Amneal Pharmaceuticals, Inc. (AMRX) Q3 2013 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. This is the operator. I would like to welcome everyone to the Impax Laboratories Third Quarter 2013 Earnings Conference Call. [Operator Instructions] Mr. Mark Donohue, Vice President, Investor Relations and Corporate Communications, please go ahead.

Thank you, Natalie, and good afternoon, everyone, and welcome to our third quarter 2013 financial results conference call. We issued our third quarter 2013 earnings release today after the close of the U.S. financial markets. And a copy of the release and a link to a webcast of this call are available on the company's website at www.impaxlabs.com. Today, Dr. Larry Hsu, our President and Chief Executive Officer, will make some brief remarks; and then Bryan Reasons, our Chief Financial Officer, will review the financial results and our updated 2013 financial guidance. Also on the call are Dr. Carole Ben-Maimon, President of Global Pharmaceuticals; and Michael Nestor, President of Impax Pharmaceuticals. All will be available to take any questions you may have. Our discussion today may include certain forward-looking statements, and actual results may differ from those presented here. Factors that could cause such a difference are outlined in our SEC filings and on our website. Our discussion today includes certain non-GAAP measures as defined by the SEC. Management uses both GAAP financial measures and the disclosed non-GAAP financial measures internally to evaluate and manage the company's operations and to better understand its business. Further, management believes the inclusion of non-GAAP financial measures provides meaningful supplementary information to and facilitates analysis by investors in evaluating the company's financial performance, results of operations and trends. A reconciliation of GAAP to non-GAAP measures is available in our third quarter 2013 earnings release, which can be found on the company's website in the media press release section, as well as within the Investor Relations section. With that, I'll turn the call over to Larry Hsu.

Thank you, Mark. Good afternoon, everyone. Thank you for joining us today. I plan to spend a few minutes highlighting some of the events that have occurred since our last call in early August. Bryan will then review our third quarter 2013 results and the updated guidance. Today's earnings release disclosed that in late October, at the FDA's request, we participated in the regulatory meeting with representatives from the FDA. During the meeting, we provided additional information and clarifications on our responses and updates related to the Form 483 issued in 2013. We believe that a satisfactory reinspection of our Hayward facility will be required to close out the warning letter and then to resolve the 2013 Form 483 observations. The FDA did not notify us at the meeting of any additional enforcement actions; however, no assurance can be given as to whether the FDA will take any further enforcement actions. We are currently working with the FDA on appropriate next step for our RYTARY NDA approval. In addition, we have initiated the preparation of the required documents on an European market authorization application or MAA filing, which is targeted for the second half of 2014. Our work to resolve our quality issue is ongoing, and it would be premature to predict an outcome at this time. Therefore, it is not yet appropriate for us to provide any additional comments on the nature of the FDA meeting or the timing of a potential reinspection of our Hayward facility. However, once we have a material and a verifiable information regarding this topic, we will make appropriate disclosures. We'll continue to use significant resources to address this issue. Third-party experts continue to assist us with a review of our manufacturing and quality system, and in enhancing such a system and a standard. This work is ongoing, and we are committed to continue to improve our quality control and the manufacture practice. While we are allocating significant resources to our remediation activities, we remain focused on successfully launching new products. Our generic division successfully launched authorized generic TRILIPIX capsules in mid-July of this year. It quickly established a leading generic position in this category that provides a beneficial in helping to partially offset the decline in the current quarter sales of our blinded Zomig tablet and the ZMT product. We also benefited from successfully capturing sales and the share of our non-AB rated oxymorphone ER and authorized generic Zomig tablets and the ZMT product. Last week, we were pleased to learn that our development partner, TOLMAR, received the final FDA approval for the generic Solaraze Gel, which we are preparing to launch shortly. This is a first-to-file product, and we are not aware of any additional Paragraph IV filings. The last Orange Book list patent doesn't expire until August 2015. Upon launch, this will be our 10th alternative dosage form product on the market. We are continuing to execute our alternative dosage form strategy of expanding our portfolio of products. I will now turn the call over to Bryan who will provide his comments on our financial results and other items. Bryan?

Thanks, Larry. Hello, everyone. Thanks for joining us. I'll begin with an overview of our quarterly results and adjusted earnings, and then address our updated 2013 financial outlook. In early August, on our second quarter earnings call, I outlined several events that could negatively impact results in the second half of this year. These events included the impact from the loss of exclusivity of Zomig tablets and ZMT products, the potential approval and launch of competing products and the lack of new product approvals. While we experienced a $27 million decline in the sales of Zomig tablets and ZMT products, as well as lower sales of authorized generic Adderall and fenofibrate, our generic division did a great job of capitalizing on the launch of our authorized generic TRILIPIX. This successful launch, combined with the delayed competition in oxymorphone ER tablets resulted in a profitable third quarter. We will continue to aggressively work at maintaining and growing share of our current portfolio of products and expect to benefit from the recent approval of generic Solaraze Gel. However, the combination of lower revenues of our authorized generic TRILIPIX following our strong launch, the potential impact of recent competition on oxymorphone and reduced operating efficiencies due to lower manufacturing production levels at our Hayward facility may negatively impact our fourth quarter results. On a non-GAAP basis, our adjusted earnings per diluted share were $0.25 compared to $0.48 last year. Total company revenues declined $13 million to $133 million compared to last year. As mentioned, the decrease in our third quarter revenues was driven by the loss of exclusivity of Zomig tablet and ZMT products. Generic competitors introduced generics for both tablet products and relaunched an authorized generic on both products. Our third quarter Zomig revenues were $16.5 million, down $27 million compared to last year. We expect revenues from sales of our Zomig tablet and ZMT products will continue to decline in the fourth quarter due to generic competition. We continue to promote Zomig nasal spray, which has patents that extend to 2021 and are successfully growing prescriptions and our share of the nasal triptan category. We also experienced a significant decline in combined year-over-year sales of generic Adderall and our fenofibrate products due to the approval of additional competition. While our sales of these products have declined, we continue to service our customers and explore all opportunities to grow sales. Partially offsetting these sales declines were revenues generated from new product launches, for which there were no comparable amounts to prior year. This included the TRILIPIX launch, the launch of authorized generic Zomig tablets, the launch of our generic oxymorphone and the acquisition of 9 currently marketed products from TOLMAR, which we began selling in the fourth quarter of 2012. Adjusted gross profit margin declined to 55% from almost 71% last year, primarily due to the decline in Zomig sales. Gross margin was adjusted to exclude total charges of $25 million, resulting from impairment of intangible assets, remediation costs at our Hayward facility, and amortization and acquisition-related costs. In last year's third quarter, total charges were $24.7 million, resulting from amortization and acquisition-related costs and remediation expenses. During the third quarter, we evaluated the recoverability of an intangible asset that was part of our June 2012 TOLMAR agreement. The agreement granted us an exclusive license to commercialize up to 11 generic topical products, including 9 then-approved products and 2 products pending approval. One of the 2 products pending approval, Solaraze, was recently approved. Based on the result of this evaluation, we recorded a $13.2 million charge to cost of revenues for the global division, which brought the intangible asset down to its revised fair value. Separate from our deal with TOLMAR, we also decided to withdraw a pending ANDA, which resulted in a $750,000 impairment charge included in R&D. We continue to dedicate significant resources to remediate the 2013 Form 483 observations. This includes the use of outside consultants, as well as redeploying highly qualified internal resources, to focus on this critical effort. As a result, we recorded a charge of almost $11 million in the third quarter for remediation costs and $17 million for the first 9 months. For the full year, we now estimate the remediation costs will be approximately $30 million, up from our previous estimate of $10 million to $15 million. This increase is due to progress we've made on our Quality Improvement Program, which has resulted in additional spending in 2013 that was planned for 2014. Total R&D expense decreased approximately $4 million compared to last year. The decline was due to our decision to terminate development of IPX218, our proprietary product candidate for epilepsy, as a result of technical and competitive factors. In addition, generic R&D expenses were down compared to last year due to the timing of completion of generic partner projects. We ended the third quarter with $437 million in cash and cash equivalents. We continue to be in a fortunate position of not having any debt and having substantial financial resources to support both the ongoing internal improvements to our manufacturing and quality systems, and execute on potential external growth opportunities. We've adjusted our full year 2013 guidance. We increased our full year gross margin guidance to approximately 50% from our prior guidance of mid- to upper 40% range. This change is driven by the strong third quarter launch of generic TRILIPIX, as well as delayed competition on oxymorphone. We lowered our full year total R&D expense forecast to $70 million to $72 million from $80 million to $87 million. This reduction is primarily due to lower spending within our brand division, as we had budgeted for a Phase III study on the epilepsy product. For a number of years, we've discussed the importance of successfully developing a brand business. We believe it is important to our future growth as brand products provide longer product life cycles with the potential for higher profits. Building a diversified pipeline of opportunities is important as there will always be those that do not survive development. Currently, our brand pipeline has several neurology product candidates in various stages of development and review by our R&D team. Within the generic R&D division, our spending has declined this year because we have utilized some personnel for remediation activities in Hayward. Our generic pipeline currently consists of 42 products pending at the FDA and 27 products currently under development. This pipeline of 69 solid oral and alternative dosed form products targets over $26 billion in U.S. brand and generic sales. Generic patent litigation expenses through the first 9 months of this year were $13 million. Due to increased legal activity, we revised our full year expense forecast to $15 million to $16 million from $12 million to $15 million. We anticipate that our total SG&A expense forecast will now be approximately $113 million to $115 million. This is in the lower end of our previous range of $113 million to $118 million. We continue to monitor and aggressively manage our controllable expenses while allocating resources to our higher priority remediation and quality improvement initiatives. Thanks for participating, and I will now turn the call back to Natalie for questions.

[Operator Instructions] Your first question comes from the line of Mark Goodman with UBS.

I guess, the first question is there's been a lot of consolidation, I guess, of big customers. And I was curious your thoughts about this. It's clearly a topic, and everyone's asking all the questions of the generic companies. And I think the big companies are saying this is good for them because they can play with the volume and the price, give higher volumes for less price. But how are the smaller players going to be able to compete? So I guess, that's a question for you.

Mark, it's Carole. It's actually quite interesting what's happening, I think, at the customer level, and we've been trying to keep an eye on what's going on. And I do think that in some ways, we can play into the larger players. But I think what you have to remember in the generic industry is it's really all about the product line, right? And so, if you're offering unique products that others don't have, or you don't have exclusivity, I think you're still really poised to compete quite aggressively. Plus some of the smaller products, even though they're high volume, are still challenging for some of the bigger players if they're not that big. I mean, a $150 million generic for a company like Teva or Actavis, it's really not moving the needle very far. So I think the consolidation is significant, and I think it does help. And I think it's very intriguing that it crosses the Atlantic Ocean. But I do think that the smaller players are actually very capable of participating and competing, especially depending upon our product line, which is why I think we are actually in a very good position because we tend to have products that other companies don't necessarily have.

Your next question comes from the line of Louise Chen with Guggenheim.

I had a few. So first question I have was you noted in your press release that after the FDA meeting, there were no additional FDA actions. And I was just wondering if you could be more specific on what you meant here. Were you referring to, like, a potential consent decree or something else or just a general statement that you were trying to make? And then secondly, you noted the moving of the remediation spend from 2014 to 2013. Does that mean that basically you're going to be progressing faster than you expected in terms of getting all the issues resolved at Hayward? And then lastly, just curious -- you've got a lot of different initiatives to undertake, like looking for a new CEO, acquisition -- potential tuck-in acquisitions or bigger acquisitions and then resolving the manufacturing issues. How do you, as a company, prioritize your time with so many things that you're looking at?

Okay. Let me try to answer your questions, Louise. First of all, I think when we say the FDA did not give us any additional enforcement action in the meeting, and that's what we mean, exactly, what we say in the press release. In the meeting, they did not mention anything about additional enforcement action. Now of course, you understand that this does not guarantee the FDA will not give us an interaction in the future. Okay? And second question, on the 2014 and versus -- move up to 2013. I think Bryan might be able to give you the details. But at this point, we are moving other acquisitions that we can. We have moved a lot of people, both internally and externally, trying to accelerate the program as much as possible. The third one is that the priority is not that difficult to determine at this point. The most important, there are 2 priorities: one is to try to find a new CEO as quickly as possible; and two, work on the remediation -- the 483, which we got in the 2013, early 2013, as well as to your continual question, the implementation of the Quality Improvement Program. Bryan, do you want to comment on this move-up, this...

Yes. So I think a lot of it is just timing. When we do our planning, we try to schedule out exactly when certain expenses are going to hit. The quality team has been working really hard on not just remediation, but as well as the QIP program. And some of the -- we expected costs to kind of ramp up in the second half of the year. And now, some of the costs are -- that we expected to hit in 2014 are hitting in 2013.

The next question comes from the line of Ken Cacciatore with Cowen and Company.

Just had a couple of questions. One, just reading that statement that you made about your meeting with the FDA, you said you're committed to answering any questions that the FDA might have on applications or programs. So I'm wondering what might have means. Did they not have any questions for you or -- so just a little bit of clarification on kind of that language. And then on the CEO search, just wondering if you can just give us an update. You touched on it briefly, but where we stand, kind of what type of candidate we've been meeting with and maybe a little bit more on the timing. And then lastly, if you could give us an update on the RYTARY situation in terms of trying to separate it. Have you been running the studies out of Taiwan that are necessary to satisfy kind of a refiling if we continue to have a delay at Hayward?

Okay. I'll try to answer the first 2 questions, and maybe get Mark's help on the RYTARY. Michael, sorry. On the first question -- in the meeting, obviously, we, as we indicate in the press release, respond to question, additional question FDA may have and clarify some of the issue FDA has. And that's pretty much the focus of the whole meeting. Again, we anticipate that after the meeting, FDA was going to continue to have some more questions. As we pointed out, we continue working with FDA, continue to respond to any question the FDA has. It doesn't matter if the question is related to the 483, related the Quality Improvement Program, or related to the application we're currently pending with the FDA on that. The other question on the CEO search, at this point, our effort continues on the CEO search. As I indicated earlier, this is one of the top 2 priorities we have in the company. At this point, we will not be able to give any more detail beyond that. But once we have definitive answer, we definitely will disclose that, so you will know about it. Michael, do you want to talk about the RYTARY?

Yes. In terms of RYTARY, first off, FDA has not asked us to do any additional clinical studies for RYTARY relative to what hopefully will play out as the approval process. So where we sit right now relative to RYTARY is we're working with the FDA to see what options we might have to obtain approval for RYTARY. Currently, we do not know whether it can or cannot be separated from the GMP observations in Hayward. I think one thing certainly, from our standpoint, once we're in a position where we have important and verifiable information related to the status of RYTARY, we'll certainly let you know.

Okay. Thanks. And Larry, just a follow-up. Are you feeling more confident after coming out of that meeting with the FDA, or you just feel the same? Is there anything -- any kind of body language or any feelings you can convey to us after coming out of that meeting?

Well, as I pointed out, the last thing we want to do is to second-guess whatever was FDA body language at this point. So again, I think we have, in the press release, pointed out pretty significant points from the meeting. And that's probably all we can say at this point.

Your next question comes from the line of Elliot Wilbur with Needham & Company. Elliot Wilbur - Needham & Company, LLC, Research Division: Larry, just a follow-up on Ken's line of question. I guess, in the wording in this specific paragraph in the press release, referring to the meeting with the FDA. It just -- it seems it threw up a red flag when you start talking about committing to answering questions on applications and the like. And obviously the concern will be out there that there's some sort of application integrity issue. And I'm just wondering if you can maybe elaborate on that a little bit, whether or not there were any discussions with the FDA with respect to any concerns around the integrity of any of your pending ANDAs?

Well, again, we're really not at liberty to discuss any details of the discussion. But I can tell you, at this point, there's no integrity issue arising in any of the conversations. Elliot Wilbur - Needham & Company, LLC, Research Division: Okay. And then maybe as a follow-up to that. I didn't quite understand the rationale for pulling forward what seems to be a fairly significant amount of expenses tied to some of the remediation programs into 2013 versus '14. I would just naturally assume that this is kind of a problem where you try and throw as much money at it as possible in the short term to make it go away as quickly as you can. So I'm just sort of wondering, what has changed in terms of allowing you or permitting you to pull forward fairly -- looks like fairly significant level of expenses?

Yes. And I would say, Elliot, it's more of a -- when we did the financial planning and budgeting, we kind of tried to budget out exactly by quarter. And the ramp-up was a lot higher in the second half into the first quarter of 2014. And the work streams are so significant that it doesn't take a lot of movement in the timing of the work that suddenly the cost shifts from Q1 of next year to Q4 of this year. Elliot Wilbur - Needham & Company, LLC, Research Division: Okay. Then maybe last question for Michael, give you something positive to talk about here. Zomig nasal spray scripts are up about 30% since year end. Obviously, that's getting the entire focus of the current sales force. Just wondering how you are sort of thinking about that in terms of that trajectory, whether or not you believe kind of at this point that's something you can accelerate. Or how do you plan on sort of maintaining that trajectory, at least assuming that you are in position to launch RYTARY sometime within the next 12 to 18 months?

Okay. Well, thanks for the question, Elliot. So yes, you're right. We have seen Zomig nasal spray sales pick up and in fact share pick up. As we look to kind of include Zomig nasal spray in the triptan nasal spray category, I think we're up now to about 26% as of the last quarter, which is a pretty handy increase over where it was when we picked up the product from AstraZeneca. So clearly, we're seeing the desired effect from our sales force. And in fact, internally, our sales are running very, very nicely relative to what we'd anticipated when we put the whole Zomig program together. Once we're able to actually launch RYTARY, our intent is to keep Zomig nasal spray as an additional product alongside RYTARY for the sales reps. So they'll be promoting not only RYTARY, but they'll also be, where appropriate, promoting Zomig nasal spray as well. We do want to see what we can do. Since we have that extended runway through 2021, we're very, very much interested in being able to expand the sales base of that product. Elliot Wilbur - Needham & Company, LLC, Research Division: Yes. Michael, just as a quick follow-up. I guess, the question I'm sort of asking is given the success you've had with it, are you thinking maybe a little bit differently about the product in the sort of post-RYTARY approval launch phase? Essentially, I would assume that this would be kind of relegated to a second-line position. But just wondering, kind of given the current trajectory, if you might be thinking about maybe putting a little bit more, in terms of resources behind it.

Not at this point, Elliot. I mean, you're exactly right relative to your assessment about going into a P2 [ph] position following RYTARY. Although there are some key headache specialists out there that Zomig nasal spray would be in fact the only focus, I think we're still watching that to see whether or not we would want to change our approach, perhaps, add any, say, third-party promotional, the like, in addition to what we exert through our own sales force. I'm sorry, Elliot, but the other thing, too, is when we launch RYTARY, our current thinking is we're going to be expanding to about 140-odd sales reps. So those -- that additional total number of sales people will also be promoting Zomig as well.

Your next question comes from the line of David Amsellem with Piper Jaffray.

Just had a couple. I wanted to ask another question about the CEO search. Maybe, Larry, can you give us a little bit of color on the types of candidates you've been bringing in, at least in terms of experience and background? Give us a flavor of what kind of manufacturing operations experience candidates have and maybe a sense of kind of what the ideal candidate would look like. I think that would be helpful.

Well, obviously, when we're looking at a candidate, we're looking for the best candidate we can find. As you know, in the operation we have at Impax, both the generic and the branded experience, so we're certainly -- ideal candidates should have an experience in both the generic and the branded area. And we also like to have the candidate has good CEO experience. Okay? And again, I know the search take a little bit longer than what we anticipated. But it is important that we find the best candidate instead of rushing and just finding someone to fill the position.

Okay. And then a follow-up to some of the questions on the P&L. Actually, I have questions on the top line as a near term. I mean, you'd mentioned that you're going to get pressured on the authorized generic of TRILIPIX and then fourth Q, fourth quarter might be soft. That being said, you're launching Solaraze, and you took a huge price increase on digoxin following Lannett's pricing action. And I know that's a small product. So is it safe to say that you could be a tad, or more than a tad, conservative in your commentary about the fourth quarter of this year on the top line?

Well, we had -- we haven't given -- top line guidance, obviously. So when I...

Well, qualitatively, I guess.

So I agree. Qualitatively, I touched on kind of the downside pressures. But of course, we do have some -- we did take some nice pricing moves, as well as we're excited about Solaraze. So you've kind of touched qualitatively on both.

So David, just for my perspective. Solaraze, obviously, is a great opportunity. The price increase on dig speaks for itself. But clearly, as a medically necessary drug, our focus there is really just to make sure that a high-quality product is available to the customer. And then, oxymorphone in and of itself has been -- is clearly hard to predict. We try and be conservative in what we tell you, and clearly, there -- Actavis is out there, and there is some competition. But so far, we've been able to maintain market share and really, slowly, very slowly, but slowly increase some of the substitution that's going on. So we're working hard to keep that product moving. And clearly, it'll depend on what our competitors do, how that plays out in the fourth quarter. But that's turned out to be a pretty nice product for us. And obviously, the launch of G TRILIPIX was important, and there are competitors in there and there are some people -- companies that came in a little bit later and are starting to take some share. So again, we think we'll maintain our market -- some of -- most of our market share, but what will happen to the price, I think is anybody's guess. So there's some upside potential, but I think, as Bryan said, being somewhat conservative and recognizing the potential for price in some of these areas is important.

Carole, just a third quick follow-up, and I may have missed this. I didn't pick this up. Should the operating assumption be that Sandoz will have an AG on Solaraze?

Again, we really can't comment or guess what Sandoz is going to do. Clearly, they market the brand, so they could come out with an AG. But I can't predict what they're going to do. Sorry, just as a follow-up. Even though Sandoz AG and the brand is still really a pretty nice opportunity for us, we think.

Your next question comes from the line of David Buck with Buckingham Research Group.

I'll try to be quick. First one, for Larry. On the CEO search, you've talked about in the prepared comments, the importance of having -- or I guess, Bryan did, the importance of having a branded business and a generic business. Is it necessary that the new CEO buys into that strategy, having both brand and generic? And on the meeting with the FDA, I know you don't want to say much about it, but I had thought that there was an attempt to have a meeting with the FDA, from your standpoint, to clarify next steps. And instead, it came from the FDA's -- the FDA drove the meeting, it seems. And I'm wondering if there was a meeting that was not able to be scheduled on RYTARY, to talk about the separation there. And then just finally, for Bryan. Can you talk a little bit about, because it looks like you had some nice generic performance, but probably some pipeline fell as well. Can you maybe give the aggregate number for what the pipeline filling was for some of the product launches like generic TRILIPIX and the Zomig generic?

Now let me try to answer the first 2 questions. The first question, David, if I understand correctly, is since we're looking for the CEO with both generic and brand strategy, whether that means the new CEO is going to continue the strategy. I do want to point it out, obviously, everything is open at this point. Once the new CEO come on board and the board, which I will continue to stay on the board to work with the new CEO for the future strategy. I think it is important that we make sure the strategy, whatever we have can meet the current situation, okay, and keep us on ahead of the competition, is the more important criteria for that. And the second question on the meeting with the FDA, what was the question again on the...

Okay. So I guess why did the FDA ask for the meeting as opposed to yourselves? And did you have a meeting with the FDA on whether you're able to separate RYTARY from the GMP process?

Okay. That's a good question. But obviously, currently, after the regulatory meeting with the FDA which happened recently, we continue to try to provide the FDA with some of the questions they have. And at that point, we may have -- whether we want to take the next step with the FDA [indiscernible] issue or relate to the -- in RYTARY. But currently, we do not have any schedule to meet with the FDA.

Okay, so just to clarify. I mean, had you tried to get a meeting with the FDA, and you were unable to, and the FDA called its own meeting. Is that what happened?

As I pointed out earlier, currently, we're focused on trying to supply whatever the additional information FDA asks for. So until that is done, we do not see any point trying to have us request another meeting at this point.

I guess, on the -- what you call, the pipeline fill, so the big launch this quarter was TRILIPIX. And we're -- I'll let Carole jump in. When I look at kind of the percent of the market we plan to ship to, we're actually capturing a greater amount than what we shipped, what we planned to ship. So I'm comfortable that we don't have a large pipeline fill. The Zomig was actually launched in May. And most of that initial launch quantity has been pulled through at this point.

Yes, I think if you look at the script data, you're seeing pull-through on the G TRILIPIX. And just without going into a lot of detail, there was a little bit of a disruption in the very beginning of that launch because we launched and there were a couple of companies talking about launching and didn't show up and so there was some product shipped that -- but if you look at the script data, it's pretty consistent that it's being pulled through the channels, and you shouldn't see much of a problem.

Your next question comes from the line of Jason Gerberry with Leerink Swann.

Just a couple. Maybe first on Adderall XR. Curious if you guys have filed your reformulated generic Adderall XR. I know that, I guess, filing it wouldn't trigger litigation pursuant to the settlement agreement, so curious if you can provide us an update there. And then also, as it relates to Adderall, would you have -- would you envision having significant inventory built up when the AG contract expires, if there's a lag between getting approval of your own product and the expiry of that AG contract with Shire? And then my follow-up is, you mentioned something about lower manufacturing levels at Hayward in 4Q, just wondering if you can comment a little bit more specifically on that.

So with regard to AXR, we, obviously, for competitive reasons, don’t talk a lot about the details of our application. What I will tell you is we are aggressively pursuing that application and trying to get approval. And as you have alluded to, based on settlement agreement, we do have the right to reformulate and file a reformulated product to our current ANDA. But I'm not going to disclose the timing of that. We also have the ability to continue to sell any product that we have in inventory after the expiration of our license, and we will do that. And obviously, we're trying to marry up those 2 as best we can, but time will tell. It's FDA, and they're going to review the application in their own time frame. So I can't really predict what's going to happen, but we are aggressively pursuing the application.

Your question on production levels. Yes, two things are impacting it. We previously announced that we're discontinuing some of our less profitable lower margin products. And we're seeing the full effect of that in Q4. But also Q4 is just our normal, where we slow down and do our kind of our annual major maintenance of the facility. So it's always a lower production quarter.

Your next question comes from the line of Chris Schott with JPMorgan. Christopher T. Schott - JP Morgan Chase & Co, Research Division: Just had 2 here. With regards to that step-up in the spend on remediation, can you just update how much you expect to spend in total on remediating the 483 from this year? And has that total number moved up at all from your initial estimates? The second question was coming back to the branded pipeline, you've had of couple of setbacks there. I guess, at what point -- do you have any concerns that the development success you had with RYTARY may not be repeatable? And how do you think about the continued investment in R&D side in that front? And at the same time, do those setbacks you've had, does that place any more pressure on your business development efforts as you look to build out a broader branded portfolio over time?

Yes, I'll take the first one. Yes. I mean, we are estimating this year's spend on remediation and QIP will be $30 million. And we haven't given guidance beyond that.

Relative to R&D pipeline. Do we think development success is repeatable? Absolutely, we do. Not every program, we understand, is going to be able to be successful. We -- I think it's worth noting that, in addition to the epilepsy program that we had listed, we also have a couple of others in Parkinson's disease and migraine. And we also have some additional projects in the earlier stages that we have not yet disclosed that are consistent with our overall development approach of identifying candidates that, we believe, coming through the development cycle, will be in a relatively short time period, with a relatively higher degree of success, notwithstanding what we've seen with IPX159 and 218. Does it put any additional pressure on business development? So the way we look at business development is from 2 perspectives. One is we look at it from a standpoint of marketed products. We also look at our BD efforts relative to pipeline. We are, as far as pipeline goes, agnostic as to where programs come from. If we can identify what we believe to be a good program, consistent with our CNS approach in neurology or psychiatry from external sources, and it makes sense for us to bring that inside, we'll certainly go down that road. And in fact, what we also do is we compare programs that we're evaluating, whether internal or external, to each other, and essentially then, look to prioritize on the basis of that which we feel has overall the higher degree of success and/or likelihood of timing and financial return to the company.

Your last question comes from the line of Sumant Kulkarni with Bank of America.

The first one is on generic Solaraze. Could you remind us of the gross margins that you make on that product or any kind of ballpark, help is appreciated.

So I don't think we've actually released what the margins are on that project. It is a partnership with TOLMAR. And there's a profit split, but the specifics we have not released.

And then on your generic Concerta filing, assuming that everything is resolved with the warning letter, is that still on file and what's the latest on that?

It is still on file, and we still aggressively are pursuing that application and pursuing approval. So once the warning letter is resolved, as you know, that was filed out of Hayward, we anticipate that we'll complete the application process and get the approval.

And given the amount of spend that's being pulled forward into the fourth quarter, is it fair to assume that an FDA reinspection would occur only after that spend is done or is Hayward inspection ready?

Well, at this point, Sumant, you probably know it well, it's almost impossible to predict what the FDA's timing. So at this point, we're going to continue to prepare for it, get ourselves ready and continue to make a significant progress on this Quality Improvement Program. And then, we'll be -- get ourselves ready as much as possible for the FDA inspection. The timing of the inspection will totally be up to the FDA.

And my last question is on business development. Could you update us on some of the activities of the team? How active has it been relative to maybe like a quarter or 2 ago? Has that been going on as planned independently of the remediation and all the other spend that's been in the works?

Yes, I think it's fair to say, we've continued kind of the same level of activity around BD. And we're aggressively looking at every opportunity just how we've always been. There's -- none of this has really impacted efforts and our process on how we do things.

Sumant, relative to that, you've got to go after the opportunities as they arise. We don't get to select when opportunities present themselves. So when presented with a good opportunity, we have to pursue it.

And that concludes our call for today. If you have any follow-up questions, you should please feel free to contact Investor Relations. Thanks for joining us.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.