Welcome to the Corporate Conference Call. My name is Sophie and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Jody Burfening. Jody, you may begin.

Thank you, Sylvia. Good morning, everyone, and thank you for joining us for today's conference call to discuss Aceto's first quarter fiscal 2017 earnings results and the company's acquisition of its generic products and related assets of Citron Pharma and Lucid Pharma. Before we get started, we would like to express our appreciation for you joining us this morning one day ahead of our previously scheduled first quarter earnings conference call. The definitive product purchase agreement was signed yesterday afternoon and given the proximity of the two announcements, management decided to combine a review of the transaction [with previous] first quarter results. Again, we thank you for your flexibility. Yesterday, after market closed, we issued two press releases, first announcing the transaction followed by the first quarter earnings press release. If you have not yet received the releases, you can find them in the Investor Relations section of the company's website at www.aceto.com. A presentation has been prepared to guide management's commentary about the first quarter results and the transaction. If you have not yet downloaded the presentation, please go to the Investor Relations section and click on Events and Presentation tab. Before turning the call to management I would like to first direct your attention to Slide 2. As a reminder today's call will contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 that can be identified by words such as believe, expect, anticipate, plans, projects, seeks and similar expressions and involve numerous risks and uncertainties. The company cautions listeners that these statements are not guarantees of future performance or events and are subject to a number of uncertainties and risks. Factors that could cause actual results to differ materially from those anticipated or implied are set forth in the company's filings with the…

Okay. Thank you, Jody, good morning, everyone. Thank you for joining us on this exciting and important conference call for ACETO's. We appreciate you taking the time to learn about the acquisition of Citron Pharma's generic drug related assets and also to discuss our first quarter results. I'm going to begin with a review of the first quarter results and then move on to the acquisition. So to get started, let's please turn to Slide 4, this quarter like our fourth quarter fiscal '16 we saw challenges in our rising pharmaceutical business, which overshadowed some very nice gains achieved by our Pharma ingredients and performance chemicals segment. Sales for the first quarter of fiscal '17 were $128 million, which was a decrease of 4% from the $133.5 million reported in the first quarter of fiscal '16. Our gross profit was $30.8 million, which was a decrease of 10.8% compared to $34.6 million achieved in the first quarter of fiscal '16 and our gross margin for the first quarter was 24.1% and that compares to 25.9% in the same quarter last year. Looking at the segments, first looking at Human Health, its sales were $47.9 million in the quarter and that's a decrease of 16.7% compared to $57.5 million achieved in the first quarter of fiscal '16. Rising Pharmaceuticals saw a drop in sales, which resulted from the increased competition that we discussed on our previous earnings call that began to hit us in the fourth quarter of fiscal '16. As we stated previously that impact of that competition will be with Aceto throughout most of fiscal '17. Gross profit for the Human Health segment was $14.2 million, which is a decrease of 30% compared to the $20.3 million achieved last year's quarter and gross margin was 29.7% compared to 35.3%…

Thank you, Sal. Good morning, everyone. First we'll start with a little history to put this transaction into perspective. As you can see on Slide 5 of the deck, in 2009, the company bought on a new strategic direction that would human health the focus of the business as opposed to the historic specialty chemical distribution business. Using its global footprint already established for its pharmaceutical ingredients business and to seek overall higher profit margins and growth potential to go upstream and enter the finished dosage form generic drug business in the United States. Revenues as the Greenfield undertaking in 2010 the company acquired Rising Pharma, a small privately held company who mirrored Aceto in their design manufacturing marketed products, but development portfolio of products by partnering with suppliers and manufacturers. Rising with the marketing face of these partnerships. In 2010 Aceto had an EBITDA of $18 million and an adjusted earnings per share of $0.39. Going forward to 2014 an other similarly structured company was acquired that impact pharmaceutical, by the end of that fiscal year, the EBITDA was up to $57 million and adjusted earnings per share was $1.22. Some smaller product acquisitions and changes to corporate logo and SIC code also occurred in intervening years. By the end of fiscal 2016, having successfully integrated both acquisitions and adding to that list of commercially offered products, developing a more robust set of pipeline products, EBITDA climbed to just under $74 million and adjusted earnings per share was $1.50. Now let's turn to this compelling acquisition of the assets of assets of Citron Pharma, so let's look at Slide deck number 6, front and center of the strategic rationale for this transaction is the fact that Aceto and Citron are complementary companies with similar asset-like business models, drug development…

Okay. Thanks Jody. All right so let’s turn to Slide 7 and with that I'll take you through on the summary of the transaction itself. The approximate $412 million total consideration for this deal. I will consist of a $270 million payment due upon the deals closing of $50 million unsecured deferred cash payment that’s paid for five years after closing and $5.122 million shares of restricted to seal common stock having an estimated value without $92 million on our November 1, 2016 closing share price. Citron may also be eligible to receive up to another $50 million in potential earn out payments based on the financial performance of for prespecified current pipeline products are there currently in development. On the transaction is also expected to yield us about $80 million in tax benefits on the present value basis. Including those expected tax benefits in our calculation the net purchase price is approximately $332 million. Citroen and Lucid combined have projected adjusted EBITDA of about $40 million for this 12 month period ended December 31, 2016 so, this calendar year. Based on the $332 million net purchase price I just described and the $40 million projected EBITDA this gives us a transaction multiple are about 8.3 times. The multiple does not take into account approximate $4 million a year of synergies that we expect to fully realize during fiscal 2018. There will be synergies this year but those will be offset by the cost of gaining those synergies. The transaction is expected to be accretive to our GAAP EPS within 12 months after closing and immediately accretive to non-GAAP EPS after closing. We plan to finance the acquisition through a combination of fully committed debt, equity, the deferred cash payment as well as a cash and Doug will talk more…

Thank you, Sal. If you now turn to slide number 13 I'll provide you with some numerical context to help you understand the growth we expect to generate from the acquisition after we get through our fiscal 2017. On the top half of this slide we present historical financial data to help you put the future growth in perspective. For the 12 months ended June 30, 2016, Citroen and Lucid combined generating approximately $32 million of EBITDA on net sales of the $174 million. They anticipate producing EBITDA of approximately $40 million on revenue of $195 million for the 12 months ended December 31, 2016. If you look at the figures for the six months ended June 30, 2016 you'll see that they expect to generate higher net sales about a $107 million and higher EBITDA around $21 million in the second half of calendar 2016. The expected calendar second half growth is driven by new product launches. Most of the second half launches have already occurred. Building on the growth driven by the new product launches. We expect to see increased EBITDA contribution from the Citroen and Lucid products in the future. As you can see the waterfall chart at the bottom left of this slide which is not drawn to scale. We planned to substantially boost the near term adjusted EBITDA of the assets were acquiring through both synergies and realized and synergies realized and launching the remaining 31 products that they have received clearance from the FDA over the course of the next 14 months under our supply agreement with Aurobindo. We also plan to realize quest energy of approximately $4 million over the next 12 to 18 month period. I'll be had any gains in 2017 will be offset by integration and transaction costs. Operational efficiencies…

Okay. All right, thanks Doug. Okay before opening the call up for questions, I will wrap up with Slide 15 with that slide, I will summarize the acquisition what it means to ACETO and to our shareholders. To put the transaction in perspective, we're taking a sizable step forward in our transformation towards Human Health, by purchasing Citron's generic related assets, we're expanding Rising's portfolio of commercialized approximately over 50%, we're increasing the number of products that we have -- that are approved by the FDA but not yet launched by four times from 8 to 39. We are increasing our pipeline of products under development by about two-thirds and we're also substantially increasing our scale, increasing net sales for Human Health segment by more than three quarters on a pro forma full year basis. The transaction allows us to continue to operate our asset like model but gives us complementary products supported by leading vertically integrated manufacturer and increase of scale accomplish more effectively compete in the generic industry. Finally this places ACETO on a path to enhance our growth prospects in the future. So with that, I'm now happy to turn the call over for questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Matt Hewitt from Craig-Hallum Capital.

Good morning, gentlemen. Congratulations on the significant transaction.

Good morning, Matt. Thank you.

One question the quarter and then I've got a few regarding the acquisition, regarding the quarter was there incremental competition that popped up in the Human Health segment this quarter was that more just the full quarter's impact?

A little, so for sure the full quarter's impact, I would say the competition has turned out a little bit greater than maybe we had anticipated also.

Okay. And then regarding the acquisition, a few questions first and they are going to jump around here little bit. But first can you describe the typical products in these portfolios, you mentioned there basically they are oral solids but are these would you characterize them as complex or hard to manufacture oral solids, could you tell us a little bit about the competitive dynamics in those markets maybe what you're expecting from a competition entering those products.

Sure. So it's a different set, it's complementary set to what we go after. So Rising has typically gone after smaller niche products again looking at the market dynamics around those products, these are mixture I would say a combination of technical complex as well as and that are not so complex but again looking at the market opportunities, these tend to be larger market size products with in general, I think in generalized there will be more competitors and the need for vertically integrated better cost-effective manufacturing is let's say more important here than it might be in the Rising portfolio products. So it's complementary in that, it expands the universe of opportunities that we will go after.

All right, I guess to follow that up and it does that indicate or does that imply that you will be looking to vertically integrate as far as adding manufacturing capabilities in the not-too-distant future.

No it doesn’t whether we decide to manufacture in the future, I think it is unrelated to this acquisition here, we've got a good supply even in place and we believe really good cost position, so we are satisfied with the manufacturing situation on these products.

All right and then regarding was it Lucid or whatever, five year contracts with the government. How far in on those contracts are you and have these been renewed consistently and we're trying to get a sense for the continuation once these contracts were up.

Yes, I don’t have a specific I think, they vary, they rotate so it’s at various points with different, with different contracts and then when they come up what happens they come up for bid and they will be better than the, and you plan and winning them again.

Okay maybe one last one from me when you look at the pipeline for, I should say the acquired pipeline will it be more of this in more complex oral solids or will at some point will they be in that -- or even in that pipeline or they shooting off into other branches of generic pharmaceuticals, injectable ophthalmics or will it stay with the oral solids. Thank you.

Thank you. So like the most of our industry most will be solid orals. There will be some better different delivery forms too.

Okay, great. Thank you.

Thank you.

Our following question comes from Steve Schwartz from First Analysis.

Hi, good morning everyone and congratulations.

Good morning, Steve. Thank you.

Thanks Steve.

Sal, can you bridge the current fiscal year product launch expectations so the 12 to 15 health how many products did you launch in the first quarter and then you talking about launching a handful of Citroen products are the Citroen products to be launched also in the 12 to 15?

No, so the 12 to 15 is Aceto standalone as we talked about in the last quarter's call. Their delay versus our original expectations but that we still I think 12 to 15 launched this year. The Citroen instead of launches is separate.

So how many did you have in the first quarter?

I think was three in the first quarter. I think the four Citroen’s we, from recollection we launched four Citroen products.

Okay, so three in the first quarter and then okay and there is just some you know with respect to the Citroen launches that are expected in calendar year 17 so 29 that sounds like a very high number, do you have the capabilities with the existing organization, the combined organization can do that many launches in that period of time.

I think we have the capabilities. I think from the - these are approved from a manufacturing point view, the manufacturer is its in place so, it will be a question of how we want to meet them out sort to speak and how the market reacts them too so, I think we got the capabilities. We’re going to assess it as calendar year 2017 goes on whether we launched every one of them is a question yet to be seen but we do expect to launch, majority of those.

Okay and then if you can tell me if this bridge that I have in my mind is somewhat correct or not but can you talk about Citroen been founded in 2013 with 77 handouts. As of today you’ve got 47 commercialized products and 31 approved for launched is this 47 and 31 basically the 77 that’s started three years ago in 33 products under development then our products that they've started up over the past three years.

That's correct.

Okay so then with that in mind, if you talk about blowing through their 31 approved but not marketed yet with, what happens after you get through the 31 basically over the next year, how you quickly backfill and keep it going at that level is it possible?

Okay, we have the Rising pipeline also that’s robust you know that we talk about on a quarterly basis so, and will continue to invest in R&D so, is the few things going on we’ve got our pipeline, you’ve got future investments and you've got the rules could do for that change that will result in approval that a faster rate than we've seen in the past almost then should allow us, to keep it going.

Okay and then…

Just to point you to slide 11 that we had up there after the approved pending launch products have been gone through let's say by the end of calendar 2017 or let's say sometimes calendar 2018 there is another 49 that are currently filed with the FDA that are working the way through.

Okay. I see and then if I could ask one last one with respect to Lucid and its government contracts, so Lucid was by all appearances a privately held minority owned business, sometimes government contracts give preference to those that those criteria. From what you can tell is there any risk to some of these contracts because now Lucid is a publicly traded company?

Okay. They weren’t getting -- they weren’t getting preference because they were minority owned, they would just everything with the government is U.S. based, so they have U.S. operations set out but again it wasn’t because of minority ownership they gave many preference. So that is not for this contract with the U.S. government.

Okay. Good to know. Okay thank you, Sal and I appreciate it.

Thank you.

Our following question comes from Steve Howard from Morgan Stanley.

Good morning.

Good morning.

Couple of questions, one acknowledging pricing and competitive headwinds that we're facing and perhaps a new normal, can you sketch out what your best guesses of the growth rate opportunity given the 76 products in development of study as well as the ANDAs and approved pending, right, can you sketch out what you think as it adjusted lower over the last 12 months or are we kind of resetting the bar here and then we can grow at kind of the old rate expected going forward?

Yes let me try to answer that question, Steve. Sal talked about two things, number one that, the number of launches haven’t proceeded as aggressively as we had initially forecasted, there was some supply issues that are little bit from the government hold up but I think the idea is with all the products both in the pipeline from our company as well as from Citron as we go forward, the number launches are going to be almost exponentially greater than they were in the past followed by factor of at least two just looking at the number of products that are already approved there, the growth in the pipeline. So we haven’t taken the launches and translated to what growth would be in either revenue or in earnings beyond we will say 2017 or 2018 but clearly as one looks at the overall dynamics there, it's certainly a lot more agreeing the field ahead of us than it was prior to this acquisition.

That sounds great. Let me ask in terms of looking at the even including the lower margin acquired assets with the combined 20% margin versus your combined 12, this is a big step towards your goal of being Human Health, is there a final transformation potential now on the table with regard to dissolving yourself of the legacy businesses for some of them?

Well fortunately the legacy business is a nice contributor to our earnings, it is not a drag on earnings, so we look at it all the time but we like the business, the business really put us where we are today helping us set up our global network et cetera. So it is additive to our EBITDA, it is additive to our earnings either GAAP or non-GAAP, we don't really feel any pressing need to do anything but it's always something that we talk about in terms of saying you know would it make sense strategically to quote more of pure play but we don't have any financial reason at this point to pull a trigger in that regard.

And as Sal said, it is something we talk about on a regular basis and I'm sure in light of this deal as we get the integration goal here, we're going to talk about it again.

Okay, that sounds good and then in terms of the 3.7 times net debt EBITDA, is there a target you want to read, should be comfortable down the road and is there a timeline?

Well as I mentioned, when we walk through Slide 14, the way our future cash flow is looking we expect to bring it down you have returned or three quarters return over the each year for the next few years, we want to de-lever ourselves to give us the flexibility of, may be doing another transaction in the future so, de-levering will be important to us

Sounds good and then just may be touching on the, the other question as it relates to the 31 approved and pending launch. Is that like an extreme example of some of the bottlenecks encountered by the generic industry over the past several years and it’s kind of now reaching its crescendo or is this just lucky draw timing as they're all coming.

This is -- it's the latter, again so with the 77 and in an organized fashion Citroen has been launching them and now we’re going to pick those up will continue so, then this is not the same nothing.

Okay. That’s all from me. Thank you.

Thank you.

Our following question comes from Kevin McKenna from Main Line Capital.

Yes, good morning thank you and gentlemen from Morgan Stanley asked the question I was asked and answered but I would just simply follow up and ask that you since you guys are going to use JPMorgan, Wells Fargo to syndicate this deal in peers Morgan Stanley on this call. Can we hope for some from broader coverage from Wall Street for this corporation it's a story that I think desperately needs to get told.

Well, we like the ideal that people keep asking the question maybe either people with J.P. Morgan and Morgan Stanley hearing what so, we would like that as well but the other than talking to people all the time, we can pull the trigger for them, they have do for us but we’re certainly in your cap that we’d like more coverage.

Thank you.

[Operator Instructions] And our next question comes from Greg Eisen from Singular Research.

Thanks. Good morning.

Good morning.

Hi, I want to go back to the quarter itself in the operations the quarter could you talk a characterize the, the level of the competition you're experiencing at Rising pharmaceuticals this quarter and compared to last quarter and is it essentially stayed the same gotten better, gotten worse and how you see it trending kind of sequentially over the next few quarters?

Sure, so similar to what I mentioned let’s say quarter ago at least for us this kind of two things up there, yes the generic industry has had more competition in general as more profit than getting approved so that's one and that’s kind of a normal baseline level of competition going on that I think everybody seeing. For as we mentioned in particular, one of our more significant there almost significant product quarter ago received new and I say strong competition, intense competition and so that start cutting into our sales more importantly profits last quarter it continued this quarter and, to we don’t get through years that’s going to we’ve got a lot that so, it’s going to be quarter two, three and into quarter four this year. That competition is going to be impacting our business and as I mentioned you know the name of the gain for us is get some other products approved launched to offset that’s the generic industry.

Got it, got it and regarding the delays in a product launches you launch three this quarter is quarter as what you said earlier and the plan is for the fiscal year launched over the 15 so that's three out of 12 or three out of 15 so 9 to 12 or left for the rest the year correct am I doing the middle right there. The product launch delays are the specifically because of the, just getting to the FDA or is it manufacturing or supply product situation.

So couple things. We’ve to break it down into products that have been already approved by the FDA and those that were expecting approval. On the ones that have been approved you we had a couple things. In one situation, one of our partners which is a large world-class manufacturer happen to get an FDA situation at facility that they are making the product for. So we never have expected it but it happened. So now we're waiting for them to gone through the FDA situation and now they're gearing up against. So that is kind of one situation and some others might be varied, sometimes it's working through validation, sometimes it's process issue. So we've had a few issues on the approved way into be launched, which we're working through. And then there is you do your best to predict when you might receive approval from the FDA based on target action dates and things like this and in a couple of cases in particular, we felt we would have approval by now and don't and so that is confidence going to occur but it may be late Q2, maybe the early Q3. So it depends on the situation and given our model where we have multiple manufacturing partners, the goodness is we spend our risk out sometimes though it comes back and you have trouble at multiple sites and that is what we had here in this past quarter or so.

Sure. And the backorder situation is related to those manufacturing partners there and their ability to get supplies in?

That is more related to, it could be some of the same manufacturing but it is related more to the supply of the API and will resolve those issues.

Okay. And turning to the acquisition, you just announced it sounds like am I correct in that order manufacturing is going to be done by the one contract relationship that you discussed?

With respect to the 77 products that were the foundation of the business yes with respect to the 30 somewhat products that are in development, some of those will be, some will be with other suppliers.

Okay. And would you expect to move any of your future products from the legacy ACETO to this manufacturers, is this manufacturing necessarily head and shoulders better than the people you've been dealing with that you would want to rely on them more?

So we think there, we think they are really great manufacturer, the existing products that we -- the existing commercial products and even the ones that are pipeline committed, those will stay with the partners we have. I see this as an additional opportunity for future growth but not for we do what we have in place. And not to replace them what we have in place either as we look at the future, I think our relationship with Aurobindo will add to what we have but doesn't mean we are walking away from our existing fine partners.

Got it, got it. Okay thanks, I will let someone else go.

Thank you.

Our following question comes from Matt Hewitt.

Just one follow up, I noticed in the slide deck, Citron a number of their earlier approved products were actually just distribution rights versus them actually owning the index, that is still the case and is there any risk that at some point you lose those distribution rights? Thank you.

There are 77 products in that, the ANDAs are owned by Aurobindo not by Citron and our relationship with Aurobindo, we have post closing, we are going to have a 14 year supply agreement on all those products, so long-term we are going to be the relationship with Aurobindo will continue uninterrupted.

Great, thank you.

Thank you.

Our following question comes from [Lester] a Shareholder.

Yes congratulations once again three in row, it is a hat-trick, I have about 100 questions but I am going to wait for the future conference calls in the next several quarters to get all my answers but if you allow me just the one you told us you have been working on this for at least the initial introduction per year which dates almost exactly last November when you put the convertible debt instrument in place. I assume it is related to this deal but you also told us couple of quarters ago, you took a charge failed deal cost of $1.2 million, can you tell me or can you reveal to us is that the same deal that you resurrected in the meantime and you’re announcing today excuse thank you.

That was a two part question, we will start with the convert that the easy you want, --really wasn’t geared to this transaction, it really had to do with just giving us some power to do any potential significant transaction, so wasn’t really related to this deal. But you're pretty astute in that yes that charge we took. I think it was $1.2 million was in fact this transaction again it comes back to my comments about aligning a deal for both us and the sellers, so the first time out of the box, it really wasn't aligned the way we really wanted, so we chose to walk away and continue to have a dialog and so yes the deal got sort of resurrected and here it is and we closed it. So it is a question of us being persistent to seller understanding the value and ultimately having a transaction with us, it became a win-win but it was a process, it is something somewhat over year end, it was that sort of book. I wouldn't call it false start but just wasn’t lined up the way we would have liked. So today we have exactly what we want. So we're very, very pleased.

Excellent, excellent and I will add, I want to sneak one more in, may I?

Sure.

The earn out is similar to the earn outs that you have associated with the two prior deals, can you qualify for us or quantify would be even better, if they are in the $50 million, if they achieve the milestones in these four product launches and sales, what does that generate for ACETO in terms of revenue and certain period of time or EBITDA contribution, what do you match that $50 million payout to? Thank you.

Lester let me describe the 8-K was filed, so if you want to find out the details, it is somewhere within those 200 pages but in those four select products, as you said the construct is very similar to what we did at enterprising and their $50 million they are potential for up to $50 million represents 25% of the net gross profit generated over the next five years. So if we do write them a check from 0 to $50 million that represents virtually 25% of the gross profit.

So indeed we want to write a check for $50 million in the next five years correct?

That, [I can deliver.]

Just as you did in the past two acquisitions and they earn.

I’d like to just clarify one point so there is no confusion. Those four products that we’re talking about in the earn out are not part of that even numbers, that have been talked about earlier in the presentation.

Understood.

They’re part of the 29, then part of the 31, they’re not part of the [77]four totally different products that are in development. So, there is no guarantee of success but if they’re are successful as you said and as Doug said we would be delighted to write them a check for $50 million.

Can you give us any color on those products – [these paragraphs four's] Are these more interesting products then, I'll call other launches we've been doing for the last several years?

Yes, we’re not set the paragraph was not but they’re more interesting products in general from a technical point of view and from a market dynamic point of view.

Okay, good luck on the closing and in the integration and I look forward to getting the 98 rest of my questions answered in the future. Thanks guys.

Okay. Thank you.

Thank you.

We have no further questions. I’d like to turn the call back to Sal for closing remarks.

Okay. Well, thank you again everyone for joining us. We realize with short notice I would realize it was a kind of a mouthful here today. Thanks for your time and for your great questions. We look forward to get in the transaction closed and integrated part of Aceto and keeping you all filled in as things progress and those who are interested our shareholder meeting is December 1 this year so that might be the next that we see each other. Thanks so much. Bye-bye.

Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.