Teligent, Inc.
Q4 2014 Earnings Call Transcript

Published: 3 Mar 2015

[Operator:]

Good afternoon, and welcome to the IGI Laboratories' fourth quarter 2014 results conference call. [Operator Instructions] Except for historical facts, 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, FDA, 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 Chief Executive Officer. Please go ahead, sir.

[Jason Grenfell Gardner:]

Thank you, Denise. Good afternoon, ladies and gentlemen, and welcome to this IGI Laboratories' business update, covering the fourth quarter and full year of 2014. I am Jason Grenfell Gardner, the President and CEO of IGI; and I am joined today by Jenniffer Collins, our Chief Financial Officer. Thank you for joining us today. 2014 was a remarkable year of transformation and growth for IGI. Today, I would like to discuss some of the highlights of 2014, and give you an update on our TICO strategy. Then, Jenniffer will review the financial results for the fourth quarter of 2014. And finally, I'd like to share with you our expectations for 2015. We always talked about 2014 as our year of transformation, and with the results that we've just released, I think you'll agree that this business has transformed significantly over the course of the past year. We transformed our economic engine, growing our revenues to $13.7 million for the fourth quarter, up 103% over the same quarter in 2013. We've transformed our R&D engine, having filed 11 ANDAs in 2014, up from six in 2013. And we've transformed our strategy by diversifying our business from contract manufacturing and generic topicals to a broader-based specialty generic company for the focus on topical, injectable, complex and ophthalmic products, what we call TICO. It's been a pretty remarkable year, and I am grateful to our entire IGI family for the amazing work that they have done to achieve it. So let me review our performance briefly against the objectives that we set out at the beginning of the year. First, we originally said that we would achieve full year revenue of $25.5 million to $26.4 million, which we increased in October to $31 million to $33 million. We exceeded this objective and achieved $33.7 million in total revenue for 2014. Second, we committed to continued profitability in 2014. We achieved this objective with an adjusted EBITDA of $4.8 million for the year. Third, we projected a doubling in R&D expense to drive our goal of 10 ANDA filings for the year. We increased R&D spend in line with our expectations and as a result, exceeded our target by delivering 11 ANDA filing to the FDA in 2014. As you can see, we continued to deliver on the objectives that we set out, and this has built a strong platform to drive the ongoing transformation of our business. In addition to these key objectives, 2014 saw progress along a number of other fronts. As many of you know, we launched this TICO strategy to position us to be a leader in the specialty generic pharmaceutical business. And to accelerate this, we acquired number of products from AstraZeneca and Valeant at the end of the third quarter. We also strengthened the balance sheet through our equity offering of $25 million in June and our $130 million convertible debt offering in December to fund the acceleration of our business through our business development efforts. The combined result of these efforts has been to position IGI for further performance in 2015 and beyond. So let me give you an update on some of our efforts across the TICO landscape. First, to topicals. We now have 22 ANDAs on file, with a total addressable market of $579 million per IMS Health data as of December 2014. Our team is committed to filing at least 20 ANDAs in 2015 to add to this portfolio. And with some of the early positive signs that we are seeing from the Generic Drug User Fee Act or GDUFA Year 3, which started in October 2014, we believe that we are well-positioned, as we file our broader topical portfolios in 2015. This incremental execution in R&D will continue to position IGI to be a leader in this field with a robust portfolio. We expect to see some further approvals from the FDA in 2015, as we continue to respond to correspondence from the agency on a number of our pending files. To date, we have not received any target action dates from the FDA around our applications. However, we would anticipate receiving an update on some of the longer pending items that the FDA implements its target action date policy in the coming months. Rather like the update from last year, we believe this should help us formulate a better perspective of where the FDA is in its review of our files, and help us to plan better as we execute our business. Moving on to injectables, as you know, we've been working through the decision of whether to buy or build injectable manufacturing capability to eventually service the manufacturing needs of our own portfolio. Together with our business development team, we have looked at a significant number of assets in North America and abroad and we found many of these facilities either richly valued or with quality concerns, and often with both. Look, we're conservative when it comes to the allocation of our balance sheet, and current asset valuations made many of these potential transactions, frankly, bad deals from our perspective. At this point, I would say that we are 90% likely to move forward with our build strategy for injectables, and I think we have some compelling alternatives there that will drive shareholder value more significantly than any of the acquisition alternatives that are out there. We have also started recruitment for our injectable formulation and development team. And while it's a bit early to get into too many details, we're excited about building out this capability and bringing our discipline and execution focus and R&D process that we successfully applied in topicals to the injectable market. From an operational perspective, while we work through our own manufacturing, we've selected contract manufacturers for three of our acquired injectable products and for a further ophthalmic product, as per the strategy that we've set out. We still anticipate seeing the first of these products back to the market by the end of 2015 or the first quarter of 2016. On the complex side, we have two active ongoing 505(b)(2) projects for unapproved marketed drugs. We will soon submit our materials our pre-IND meeting for the first of these projects to the FDA. And finally on ophthalmics, we have request for proposals out for the manufacturing of the two products we acquired from Valeant, and our business development team is actively working on new ophthalmic opportunities for 2015. Touching on business development, our team is actively working on a number of projects consistent with our strategy to drive accretive transactions in 2015. We will continue to apply our transaction discipline to these opportunities. Deals do still have to make fundamental financial sense to us to get done. As you can tell, there's really a lot going on here at IGI. Through the various work streams and creative efforts of our organization, I believe that we are creating fundamental value throughout IGI. We have impactful R&D, great manufacturing, and a world-class team bound together by mutual respect and a culture, which values diversity and craftsmanship. Over the course of the coming year, I think you'll continue to see great things out of IGI. So before I talk about our 2015 goals and targets, let me turn the call over to Jenniffer to discuss the numbers for the fourth quarter of 2014.

[Jenniffer Collins:]

Thanks Jason. Good afternoon, everyone, and again, thanks for joining us today. Our total revenue in the fourth quarter was $13.7 million, as Jason said an increase of a 103% over the same quarter last year. Total revenue for the year ended December 31, 2014, was $33.7 million, or an increase of 85% over 2013. Our revenue in 2014 included $19.8 million of net revenues from the sale of our own IGI label products compared to $7.4 million in 2013. We increased our revenues $7 million over the same quarter last year and over $15.5 million in 2014 over 2013. The increase year-over-year was attributed to an additional $12.5 million of revenue generated from our first six IGI label products. In addition, to an additional $2.6 million of revenues generated from our contract manufacturing services business, and an increase in $400,000 of revenue from our formulation services business. Our IGI product portfolio includes four authorized generic topical prescription products as well as our two proprietary products Econazole Nitrate Cream, which we purchased in February of 2013, and lidocaine 4% topical solution, which was our first product approved by the FDA in March of 2014. As customary in the pharmaceutical industry, our gross product sales are subject to a variety of deductions. And these deductions totaled $15 million in the fourth quarter of 2014, after which we recorded $10.5 million of net revenue from IGI label products. When we record gross revenue from the sale of our IGI products, we then make estimates of various allowances, which reduce product sales. These estimates include chargebacks, rebates, cash discounts and returns and other allowances. We've made adjustments to these estimates for these deductions to date, none of which were individually significant, and we will continue to monitor our estimates closely as the actual charges are presented. Our contract manufacturing revenue in the fourth quarter of 2014 was $3.2 million, an increase of $400,000 over the same quarter last year. This was primarily attributable to one new pharmaceutical customer in 2014. Contract manufacturing services revenue from our pharmaceutical customers represented 79% of our fourth quarter revenue as compared to 71% in the fourth quarter of last year. Sales of our OTC products were 1% in Q4 compared to 3% last year. And our cosmetic product sales represented 20% of revenue in this quarter as compared to 26% last year. In 2014, 79% of our contract manufacturing services revenue resulted from the sale of pharmaceutical products as compared to 61% in 2013. As you may recall, our contract manufacturing business will remain make-to-order business, so there maybe some variability in these percentages of our contract services revenue resulting from the sales of our pharmaceutical products quarter-to-quarter. However, year-over-year, we continue to expect our contract business to result from sales to pharmaceutical customers. We grew all of our business lines in 2014 compared to the same period last year, including $400,000 incremental revenue from our contract formulation services business. As we discussed, this business often was a origin of our contract manufacturing business, and while we continue to expect to offer these services in 2015, based on our aggressive organic R&D plans, we do not expect revenue from formulation services to be significant in 2015. Our gross margins of 61% in the fourth quarter of '14 were significantly higher than the gross margin of 38% recorded in the same quarter last year. We increased our gross margin this year to 50% for the year as compared to 34% in 2013. The year-over-year improvement was due to the increased revenue from our pharmaceutical partners, as well as the expansion of our own products and a favorable pricing environment in one of our product. Product mix in the fourth quarter of 2014 contributed to higher gross margins than we expect to see in the first quarter of 2015. In addition to our product mix, we have seen some slight shifts within our customer base where the industry-wide customer concentration has led to some changes in distribution channels, some of which are now a little more expensive to IGI than in prior periods. While we still expect margins to be in excess of our stated target margins of at least 50%, we do expect margins in 2015 to range between 52% and 53%, which will still lead to year-over-year margin improvement. Based on our forecast, we expect volumes to be slightly lower in the first quarter of '15 compared to the fourth quarter of '14, due to some seasonal changes in demand for some of our products. With our significant increase in revenue in 2014, SG&A as a percentage of sales for '14 was only 18% compared to 19% in 2013. We do still plan to continue to manage our administrative costs, while expanding our customer base, but as we expand our topical prescription drug portfolio, and most importantly increased profitability, we expect to make some additional investments in SG&A in order to successfully place those products with national, regional and local retail customers and properly support our growth. Our successful management of SG&A costs will help us continue to invest in R&D. We spent $1.9 million in the fourth quarter of 2014, as compared to $600,000 in the same period last year. In order to continue to expand the pipeline and drive shareholder value, and meet our target of filing at least 20 ANDAs this year, we expect to continue to increase our R&D spending and expand our team. We will focus on expanding our portfolio of generic topical pharmaceutical products adding to the 22 submissions we already have on file with FDA, and beginning to build our organic pipeline in our injectable, complex and ophthalmic markets. This will allow us to continue organic R&D in all specialty generic pharmaceutical areas in our TICO strategy. In addition, more of our 2015 filings will include additional costs, for required outside testing and basal constriction studies, all of which will continue to increase R&D costs. We plan to manage that growth and costs to be consistent with our strategic plan. In the fourth quarter of 2014, IGI recorded net income of $5.3 million, compared to $700,000 in the same quarter last year. Net income for the year ended December 31, 2014 was $5.3 million compared to a net loss of $83,000 in 2013. Net income in 2014 includes a $2.3 million non-cash gain related to the accounting for the mark-to-market of our derivative liability. As you know in December 2014, we completed our offerings of $143.75 million, 3.75% convertible senior notes, which after fees helped to strengthen our balance sheet and we ended the year with over a $158 million in cash. As a point of reference, we ended 2013 with $2.1 million in cash. In connection with this offering, we've recorded an original derivative liability in the amount of $43.7 million. As of December 31, 2014, the fair value of this derivative was $41.4 million, after the recorded gain on the change in the fair value of the derivative liabilities. We will continue to mark-to-market this derivative liability until we can increase our authorized share count at our Annual Meeting in May 2015, in order for us to have sufficient authorized shares available to satisfy the equity conversion provisions of our convertible 3.75% senior notes. In addition, we have included the amortization of this liability and interest expense, which totaled $261,000 in 2014. After this transaction, we thought it would be helpful for investors to review our adjusted EBITDA, earnings before interest taxes, depreciation, and amortization. As you've seen, we've now included in our earnings release, non-GAAP disclosure related to how we calculate EBITDA and adjusted EBITDA. 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 these tables. Jason and I are committed to provide the investors as much information as we can to help our shareholders and future shareholders to understand our business. Prior to the closing of our convertible debt offerings, we refinanced our existing working capital lines. Our new line with GE Capital provides us with additional flexibility, and potentially up to $50 million, which will continue to help us grow and execute our TICO strategy. Our new working capital line and relationship with GE Capital will allow IGI to have a strong lending partner to continue to build our business and execute our strategy going forward in 2015 and beyond. We will continue to review new opportunities to put our capital to work, specifically to adjust our needs Jason outlined earlier and to not only expand our existing facility, but to expand our manufacturing capabilities to include sterile manufacturing, to accommodate both our injectable and our ophthalmic portfolios, and to continue to compliment our existing product portfolio and development pipelines with product acquisitions that could provide near-term revenue opportunities. In 2014, we used $3.8 million in cash from operations, which includes $6.9 million of spending on R&D. As we continue to build our IGI label business, we've invested in accounts receivable, which increased by $9.4 million in 2014. We continue to invest in R&D, manage our operating resources and increase our sales efforts in order to ensure that we meet our goals. More than ever, we are intently focused on our financial discipline required to execute our day-to-day management of cash. We're committed to adjusted EBITDA $7.5 million to $8.5 million in 2015. We expect capital expenditures to approximate $5 million in 2015. Before 2014, this company has not been profitable since 1997, so reaching breakeven in '13, profitability in '14, was really transformational for this organization. Having our own operations generate cash enables us to continue to reinvest in our future, and allow us the opportunity to explore additional ways to accelerate growth. In 2014, we used $3.8 million in investing activities, which included $3 million to initiate the purchase of 21 products from AstraZeneca and Valeant, a portfolio which includes 18 injectable and two ophthalmic products. In connection with our agreement with AstraZeneca, we will be required to pay an additional $6 million upon our first regulatory filings associated with the acquired portfolio, which we have included in our product acquisition costs on our balance sheet as of December 31, 2014. In addition, we may determine other options to pay AstraZeneca an additional $3 million by the end of 2015 in place of all future royalty payments currently required under this agreement. As may recall, we believe the total adjustable market of the acquired AstraZeneca portfolio to total over $200 million. The remaining $800,000 cash used in investing activities in 2014, related to funds spent on capital expenditures. Our cash from financing activities totaled $164 million for the year, which included $139 million net of fees from the offering of our convertible 3.75% senior notes that I talked about earlier, in addition to the sale of 5.3 million shares of our common stock in July of 2014, which resulted in net proceeds of $25 million after fees. Both our debt and equity offerings have kept us very busy on the Investor Relations front. We presented at the Piper Jaffray and Oppenheimer Conferences in December, and IGI presented for the first time at the JPMorgan Healthcare Conference in San Francisco in January. We will present at the ROTH Conference next week and have several more lined up for the spring. We are speaking to institutions daily, many of whom are new to the IGI story, so it's exciting to be attracting new investors. Jason and I are committed to continuously improving our communication with investors and potential investors. And we understand the importance of transparency with the investment community. We are truly grateful for you participation today and look forward to updating you soon. I'll turn the call back to Jason for his closing remarks.

[Jason Grenfell Gardner:]

Thanks, Jenniffer. As you heard, IGI delivered a great quarter and a fantastic year, but we're not resting on our laurels. Our 2015 plan will build a stronger and broader platform, so we can continue the transformation that we began in 2014. Building the foundation is our key theme for 2015. It's based on consolidating the progress we've made throughout the organization and adding important critical skills and projects that will drive our business forward. We're looking to solidify our gains in R&D, add incremental skills in manufacturing, and continue to develop our business model to drive further growth. But let me reiterate our specific guidance. First, IGI is committed to filing at least 20 ANDAs for our topical business in 2015. This is double our 2014 goal and is remarkably ambitious. But it is also consistent with the investment we've made in R&D resources is well-timed with respect to the stages of GDUFA implementation, it is appropriate given the scales of market opportunities that we have and what our team can deliver. We will also continue the rollout of our R&D programs for the rest of TICO during 2015. And so for the year, we anticipate the R&D spend for 2015 will approximate 27% to 28% of net revenue. Second, speaking of revenue, as Jenniffer mentioned, we're committed to topline growth in 2015 of between 67% and 73% or around $55 million to $57 million with an associated gross margin target of between 52% and 53%. And finally, we believe that while doing all of this, we'll maintain an adjusted EBITDA for 2015 between $7.5 million and $8.5 million. That's how we see this year building a foundation, continuing to drive R&D, delivering strong sales growth and maintaining profitability. With that, let me pause here and open this up for some questions. Denise?

[Operator:]

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

[Matt Hewitt:]

Couple of questions. First on the gross margin, you gave a little bit of detail, but I'm wondering if you could dive into it little bit further. So some of the guidance, which 52% to 53% versus the 61% you just reported in Q4, some of that's mix. But then you mentioned there was some shifts with the distributors. Could you explain what's going on there? And whether or not that's something that we can expect you'll work through? And then at least we can see that lifting further in the third and fourth quarter of the year?

[Jason Grenfell Gardner:]

Sure, Matt. I think one of the important things that's happening throughout our industry is consolidation across channels of trade. So as many of you know, we've seen a consolidation of a number of players, but perhaps more critically, we've seen a combination of buying groups between wholesalers and retailers. So obviously, Red Oak Sourcing with Cardinal and CVS or the Walgreens Boots Alliance with AmerisourceBergen or McKesson with Rite Aid. And what that's doing is really two things, it's consolidating demand, but it's also increasing in many cases, costs to the channel through incremental rebates or through moving what was previously direct business through an indirect model. So that's I think the biggest change or the biggest challenge that the industry is seeing and trying to cope with consolidation. And I'm not sure that it's something that's going to go away that quickly. I think it's something that's probably here to stay. So we'll continue to try to negotiate with it and make sure that we get the best trade terms possible. But obviously, that's consolidated power is giving those buyers greater control over supply chain.

[Matt Hewitt:]

Another question on the guidance, the $55 million to $57 million in revenue guidance, Q4 you basically exiting with a $55 million run rate. In the past you had guided to future approvals. Are you no longer doing that or now are you just looking at the organic growth of the business x approvals from price increases or how should we be thinking about that piece?

[Jason Grenfell Gardner:]

Well, I think there are two things. The first is that Q4 was probably heavier, as a result of some changes that were happening from some competitive dynamics, from some issues with some other suppliers. We picked up a little bit of incremental demand that we don't think is going to be longer-term consistent. So I think that's the first issue. We're really trying to get to normalized levels of demand. I think the second thing that we're, and I mentioned it in my remarks earlier, is that we are waiting for the FDA to come out with the details of target action dates for those things that are on file. So while we are looking forward to the diclofenac sodium 1.5% launch at the end of March, which we already have tentatively approved, there are still some of the early files that we filed back in 2010, 2011, that we would anticipate getting target action date updates from the FDA here in the course of the next couple of months. So rather than front run, whatever the FDA is expecting to tell us, let's get that data, and then as we get that we'll share that with you. We have made some projections in terms of our business plan for some future product launches, but I'd like to get that data now that we know that that's eminent before we really get any further down that road.

[Matt Hewitt:]

And then maybe one more and I'll jump back in the queue. You mentioned you're 90% likely to build the new manufacturing capacity. How quickly from the timing, I guess, you'd take that first shovel of dirt to when you'll actually be seeing product crank out of that facility? How long of a period is it between those two points?

[Jason Grenfell Gardner:]

So it really depends on how you plan that project. You can do this greenfield, and that will take you certain amount of time, probably at least 36 months. You can do this sort of starting brownfield, they're starting with the shelf. Maybe you can knock six to nine months out of that. But together with our project team, we're working on a modular approach of how to do this a little bit more quickly. One of the things that governs the timeline around, how quickly you can get this up and running, is really the delivery time for filling equipment, which has probably the longest lead time in this process at the moment. Filling equipment order today, you would generally have to account almost 18 months for it to be delivered and talking about sort of commercial scale systems. We're going to try and see if we can find and I think we have found a way to shorten that period of time. And it's really around making sure we find the right site, understanding how to scale our filling equipment overtime and using some of the IP that we have to get to a inspection more quickly. I don't want to commit today to what that's going to look like, but as soon as we, I think, reach a decision on that, then we'll share that with you.

[Matt Hewitt:]

But it sounds like you're looking at potentially a couple of years from start to finish?

[Jason Grenfell Gardner:]

I think that's one scenario. Hope we're going to look at a couple of scenarios, where we might be able to do better than that.

[Operator:]

The next question will come from Scott Henry of ROTH Capital.

[Scott Henry:]

I had a couple of questions, perhaps start out with a couple of specific modeling questions and then go to the big picture. Jenniffer, shares outstanding that fully diluted number of 67.2 million, is that what we should think about going forward with the convert or where should I think about that number going forward?

[Jenniffer Collins:]

Yes. I mean, the convert is only in place for the last 14 days of the year. So that number in the fourth quarter would be slightly higher than that. So you'd have to analyze the conversion shares to get your full number.

[Scott Henry:]

It seems like that will be a pretty big jump from Q3 to Q4, just for 14 days. So it's slightly above that number, I think about?

[Jenniffer Collins:]

Correct.

[Scott Henry:]

And then with regard to interest expense, I mean obviously I can just do the number of the interest rate times the debt. But what about amortization, was it being a convert? How should we think about interest expense for the full year in 2015?

[Jenniffer Collins:]

The derivative liability will need to be amortized into interest expense over the year. I can't predict what the mark-to-market on that's going to be, until such time as we get enough authorized shares to be able to convert all of the offering with equity. So once we're able to do that, we won't have to mark-to-market anymore, but the rest of it would be amortized over straight-line basis. Its effective interest rate method, but it works our ability to be straight-line over the five-year term.

[Scott Henry:]

So it will be some number north of whatever the traditional interest expense would be. I'll work with that.

[Jenniffer Collins:]

On top of the traditional interest expense, so that should be amortization of the derivative liability.

[Scott Henry:]

And then G&A, how does Q4, that $2.4 million, quarterly number compare to sort of an annual run rate now. Is that just trending north as you're becoming a bigger company, but how is it $2.4 million number?

[Jenniffer Collins:]

In order to annualize this?

[Scott Henry:]

Yes. What I'm trying to say is how representative is Q4's $2.4 million in SG&A for next year? It was a big jump up from Q3, I'm just wondering.

[Jenniffer Collins:]

I mean that number won't be annualized into next year. I'd say probably in the 13% to 15% range will get you a nice spot in total SG&A as a percentage of revenue.

[Scott Henry:]

And then, gross margins, I try to look at your different brands and think about them, how should we think about the margins on your proprietary generics, now that Econazole Nitrate must be a significantly profitable product? Any thoughts as how to -- I mean, I guess just to try to back into it, I don't know if you want to add any color to that?

[Jenniffer Collins:]

No, we haven't broken them out on between contract manufacturing and our own products to date. The portfolio overall is still pretty small. But I think kind of what we've said about the contract business is that it sill -- on the contract business, I think the target margin is somewhere in the low-30s, and I think that holds pretty consistent. Now, that we no longer have our biggest cosmetic customer in 2015, which was in the kind of a low-single digit margin. I think, it's that whole portfolio should be a little closer to that, with a little bit of variability based on each products. And then with our IGI label products, just from a gross margin perspective, you have to remember four them are the authorized generics, which have a 40% royalty back to the brand holder.

[Scott Henry:]

And I know you gave us a lot of numbers in the prepared remarks, and I didn't get them all down. But when we think about contract service, which was originally your product sales net line, what was the number for 2014? And how should we think of 2014 to 2015 in that line?

[Jenniffer Collins:]

What was contract manufacturing in '14?

[Scott Henry:]

Yes.

[Jenniffer Collins:]

12.4%, not including the formulation services at the 1.5%.

[Scott Henry:]

And how should we think of that going forward?

[Jenniffer Collins:]

I think in 2015, as we've kind of talked about that business, both from the formulation work as well as the manufacturing work, that both of those businesses will decline in 2015. We've talked about the cosmetic customer that we ended their contract in December of '14 a lot due to the margin profile, but historically that customer have been few million of revenue. And we're not going to replace that business. We wouldn't necessarily turn away business there, but that's not a place where we're actively kind of aggressively looking to add customers.

[Scott Henry:]

And Jason, if I could just ask from the big picture perspective in this new GDUFA world, how do you see pricing power going forward? Is it still pretty strong? Are we still in the early innings or is it mid-innings or late-innings of that game? And just the opportunities out there, do you still feel like there's many opportunities that you can process or how should we think of that?

[Jason Grenfell Gardner:]

Well, I think what we're doing in R&D kind of gives you directionally I hope the answer to that. I think that there are still some significant opportunities out there. And looking at those markets and layering into the opportunities that I think, if you thought are starting to show, means that it make sense to make those investments and give them sooner rather than later. So I still think that there are some significant opportunities there.

[Scott Henry:]

And are you starting to run into more competitors in the industry or the same amount? I'm just wondering, if anything is changing with the industry becoming certainly more profitable than it has been?

[Jason Grenfell Gardner:]

We haven't noticed any dramatic changes. I mean there are always one-off changes that sort of come and go, but I think in terms of people that are building robust, diversified, and complete pipeline like IGI, there aren't that many people out there.

[Operator:]

The next question will come from Rohit Vanjani of Oppenheimer.

[Rohit Vanjani:]

How should we think about the tax rate in 2015 and 2016, and your use of NOL? Are you going to be not a tax payer in 2015, and then a partial tax payer in 2016?

[Jenniffer Collins:]

I think for '15, it's safe to say that we will not be a tax payer based on our NOLs and the availability of the same. Since we haven't really given guidance for 2016, it's difficult for me, because it's going to really depend on what your earnings number was for '16.

[Rohit Vanjani:]

And then, Jason, you said something about the share for one of the products I think in this quarter that was heavy and you didn't think is going to maintain. I'm assuming you're talking about lidocaine, but why do you think that will go away or when do you think that will go away?

[Jason Grenfell Gardner:]

Well, I mean I think we look at all of our products and we see what we anticipate to be a normalized levels demand based on our installed customer base. And as we look out to the seasonality driven by patients and populations, then there's some times bumps in demands depending on the backorders of competitors or other challenges on the supply chain. Looking at that that we feel comfort there were some levels of demand in the fourth quarter that were higher than what we would anticipate to be a normal run rate. Until we have such time to validate that those run rates are sustainable, it won't be prudent for us to rely on them. So we know what our installed share is. We know what our installed customers are. And that's what we would anticipate to be the normal run rate of our business.

[Rohit Vanjani:]

And then for the AstraZeneca products, can you do a CB-30 with any of them? I mean have you talked about or have you determined where you're going to source the API? And do any of the API sources remain the same, so they can't do a CB-30?

[Jason Grenfell Gardner:]

So there are, I think, 61 applications that are associated with those 18 products. And those 61 applications are, I guess, fairly complex when you think about trying to break that down into your regulatory strategy. We work on the premise that many of these are going to be prior approval supplements. Whether some of them could potentially be CB-30s are not, I don't know that I would guide you to that. I would rather think that these are more likely to be PAS, which frankly given the new PAS guidance is not that bad. So that's the way we're looking at it today.

[Rohit Vanjani:]

And then the option on the three Valeant injectables, have you made any decisions there?

[Jenniffer Collins:]

We did execute one of the injectables in November and then there's two left.

[Rohit Vanjani:]

And then when do you anticipate that one coming to market?

[Jason Grenfell Gardner:]

Again, that would be subject to site transfer, but it would be one of the products that we work on, and it's probably beginning 2016 product.

[Rohit Vanjani:]

And then the last one for me. Can you talk about the difference, so maybe if you're 90% likely to build that facility, the injectable facility that you're talking about. Can you talk about the order of magnitude, the difference between the price you're going to pay between building versus buying it?

[Jason Grenfell Gardner:]

Yes, I think all of you have seen where certain asset valuations are and where asset have been trading. And the challenge is that unfortunately, as you talk to business owners, everybody pulls out their latest comp table of deals, and says, well, if company X is worth 20x EBITDA, then my contract manufacturing business is worth 20x EBITDA. And that's really hard to make the math work, right, from a quality of earnings perspective, from a portfolio, pipeline and capabilities perspective. And that's an example of the number, but obviously there is a range of valuations. And we struggle with that, because while we think that there is a lot of really interesting opportunities out there, where we like the teams and we think that there could be a good foundation to build from, you still got to make the math work. And in many of those cases, you're talking about having to not only make significant investments upfront to acquire these businesses, but then actually make further investments as a follow-on to add the commercial capabilities that you want to support the scale of the business that we're looking for. So I would say that for many of those opportunities where you're looking to buy a business, you're looking at sometimes really numbers that don't make a whole lot of sense. The flip side, of course, is time, and we're cognizant of that. And we've always said that we're going to work a contract manufacturing solution in the interim until we saw the manufacturing process. But certainly, it's a much lower level of investment. And again, there is a spectrum there, depending on whether you're doing this greenfield or not, whether you're going to lease or buy or lease to buy the facilities, what improvements are there installed already and of course what the build-out plan looks like overtime. It's a complex issue, but I think we are very well informed about the opportunities and risks. And I think that creating these capabilities and scales will add significantly more value than doing a lazy transaction.

[Operator:]

The next question will come from Donald Ellis of Avondale Partners.

[Donald Ellis:]

I just wanted to clarify, I was confused again by this SG&A as a percent of revenue, 18% in the December quarter or you're saying it's going to be about 18% for 2015 or is that going to drop down to more in the range of 15%?

[Jenniffer Collins:]

No, I think when, Scott, asked that earlier, we said for the year, we kind of -- we didn't guide to that number specifically, but if you kind of subtract everything out, you get somewhere between 13% and 15% for 2015.

[Donald Ellis:]

And next question is regarding, were there any material changes in the wholesale inventory channel in the quarter?

[Jenniffer Collins:]

No. There weren't any material changes.

[Operator:]

And I'm showing no additional questions at this time. We will conclude the question-and-answer session. I would like to hand the conference back over to Jason Grenfell-Gardner for his closing remarks. End of Q&A

[Jason Grenfell Gardner:]

Thanks, Denise. 2015 is going to be another existing year for IGI, as we continue to build the foundation of our specialty generic business. We've set out some ambitious goals, but by now I think you know that the entire IGI team is dedicated to executing on the business plan that we've set out. We're looking forward to updating you on the progress throughout the year and seeing many of you until the upcoming conferences. Also, remember that our Annual Meeting of Shareholders is tentatively scheduled for May, in New York City. We look to having the opportunity to see all of you in person and encourage you to attend. So thank you for joining us this afternoon and for your continued support. Have a great evening

[Operator:]

Ladies and gentleman, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.