the decline in pricing with certain customers for the Econazole product took effect throughout the quarter. As Jason mentioned, we believe that the market conditions for Econazole has stabilized. And now more than ever it's clear, our strategy to continue to expand our portfolio of products is important. Finally, on previous calls we have discussed the impact on net pricing for our IGI label products resulting from the pricing transparency created by the customer concentration of the major wholesalers and retailers. We've seen this trend start to stabilize in the second quarter of 2015. Product sales from our contract services business was $2.2 million in the second quarter of 2015 as compared to $3.1 million in the second quarter of last year. Our decreased contract manufacturing revenue in the second quarter of 2015 as compared to the prior year was primarily attributable to the timing of purchase orders from two pharmaceutical customers and the absence of a large cosmetic customer in 2015 that we transitioned out of the facility late last year, and the timing of key milestones related to our product development agreements in the second quarter of last year. Our contract manufacturing and formulation services revenue from our pharmaceutical customers represented 75% of second quarter revenue as compared to 81% last year. Sales of our OTC and cosmetic products were 25% in this quarter compared to 19% last year. As we've discussed before our contract manufacturing business is a make-to-order business, there may be some variability in the percentages of our contract services revenue resulting from the sale of our pharmaceutical products quarter-to-quarter. However, we have been successful year-over-year in the transition of our customer base to include more pharmaceutical partners. As expected, we were able to generate a gross margin of 41% in the second quarter of 2015 as compared to the 45% in the second quarter last year. The decline is a result of our product mix, particularly from the slight increase of revenue attributable from our cosmetic and OTC contract service customers, in addition to a slight decline in our revenue from formulation services this quarter compared to last year. We've indicated our product services revenue will decline in 2015 and into the foreseeable future, as historically we engaged in these types of arrangements to utilize our R&D resources and to be the engine to generate contract services revenue. As our strategy continues to focus on expansion of our IGI label business centered on our TICO strategy, we expect these trends to continue year-over-year. SG&A as a percentage of sales for the second quarter of 2015 and 2014 were 24% and 18%, respectively. In the second quarter of 2015, we incurred additional professional fees, as we continue to expand and grow the complexity of our business as compared to 2014. We do plan to continue to manage our administrative costs, while expanding our customer base and product portfolio, but we do expect to make some additional investments in SG&A overtime to support our growth. Consistent with our TICO strategy and our dedication to building our foundation and to expand our product portfolio, we continue to invest in R&D. We spent $3.4 million in the second quarter of 2015 as compared to $2 million last year. In order to continue to expand the pipeline and drive shareholder value, we expect to submit up to 20 ANDA filings in 2015. We will continue to increase our R&D spending this year, as we focus on expanding our portfolio of generic topical pharmaceutical products, adding to the 28 submissions we currently have on file with the U.S. FDA. We have also begun the recruiting process prior to build our organic pipeline in the injectable complex and ophthalmic markets. As Jason mentioned, we hired our first injectable R&D scientist and we look forward to adding injectable ANDA submissions to our pipeline in 2016. We expect that total R&D in 2015 will be in the approximate range of 35% to 40% of total sales, and we understand the supplies for our industry, but based on the opportunities we see in our core markets as well as the increased piece of responses from the FDA, that Jason talked about, we think it's necessary to make these investments as quickly as strategically possible. The increase in R&D cost will be driven by our plan to expand our R&D team and the funding of additional costs required for outside testing and beta construction studies. In the second quarter of '15, net cash used in operations was $5.6 million, which included $2.6 million of R&D expenses, and the payment of interest related to our convertible debt offering in the amount of $2.7 million. Our continued investment in our portfolio expansion through our own organic R&D development is critical to IGI's future. In the second quarter of '15 cash used in investing activities was $1.1 million, primarily related to the upgrade of equipment used in our topical manufacturing operations. We have also continued the planning process of our expansion of our existing facility located in Buena, New Jersey. We have spent the last several months preparing diligently to have a plan in place later this year. This planned expansion of our existing topical manufacturing plant is now scheduled to include the start of our injectable manufacturing and R&D capabilities. We will continue to update you on our progress on this front throughout the year. In the second quarter of 2015, IGI recorded net income of almost $9.4 million compared to a loss of $0.3 million in the same period last year. Net income in 2015 includes a non-cash gain of $14.5 million related to the accounting for the mark-to-market of our derivative liability, in addition to non-cash interest expense of $1.6 million. As you know, in December of 2014, we completed our offering of $143.75 million, 3.75% convertible senior notes, which after fees helps in strengthen our balance sheet, and we ended the second quarter with over $160 million in cash. In connection with this offering, we've recorded an original derivative liability in the amount of $43.7 million. At our Annual Shareholder Meeting on May 20, 2014, the expansion of our authorized share count from 60 million to 100 million shares was approved by our stockholders, and resulted in the mark-to-market of this derivative for the final time. As of June 30, 2015, the remaining derivative in the amount of $18.3 million was [ph] re-pass to equity. And going forward, the company will no longer be required to mark-to-market this liability, as it's now part of equity. And we will only need to record the future amortization of the existing original assured sum. This already amounted to $40.2 million as of June 30, 2015. Year-to-date our net income has been reduced by $3.3 million, as a result of the amortization of this discount. The remaining liability will continue to be amortized over the five-year term as announced. After this transaction, we thought it would be helpful for investors to review our adjusted EBITDA, earnings before interest taxes and depreciation and amortization as well as adjusted net income. As you may have seen we've now included in our earnings release non-GAAP disclosure related to how we calculate EBITDA and adjusted EBITDA and adjusted net income. We will continue to provide this information as long as we determine it will be helpful to investors to monitor the operations of our business, excluding certain items as outlined in the tables in our release. We've had several investor conferences this quarter, and we plan to attend the conferences hosted by Craig-Hallum, Morgan Stanley and Avondale Partners in the upcoming months. Jason and I have dedicated a lot of time to the investment community this quarter in the hopes of continuing to update you on our progress and meet with new investors to introduce them to IGI. We welcome those meetings to continue to demonstrate our commitment to continuously improving our communication with our investors and our potential investors. We try to be as transparent as possible, and we continue to align our strategy with the creation of shareholder value. Jason and I are grateful for your participation today, and look forward to updating you soon, and hopefully seeing you at an upcoming conference. I'll now turn the call back to Jason for his closing remarks.

[Jason Grenfell Gardner:]

Thanks, Jenniffer. Before that, while we pause in, let's open this call up to some questions. Kerry?

[Operator:]

[Operator Instructions] Our first question comes from Matt Hewitt of Craig-Hallum Capital.

[Matt Hewitt:]

First off, on the Econazole situation, it sounds like you're able to claw or grab some incremental share. Could you update us on how things sit with the one channel partner, if you will? Have you been able to garner any additional share with them? And then, Jenniffer, you just provided a number, I think you said it was 51% of sales in Q2. Could you give us what that percentage was in Q1?

[Jason Grenfell Gardner:]

Matt, thanks for your question. With Econazole, most of our efforts have been focused on finding new places or new customers to be able to makeup some of the market share loss that we saw. With the existing channel partner that we originally have that share with, obviously we've seen that go through some changes, and we haven't gone back to them to try to increase that share at this point. I think we're still on that point of time to make sure that we're going to place of market stability. So there hasn't been a real willingness to have that conversation. Let's see how the market evolves here over the course of the coming months, and we'll continue to try and make sure we get the best addition for those products that we can at any given time.

[Matt Hewitt:]

Jenniffer, do you have the number by chance?

[Jenniffer Collins:]

For Q1?

[Matt Hewitt:]

Yes.

[Jenniffer Collins:]

I am pretty sure with 54%, but I will double check that number for you Matt.

[Matt Hewitt:]

And then, again, another point of clarification. I think and I might have misheard you, but Jenniffer when you were speaking, I think you said up to 20 ANDAs this year were expected to be filed. I think previously you discussed as many as or more than 20 or 20 at a minimum type of a situation. Has the changes with the FDA and GDUFA, and essentially requiring this fast turnaround, has that changed or potentially changed the number of ANDAs that you may or may be able to submit this year?

[Jason Grenfell Gardner:]

Well, it's certainly putting stress on the system. If you think about it, we've filed 9 ANDAs in what is GDUFA Year 3. All those 9 ANDAs, six of them are under active review and have been accepted for filing. There have been over 20 communication points with the FDA on those filings, whether that's information request, labeling efficiencies, filed efficiencies and any other sort of communications, each one of those comes with that short fuse for turnaround. But it's also pulling on the demands of the analytical research team. It's pulling on demands of the regulatory team, and it's pulling on the demand of the quality team. So we've been recruiting to be able to deal with that increased workload, but it's certainly a really heavy pull on the organization. The second thing that I would add to that is that the FDA has increased its expectations around in-vitro release testing for topical products. And so we've had to create an almost completely new team to develop in-vitro release testing methodologies for these products, which is a pretty complicated process. So our goal is still to get to the 20 number. What I would say is, I would be happy getting to 18, 19, 20, as long as it means that the installed pipeline is moving along quickly and we're responding to the FDA. Frankly, it's not in my mind really so important or as important how many we put into the FDA, it's more important how many we get out the other side. And the more I can do to make that happen I think the better position we'll all be in.

[Matt Hewitt:]

And then one more for me, then I'll hop back in the queue. The Prior Approval Supplement, is that included in the $1.2 billion or are those purely the ANDAs that you submitted?

[Jason Grenfell Gardner:]

Yes, it's not included. Eventually I think we'll start breaking those out into separate numbers. But it's not included in the $1.2 billion.

[Operator:]

Our next question comes from Scott Henry of ROTH Capital.

[Scott Henry:]

And for clarification, it was 53% in Q1. I just checked the 10-Q. Just a couple of questions. I guess, Jason, it sounds like Econazole Nitrate, the outlook improved during the quarter versus your baseline expectations and you did maintain revenue guidance. Is the guidance more conservative now would you say? I mean, you were more optimistic given -- I'm just trying to get a sense of how much that improvement carries throughout the rest of the year?

[Jason Grenfell Gardner:]

I mean, we go through a process of looking at this forecast on a regular basis. And while we've been able to pick up some share on Econazole to help us through this quarter, this is still not something that I feel totally concrete about. And I always like to see a few weeks of sale, a few months of sales, so little bit of continuity and a little bit of stability at the market as well as continued predictability from the market channel to have that good feeling. So with Econazole being a specific part of that forecast that little bit of variability that we've just gone through makes me a little bit more circumspect about trying to increase the forecast beyond where we are. Having gone through that forecasting exercising on pre-granular basis, we feel good about where we are that 35% to 40%, and I think we're going to stick with that.

[Scott Henry:]

And when I look at the weekly prescription data, I mean is the product basically held up at 24% to 25% share? And then just the last week it dipped down to 21%. Is this data, kind of severely dated, I mean do you think this there is a lag in it? I'm just wondering if the weekly data is of much use in the current dynamics.

[Jason Grenfell Gardner:]

Yes. I mean I think whenever you go through some of these big market changes, the data lags. If you go back and look at some of that script data from couple of years ago, you would have continued to see [indiscernible] script even though we knew that there wasn't [indiscernible] inventory in the channel. So depending on what the reporting sources are there is certainly a lag there that impacts how quickly you see the changes in the underlying data.

[Scott Henry:]

And then I guess it will be for Jen. The comment about operating margin approaching breakeven in the fourth quarter '15. Should I just think about that as the operating profit line before any interest expense or anything below that line?

[Jenniffer Collins:]

That's correct, Scott.

[Scott Henry:]

And would you expect to be able to maintain that kind of breakeven-ish operating profit into 2016, I would certainly expect given the approvals, but just want to get your thoughts?

[Jenniffer Collins:]

I mean obviously, we're not talking about '16 guidance here, but I think our expectation is as we continue to get approvals, we continue to grow share that there would be improvement from our breakeven margin into 2016, that certainly is a goal. Again, the major driver there is going to be R&D cent.

[Scott Henry:]

And certainly Econazole Nitrate would be at a steady state by fourth quarter.

[Operator:]

Our next question comes from Rohit Vanjani of Oppenheimer.

[Rohit Vanjani:]

Now, that you've had a couple of months to digest the dynamics of the Econazole market, I think before maybe you thought that it had to do with a potential acquisitions going on. How do you view pricing playing out in that market or has your view changed over the past couple of months?

[Jason Grenfell Gardner:]

The dynamics that drove that initial change certainly seem to be working their way out. I mean we haven't seen any other instability in the market since our last call. So to that end, I think the market has been more stable.

[Rohit Vanjani:]

So you see the pricing that you saw kind of take share away from you, you see that continuing going on for the remainder of the year?

[Jason Grenfell Gardner:]

I wish I could predict pricing. So right now I think there doesn't seem to be any reason that it wouldn't be stable, but I think we'll have to see how it pans out.

[Rohit Vanjani:]

And then do you see kind of elevated rebating in the retail channel for Econazole for making more hesitant to raise guidance if you did better than you thought you were in 2Q?

[Jason Grenfell Gardner:]

I mean I think we talked about doing better than we thought we were in 2Q. I mean we were sort of $900,000 over the top end of where we were, and we gave that guidance 36 hours after this major turbulence started in the business. So I mean I think we're still being very granular about how we put together that forecast and we feel pretty good about where we are.

[Rohit Vanjani:]

And then on the pipeline, I think last quarter you talked about five ANDAs submitted since the start of GDUFA Year 3, since up that number, but there were three internal request, one deficiency letter, one request for labeling, what were the status for those five products or what is the update on those five products?

[Jason Grenfell Gardner:]

Well, all of those have continued to advance, and what we've seen is again this really rapid turnaround from the FDA, and we have been for every deficiency or every request that we've receive from the FDA, we've been able to respond to them within the given timeframe. And so as a result, the review had been continuing to progress incredibly quickly. I'm very optimistic that that we're seeing great progress out of GDUFA Year 3.

[Rohit Vanjani:]

And then there were I think seven or so that you've submitted before February 2013, before the ANDA and GDUFA stuff where you had six CRLs and one deficiency letter, are there any update on those seven products?

[Jason Grenfell Gardner:]

No, we haven't put together any sort of again specifics of those various tranches. What I can say is that there's continued to be correspondence. We've responded to the outstanding issues that are there. So I'm not sure that there're currently, in our course, I think everything is with the FDA.

[Rohit Vanjani:]

And then the last one for me on the AstraZeneca products. The drug shortage injectables, the six of them, so one of them you said in your press release was a PAS that you're going to launch at the end of the year. I mean, I kind of thought of PAS as is being a longer timeframe is two years, is this an anticipated CBE-30 product? Is that how you're getting it to on a quicker timeframe?

[Jason Grenfell Gardner:]

No, I think there are two elements of this. The first is that the product is an NDA, so it doesn't go to the usual opposite generic drugs review timeline. And the second is the drug shortage product. And so the FDA has been willing to accept our Prior Approval Supplement with the released data and is accepting the real-time stability data as it's produced. So essentially, while it is a PAS, so it's a major change, you are effectively getting it through the same timeline as the CBE-30, because under CBE-30, we'd do your three months of stability data and then submit it. So you're essentially at four months and were going to be at pretty much the same point through the PAS.

[Rohit Vanjani:]

And the remaining five drugs for this product, where do you stand with those? I mean do you think you can get them on that quick timeframe as well?

[Jason Grenfell Gardner:]

I mean, each one has their own complexity. And as I mentioned in our earlier remarks, we've been actively working with CROs and CMOs to bring each of those back as we can. Some of them face challenges in terms of equipment trends, some of them face challenges in terms of API sources, but we're working through them to the extent that they are drug shortage products, we would be hopeful that the FDA would consider them in the same way.

[Operator:]

Our next question comes from Gregg Gilbert of Deutsche Bank.

[Gregg Gilbert:]

My first question is about contributions from new launches this year. Have you made any changes to that relative to the guidance?

[Jenniffer Collins:]

I don't know. We've been particularly specific about kind of new launches that's included in the guidance, Gregg. We have included obviously revenue for diclofenac sodium, which should get sign on approval earlier this month and we have included obviously some revenue from the injectable product that Jason referred to earlier. Beyond that, there's not much new revenue from new products or new launches.

[Gregg Gilbert:]

Secondly, the sales discount and allowances were about 20% in gross sales. Is that something we should envision being relatively stable based on the current portfolio of products?

[Jenniffer Collins:]

Gregg, I'm sorry. Could you repeat your question?

[Gregg Gilbert:]

The 20% of sales for sales discounts and allowances that we saw, is that a pretty good level to use going forward for the current portfolio of product?

[Jenniffer Collins:]

I think as we've been able to gain some new business with the Econazole, there's kind of different ways that those folks go about calculating the gross demands. And those happen to fall similar to charge them, if those are falling within the kind of our negotiated rebate amount. So that's something that you're going to see continue as long as we will continue to retain our business.

[Gregg Gilbert:]

And then, Jason, I'd liked your comment about our blistering pace of review, I guess the question is what makes you confident that it will lead to a blistering pace of final approvals. Is that just the way you know so far is promising or give any more data you can share sort of deploying that timeline?

[Jason Grenfell Gardner:]

Yes, sure. So we actually have a tracker that allows us to look at when we receive each comment or data point from the FDA. And so that starts with preliminary review, acceptance for filing, first information request, second information request or labeling request to file, equivalents request. And we look at each of those, timing them out, trying really to figure out if there's going to be any degree of predictability around when we should be expecting certain feedback or comments from FDA. And I don't think we have enough data point that to be able to say that we've cracked that. But certainly, directionally, we see some very good things. The second thing I would say is that, as you go through that process and you think about an information request, an information request kind of like a mini complete response letter is looking at all of the questions, issues, concerns that FDA may have with any specific application. Of course, we then have 30 days to put together all of our responses and provide any information or data that they require. Following that first information request, it's customary for us to get a second information request. If any outstanding issues that they may have after having problem with first halves. If you look at the decrease in the number of outstanding data points, as you go through that, you get I think a pretty good idea of how complete the review is and how happy the FDA is with where you are in a file. And as we've been progressing those projects from GDUFA Year 3, we've certainly seen that trend where we're making incredibly good progress. We are getting down to just a few outstanding items on some products, and that in the end has to be the only sign that we can take to let us have a positive outlook.

[Gregg Gilbert:]

Not to put words in your mouth, but it sounds like while stretching the organization, the test you request to the FDA is making are not unrealistic and undoable?

[Jason Grenfell Gardner:]

No, I think that's absolutely right. It's simply the sheer volume is really pretty remarkable.

[Operator:]

Our next question comes from [ph] Ken Mask of Mask Money.

[Unidentified Analyst:]

I'd like to know what -- if there is a shift from a stability testing that is required before you file or submit to the FDA, are many of the, let's say, 12 or 13, 14 or whatever submissions that you hope to produce during the balance of year, are they already in stability testing at this point in time?

[Jason Grenfell Gardner:]

Thanks for the question, it's actually a really great question. They are. So all of these products and batches were made in the first half of the year and are on stability and instability chambers for testing. And so that's also one of the variables when we think about what's going to be the ultimate number for the end of year. Stability testing is not necessarily an assured time point, as you may have impurities that grow overtime. You may have other issues in terms of composition of the matter. And so it's clearly just another part of the process. But for everything that we intend to file in the year 2015, all of those products are on stability. And the team in formulation is already working on the products for the first and second quarters for 2016.

[Unidentified Analyst:]

Given the pipeline that you've already got in the pipeline, what would you guess or estimate the number of competitors that you will be facing when eventually the pipeline clears. I know that you were initially targeting one, two and up to three other factors that are in the marketplace in general. So what would you guess is the -- or what do you know is the number that you would show out there as to what you're going to be facing when you do it? And then secondly, I recall long ago, you were talking about either 25% or 33% share that you would hope to achieve with most of these products that are in the pipeline?

[Jason Grenfell Gardner:]

So we generally looking at the structure of the market, let's say, that on average there are two to three installed competitors we would anticipate being either third or fourth to some of these markets and in some cases we will be the second player in the market, but on average I would say we will be either the third or fourth player in the market. As we do our modeling, we kind of give people, that's here, that says, as a general rule and certainly each case is different, each molecule is different. We would say that there is about a 20% market share target that we have and we would say that there is probably about a 20% discount to the installed market pricing in order to induce switching from installed players to us. So we can take the $1.2 billion of total addressable market, but one piece of math that people can do just to get a general scale would be to take a 20% discount and then take a 20% market share.

[Unidentified Analyst:]

And lastly, I know that you don't have a hard answer on it, because it's not in your control, but with the GDUFA that's out there and the pipeline you have, when would you think it's likely that, basically if you'll please excuse the expression, when will the gush happen or when these things actually start to happen into the marketplace. Are we looking third, fourth quarter of '16 or are we looking in the first half of '17, when you'll actually hope to get approvals and get into the marketplace?

[Jason Grenfell Gardner:]

It is a question that's very tough to answer, but I can give you I think some ideas around perhaps what we're seeing just from the review process and tagging on a little bit to Gregg's earlier questions around the blistering pace of review. Those things that were filed before October 1, 2014, are definitely taking their time, even getting to the process of getting the final approval for diclofenac our of the agency took a lot of frankly effort and work just to get the paperwork out. And I think that that's endemic of the pre-GDUFA Year 3 filings. Same that have been filed after October 1, 2014, they are in a completely different universe. And while we haven't seen exactly what that endpoint is going to look like, remember that the guidance or the metrics that they have, I'll tell you that 60% of those filings should be either approved or given a complete response about it within 15 months. That's a pretty punchy goal. But I think given what we've seen the agency doing, it's not an unreasonable goal, which means you could see approvals from some of our filings that we filed in the fourth quarter of 2014, if you sit along that timeline, perhaps somewhere in the beginning of the 2016. And that's why I think what we're doing in R&D is so important. If the FDA is going to continue to deliver on those timelines, and if we can hold up our end of the bargain by responding in a timely manner, then I think we're going to be in a good position to get those products out of the market more quickly. And if you look at the composition of our pipeline, much more of it is going to be in this GDUFA Year 3, GDUFA Year 4 universe, both in terms of absolute number of molecules and products, but as well as in total addressable market than was the filings from before October 1, 2014.

[Unidentified Analyst:]

I would like to just state on basics of like being a individual rather than one of the institutions that are out there trying to space stockholder friendly for now. I'm actually delighted that the FDA is sort of forcing you for long-term of trialing frantically. I won't say frantically, but in a rush, that's going to manifest in '17 or '18, of where you slow that down and devoted those people to getting a product faster, we will have more profitability earlier rather than a fabulous thing happening after I may be dead being that I'm 75.

[Jason Grenfell Gardner:]

Thanks, [ph] Ken.

[Operator:]

And now we have a follow-up question from Scott Henry of ROTH Capital.

[Scott Henry:]

I just want to get a little more granular on Econazole Nitrate as they start to model it at my desk here. Obviously, it you take 51% times net revenues, you get to about $4.5 million for the quarter. My question is should we think about that as the bottom for Econazole Nitrate, because you said you expect sequential improvement quarter-over-quarter for the remainder of the year. It absolutely could come from other basket, but it's a big driver. So again, the question is, is Q2 sort of the bottom for Econazole Nitrate?

[Jenniffer Collins:]

I mean on a product specific basis, Scott, we were not giving total guidance on this, please. But you have to remember that a lot of the revenue in Q2 came from almost a whole month of revenue at the higher prices that existed before the price change at the higher volumes. So that did have a pretty good impact on the numbers.

[Scott Henry:]

So we should expect Econazole Nitrate to be sequentially down in third quarter from second quarter, which would imply obviously that the sequential growth is coming from other basket?

[Jenniffer Collins:]

I think the numbers for the second half of the year, if you kind of look at where we're at, and if you use that $35 million to $40 million range, right, so quarterly we are at $10.7 million last quarter and just under $9 million this quarter. Depending on the range, we're going to be relatively flat to slightly up in Q3 and Q4 based on that math.

[Jason Grenfell Gardner:]

And so maybe just to add one other piece to that puzzle, Scott. I mean, remember that, as we go through that there were some charges in Q1 related to Lidocaine, there were some charges in Q2 obviously related to Econazole. You're not going to have that drag going into Q3 and Q4, so that should hopefully give you a bit of a bump as well.

[Scott Henry:]

I'm just looking at the fundamentals of Econazole, and I'm trying to get a sense of the market was -- because the market share is pretty easy to fall it hasn't declined much yet, but we have to assume it's going to decline a reasonable amount based on your prior comments. So what I'm wondering is, it has the total market held up more than it would almost appear that pricing isn't as bad as we thought it originally was. I don't know. Just trying to get some color, as I try to model out that category and then the market share to get to the numbers we want to flow out?

[Jenniffer Collins:]

Well, of course, they did let me replace some revenues, so we have been able to gain some additional awards Econazole that we didn't have prior to the price change. And that happened in the second half of the quarter. So we will be still needing to execute on those new contracts in the third and the fourth quarter, and that's certainly what we've included in kind of in our modeling.

[Scott Henry:]

And is that replacing the revenue? Is that at the lower price? I mean, I guess I should assume you're replacing it at the lower price, so it will show up as far as greater share, is that correct?

[Jenniffer Collins:]

We would imagine that it would have to be at that price or lower in order for us to gain the business.

[Operator:]

This now concludes our question-and-answer session. I would like to turn the conference back over to Jason Grenfell Gardner for closing remarks. End of Q&A

[Jason Grenfell Gardner:]

Thanks, Kerry. Thank you for your questions and your participation in this call. We're looking forward to the work we have ahead of us, and I am confident that with the team, we're going to deliver great results. As always, we look forward to continue to connect with you in the coming months, in some of the upcoming conferences and showing our progress at IGI with new investors as well. Thank you for your continued support and have a great evening.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.