Good day, ladies and gentlemen, and welcome to the Amphastar Third Quarter Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's conference is being recorded. This conference may contain forward-looking statements, including statements related to Amphastar Pharmaceuticals. These statements are not historical facts but rather based on Amphastar Pharmaceuticals' current expectations, estimates and projections regarding Amphastar Pharmaceuticals' business, operations and other similar or related factors. Words such as, may, will, could, would, should, anticipate, predict, potential, continue, expects, intends, plans, projects, believes, estimates, and other similar or related expressions are used to identify these forward-looking statements. These statements are only predictions, as such are not guarantees of future performance and they involve risks, uncertainties and assumptions that are difficult or impossible to predict. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in the Amphastar Pharmaceuticals' filings with the SEC. I would now like to turn the conference over to Mr. Jason Shandell, President of Amphastar Pharmaceuticals. Sir, you may begin.

Thank you. Good afternoon and welcome to Amphastar Pharmaceuticals' third quarter earnings call. My name is Jason Shandell, President of Amphastar. I'm joined today with my colleague, Bill Peters, CFO of Amphastar. We appreciate you joining us on the call today and look forward to speaking with you and answering any questions you may have. I will now turn the call over to our CFO, Bill Peters, to discuss the third quarter financials.

Thank you, Jason. Sales for the quarter increased 1% to $59.7 million from $59.3 million in the previous year's period. Sales of Enoxaparin declined to $32 million from $36.2 million, primarily due to lower average selling price. Unit sales to Actavis increased in the third quarter due to the timing of shipments. AFP, our recently acquired Insulin business in France, generated sales of $6 million in the current quarter. Other product sales decreased 6% to $21.7 million from $23.1 million, as increased sales of Naloxone partially offset lower sales of Cortrosyn and other products. Cost of sales increased to $47.9 million from $39 million, primarily due to costs associated with our AFP Insulin business. Cost of sales increased as a percentage of sales to 80% from 66% for a variety of factors, some of which are temporary. Long-term trends of lower Enoxaparin pricing were part of the reason, but pricing on this product was little changed from our second quarter. However, we shipped more units to Actavis in the quarter than they sold to their customers. We ship product to Actavis at a transfer price with a very low margin and receive a profit share at the end of the quarter based on their sales of the product to third-party retail customers. Therefore, when we ship more units to them than they sell to retailers, sales in dollar terms increase but our gross margins are compressed. We expect that this trend will reverse in the fourth quarter. Additionally, we reduced production volumes of Enoxaparin in the third quarter, resulting in unfavorable manufacturing variances which caused a temporary increase in the cost of revenues for the period. Our insulin API sales also negatively impacted gross margin percentages. As part of the purchase price accounting rules, inventory is recorded at fair value.…

Thanks, Bill. I'm happy to report that we had a very productive third quarter. Sales of our products remained strong and we continued to advance our pipeline. The integration of our subsidiary, Amphastar France Pharmaceuticals, is proceeding well; we are excited for MannKind's launch of its AFREZZA product in the first quarter of 2015; and we are fully prepared to meet the demand for our recombinant human insulin API. On September 29, I'm happy to report that the FDA approved our subsidiary, IMS, as the alternative API supplier for our Cortrosyn product. Previously, our third-party API supplier elected to stop manufacturing the API. This approval of IMS allows us to supply our own API and further demonstrates our capabilities in peptide synthesis. In October, we met with the FDA regarding our Primatene application. We believe it was a very positive meeting and the agency commended us for our low-literacy research that we conducted to enhance the label. As a result of these efforts, we revised our label, and the label comprehension and human factor studies that we are currently conducting are progressing well. The sales of our IMS products remained strong, which is the result of our competitors' continued supply issues together with increased demand for our Naloxone product which is used to reverse opioid overdoses. With respect to our Naloxone product, we're happy that it is being used to save thousands of lives across the country. There is a growing trend. Currently, 17 states have different initiatives to reduce heroin overdose deaths, including policies requiring Naloxone to be carried by first responders. We are committed to meeting the increased demand for our product and supporting the country in its fight against this growing epidemic. A competitor of our Laryng-O-Jet drug from IMS announced in the third quarter that they are discontinuing their product due to certain quality issues. As a result, IMS will be the only remaining supplier for this product and we are prepared to meet the market demands. Finally, in our previous earnings call, we mentioned that we were considering price increases for our IMS products. Such prices were increased in October and the increased revenues and profits will be realized in the first quarter of 2015. With that update, I'll now turn the call over to the operator to begin Q&A.

[Operator Instructions] Our first question comes from the line of David Marris of BMO Capital Markets. Your line is now open.

It's Christine in for David. Just quickly on Primatene, can you tell us what the next steps would be now that you've met with the FDA, and perhaps if you can remind us again about the difficulty level between the label comprehension and the behavioral studies? And then what would be the timeframe you think once the Phase 3 was initiated?

So, yes, we did have a meeting in October. We believe that went very well. They commended us on what we've done with the low-literacy. On the last call, I talked about some focus groups that we conducted. Those gave us really good insights into how to improve the label. Based on that, we did revise the label and we're currently conducting our studies for both label comprehension and for the behavioral. Those studies are progressing well. I would not say that they are difficult studies. This goes back to the last call where I discussed the fact that because this is an OTC product, the FDA needs to be assured that all individuals including low-literacy can understand the differences from the prior version of Primatene, they need to understand to shake it, they need to understand to prime it. And some of the insights were around the word, 'prime'. Many people don't know what that means. So we now have actual graphics with them spraying it away, in parenthesis we say 'Spray Away'. So the studies are progressing very well. We updated the FDA in our meeting, and what we're going to do now is we're targeting the first half of 2015 to file our response to the FDA, complete response letter, and typically the review cycle would be six months.

Our next question comes from the line of Elliot Wilbur of Needham & Company. Your line is now open.

Just want to drill down a little bit further around your commentary on price increases and the relative degree of inelasticity of the portfolio. One of your generic industry peers this period have initiated similar moves and have sort of called out price protection reserves as a variable that has kind of weighed on their reported results, and I'm not sure necessarily whether the same dynamics would apply in the institutional marketplace as the retail, but Bill, maybe if there's anything to kind of say on that front in terms of whether or not that was a factor this quarter or if in fact you would actually record them in the fourth quarter?

That's a good question. First of all, there was a small impact in the third quarter relating to the chargeback reserve that we have, and there'll be some footnote in the financials when we file the 10-Q, which will probably be tomorrow by the end of the day. That shows what our chargeback total dollars are. That increased because of the inventory that was at the wholesaler at the time, is now – because of the WACC price increases, the contracts hadn't changed as of September 30. So there was a bigger spread there. So there was a small negative sales impact to the third quarter. It was relatively small because our inventory levels at the wholesaler are relatively small in terms of number of units at this time. So it was not a very big impact. One of the reasons that Jason had mentioned that we would not see these sales increases till the first quarter, is that we do have some expenses associated and some fees associated with raising these prices. We'll take those fees in the fourth quarter because that's when our price increase went into effect in the fourth quarter. So that will offset the price increases that we should be receiving from several customers in the quarter. It's a little hard to say exactly what the impact will be. If I was to speculate at this point, I'd probably say we might have some small positive impact from the pricing increase in the fourth quarter, because the timing of these price increases varies from customer to customer with some customers getting a little more time to buy products at the old [products] [ph] than others. So some customers will be buying the product at the old prices for the entire quarter, some for just part of the quarter. So we do know what those fees are, we don't exactly know how many units each customer will be buying at the higher prices. So it's a little bit hard to say, but in the end there's not going to be we think a very large impact to the fourth quarter. However, by the time the first quarter rolls around, those negative impacts will have gone away in the fourth quarter and almost every customer will be on the new higher pricing regime come 1/1.

Okay. And then just a follow-up question on Enoxaparin market, maybe could you guys maybe just provide a little bit of color on sort of the current dynamics? There we saw kind of a nice bounce up, at least sequentially. I'm assuming that was primarily volume driven. I know you gave some color earlier.

Yes. That goes back to – that's really volume driven, that has more to do with the timing of shipments to Actavis. As I mentioned, we ship to them at a very, very low gross margin. So that's partially why the gross margin percentage came down in the quarter. We did adjust the timing thing where we ship them full batches at a time. So we ship them very large shipments. It just happened to be that this quarter we shipped them significantly more units than they sold out. The last couple of quarters it was actually the opposite, we shipped them fewer units than they sold and now that trend just reversed this quarter. I expect that to go back the other way in the fourth quarter. As far as pricing goes, there really hasn't been much of a change since we had last quarter, and we haven't seen them actually launch yet. We do know that they've talked to customers though. So there are rumblings that they will be out there. We just don't know exactly when.

Okay. And I guess along those lines, any changes to your prior thinking about pricing based on feedback you're getting from customers in terms of their conversations with Teva? Do you have any sense as to whether they are more interested in the institutional marketplace or the retail marketplace?

We don't have any new information there. So I'd say what we've said in the past probably stands.

Okay. Then just last question, sort of big picture. Obviously the Company over its history has completed a fairly large number of acquisitions, and following the IPO and the capital raise, certainly in a position to be much more aggressive in terms of deal making activity, and of course that is a very hot topic right now, it's a very robust deal environment. Just curious, what you guys are seeing in terms of transaction flow. And certainly it seems like there's some pretty rich valuations out there, which I guess is negative if you're on the buy side but obviously the good thing is that everybody sort of brings things out for sale too. So just maybe a little bit of color in terms of what you're seeing and what the relative attractiveness of opportunity is versus reinvesting in some assets that maybe have a little bit longer development timeline but just much higher ROIC?

Sure. So, yes, we're keeping an eye out on acquisition opportunities. As always, there is quite a large amount of deals out there but we are very selective. It must be synergistic. We're not looking to get into tablets or capsules. So we are very focused on injectables and inhalation, high barriers to entry. We'd be interested in a specific product or a company if the fit was right. So we are looking for those opportunities. We're keeping an eye on the deals. It does seem that there are some rich valuations. So at this time, there is nothing specific for us to talk about, but we are looking at several early – right now, it's early to discuss but we are looking at several possibilities of the large number of deals that come across our table.

[Operator Instructions] Our next question comes from the line of David Amsellem of Piper Jaffray. Your line is now open.

Just a couple. First, just on the insulin API business, can you try to frame for us how you're thinking about contribution in 2015 and also how you're thinking – and how we should think about economics from the MannKind product? So that's number one. And then secondly, just in terms of business development, just to delve deeper, I know you've mentioned injectables and inhalation products. Just broadly speaking, what's your level of interest in other types of what I would call alternative dosage forms, and then I guess the question is, would you access additional capital to bring in additional assets?

First on the insulin, in the quarter we sold about $6 million worth of insulin. That was to various customers around the world. As you know, MannKind is scheduled to buy insulin from us next year. They could actually do so in the fourth quarter, and that's a possibility. However, if they do so in the fourth quarter, it will offset any obligations that they have next year. So we're going to ship them I would say based on, the term is 'denominated in euros' but I'll say about $32 million worth of insulin sometime between now and the end of next calendar year. We had mentioned today that the AFP margins were negative. That will no longer be the case once we've finished selling out of the insulin that we had purchased from Merck. Additionally, we're also prepared or in the process of ramping up production there so that the cost per unit of that insulin goes down as well, so the economics get a little bit better than they were. As far as the M&A goes, Jason, you want to…?

Sure. So from the business development side, we would be interested in other deliverables, perhaps patches or bag technology. We definitely would stay away from tablets or capsules. But as long as there is a barrier to entry and it's a technically challenging area, we would be interested. As Bill said earlier, we have over $70 million in cash, and so we think we could do a nice sized deal. We would be willing to do a bigger deal if it was the right fit, and so we are open to that possibility.

Thank you and I'm showing no further questions at this time. I would like to turn the conference back over to Mr. Jason Shandell for any closing remarks.

Thank you very much, operator. This concludes our call for today. All of us at Amphastar appreciate your continued interest and your support. This really is an exciting time for the Company and we'll keep you updated on our continued progress. Thanks again to all of you for taking the time to listen in. Have a great rest of the day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a great day everyone.