Teligent, Inc.
Q3 2015 Earnings Call Transcript

Published: 23 Oct 2015

[Operator:]

Good afternoon, and welcome to the IGI Laboratories Inc. Third Quarter 2015 Results Conference Call. [Operator Instructions] Except for historical facts, the statements in this presentation as well as oral statements and 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 or 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 the 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, Dan. Good afternoon, ladies and gentlemen and welcome to this IGI Laboratories business update covering the third quarter of 2015. I'm Jason Grenfell Gardner, the President and CEO of IGI, and I'm joined today by Jenniffer Collins, our Chief Financial Officer. Thank you for joining us today. We've got a lot to cover today to give you an update on all the progress at IGI over the last few months. I'll cover the highlights of our results for the third quarter, our progress in R&D, our recent announced acquisitions and the exciting change that we're making to our brand. Let me start by touching on our results for the third quarter of 2015. Revenue for the third quarter of 2015, was $11.6 million, up 74% over the same period in 2014. Revenue continued to outpace our expectations for the quarter, as a result of better than expected sales across the portfolio of IGI label products. As a result of this product mix, gross margins improved significantly to 52% for the quarter compared to 39% for the same period last year and 41% in the second quarter of 2015. Taking into consideration these results, we are able today to increase our guidance for the year to anticipate total sales now in the range of $41 million to $$43 million. Jenniffer will provide some further color to this in her discussion of the financials momentarily. Before I move on to talk about R&D, I want to comment briefly on some of the recent volatility in the healthcare market. At IGI, our focus is on developing specialty generic drugs that benefit patients and payers. We believe very strongly in that mission and it seems in reading some of the recent press, that some others may follow a very different strategy. We don't use these captive pharmacy channels in specialty pharmacies that seek to hide pricing from patients and practitioners and in extreme cases seek to limit access to the reference list of drugs required to develop generics. We're hopeful that through the scrutiny that the industry is being subjected to, ultimately investors will be able to differentiate between companies that are doing the right things and those that are not. Part of doing the right thing is doing the work necessary to develop our generic portfolio. This quarter's been incredibly busy on that front, both because of our new filings as well as a result of the frenetic pace of activity by the FDA on GDUFA Year 3 applications. Since the end of the second quarter we have filed four ANDAs, but at the same time, we've responded to 38 requests from the FDA on GDUFA Year 3 and year four applications. Some of you may be a bit disappointed that we've had to revise our filing guidance to 15 to 17 applications for this year, which I understand. Despite our efforts to increase our staffing and formulation, regulatory affairs, analytical development and quality, there was a very real risk that pushing to achieve a higher volume of applications by year-end was sacrificing the quality of the applications themselves, and frankly filing a poor application is not our style. You may recall that, I indicated on our last quarterly call that there's a bit of a balancing act between pursuing new filings and aggressively responding to those already under review. By using some of our team members in the recent few months to respond in a timely manner to the FDA on our existing pipeline, rather than focus solely on new submissions, we believe that we are maximizing the chances of us receiving approvals in a shorter period of time. This accelerated review process with the FDA is incredibly encouraging for us. As a result of this activity, together with an analysis of some of the target action dates that we've received, we made the decision to withdraw four of our pending applications, which had been submitted prior to GDUFA Year 3, but which had not yet advanced in the review process. Our plan is to resubmit these four applications in 2016, together with incremental stability batches and data. Finally, to give some greater context to the value that we're attempting to create through these actions, I'll remind you that around $820 million of the total addressable market is in our GDUFA Year 3 pipeline alone, with a balance of around $600 million in our pre-GDUFA Year 3 pipeline. With the speed of review that we've seen, we believe that there could be around $130 million of annual revenue for IGI achievable through approvals of just these GDUFA Year 3 applications alone that could come before the end of 2016, if we were able to respond to FDA's inquiries in a timely manner. One last thing on R&D. You may have seen that we have our new Chief Scientific Officer, Steve Richardson, who joined us at the beginning of October. I'm personally very excited that we have Steve on board. His background at JHP, Stiefel, Mayne and Lachman Consulting have given him a great experience, which we believe will be a significant benefit to IGI. Steve worked with us for most of 2015 while he was with Lachman, which has made his transition into our organization incredibly smooth. In addition to all the progress we've been making on R&D and the pipeline, we also have had some successes recently in our business development efforts. As you know, we've been very disciplined about sticking to our TICO strategy for topicals, injectables, complex and ophthalmic products, and sometimes that made doing deals hard, however with the recent acquisition of the injectable products from Concordia and the agreement to acquire the assets of Alveda Pharma in Canada, we've been successful at sticking to our strategy. This Concordia transaction has added three new on market injectable products to the IGI portfolio, including Zantac, Fortaz and Zinacef. These products come in a variety of presentations and forms and are manufactured for us by existing contract manufactures for sale using our existing sales infrastructure. On a 12 month basis, we estimate that this product line could generate around $3 million in net revenue and at a gross margin of 45% to 50%. Turning to Canada, while the Alveda transaction is still pending, we anticipate closing in November. The Alveda business provides an excellent platform for us to grow our injectable business on a North American basis. It's pretty exciting. With a great team in Toronto, Alveda has built a portfolio of 17 molecules and 36 presentations provided through a series of European contract manufactures. On a trailing 12 month basis at the end of September, the Alveda business generated C$16 million in net revenue. We expect with continued execution, we can improve on that in 2016 and gross margin levels should be close to 50% above the industry average for products which utilize CMOs. Taken together, these two transactions mean that on a pro forma basis, approximately 30% of our sales would now be in the injectable space. As we move forward on our physical plant expansion, which includes injectable manufacturing capability, we anticipate being able to build a broader pipeline of internally generated injectable products. We still expect this in-house sale manufacturing capacity to be online in 2017. Finally, let me talk a bit about the change we announced today in our brand, our IGI name has been around since 1977, when our business first launched as Immunogenetics, Inc. It was a great name for its time. Over the years, this got shortened to IGI and that's worked well for us. Now however, this business has changed dramatically. It's changed in business focus from contract manufacturing to a specialty generic pharmaceutical company. It's changed in people from less than 30 people just a few years ago to nearly 100 today, and it's changed, I believe in spirit. Our business today is rooted in three core principles, quality, impactful science, and craftsmanship. In our new name, Teligent, we find that spark of curiosity that we see in each member of our team. I encourage you to visit our new website tomorrow at teligent.com to find out more about our team. Together with this change in name, we're also changing our listing venue on Monday morning to NASDAQ. We appreciate all the time that we've been with the American Stock Exchange and all of its incarnations since 1982. Now as we move further along our journey in the pharmaceutical space, it made more sense to us to be with many of our peers at NASDAQ. Our new ticker symbol from Monday will be TLGT. Let me turn the call over now to our CFO, Jenniffer Collins, to provide a review of the financial performance of the quarter.

[Jenniffer Collins:]

Thanks Jason. Good afternoon everyone, and again thanks for joining us today. Our total revenue for the third quarter of 2015 was $11.6 million, an increase of 74% over the same quarter last year. Revenue for the third quarter of 2015 included $8.7 million of net revenues from the sale of our products, compared to just $3 million in the same period last year. The increase in net revenue was attributed to increased sales across our product portfolio as compared to the same quarter last year. Revenue from Econazole represented 52% of our total revenue in the third quarter of 2015, compared to 24% in the same quarter last year. Our total revenue in the third quarter exceeded our projections primarily as a result of our success in winning additional bids to sell our products and temporary hires and excessive volumes for one product within one customer during the quarter. We've seen that trend with that customer go back to our expected level already in October of 2015. Our chargebacks, rebates, allowances did increase as a percentage of gross revenue as compared to the second quarter of 2015. We continue to believe that the market conditions for Econazole have stabilized. As always, we constantly monitor our existing and future markets to understand any changes in the competitive environment. Product sales from our contract services business were $2.7 million in the third quarter of 2015 as compared to $3 million in the third quarter last year. A slight decrease in contract manufacturing revenue this quarter as compared to the prior year, was primarily attributable to the absence of a large cosmetic customer in 2015 that we had transitioned out of our facility late last year. As we've indicated in the past, our product services revenue will decline in 2015 and in the foreseeable future, as historically we've engaged in these types of commercial arrangements to utilize our R&D resources and to be the engine to generate future contract services revenue continue. As our strategy continues to focus on the expansion of our own label business, centred on our TICO strategy, we expect the contribution from contract manufacturing to decrease over time. Contract manufacturing and formulation services revenues from our pharmaceutical customers represented 91% of third quarter revenue as compared to 85% in the same quarter last year. Sales of OTC and cosmetic products were 9% this quarter, compared to 15% last year. As we've discussed before, our contract manufacturing business is a make-to-order business. So, there may be some slight variability in the percentage of our contract services revenue resulting from the sale of pharmaceutical products quarter-to-quarter. However, I feel, we've been very successful year-over-year in the transition of our customer base to include more pharmaceutical customers. Now, we turn to gross margin. Due to the better and excessive sales recorded in third quarter of 2015, we were able to generate a gross margin of 52% in the third quarter as compared to 39% in the third quarter last year. This also compares to 41% in the second quarter of 2015. SG&A as a percentage of sales for the third quarter 2015 and 2014 were 21% and 17% respectively. SG&A as a percentage of revenue declined as compared to the 24% in the second quarter of 2015. In the third quarter of 2015, we incurred additional professional expenses including legal fees as a result of the complexity of our business as compared to last year. We do plan to continue to manage our administrative costs while expanding our customer base and product portfolio, but we expect to make some additional investments in SG&A over time to support our growth. Consistent with our TICO strategy and our dedication to building our foundation to expand our product portfolio in 2015, we continue to invest in R&D. We spent $3.3 million in this quarter compared to $1.7 million last year. We now expect to submit 15 to 17 ANDA filings in 2015. We will continue to increase our R&D spending, as compared to last year as we focus on expanding our portfolio of generic, topical and injectable pharmaceutical products, adding to the 28 submissions we have on file with the U.S. FDA. We hired our first injectable R&D formulation scientist this quarter, and under Steve Richardson's leadership, we look forward to adding organic injectable ANDA submissions to our pipeline next year. We expect total R&D in 2015 to be between $13 million and $14 million or over 30% of total sales. We understand this is very high for our industry but based on the opportunities we see in our core markets as well as the increased pace of responses from the FDA, we think it's necessary to continue to make these investments as quickly and strategically possible. We expect this trend to continue into 2016 and then start to decrease towards the industry average of under 10%. For the nine months ended September 30, 2015, net cash used in operations was $4.2 million, which includes $9.3 million of R&D expenses and payment of interest related to our convertible debt offering in the amount of $2.7 million. We also paid $6 million in the third quarter related to the commitments under our contract with AstraZeneca, upon the first regulatory filing with the FDA related to the portfolio of injectable ANDAs and NDAs we purchased last year. For the nine months ended September 30, 2015, cash used in investing activities was $5.8 million, primarily related to the upgrade of equipment used in our manufacturing operation. In addition, we have continued the planning process and phases of our expansion for our existing facility located in Buena, New Jersey. We sought and received approval from the local planning and zoning board and we will continue to finalize our detailed plans over the coming months. We purchased the adjacent building to our facility, which we had been leasing since the middle of 2014. IGI owned this building many years ago and now it will be the future home of the Teligent R&D lab to have their growing formulation, analytical development and regulatory team as well as our supply team, [indiscernible] and administration team members. This expansion of our existing plant, will include the start of our injectable manufacturing and R&D capabilities, where initially we will have the capacity to manufacture close to 4 million vials a year. We expect the final budget for the facility expansion, including necessary equipment and controls for sterile manufacturing to be close to $45 million. We will continue to update you on the progress on this front throughout the rest of the year. As you heard from Jason, we hope to have this expansion completed before the end of 2017. In the third quarter of 2015, IGI recorded net loss of $2.9 million, compared to a net loss of $0.2 million in the same quarter last year. Our 2015 year to date results included a non-cash gain of $23.1 million related to the accounting for the mark to market of a derivative liability, in addition to non-cash interest expense of $5.5 million. As you know, in December of 2014, we completed our offerings of $143 million, 3.75% convertible senior notes, which after fees helped to strengthen our balance sheet and we ended the third quarter with over $145 million in cash. In connection with this offering, we originally recorded an original derivative liability in the amount of $43.7 million. As you may remember, as of June 30, 2015, the remaining derivative in the amount of $18.3 million was re-passed [ph] to equity. Now, we're no longer required to mark, mark to market liability as a part of equity and we will only record the future amortization of the existing OID. This OID amounted to $38.5 million as of the end of September. Year-to-date, our net income has been reduced by $4.9 million as a result of amortization of this discount. The remaining liability will continue to be amortized over the five year term of the note. After this transaction we thought it was helpful for investors to review our adjusted EBITDA, earnings before interest, taxes, depreciation, amortization, as well as adjusted net income. As you may have seen, we are including in our earnings release, non-GAAP disclosure related to how we calculate EBITDA and adjusted EBITDA and adjusted net income. We'll continue to provide this information as long as we determine it's helpful for investors to monitor our operations, excluding certain items as outlined in the tables in our release. Our adjusted EBITDA for the three and nine months ended September 30 was $1.4 million and $1.8 million respectively. Jason and I have dedicated a lot of time to the investment community and we will continue to do so. We strive to be as transparent as possible and we continue to align our strategy with the creation of sustainable long term shareholder growth. Jason and I are grateful for your participation today and look forward to updating you soon and hopefully seeing you at some upcoming conferences. I'll turn it back to Jason now for his closing remarks.

[Jason Grenfell Gardner:]

Thanks Jenniffer. As you've heard today, it's been a very busy quarter for us. We've a lot of work to do, but along with the members of our team, I'm confident that we will continue to execute on our plan. Let me open up the call now for your questions. Dan?

[Operator:]

[Operator Instructions] Our first question comes from Matt Hewitt of Craig Hallum Capital Group. Please go ahead.

[Matt Hewitt:]

Congratulations on a great quarter.

[Jason Grenfell Gardner:]

Thanks Matt.

[Jenniffer Collins:]

Thanks Matt.

[Matt Hewitt:]

Several -- I'll ask a couple of questions and I'll hop back in the queue. First and foremost, the new guidance, what is the contribution that you're anticipating from the three different components, first Alveda, then the Concordia and then, what are you anticipating from the AstraZeneca re-launch if and when that should hit this quarter?

[Jenniffer Collins:]

So, a few products for the first three injectables that Jason talked about. We have actually already shipped products under that, so there's almost a full quarter worth of revenue included for those products. I'd say we started probably mid-October, once we got the first products shipped. In terms of -- when we talked about, the first injectable product under the AZ portfolio, the plan and the hope is still that, that gets launched before the end of the year from a revenue contribution standpoint in 2015. I wouldn't anticipate that, that's very significant. So, there's not very much included for that, included but not very much in terms of total top line. Then for the Alveda close, as we talked about, we're trying to -- we're shooting for the end of November, before that would get closed. So -- and you have to remember, once that transaction would -- we get revenue from that transaction, but we would have a step up in inventory, so the margins will be, for first month or two perhaps will be a little bit lower than they will be on the overall run rate going forward.

[Matt Hewitt:]

Okay. That's very helpful. Thank you. Then, Jason, I'd like to clarify one point you made in your prepared remarks regarding the GDUFA Year 3 pipeline. If I heard you correctly, I think you said, there's potential for $130 million of incremental revenues from that basked of ANDAs in 2016. I'm assuming you meant on a run rate basis. Did I hear that correctly?

[Jason Grenfell Gardner:]

Yeah, that's right, so if we look at the total addressable market of just the things that we filed in GDUFA Year 3, you're looking at around $820 million of total addressable market and we apply that sort of yardstick to say well, we get 20% of the market and we assume there's a 20% switching cost, what does that do for us in terms of just ball parking revenue and obviously, each of these molecules may be a little bit different, but that would take you to around $130 million of annualized revenue for IGI, so run rate revenue.

[Matt Hewitt:]

Okay, all right. Hopefully the FDA hits their targets. Last one and then I'll hop back into queue. I think you also mentioned 52% of your Econazole, was the contribution from Econazole in the quarter, and it sounds like you got back on contract with a pharmacy or a channel partner that you had launched earlier this year. Is that accurate?

[Jenniffer Collins:]

We have seen continued revenues from customers in the third quarter and that's gotten back to contractual rates in the fourth quarter. We did, as we talked about, at the end of the second quarter, win additional business for an additional customer that, the third quarter was the first full quarter we had revenue from that particular customer.

[Matt Hewitt:]

Okay, so not back with the customer you more or less lost in the latter part of Q1, early Q2?

[Jenniffer Collins:]

Not to 100%, but we're back, the break that we had talked about.

[Matt Hewitt:]

All right, thank you all, back in the queue.

[Jason Grenfell Gardner:]

Thanks Matt.

[Operator:]

Our next question comes from Greg Fraser of Deutsche Bank. Please go ahead.

[Greg Fraser:]

Thank you. This is Greg Fraser on for Gregg Gilbert. Question on the ANDAs that you withdrew and plan to resubmit next year. Can you just give us a bit of context on those? Were they four of your earliest applications that were sort of on the slow track and you wanted to speed them up? Did they already need some additional work? Just looking for some commentary on that.

[Jason Grenfell Gardner:]

Sure. So, we looked at the sort of slow pace of pre-GDUFA Year 3 review and there are some things there Greg that have been sitting with the FDA where we haven't even received acceptance for filing notifications, and when we compare that to what we're seeing in GDUFA Year 3 and GDUFA Year 4, it's a completely different review process. We added into the analysis some of the dates that we've received on target action dates, for some of the products and you start doing the math, those target action dates are significantly further out than what a GDUFA Year 4 review period be, 15 months. So, most of these -- in fact, all four of these were applications that were submitted prior to the June 20th change in stability requirements. You'll remember that from June 20th, we had to make three batches instead of one and we needed six months of stability instead of three. So we have to make two incremental batches and we have to keep six months' worth of stability data to be able to refile those under GDUFA Year 4, but doing that should then make it eligible for a much faster review time which is pretty compelling to us, compared to what we've been seeing for the pre- GDUFA Year 3 reviews.

[Greg Fraser:]

Got it. Thanks for that color. Question on Alveda. Could you just comment on your plans for leveraging that platform in Canada over time?

[Jason Grenfell Gardner:]

Yeah, I mean. I think that there are a couple of really great things about that business and some reasons why we're really excited about it. First, I think that Alveda has done a really great job of building a market presence and an ability to do product registration and sales and marketing in the Canadian market, and we base that on their pipeline on what they've managed to get approved and as well as their market positions in some key products. They've done a really good job. The second is that, they've got some long-standing relationships with contract manufacturers, primarily in Europe that have further products that we can put through that pipeline. I would argue that, Alveda has the capacity with -- hooked up with IGI's business development group to really put significantly more products through that review process and I would remind you that the Canadian review process is averaging at around 10 months. We can use European common technical dossier files from European manufacturers without having to do subsequent batches and put them through the Canadian registration process and achieve those relatively shorter review times. So, that's kind of part one. The second part is that obviously, we're building capacity here at the facility in Buena. That capacity actually -- interestingly I think is right sized for responding to short-term supply issues in Canada, and if you think about what we're seeing in drug shortage here in the United States. Drug shortage is also a significant problem in Canada. We should be able to use our development capabilities and our manufacturing footprint here to service that need in the Canadian market as well. So, we think that pretty much, two things together are pretty compelling for a business that's manageable, very profitable and very close to us.

[Greg Fraser:]

Great. Thanks for the color and nice quarter.

[Jason Grenfell Gardner:]

Thanks Greg.

[Jenniffer Collins:]

Thanks Greg.

[Operator:]

Our next question comes from Scott Henry of Roth Capital.

[Scott Henry:]

Thank you and good afternoon. A couple of questions. It looks like Econazole Nitrate was about $6 million in the quarter. I know you touched on this a little bit earlier but should I think about that as a slightly elevated go forward rate or is that a good number on a quarterly rate?

[Jenniffer Collins:]

I think, as we tried to talk about in the call, that number's probably a little elevated for a run rate. We did see some continued purchases in the third quarter that we won't see in the fourth quarter for one particular customer. I think the rest of the market has stabilized, so I think that number would be a little bit higher than the third quarter run rate -- the fourth quarter run rate.

[Scott Henry:]

Okay, so, I mean, if I look at the past couple of quarters and I average the amount, it looks like the true number may be, I don't know, $5 million maybe a little over $5 million. Is that a fair assumption?

[Jenniffer Collins:]

I mean, I'm not going to kind of talk about product by product specific guidance for the fourth quarter Scott, but I think you're going in the right direction in terms of where --

[Scott Henry:]

Okay. Fair enough, certainly. Next question, SG&A, $2.4 million in the quarter. It's a little higher than expected but not that much higher than 2Q. Should I think about that as kind of a new run rate or how should I think about SG&A?

[Jenniffer Collins:]

I think that overall, we're shooting for less than the 21%, but I think that it's still going to be kind of in that range. I'd say, 19% to 21% for the next few quarters, until we build a little bit more infrastructure. Obviously the revenue continues to increase. There's not a tremendous amount of absolute dollars we need to spend on the SG&A line, but there's going to be a little bit of spending there.

[Scott Henry:]

Okay. Fair enough, and staying on the kind of financial question, shares outstanding, what's the number upon profitability should I be thinking about? Is it going to bounce back up to the $67 million or did the accounting of the convertible debt change things currently? I'm just curious how to model that on the bottom line.

[Jenniffer Collins:]

I mean, fully diluted on a net income basis, when you're using a fully diluted share count, you would be using close to a $67 million number, Scott.

[Scott Henry:]

Okay. Fair enough, then maybe a couple of quick questions for Jason. I guess, Jason, it's no secret that there's been a lot of speculation on ways to control pricing and companies abusing pricing. How do you think about that? I mean, does that have any impact on your pipeline, what you choose to go after? Just really looking for any color or any thoughts that you have on the on the recent, I guess, almost criticism of drug pricing in the industry?

[Jason Grenfell Gardner:]

Yeah, it's a really betting issue right, because on the one hand, we have a system which is designed to allow the market to work, and Hatch-Waxman, the ANDA process, all work together to provide a market solution that should effective. We've seen in our own markets, prices go up and prices go down, and to the extent that we see large dislocations in price. We expect there to be future incremental competition that will move prices again back down. As long as that system is well-functioning, then I don't think that there are long-term issues around price and certainly the value that the generic industry has contributed over time to price competitions through market entry has been significant to the healthcare industry and to patients. What is challenging is when rigidity starts to exist in that system and I think that they come in different forms. So, one of the challenges is around the review process and how long it takes to get something through the FDA. We are believers that the FDA is becoming significantly more efficient through GDUFA, and I think as we start to see the output of that at the end of 2015 and into 2016, some of these concerns will begin to be alleviated. That being said, when some actors in the industry are moving drugs from beyond the reach of generic developers and beyond the reach of Hatch-Waxman, it becomes extremely difficult for the system to work, and that's the challenge that I think needs be looked at. It needs to be addressed. We can't develop drugs if we can't have access to the reference listed drug, and that’s the challenge and that certainly creates difficulties for the market system to work. Finally, these issues around specialty pharmacy. I think it's something that is certainly compelling and that's probably something where payers will become more involved in the discussions around how these drugs are -- particularly these branded drugs are maintained and how they're priced in the formulary, but again it's difficult to see what we from the generic industry can do to fully influence that. So, we continue to try to work through the system the way it is, and as long as we get access to drug and as long as Hatch-Waxman works and the ANDA process works, then we believe that the market system should work.

[Scott Henry:]

Okay, well great. Thank you for the color and thank you for taking the questions.

[Jason Grenfell Gardner:]

Thanks Scott.

[Operator:]

Our next question comes from Rohit Vanjani of Oppenheimer. Please go ahead.

[Rohit Vanjani:]

Hi Jason and Jen, thanks for taking the questions. So, Jen, I mean, you mentioned that temporary increase for Econazole Nitrate for 3Q. Could you talk a little bit more about what was the nature of that? I think Econazole even stepped up from 2Q, why was this -- why was this sale, I guess, temporary and then you saying that it came back down already in October? So, could you talk a little bit more about that?

[Jenniffer Collins:]

I think we've talked about in the past, for this particular customer, we've been talking continued volumes from them as we are making transition. So, I think that, when we talk about in the past, we maintained at 25% of that customer originally with that product. So, we're closer to that level and up until the recent weeks, that has been trending much higher than that.

[Rohit Vanjani:]

And Jason, from your commentary it sounds like you're still on track for the AstraZeneca drug injectable for 4Q '15. When can we see a launch for just kind of the organic IGI pipeline launch from there, apart from that diclofenac sodium product?

[Jason Grenfell Gardner:]

I'm sorry. I'm not sure I understood what you were asking Rohit.

[Rohit Vanjani:]

The base business of your filed ANDAs, other than the acquired products, when could we see one of the first launches from or the next launch from that organic pipeline?

[Jason Grenfell Gardner:]

Well, I think that if we look at the organic pipeline what we've been seeing in terms of review, again sort of bifurcate this between pre-GDUFA Year 3 and post-GDUFA Year 3. We're seeing significant interactions with the FDA on the post GDUFA Year 3 filings and some of those are now at 12 months of review having filed them in the fourth quarter of 2014. Given the interactions that we have, we're optimistic that we would see some action on those in the coming months and in many cases -- in most cases probably before actions on the pre-GDUFA Year 3. The challenge I think that the entire industry is trying to struggle with at the moment is as we parse the interactions with the FDA, the acceptance for interviews, the information request, the labeling reviews and so on. We've not yet been able to establish how all of these pieces fit together to eventually get to the point of approval, but directionally all of these things are going the right way. So we're very optimistic about them.

[Rohit Vanjani:]

Then the Alveda injectables, have you given any more thought to launching those products in the U.S. I mean, can't you just file the products immediately or when the deal closes and be under a GDUFA Year 4 timeline?

[Jason Grenfell Gardner:]

So, I think there are a couple of challenges with that. I mean, certainly, it sounds good, and it would be nice if we could just put it together as quickly as that, but I think you have to remember that in most cases, these are being manufactured by European manufacturers, which may not be FDA approved facilities. They may be EMEA and Health Canada approved facilities. So that's sort of step one. It's really whether those suppliers what that degree of regulation in their facility and whether they want to have access to those markets. The second piece then is just making sure that you're dealing with the same formulations, the same reference listed drugs and the same container closure systems of the Canadian product and the American product and that's not always the case. So I think we look at it slightly differently. It's not about leveraging what's in Canada directly for the U.S. today. It's about using Canada as a platform for the products that we will develop out of the U.S. and the products that we can source to our existing relationships primarily in Europe.

[Rohit Vanjani:]

Okay. If those contract manufacturers are okay with the FDA coming in and looking at their facility, would you still have to run bioequivalent studies between I guess the U.S. reference of the drug and whatever the drug is in Canada?

[Jason Grenfell Gardner:]

In most cases for injectable products because they're products that are in solution that are administered intravenously, we don't perform bioequivalent studies. It's only really on intramuscular products that we actually have to perform sort of bioequivalence work, and that's why the importance of having an exact formula compared to the reference listed drug is important under the U.S. regulations. In fact, you can't change more than one excipient in an injectable drug in the U.S. and still have it as a 505(j) under the Food, Drug, and Cosmetic Act. So, that's where it gets a little bit tricky, and that's where we have to do some work.

[Rohit Vanjani:]

Okay. Then last one for me, diclofenac sodium, it looks like the brand there has been pretty effective at converting people over to -- [indiscernible] 2%, I just wanted to confirm -- you're priced well below the brand there correct? I mean, do you know what's going on in that market? Why they're able to switch people over so effectively? Why that competitor has been so successful and I know it's still early days for IG, but is there an opportunity there to either get some share or to take price? It just seems like you have a low short -- share anyway.

[Jason Grenfell Gardner:]

Well, I think if you've been reading, the various news reports over the past week about specialty and captive pharmacy, that is part of the secret sauce around why the [indiscernible] 2% has been so successful. These are again products that are being put through captive pharmacy and are either being -- patients are being charged either $10 co-pay or no co-pay depending on what their insurance company is covering and that makes it pretty compelling for prescribers to make that switch to 2%.

[Operator:]

Our next question is a follow up from Matt Hewitt. Please go ahead, sir.

[Matt Hewitt:]

Just one follow up for me regarding target action dates, the FDA I believe, was back in February at the [indiscernible] meeting, it talked about a desire to get target action date set for the pre-GDUFA Year pipeline for the industry and several of the companies I've spoken to have received numerous target action dates for that old pipeline. Just curious if you're willing to discuss that a little bit maybe, what you've seen from that old pipeline as far as target action dates. It sounds like that prompted you pulling in and potentially refiling four of those, but what have you seen from the rest of the pipeline?

[Jason Grenfell Gardner:]

Yeah, so early on when we heard about target action dates, we were very hopeful that we would see something and what we saw would be indicative of near-term action. As they started to rollout, target action dates, we received maybe two against a portfolio of, 18 products that were at that time submitted with the FDA. So and the action that when those dates came were not terribly meaningful. So, it was a little bit of a disappointment. Something happened the last week of September and maybe because it was the last week of the federal fiscal year, and we received a wave of target action dates on the pre-GDUFA Year 3 files. The dates, in some cases were challenging. We had some target action dates that were December 2017, and you start doing the math and it just doesn't make a lot of sense to hang around in a slower process, for target actions that may not be approvals but may just be another information request to for the data. So, that course was factored into our thinking about which products would be most compelling to remove and to refile.

[Jenniffer Collins:]

And each day we received was later than the last. So, the ones that we hadn't received any dates for were going to be -- we would anticipate would be beyond that December 2017 date.

[Matt Hewitt:]

Then, as you look and kind of overlay, the GDUFA Year 3 and do you receive target action dates then GDUFA Year 3 pipeline products?

[Jason Grenfell Gardner:]

No, under GDUFA, we have, I guess a theoretical target action date which is 15 months from the date of acceptance for filing. So, and that data is usually the date that you originally submitted the ANDA once it's been through the first batch.

[Matt Hewitt:]

Okay, so, it's a little bit different, but I guess, as you overlay the target action dates that you received for that old pipeline and then start to compare that to the GDUFA Year 3 expectations that you have, I mean, is it a situation where both of -- I would think both of those portfolios are different pieces of that total portfolio, should be getting approvals during next year, is that correct?

[Jason Grenfell Gardner:]

Well, I think that, that's correct. The part that is challenging is that you have GDUFA Year 3, GDUFA Year 4 applications, where you're seeing significant activity and the level of review is detailed and it's in depth and it's meaningful. If you were to go to a Lachman consulting blog, there was a actually a really great post, this week about what the FDA seems to be doing in terms of moving to a rolling review process around easily correctible deficiencies and information requests to try to get to a quicker review process in the first pass, successful review within the time period. So it seems to be heading that way but until we start seeing this actually happen, all we can do is to have a bit of conjecture. For the pre-GDUFA Year 3 filings, the degree of correspondence from pretty much the same number, absolute quantity of filings is significantly lower and while it seems as well that there is a trend to move towards the information request, easily correctible deficiency process with some set turnaround times, it's not as uniform yet. So, I don't know Matt, that I could tell you exactly what will happen when we start approaching the 2016 target action date that I indicated for part of that portfolio. I would like to believe that as long as we can respond in a timely manner that we're moving these closer to approval, but until I see that, it's very difficult to say.

[Matt Hewitt:]

Okay, all right, well thank you very much for the color and congratulations again on a very strong third quarter.

[Operator:]

Showing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Jason Grenfell Gardner for any closing remarks.

[Jason Grenfell Gardner:]

Okay. Thanks Dan. Thank you again for taking the time to join us for this call and for your continued support and confidence. Again, we encourage you to visit our new website tomorrow at teligen.com to find out more about our new name and our new team details, and we look forward to speaking with many of you soon and hopefully seeing you at some of the conferences coming up in the fourth quarter. Thank you everyone and have a good evening/

[Operator:]

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