Amneal Pharmaceuticals, Inc. (AMRX) Q1 2014 Earnings Report, Transcript and Summary

Good afternoon. My name is Jodie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Impax Laboratories First Quarter 2014 Earnings Conference Call. [Operator Instructions] I would now like to turn today's conference over to Mark Donohue, Vice President, Investor Relations and Corporate Communications. Please go ahead, sir.

Thank you, Jodie. Good afternoon, everyone. Welcome to our first quarter 2014 financial results conference call. We issued our earnings release today after the close of the U.S. financial markets. A copy of the press release and a link to a webcast of this call are available on the company's website at www.impaxlabs.com. Today, our new President and Chief Executive Officer, Fred Wilkinson, will provide his thoughts on joining Impax; and Bryan Reasons, our Chief Financial Officer, will provide remarks on the quarter. Also joining us for the question-and-answer session: Dr. Carole Ben-Maimon, President of the Generics Division; and Michael Nestor, President of the Brand Division. Our discussion today may include certain forward-looking statements, and actual results may differ from those presented here. The 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 first quarter 2014 earnings release, which can be found on the company's website. With that, it's a pleasure to turn our call over to Fred.

And thank you, Mark. Good afternoon, everyone. It's a real pleasure to speak with you on this first earnings call for Impax for me. I want to start with several thank yous. The first goes to Dr. Larry Hsu for his incredible dedication and commitment over the last 18 years. I truly look forward to building on the foundation that he and the rest of the team have helped to create. I also want to thank the board for having the confidence in me to come aboard and to build on the Impax success and to the management team for the warm welcome they've given me and the intense briefing that I've received over the last 3 days at the helm. They deserve also a strong congratulations for the terrific first quarter that we're about to report and that are being presented today. It's exciting to join a company with both a track record of product development and commercial success, in addition to inheriting a pipeline of opportunities with a strong balance sheet that consists of almost $400 million in financial resources and no debt. I'm looking forward to working with the team on how to deploy this capital on internal development, as well as M&A and business development projects that will enhance our growth in the future. Impax has experienced several challenges over the past several years. However, the company continues to drive positive results from its currently marketed portfolio and several new product launch opportunities, while also continuing to invest in both the generic and the brand R&D programs. At the same time, they have committed significant resources to improving the quality and the compliance aspects, which will be a very important focus for me as I start. All of these areas are critical to our current and future success. To remind everybody, the company has successfully developed and received approval from more than 60 ANDAs, including many difficult-to-formulate products. We've done a tremendous job on capitalizing on Paragraph IV opportunities as well. The generic pipeline contains more than 40 ANDAs which are currently pending at FDA. And we've diversified this generic portfolio beyond oral solid dosage forms to include many alternative delivery technology. From the brand R&D program, the NDA for RYTARY, our proprietary product intended for the symptomatic treatment of Parkinson's disease, was recently resubmitted, has been accepted, and we now have a PDUFA date of October 9 of this year. We look forward to working with the FDA in order to get this important product approved and available to this patient group. There are also additional CNS products in early development stage. This is only my third day at Impax, so I'd hope you appreciate it will take me some time to get through and review some of the -- all the aspects of the business. But in the next few days, I really intend to take a deep dive into all aspects so that I can become fully versed. My initial focus will be on 4 areas. First, I'll be working closely with Jeff Nornhold and his team to ensure that we continue on plan towards the resolving -- the resolution of all FDA issues related to the Hayward facility. I'm in full agreement with the company's belief that we will not only focus on the near-term issue, but to continue to emphasize the plan to implement an industry best, continuous improvement program for all facilities. This is critical to ensure the appropriate flow of new generic and brand products and to optimize our supply chain for our customers. Second, I will spend significant time with the current business teams to make sure that we optimize the strategies related to the brand and the generic business. As most of you know, I'm a strong proponent of aggressively building both segments simultaneously. I believe this will allow us to accentuate the similarities while building expertise to take advantage of the differences. It's critical that we prepare for and maximize the return from our product launches, as each will be important contributors to our financial strength. Third, I'll be working with the leadership team to analyze our internal pipeline of products and to identify opportunities for improvements within both business segments. I believe that continuous strength -- the continuous strengthening of the internal pipeline will set the foundation for both short- and long-term growth. And fourth, I'm going to focus on the opportunities for expanding our commercial offerings and R&D portfolios with strategic business development projects. We'll be evaluating and acting on numerous previously identified projects by this current management team, as well as taking in new ideas that will be presented by the banking community and others. We intend to frequently update you with our progress on all 4 of these items and to communicate the critical milestones so you can appropriately track our success. Before I turn it back over to Bryan to review our -- turn it over to Bryan to review our first quarter results, let me reiterate how excited I am about this opportunity. Impax has a solid platform to build on, the resources to expand our presence and a relentless will to succeed. I look forward to sharing with you our progress as we strive to build an even more successful company. Bryan?

Thanks, Fred. Good afternoon, everyone. Thanks for joining us. We have now several positive events over the past month. These included the resubmission of the NDA for RYTARY, the launch of authorized generic RENVELA and the appointment of Fred as Impax's new CEO. On behalf of all the employees at Impax, I want to welcome him to our company. I'll begin by reviewing some of these recent positive events. I'll then provide color on our first quarter results. On April 11, we are pleased to announce the resubmission of the NDA for RYTARY. The NDA was recently accepted for filing by the FDA, the application's classified as a Class II resubmission for review purposes, which is a 6-month review period to allow time for site inspections. The new PDUFA date is October 9, 2014. While this is positive news, the FDA's notification did state that they will require an inspection of manufacturing facilities involved in the production of RYTARY. The FDA hasn't communicated any site-specific plans. If all goes well, we hope to launch RYTARY in the first quarter of next year. We are continuing to implement our Quality Improvement Program and complete work on areas we've identified for improvement. In the first quarter 2014, we spent $8.5 million on remediation costs for ongoing assistance of consultants. We've continued to have dialogue with the agency and provide monthly status updates on our progress and commitments. We continue to believe that a satisfactory reinspection of the facility will be required to close out the warning letter and resolve the 2013 Form 483 observations. We'll update you on developments as appropriate when we have cleared guidance from the agency. On April 16, we announced the launch of authorized generic RENVELA. Under the terms of our settlement agreement with Genzyme, we were supplied an allotment of a specific number of bottles to sell. We experienced a successful launch of the product and currently anticipate that a majority of the sales will be recognized in this year's second quarter. We continue to actively pursue approval of our own generic application and have the rights to sell our ANDA product upon FDA approval. We're currently not aware of any other generic approvals. Now let's talk about our first quarter 2014 results compared to the prior year period. Our generic products division had a solid first quarter, as we benefited from the impact of marketing initiatives and product mix. These events also had a positive impact on our gross profit margin. However, compared to first quarter 2013, increased generic product sales only partially offset the expected decline in branded sales of our Zomig product. This is due to a loss of exclusivity last May under the Zomig tablets and ODT. Our total company revenues declined $30 million to $119 million. New product launches increased revenues by $15 million or 10%. This was primarily related to the launch of authorized generic TRILIPIX in July 2013 and generic Solaraze in November 2013. This increase was offset by a $32 million decline in revenues driven primarily by lower sales of Zomig tablets and ODT. Total generic revenues increased $7.5 million or 7% to $109 million. This was primarily the result of increased sales of our digoxin product and from sales of authorized generic TRILIPIX and generic Solaraze. The increase was partially offset by a decrease in sales of authorized generic Adderall and Fenofibrate products. The positive impact of marketing initiatives can be seen in the sequential improvement of our global label product sales since the fourth quarter of 2013. Total global product sales in the first quarter of 2014 increased $21.7 million from the fourth quarter of 2013. Total branded revenues declined $37 million, due to the lost exclusivity on Zomig tablets and ODT. We continue to be pleased with the branded sales force commercialization of Zomig nasal spray, as prescriptions associated with first time use of the product reached a record high in March 2014. Total company adjusted gross profit margins in the first quarter of 2014 increased to 61% from 57%, due primarily to favorable product contribution from higher-margin generic products. The adjusted gross margin of 61% excludes the following items: Hayward facility remediation cost of $8.5 million, this represents an increase of approximately $6.6 million from last year's first quarter; an intangible asset impairment charge of $2.9 million to a further -- due to a further decline in pricing on a generic product under the TOLMAR agreement; and amortization and acquisition-related costs of $2.4 million, resulting from our agreement with TOLMAR and AstraZeneca. Total adjusted expenses in the first quarter declined approximately $4 million to $47 million. This was due primarily to a reduction in patent litigation and SG&A expenses, partially offset by increased generic R&D expenses. Patent litigation in the first quarter decreased $2 million due to a higher level of legal activity related to several cases in the prior year period. SG&A declined approximately $4 million. This was due to lower generic signs and marketing expenses, lower branded sales force expenses from a reduction of force in the second half of 2013 and lower advertising and promotional expenses for Zomig due to the loss of exclusivity. Partially offsetting this reduction was a $2 million increase in corporate G&A expenses, principally driven by higher litigation and information technology cost. Total adjusted R&D expense increased approximately $2 million due to an increase in generic initiatives. Adjusted R&D in the first quarter of 2014 excludes an upfront payment of $2 million to DURECT Corporation, while last year's first quarter adjusted R&D excludes a $2 million milestone payment to a generic R&D partner. The payment to DURECT resulted in our agreement to acquire the exclusive worldwide right to develop and commercialize their transdermal patch for the treatment of pain associated with PHN. Our 2014 brand R&D expense guidance of $36 million to $39 million excludes this $2 million upfront payment. We ended the first quarter with $390 million in cash and short-term investments. This is down approximately $23 million from year end, primarily to a quarterly tax payment. Once again, we're very excited about the future of Impax. With the addition of Fred to lead the company through its next phase of growth, the resubmission of the RYTARY NDA and the recent launch of generic RENVELA, along with our strong base business and strong balance sheet, we are confident that Impax has a bright future. Thanks for participating. And I'll turn -- now turn the call back to Jodie for questions.

[Operator Instructions] Your first question comes from the line of Elliot Wilbur from Needham & Company. Elliot Wilbur - Needham & Company, LLC, Research Division: Congratulations, Fred. Glad you're going to be in a high-profile role, and our interaction is going to increase going forward. Just 2 quick questions for you, or maybe not so quick. The first, you're obviously not a rookie when it comes to dealing with serious FDA issues. But as an incoming CEO, how much diligence can you actually do in assessing the situation here? And I'm just curious, how do you make yourself comfortable that you're not walking into a potential consent decree situation. And what are some of the actual steps that you take in terms of trying to assess how serious the situation is, how quickly it can be resolved and whether or not the company has really done everything it needs to do to kind of get out from under this? And I have a follow-up as well, or maybe you can just hit that question first.

Yes. Thanks, Elliott, and thanks for the kind note that you pull out. Now I think this is an area I really dug into. I spent a lot of time with the board on this issue. I -- there is a compliance committee that's been -- that's within the board, several members there, that I spoke to. I did review the filings that had been put in place. I got a chance to review many of the consultant's reports, as well as some of the mock inspections. I spent time actually with Jeff on the issue. I had known Jeff in -- from past life and have great confidence in his ability. And the only thing I probably did not get a chance to do is to see the site, which I've now done. I believe that they're making tremendous progress. It's a plan that's been put in place. They've been working hard on it. And it's really now going to be up to the FDA to make sure that we've made the appropriate progress to it. This -- they're working away at it. It's a critical issue for us. But I think I got extremely comfortable that this is something that can be resolved, and I know that the team is very dedicated to it. Elliot Wilbur - Needham & Company, LLC, Research Division: Okay. And just one additional follow-up question for you here. I mean, I guess, obviously, in thinking about the future direction of the company, I mean, things are pretty much wide open. Seems like there's just a lot you can do and you certainly have the resources to be able to do it. But I guess, maybe one area that, I think, anyway, sort of distinguishes Impax from maybe some situations you've been involved in the past is, the company's been very narrowly focused on a single asset within a fairly difficult therapeutic category on the brand side. Now I guess, a lot of your experience in the past, you've maybe then concentrated on one therapeutic area, but you've had kind of a much broader product portfolio. How do you think about sort of making a very concentrated bet versus maybe prioritizing, looking at -- broadening out the range of products in the category that you're currently in and also, potentially looking to maybe accelerate movement into a second or third therapeutic category on the brand side?

Yes. No, thanks for that question. Actually, that's an important one. We've spent some time already reviewing the brand strategy. It's a little broader strategy than it probably appears. Obviously, they've got a migraine product in the marketplace, had a series of migraine products left just -- with just the nasal spray now. But then, the next bet is in the Parkinson area. But behind that, there are at least 3 viable and as many as 7 viable early-stage R&D projects in the CNS area. And they've defined CNS fairly narrowly as some of the unique psychiatry and neurology products. So I like the area. It's actually an area I've known for years and participated in an early stage of my career. So I think this is an area that a company this size can focus on very nicely. The challenge that I've given the team already is to tell me what the second and third therapeutic area that they'd like to move into so that we can get both the business development people and the scientists thinking about how we could apply some of both the technologies and the skill sets that we have, as well as some of the available financial resources to go after it. It's not a dissimilar process of expanding from one therapeutic category into a second, eventually, a third, fourth and fifth that occurred in previous life events. So this is exactly what we're going to do, looking forward to it. The team seems to be well suited for it. They have some ideas already. So I'm just looking forward to help make sure that they accentuate it properly.

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

I just had a few. So first question I had was back on the M&A topic and business development. There's been a lot of discussion that you may favor brand-type deals, given your prior background. I know in your comments, you said you like both brand and generics. I was wondering if you have any thoughts on that. And then, you had mentioned some existing opportunities that the team has been looking at before you joined. I was wondering if you could broadly talk about some of those. And then, secondly, on the RYTARY NDA submission, can you remind us -- it's been a while since we've talked about RYTARY and the potential market opportunity. And when you plan to start building out the sales force and getting ready for the approval -- potential approval of this product? And then lastly, given your experience at Actavis, would you consider a tax inversion deal? Do you think that is appropriate for a company like Impax?

Yes, it's a great question. So the business development front, I think we're going to focus on both pieces of business because I think both have nice opportunities to grow. I think in past, you've seen me be a proponent of brands because I was running the brand business. But I've actually been the cheerleader for most of the generic activities, because if you've got a strong generic business, you got a strong foundation. You use this strength into the balance sheet and the P&L nicely, allows you to go do some work on both for the -- on the other segment. So we've got lots of ideas that actually are in both segments. I don't think this is a battle for resources. This is going to be how do you manage it appropriately and do which deal first and which deal second, which deal third. I think you're going to see us come out of the gate pretty quickly and probably on the generic deal. I'm going to turn the others over to both Carole and to Michael to talk about -- maybe Mike, you want to talk about RYTARY?

Sure. So Louise, the way we look at the opportunity for RYTARY is peak sales between $200 million and $400 million. That was the initial assessment that we did back prior to receiving the complete response letter. As we kind of have revisited the landscape, we still think that's a good peak sales number. From the standpoint of launch, assuming that the whole review -- review process would be updated, NDA goes well. And Bryan indicated we will have to have a reinspection. So assuming that, that goes well, we would look to launch RYTARY in the first quarter. So we would look to ramp up our sales force probably towards the end of this year or the beginning of next year because we will need time to be able to get the appropriate people recruited. We already have the geographic areas of location identified and bring the folks on board and trained. So we're very much looking forward to going through the next few months and going to the other side of it. Carole?

And on the tax issue, the inversion, I think there have been almost everyone on the table have been observers of the inversion programs going on. I got a chance to participate in one most recently. I think the way I would look at this is that all of the M&A activity that we'll be doing, it would start with, does it make sense strategically? It would -- the next phase would be, how accretive can we make the project? And if there's an additional benefit of a tax inversion, then I think that's kind of the sequence that I would look at. I know we're not outspeaking tax inversion ideas and concepts. But if they're there and they're part of another strategic initiative, that could be a good idea.

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

I'll add my welcome to Fred. You probably set a record for doing the job to having a business-related quotation in the press related to earnings. So welcome. So my question for you is, Fred, as you diligenced this opportunity, what did you think were the most exciting things that attracted you to Impax? And other than the FDA, if you had to nitpick, what kind of challenges would you prefer not to have?

Okay. Well, I think the strengths are obvious, but I'm going to go through them. I have a really nice R&D portfolio and a really nice diverse program in the generics business. It's both solid oral dose and alternative dosage forms. The brand business is really a nice place to bud from. I think the CNS area or the neurology area is an area I know well, and it's one that they've got a nice plan for. I think that probably that if you nitpicked at anything, it's been not well accentuated in front of the external market place. So we'll go do some work on that. The balance sheet is extremely strong, and they got $400 million in financial resources and no debt. There's a lot of room to work on things there. And I think I'll end with what I probably should have started with, is at least in the 3 days that I've been here and in knowing several of the people within the organization, they have a very, very good management team that works very well as a management team. So that's been the impression that I've had. That's the way the meetings have been conducted as we've gone through things over the last few days. And I think the results show it because as they've been kind of wrestling with the issues that -- with the plant, they still have been able to put up some very solid results. Besides FDA and the Hayward issues, deploying of capital. I think there were probably -- have been some opportunities that this team would say they missed. They're all nodding. So I think that's a clear picture that they would agree. And so we just got to go get ourselves busy on making sure that we do that the right way and we do it with both strategic and accretive arrangements that makes sense to us and ultimately, then will make sense to you.

And given the -- I have a follow-up, is that okay? Yes, given that we have a set PDUFA date now in RYTARY, but we don't know which plant is going to be inspected, what's the typical timeline towards a pre-approval inspection? And when could that happen at either facility?

Timeline to a pre-approval inspection.

Yes, the -- I think the only visibility we'll have to that, Sumant, is probably if FDA decides to go to Taiwan. They will notify us ahead of time as to when they anticipate being there. That's really the only visibility we will have. The reason that we have the 6-month period relative to the Class 2 review is to allow sufficient time for FDA to be able to review whichever of our facilities they choose to do so. I will also add that Taiwan, back in mid-2012, had a successful pre-approval inspection. But some might think that, well, perhaps it's about time for FDA to go back and revisit Taiwan. So -- but as to which facility or facilities they'd go to, we are not privy to that determination at this point.

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

A couple of questions. Number one, just remind us how many ANDAs you think can be approved in the near-term after a hypothetical successful reinspection at Hayward, and would that include Concerta? Secondly, on Zomig nasal spray, we're going to see Endo promoting Sumavel, we're going to see Teva promoting ZECUITY. So you think there's going to be pressure on the product given that you'll have some larger players promoting in the acute migraine space? And then just lastly on RENVELA, can you just give us color on what your working assumption is regarding the duration of exclusivity for the AG?

So David, I'll answer the RENVELA questions and the Endo questions, and then I'll turn it over to Michael for the others. So we -- what we've said, obviously publicly, is Concerta is clearly one of the products that's moving through the pipeline and they end with a review process at FDA. It is obviously linked to the Hayward facility. And if we are anticipating, once we resolve the warning letter issue, that we can get -- start getting approvals, so that will be one of the ones coming out at some time afterwards. We always want to remind you guys that they need to do PAIs on these products. And so after the resolution, it's going to take some time. And you can try and help them prioritize these, but it's really up to them as to which products they want to review first. So Concerta, clearly, is on the list. You know that Welchol, our colesevelam, has the date -- certain launch in January 2015, and that is also one that is out of the Hayward facility that we would hope would be reviewed expeditiously since we have a 3-month exclusivity. And then there are other products that are in the facility that we haven't actually released the specific names of. Such that in totality, they actually present a very nice portfolio. And many of those also need PAIs and many -- well, I would say a few of those have actually gone through the review processing. Really, the only thing outstanding is the compliance. So hopefully, those products will start to come through as well. So we're pretty excited about what we have coming out of the other end once we get resolutions in the warning letter. And hopefully, that will happen expeditiously. Of course, FDA will come when they come and we have really no control over that. With regard to RENVELA, as you know, we launched on the 16th. We're very excited about the product. We've told you that it's about a $50 million to $70 million gross margin product. We believe that most -- well, we -- obviously, it's really early. And so it's really hard to tell at this point exactly how the scripts are going to move through the system. Right now, we anticipate that the majority of the sales will be booked in the second quarter. But again, until we see the script data moving through, I'm not really sure that we can give you definitively where that is. But it is a specific allotment of bottles. And once we blow through those bottles, that will be the end until we actually get approval of our own ANDA, which is ongoing and is moving through the review process, but also, the Hayward developed product, so dependent on the warning letter. What we also know about that product is there are no tentative or final approvals at this point. It is a very challenging product to make, specifically from the API side. And so we're hoping that our product will get approved eventually, we'll be able to launch that product and then launch into a pretty attractive marketplace.

And David, relative to the competition to Zomig nasal spray, I mean, Sumavel DosePro, we've been competing against all along. Both products, in fact, are built into our forecast from the get-go, so we don't see any issue with being able to achieve the forecast that we've set internally for Zomig nasal spray.

Your next question comes from the line of Marc Goodman from UBS.

I was hoping we could talk about the generics division and maybe we could look at the last quarter and this quarter and we could talk about what the drivers are of change, what are some of the key products? Did they move around a lot or was there anything notable? And then the strength of the gross margin in the generics line, I mean, what -- was there 1 reason, 2 reasons? I mean, help us there.

Thanks, Mark. So you kind of asked the Q1 and then going forward. So Q1, the key drivers, it was kind of a mix of pricing -- some pricing initiatives, favorable mix. And we had some new launches later in 2013 that we're seeing strong results on. So it's kind of just a balanced strong quarter in the generics division. Obviously, the second quarter, the single key driver on the top line is going to be the launch, the April 16 launch in generic RENVELA. And like Carole said, we are really happy with the launch. We're looking at the pull-through and we'll see how much of the revenue we recognize in the second quarter.

And you should -- obviously, we have at least exclusivity for a period of time until September 16. So it's us and the brand at this point. And so the margin should be quite strong. But I get excited about the generics business for a long time, right, so I'm not surprised.

Well, were there any major swing factors from last quarter, this quarter? I mean, Adderall, was it flattish, up, TRICOR?

Adderall is -- sorry, Adderall is -- had some pressure. Market's pretty stable. Our share is pretty stable. TRICOR, there's 5 of us out there. Vidus [ph] launched recently. So that has some pressure on it as well, price wise. And then when we launched Solaraze in the last quarter, and that product were [ph] alone. So this is really the first full quarter of sales for that product and that patent doesn't actually expire until August 2015. And as far as we know, there are no PIV filers if there's no litigation that's ongoing, probably all may very well be some PIII filers that could come out after the expiration of the patent, but that's been a really nice product for us. And then as Bryan said, and we see throughout the industry, we've been able to maximize our product mix and takes the place on a couple of products in the portfolio, which has helped obviously the gross margins and also helped in the top line. So we're pretty excited about the way the generics business is pushing out at this point. And we hope to be able to maximize it. And as Fred said, do some M&A or some product -- strategic product acquisitions and grow it even further.

Your next question comes from the line of Randall Stanicky from RBC Capital Markets.

Questions, just a couple. Fred, you called out the desire to pursue strategic development products. But you come from an organization that went through a lot of big change. So I guess, the question is, what's the opportunity for transformational change at Impax? And importantly, do you feel like it's -- that you found an opportunity that you'd have the support of the board to do something significant? And then I have a follow-up.

Yes. I mean, the discussions with the board, they essentially said, don't let there be any limitations into thinking on this. And actually, in talking with the management team, there's several transformational ideas that are on the plate. There's other many smaller product ideas, as well as some smaller company ideas. I think the sky is the limit as far as where we could go. It's just how much can you afford to spend on it. The other piece on this is that we need to match nicely what we may do externally to what we're going to spend internally. Because as I think most of you know, I think building a strong internal R&D portfolio, as well as a strong commercial platform, it actually allows you to do the business development as you want to, not as you need to. So I think it's a nice opportunity for us. So that's where the company sits right now. It's in a good spot to be able to kind of drive things forward internally after a period of time and then look for that external. I do not believe that there are limitations today from the board or from the other members of the group as far as whether we go for a very large transformational look or whether we just do a series of small bolt-ons.

And we could be talking external geographies, generics, brand, a host of different types of opportunities?

Probably, the answer is yes, but that's not fair to you. So I think if I prioritize those, I think I put brand and generics equally on the plate because there's -- we're going to look at the best alternatives and the best opportunities there are. I'd be more inclined to stay home geographically and look at the U.S. or the Americas. But of course, having said that, that may mean that the first rule opportunity that comes up, there could be something outside of the United States. We're better suited for acquisition while we have knowledge and capabilities. And the #1 piece on this is always going to be to make sure that the first couple of ways of this will be accretive.

Well, and Fred, this is a lengthy question. I mean, you have a lot of experience launching branded products. You guys are, if all goes well, about to launch RYTARY early year. So I guess, a lot of the concern is it's going to be very dilutive, there's a significant sales force ramp, a lot of cost involved. And until you break even, that could be diluting some of the generic profitability. So is that something that you're thinking about as you're thinking about some of these opportunities from an M&A perspective?

Yes. I mean, you've seen it in the past where companies can match up a nice generic acquisition with a launch of a couple of brands and essentially put yourself into the -- into a similar spot that you are right now. We're looking very, very closely at the launch program and the commercial program for this product, and also looking to see what you might supplement into the brand business to allow us -- so that any kind of internal resources could be optimized as you go out the door as opposed to having a single product in the bag. Today, they'll have 2. If RYTARY is approved, one, once the agency and our subs work through that process. But the -- a more ideal scenario would be, as you've seen in many cases, to be able to expand the bag of debt without having to expand the resources that you spend there, and that would work.

And just my last question, and I just want to -- I may have missed it, but just to be clear, I mean, is -- has the FDA been back, have they recently been back, are they there now? And then are you willing to offer your views on when we could be resolved with respect to the warning letter?

Yes. So I'll give you my view, and then I think we'll get the company answer here as we go here. It'd be my belief that we should be communicating when there's something important to say. And so I know everybody's going to read tea leaves as far as, are they here, are they not here, are they -- if we heard anything about when they're coming and all that. I think that all of that is irrelevant. What's relevant is what comes out the back end. And so as we learn things and as we know anything that is critical or that is important, we'll be making sure that we communicate that.

And that's kind of the company answer that I was going to say. So yes, right, when there's something definitive to report, we will report that on an timely basis.

And Bryan, that -- would that include the FDA being there for a reinspection or would that include the results of that reinspection?

The results.

Your next question comes from the line of Gary Nachman from Goldman Sachs.

On that last question, the fact that you guys were able to refile on RYTARY, how should we read that in terms of how comfortable the FDA has been that you've been addressing the issues in the 483 letter appropriately? I mean, how did they get comfortable with that to tell you guys that you could refile? And should we think that, that bodes well for the reinspection at Hayward?

I think the only thing you can read into that is that we have refiled the updated NDA for RYTARY. And that's it at this point in time. As -- in order for us to be able to progress through to successful outcome on October 9, we will need a reinspection of any of our facilities that are involved in the manufacture of RYTARY. Hopefully, that will be the case and we'll be able to launch RYTARY in the first quarter next year.

But -- was there any communication with the FDA that said that, yes, you've reached the point now where they're comfortable with you actually refiling? I mean, that was sort of my understanding that they had a feel like you've done a certain amount of work before you could even refile.

In fact, if you recall, we had indicated previously that we were having an ongoing dialogue with FDA about RYTARY. And we would have only filed the updated NDA if FDA had indicated to us that we could resubmit that updated NDA for RYTARY.

Okay. And then, Fred, one other question here. As you look at the infrastructure at Impax, I mean, any thoughts on places you would consider cost cuts? It's something that we've seen, some new CEOs do that, have some sort of cost-cutting initiative when they join. Or I mean, it sounds more like you would expect to really increase investment levels both behind the brand and the generic businesses. So I'm just curious if you've had a chance to look through the company and if you think there are any places maybe where they could be more efficient at this point.

Yes. Way, way too early for that. I mean, I've had some of the introductory meetings, which means I'm getting the best story there is right now from everyone. But I think it's too early for that. This is a very lean organization. I mean, if you've just -- you've spent any time with the company, there's not fat here. I'm sure there are efficiencies that can be pushed into the organization. But there's probably ideas that they have on how to do this. So I don't think you're going to see any dramatic clashings, I don't think you'll see any dramatic organizational change either in this because I think the team seems to be working extremely well together. I just need to learn the business, how they operate and see what some of the quick hits are that we can do to improve some of the efficiency, focus on them, the 4 things that I mentioned, which is make sure we get resolution in the FDA issues, capitalize on the strengths of both the brand and the generic commercialization teams, get ourselves really where we've analyzed the pipeline and then prioritize this and then be able to communicate while we're going there and then finally, deploy the capital in the appropriate way from say, opportunities that come along.

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

I guess, Fred, just kind of thinking about the -- your experience at Actavis. You, obviously, by the time you left, had a pretty -- analyzed a pretty broad range of specialty pharmaceutical assets on the brand side. So just kind of curious, actually, I know you're talking to the teams and setting priorities. But what category are you particularly attracted to, especially when you look out at the M&A landscape and what's out there?

Yes. So this is -- this will be a specialty pharma company. I think the -- probably the list of ideas would have been more appropriate for Actavis 2 or 3 years ago. Scale and scope has changed dramatically there. So the last set of ideas we're looking at probably would not work here as well as they would at Actavis. I'm in the CNS area now, scouring that again, I will remind people that my first product as a young product manager was a Parkinson product. So I'm going back to this community, although I'm guessing, most of the people who I knew have retired by now. But I think this -- I like the neurology area. I think there are probably 3 or 4 other areas that I'd like us to take a look at. But I've actually not communicated to the team what areas I think would be good. I'm trying to hear from them where they would like to go. I'm going to kind of hold that in abeyance because they're probably listening and I'd like to hear what ideas come from this new team. There are -- it's a specialty business. So we're going to be in areas where we can attack it with smaller sales forces, where you can go at it with smaller marketing budgets, and areas that may not be as meaningful to some of the larger companies.

Okay. And if I can just ask maybe a follow-up. In terms of the model that Actavis is moving towards, which was -- our main sales reps of potentially 5 or 6 specialty brands and getting a lot of leverage by -- on products 3 through 6. Is that something that you feel is applicable to the potential model at Impax or do you feel like maybe not so much?

Yes, we did that at Actavis. I mean, I think it just depends on whether the prescribers are the same prescribers. Whether they're -- if you look at the migraine market and the Parkinson's market, there's some overlap, but it's not enormous, at least from my past experience. It's what I've been seeing on some of the charts here. So it fits nicely, but it's not a perfect fit. If you go into some of the additional Parkinson's products in support of products in Parkinson's, you could probably load a bag with 4 or 5 things. So I think it really depends on the fit of the products to the audience you're trying to go to. I think there is, in my opinion, there's always more capacity in the sales force bag than what traditional pharmaceutical marketing likes to do because I think you should use that representative's brain to be able to communicate things as opposed to hiring people that are simply dropping samples and doing other things. And that seems to be the approach that Impax has taken in the way they've set up their selling organization.

Your next question comes from line of Ken Cacciatore from Cowen and Company.

I guess, my question is, were you surprised this company hasn't been sold yet? And are you opposed -- entertaining any sale offers once they get the manufacturing cleaned up? You're describing I think what everyone on the phone thinks as a real interesting asset here. So was that surprising to you?

No, I think in discussions with the board, it was one of the clear, and I'll say this very directly, it was one of the clear discussions that we had. They were not interested in bringing in a CEO that was a seller. They were interested in bringing somebody in who could build both internally and through external opportunities. I'd like to build this. I think there's a huge opportunity. Today, we're way undervalued. So it'd be a bad time to put it near any time there's opportunity for sale. There's just some nice opportunities here. The foundation is there. You've got a couple of issues we got to work our way through. We've got to show the success of a couple of launches and get Carole a few more products to go play with. And I think those were just some real nice opportunities. So as I've said it to the board and I've said it around here, I'd rather be a buyer. And I think there was just some nice opportunities for us to fill -- to take that role and take that spot.

Okay. And one quick follow-up. As you said, you've -- even though you're still a very young man, you've been around for awhile. So do you come here with a couple assets in your head fairly well identified? Or is it as broad as you're making the kind of the thought process?

I think there's some things I would like to do. But I'd like to hear all the ideas and see how they fit. It's -- what's -- again, when you come looking at M&A and transactional work, I've been taught by everybody I've worked with that you got to start with a strategy and then you can go to the rest of it. I'm still learning the strategy here. And so I want to make sure that ideas that we put on the plate has an absolute strategic fit, that they are creative and then we can go from there on, how the financial piece hooks together. So -- but yes, I mean, I've got some clear ideas. I think there are some things I would like to have done elsewhere, so we'll see if we can put some of those on the table.

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

I'll try to be quick. If I look at the cash on hand that you talked about, no debt, $400 million. Can you talk about how adequate that would be just in terms of that amount of capital over the next, say, 2 years? Do you see the need to raise capital? Are you willing to consider deals that would include equity components in that? And then, if I look at RYTARY as a launch potentially for next year, where do you see this in terms of formula or acceptance? Obviously, we're a little bit early. But is this a Tier 3-type product that you'd be discounting to get used and having a large sales force needed to support it? And can you give some sense of what you think the spending might be and sort of your one looking at a successful launch of that product?

Yes, I'm going to punt the first question a little bit. I don't think we've had a chance, really, as a team to talk about what our fears and ambitions would be in using other than -- anything other than cash and going forward with the transaction. I know there's a line of credit that's available for us to utilize that hasn't been touched yet. I just think that at this particular point, the purposefulness of building the business and the approach that we're going to take, if it -- the deal makes sense and if it makes sense strategically, we should be able to fund them just about any way we want to do this. So on that one, I'm not actually worried about. Is $400 million enough to be able to work with? You got to get the company producing more cash. So as soon as it produces more cash, then you're paying for your deals off of what you generate, and it's a simple principle. RYTARY, I'll turn it over to Michael to -- I have my views on it, but I think his view's very similar, so...

Yes. So David, we think, based on what we've looked at and gleaned from our evaluation of the marketplace out there, we think RYTARY will be a Tier 2, Tier 3 position product. So there will probably be a certain amount of discounting that will have to be made. But that will be factored into our modeling and forecasting as we go forward. I will tell you that we've spent a fair amount of time specifically to understand the managed care marketplace for Parkinson's drugs and what we think will be the environment that RYTARY will come into. And we feel pretty good about that understanding. I would differ with you on one thing relative to a large sales force. Maximally, at least in -- and we're revisiting this now as we speak, back about 2 years ago, when we did our sales force size evaluation, we came up with a number of about 143 sales reps. We're going back and revisiting that just to make sure that we still have the geographies right. But we don't expect the numbers to change much from that 143 sales rep number. So it's a -- what we would consider to be a contained number and one that's very manageable and not an outrageous fixed cost that you'd be starting off with from the standpoint of a product launch. In terms of the spend for year 1, we're going through the plans for that right now. And obviously, we have to share those with Fred as well. So I'm not in a position that I can discuss that at this point.

I mean, I'll add 2 cents to this. I mean, it's 9,000 neurologists, right, and it's maybe 4,000, 5,000 primary care physicians. So this is the perfect small specialty marketplace where you can attack it with small sales forces.

And current year guidance excludes the launch planning cost.

Understood. If I could sneak in one final one, perhaps, Fred. Just on the generic side, obviously, coming from, I guess, a big generic company, a big 4 generic company. How do you see the environment in the U.S. with the consolidation? And what do you think the success factors are in terms of being able to compete effectively? And I think the message from the big payers is they want to squeeze where they can in the smaller players. And what do you have to do to avoid that?

My experience has been they're squeezing everybody, so I don't think there's any special privilege you get by being a small player or a large player. The consolidation is going to continue. This is a business about having the right products and having the right supply position in it. And so that's got to be Carole's and I -- real mission to make sure that we get that done, and those are my thoughts. But Carole, you're right now in the trenches and now you're about to jump in.

I think Fred and I have actually talked a little bit about this scenario in total agreement, but it's about the product mix. And quite honestly, I think the drug shortage issue has put the fear of God into the customers, to some extent, plus many of them have gotten so big that they can't possibly rely on a single supplier. So I'm actually quite optimistic about what's happening in the marketplace. And a bigger company like Impax, as long as we continue to be selective in the products that we pick and make sure that our portfolio is robust, we will be able to compete along with anybody who's out there.

Thank you, David. Thanks, everyone, for joining us. We look forward to speaking with you soon.

Thank you.

Thank you. That concludes today's conference call. You may now disconnect.