Good morning. My name is Tabitha, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Impax Laboratories First Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I'll now turn the call over to Mark Donohue, Vice President, Investor Relations & Corporate Communications.

Thank you. Good morning. Welcome to Impax's first quarter 2016 financial results conference call. A copy of the press release issued this morning as well as a copy of the slide presentation are available on the Investor Relations section of Impax's website at, www.impaxlabs.com. Also, a webcast of this call is available on our website. 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 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. Reconciliation of GAAP to non-GAAP financial measures is available in our first quarter 2016 earnings release and in today's slide presentation, both of which can be found on the company's website. The agenda this morning will include our President and Chief Executive Officer, Fred Wilkinson, providing an overview of the first quarter highlights and an update on our key areas of focus. Then Bryan Reasons, the Chief Financial Officer, will provide additional details on the financial results. We'll then open the lines up for questions-and-answers. Also, joining the Q&A session is Michael Nestor, President of the Brand division. With that, I'll turn the call over to Fred.

Thank you, Mark, and good morning, everyone. Thanks for joining us. This has been an interesting earnings season, and so with that, we're very, very pleased to report that we're off to a solid start to 2016 as our first quarter results were strong and slightly above our internal estimates. Total revenue for the company increased $82 million, or 58% over first quarter 2015. This gain was equally split between our two divisions, as our Generic division revenue was up $41 million, or 32% and the Specialty division increased $40 million, or more than 280%. Growth in the first quarter was driven primarily by an increase in sales from products acquired last year in the Tower transaction, and the higher sales of select Generic products led by diclofenac sodium gel. Also contributing to the quarterly growth was the contribution from Generic and Brand products launched over the last 12 months, as well as continued growth from our Brand products. We reported a $40 million increase in adjusted EBITDA for the first quarter with adjusted diluted EPS increasing to $0.43 compared to $0.09 in last year's first quarter. And this morning, we are reaffirming our full year guidance since we continue to expect that growth in 2016 will be driven by this year's new Generic product launches, continued growth from last year's Generic product launches, steady growth from the majority of our existing Generic line, and then growth from our Branded portfolio. There has been significant commentary this year regarding pricing in the generic industry. So, before we hit that as our first question, I'm going to go ahead and take this on now. I want to address what we see in our business model and its position to operate in the market. We are a top 15 U.S. generic company…

Thanks, Fred. Good morning, everyone. Moving to slide 14. This morning I'll provide some additional color on a quarterly financials. We reported total revenues of $226 million or 58% growth. Product volumes, including the Tower acquisition, increased revenues by approximately 44%, while new product launches increased revenues by approximately 24%. Changes in price decreased revenue by approximately 10.5% compared to last year. Regarding pricing, we did experience downward pressure on a few high-volume generic products during the first quarter due to additional competition, primarily diclofenac gel, which we anticipated, and metaxalone. As you know, this is typical of generic markets. Additional competitors usually result in price erosion. These two products contributed more than 50% to the decline in pricing in the first quarter. Excluding these two products Generic pricing for the combined portfolio declined approximately 5.5% in line with our previous comment of mid single-digit price decline in 2016. Our adjusted gross profit increased to 50% or couple of hundred basis points due to product mix. The primary driver was higher sales of Specialty Pharma products partially offset by higher sales of low margin Generic products and certain price degradation. Moving onto our operating expenses. Adjusted SG&A expense increased by approximately $3 million. This was really driven by the inclusion of a full quarter of Tower which was acquired March 9 of last year. Adjusted research and development expense increased almost $4 million. This increase was a result of the inclusion of a full quarter of Tower and an increase in investment in Generic R&D primarily on external development projects. The adjusted effective tax rate came in just under 35% down from last year's rate of 37%. This decrease was primarily a result of a change in timing and mix of U.S. and foreign income and the inclusion of Federal…

Thanks, Bryan. I'd ask this morning, if you'd please keep your questions to two, so that we can make it through the queue with everyone. Thank you, again. Tabitha, let's start the Q&A.

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

Hi. This is Zenah Hasan on for Louise Chen. Congrats on the quarter and thanks for taking the question. I'm wondering if you could provide any update on products you could potentially acquire that are being divested as part of other Generic M&A in the space? And then secondly, on the IPX203, can we still expect to see data mid-year, and could you provide a short update on that one? Thanks.

Yeah, sure. Thank you. So I think Teva reported yesterday, that's generally the people, but always looking at the divestiture side, and they gave a pretty good update on their divestiture process. Obviously, we are in the process. No one really knows where everybody stands on this, and they're not announcing anything till they're done with the whole transaction. So relying on now gain Teva and the FTC to finalize, but I think probably the best commercial for us is that if you look at our balance sheet where we have the capability to be able to do a transaction of some significance. And that type of divestiture is may be part of that. Regarding 203, yes, we are on track. We announced at the beginning of the year that we would expect to report results of 203 sometime over the summer. We are on track with that. With any Phase II, Phase III programming, you don't get a lead out as you go along. So we're waiting for the final readout and be able to describe whether we got a good follow-on project, or what we have here. We have remained optimistic and hope that the results will be positive and we look forward to moving this into the Phase III very soon.

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

Thanks. So here's my two. So, first on Adderall, now that you no longer supply constraints, can you just give us a sense of how you're thinking about your volume share as the year progresses? I know you're focused on profitability, but you're technically not a new entrant, you just were supply constrained. So how should we think about your volume share growth? And then secondly, on Solaraze and metaxalone you alluded to, the pricing pressure. We know that Actavis will be entering the Solaraze market. Can you just talk about how many entrants we should be thinking about for both Solaraze and metaxalone both in 2016 and 2017, and how we should think about the trajectory of those two products? Thanks.

Yeah, thanks. Good, spot-on questions. Obviously, Adderall for us, this was a very important approval, came right on the target action date. So the FDA was doing the right thing there. As you actually saw, we got both of our products approved, both the Hayward product and the Middlesex products approved. As we had described that we had two shots and our goal was to assure ourselves a good position, and we actually got them both. As we'd also described last year, we let some share go, so we can manage our supply in case things did not work as efficiently with FDA. We had moved from about a 10% to 12% share position down to around 7%, 7.5% share. We've already found ourselves back into the double digit range. Our first goal, as I've mentioned, very important that we resupply and make sure that our current customers are happy with our shifted supply position from our own ANDA supply of product, and we'd been on the marketplace trying to gain some share position. So I would think that somewhere in the teens would be an appropriate position for us to be without doing many things to make it to the marketplace. So Adderall, we're looking for a nice contribution from that in 2016. Regarding Solaraze and the metaxalone, first of all Solaraze, we anticipated that there would be at least two approvals, we were obviously – our two competitors. We were watching Sandoz very closely that they came out of the marketplace; stayed actually out longer than we anticipated, which allowed us to have a fairly strong fourth quarter – a wildly strong fourth quarter, and a fairly strong first quarter. You have then we saw Actavis approve, but have not seen them in the marketplace; Taro has now been approved and they are out pre-selling. So there is some pressure on the product as Sandoz also came back. We think that's probably the number that will be in the market, so with the four of us there on Solaraze, we think that's probably where this will end. Metaxalone, there has been a steady flow of new competitors coming that drove the price down pretty dramatically. That's usually what's anticipated when you're a sole-source supplier, is that those look like much more dramatic price reduction, because we've been the only one. And the Solaraze, we are actually the only one including the brand. So when price hits, it does hit. Both of these products interestingly enough though are partnered products; so they were part of what was driving our gross margin down. So a reduction in sale of these products although will have a dramatic impact on – or will have an impact on the top line, not as dramatic impact on the bottom line.

Okay. Thank you.

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

Hi. This is Ashley Ryu on for Randall. Thanks for taking the question. Just a few on Specialty. So how should we think about the EMVERM launch in terms of growth of the overall ALBENZA, EMVERM franchise versus switches from ALBENZA from limiting some of that off-label use? And then on Rytary, lots of progress, appears to be very steady so far; what are the swing factors to kind of get to the top end of your sales goal? Thanks.

Good. Okay. Let me do EMVERM, and then I'll let Michael do Rytary. EMVERM is pretty simple. We're hoping that – and I think we've describe this as that we now are on-label with these two products. ALBENZA was a product that is indicated for multiple number of parasitic worm diseases, but was being used extensively for something off-label, which is pinworm. We did not promote the product at all during the timeframe since we've owned CorePharma. Core actually did not do that either just to stay out of harm's way on that. But it was used extensively because there wasn't really anything good out there. With EMVERM in the marketplace, we anticipate that EMVERM will probably take 60% of the ALBENZA business and convert it over. It will be a fairly organized conversion of prescriptions from ALBENZA over to EMVERM, because these are new cases usually each time. We expect EMVERM growth to be fairly strong. We did get a few shipments out at the end of the quarter, and then have continued the launch into second quarter. Most of the promotional activities were initiated around the middle of April, and we've actually seen prescriptions without any noise out there. So we're expecting EMVERM to perform very nicely for us. It would be our hope that the sales force will work on this for maybe two quarters, three quarters, four quarters, and then put it aside because we've already established position. So that's EMVERM. Let me allow Michael to talk about swing factors on Rytary.

Yeah, thanks Fred. So relative to Rytary, swing factors for us obviously the big one is managed healthcare coverage, both on the commercial sector as well as within the Medicare Part D side. We have currently about 90% of prescriptions that are being written for Rytary, are being approved by the payers. Also, what is key for us relative to our long- range numbers is to move that patient for whom physicians are prescribing from that more severe patients down to the mild to moderate patients. And recall that we began that move in the second half of last year, so continuing to effect that transition in patient type is also very important. The other aspect is, as Fred indicated during his remarks, we just recently expanded the size of our sales force, so that we could increase the frequency of calls on our key prescribing physicians as well as be able to reach more physicians that are prescribers of carbidopa/levodopa type product. So each of these combined is what to us is key to our long-range targets for Rytary.

Great. Thanks.

Your next question comes from the line of Andrew Finkelstein with Susquehanna.

Good morning. Thanks very much for taking the question. I was hoping you could say a little bit more about what the contribution was from some of the key Generic products in the quarter? I know you don't like to give a lot of specific numbers for those, but given Solaraze in particular was a big contributor and the dynamics are changing going forward, can you talk a little bit maybe how the contribution in 1Q compared to the 4Q numbers? And then on the Adrenaclick authorized generic, I mean we're starting to see share coming up there, how is that product trending?

Yeah, so I think the way to look at Solaraze is, fourth quarter, we were probably a good 35% to 40% higher in revenue than first quarter. But if you go back and kind of look sequentially, our first quarter look very much like third quarter of 2015. So fourth quarter of 2015 was a quarter where Sandoz was out both Brand and Generic. You had Actavis announcing that their approval didn't come. You had the dynamics of the marketplace everybody kind of looking for product. And there was a lot of products that was moved into the marketplace during that quarter to fulfill all the gaps that were out there. First quarter probably more normalized. And so – and I think if you're a diligent reader of the Q, you should have kind of figured out that yourself of Solaraze. And it was a good contributor for us, but down sequentially from fourth quarter, about on target to what third quarter looked like.

And your pricing was down sequentially?

Our pricing was also down sequentially as people came back in. So, in February, March, we started to see some pricing pressure. On EpiPen, you did pick that up correctly. We have been growing share of our epinephrine auto-injector slowly and steadily. As I've mentioned before, our rate limiting step supply and we sold essentially everything that we make. We are accelerating the efficiencies of our supply position and we guided that we expected to gain somewhere around 1% per quarter. I think we actually gained 2% in first quarter over fourth quarter, but that puts us on target to what we expect to be this year. We'll spend this year slowly building share based on the current manufacturing supply and we'll initiate the process for automation that will allow us to have much less of (33:50). So, we're pleased with the uptake of the product. It's been well-accepted in the community, and in those 21 states where substitution is allowed, we have obviously stronger share than in those states where it's not.

Thank you very much.

Thank you.

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

Good morning. Thanks for taking my call. This is Etzer filling in for Jason. I just had a couple of quick questions. First, I wondered if you could discuss the impact that you're seeing from the sales force expansion, or when you expect to see any benefit from the increased sales force promoting Rytary? The other question is, so you just talked a little bit about the sequential growth with diclofenac. I wondered if there were any other products that drove the sequential decline in the Generics business? Thanks.

So Mike, why don't you go ahead and handle the sales force?

Okay. Thanks. So, relative to the sales force, as Fred indicated, we essentially doubled the existing sales reps that we had with adding about 60 reps on top of the 55 reps that we converted from the third-party sales force that we had. We did that at the end of the first quarter. So in terms of what's going on right now with the sales force, we've got people adjusting to their new and revised territories, introducing themselves to new offices which is what one would anticipate. In terms of when we would expect to see the benefit of the sales force, I think probably in the next three weeks or so is when we would anticipate seeing – really starting to see the benefit of the increased size of the sales force and the frequency and reach that they're able to affect in terms of Rytary prescriptions.

All right.

So, and let we talk about the sequential. I think we actually hit on most of this, the downward sequential push was almost exquisitely driven by diclofenac and metaxalone. There were some then modest growth and continued expected growth from things like epinephrine auto-injector, Adderall, the OxyContin. And then, just our core business was extremely solid on the Generic side. And if you actually look sequentially our Brand business was – although it was dramatically up from first quarter of last year, it was essentially flat for the fourth quarter. So kind of followed prescription trends pretty nicely.

Thank you.

Your next question comes from the line of Tim Chiang with BTIG.

Hi. Thanks, Fred. I wanted to follow-up with a question you had mentioned that you're expecting what a 60% conversion rate with EMVERM from ALBENZA, is that expected by the end of this year or what's the timing?

Yeah, actually I think you'll probably see it approach the 50% probably sometime in the third quarter. You got a product that is substantially more effective than ALBENZA. The product that – this is mebendazole, and the physicians know this product, so we're not trying to acquaint them to something new and substantially different. And it's a product that now will get the positive flow from managed care as that is an approved prescription product for pinworm. But we expect that the uptake will be pretty good. And actually saw that, if you're – we're looking at weekly scripts on this before we even put any piece of noise out there. So I think people there with some anticipation, people expected it, and found in the marketplace and they are starting to use it.

And my second question is just on the gross margins, the Generic business. Do expect that gross margin to expand as the year progresses this year, as you get new products out? And I guess, the diclofenac product becomes a smaller portion of your Generic business?

Yeah, we do. I think if you look at any of the Generic business, the gross margin kind of moves around based on the scope and size of the product launches. So this company, since we have been launching very much until last year, if anything at all, the fact that we launched 12 last year, or 14 last year, and had 12 in our plan this year, puts us in a position where that gross margin has the potential to move very nicely. We've also, kind of, done what other companies have announced that they've undertook which is the weeding of some of very low volume, low profit products. That's why you see our numbers kind of fluctuate between 65 and 70 actively marketed products, and the current 55 that we have in the marketplace today. And then obviously, for diclofenac, very large revenue position, but a shared profit with our partner. So it affects negatively the gross margin. And as that declines over this year, then you're going to see probably some uptick in the gross margins that should occur on the Generic side.

Fred, I wanted to just squeeze one last question, and I know this – you've seen some pricing degradation in some of the hydrocodone oxycodone products from some of the competitors out there. I know you guys are launching oxycodone on an authorized generic. You are also launching morphine. Have you seen any sort of price degradation in that market?

Yes. I think all of us sort of experiencing more of the commodity market environment with individual products have seen some of that. I mean, the oxycodone that we introduced, we had limited quantity as does everybody who came off of one of the settlement position. So we've positioned it with customers where we can maximize our opportunity as opposed to trying to achieve very large share positions. We're going to sell this very efficiently across the year, and then we resupply next year, sell efficiently next year, we hope and keep going. There are pockets where there are multiple competitors that you would expect some price degradation. But this is nothing new than what we've seen over the last six years to eight years to 10 years to 12 years in the generic industry is that competition essentially causes price challenges, and as there's greater competition then you're going to see more price degradation. It really speaks to the importance of a very solid and judicious product selection process. And then efficiently bringing your R&D project to marketplace, so that you're enjoying the 101, 102, 103 position.

Thanks Tim.

Yeah, thanks.

Next question, please.

Your next question comes from the line of David Buck with Northland Capital Markets.

Yes, thanks for taking the questions. Just two questions, and maybe ask a follow-up on Turing. Fred, can you talk a little bit about with the moving parts on your partnered products and also with the launch of Generic OxyContin. Both the gross margin outlook should be for – you're looking at second quarter and through the remainder of this year, and into 2017, it was down significantly year-over-year. And maybe for Michael is, we know the steady-state gross margin for Brand that could be sustainable? And then Bryan, can you talk a little bit about the decision to just keep the guidance in excess of 10% growth on EPS given spending, it was a bit lower than we had expected in the first quarter for R&D and SG&A. So just the timing issue, and should we expect a big ramp for the remainder of the year? And maybe can you just give a sense of what the scenarios are on Turing, and what might happen given the reserve against receivable on the ongoing lawsuit? Thanks.

Okay. We're going to reverse that. I'm going to do the spending and Bryan will do gross margin question. So look, expanding was essentially on track for us. If you looked at year-over-year quarterly reports, we generally spend lighter at this company in the first one or two quarters of the year. We put out annual guidance that does not spell out the quarterly guidance. So this came in online with what we anticipated. It's the same as revenue. We expect revenue to grow quarter-over-quarter in order for us to hit some of our annual guidance. So no surprise in the expense. I think there is no reason to change the expense guidance because this is what we actually anticipated by the plan. I'll let Bryan talk about the gross margin, and then I'll come back on Turing.

Yeah, so gross margin, we only gave full year guidance. And we don't give specific quarters because the Generic business does bounce around a little bit. So we still feel comfortable giving full year guidance around 50%. A lot of the efficiency projects that we're working on, especially the Middlesex project, savings will kick in in 2017. So we're comfortable in keeping guidance at this point for the full year at 50%.

Yeah.

And then Turing, obviously, this was a lawsuit that we filed to defend the position of the company. We, like most companies, don't comment on ongoing litigation. Fairly obvious that they were selling some supply of our product Medicaid rebates then came through us and we need to be reimbursed for those. So, essentially the concept there. We took a very conservative position on our accounting process, and we're hopeful that either the lawsuit or discussions around it will resolve the issue.

Thanks, Dave.

Just one follow-up. Thanks, Bryan.

Next question, please.

Your next question comes from the line of Dana Flanders with JPMorgan.

Hi. Thanks for the questions. Fred, can you just characterize the buying consortium dynamics this year. Is that changed, or is more challenging compared to last year, and just, what has been the impact there on price erosion, or is that, I guess, for you more driven by new entrants? And then just a quick follow-up on Rytary ex-U.S., just where are we on a potential deal there, and do you think something could come by year end? Thanks.

I've been very bad at predicting Rytary ex-U.S. So there's a knock on us that we have hoped to have something completed at this particular point. I'll just kind of address that quickly. There are a couple of potential partners who we're working along the process. It has gone much slower than anticipated. I think the major issue there, which we've been very open about, is the pricing in Europe for products where the base chemical is already available is difficult. And so where there is an opportunity to price efficiently for a superior product in the U.S. that opportunity does not exist in many of the European countries. Having said that, there are some people still very interested and they're working their way through the process. We are trying to maximize our opportunity, so we've been a bit fastidious in these negotiations. I'm glad you asked about the customer consortium mix. Actually, we are almost done with this cycle for 2016. We believe that we've done fairly well with where we've landed. Each bid cycle has a different flavor to that. This year was – we'll follow on that. There is slightly different flavor. A little more consolidation has caused for a little more pressure on us. But still the main focused on the things that drive Generics, which is your most important, your ability to supply. And then secondarily, your ability to be competitive. So we feel like we've done very well with the major players even with their consolidation and the position we have going into the rest of 2016.

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

Hi, this is Ami Fadia on for Marc. A lot of our questions have been answered, but maybe I'll ask two. Firstly, on the Branded division, could you give us a sense of any changes in inventory stocking, whether it was Rytary or EMVERM for the quarter? If you could help us quantify that? And then what's your latest outlook with respect to Welchol and Renvela? And are those included in your 12 to 14 launches for the year? Thank you.

Great. Yeah. So, if you look at the sales of our Brand products from our Brand division, they were essentially flat to fourth quarter. You look at prescriptions, there were times of bumping around for most of the products. There was some increase in prescriptions, but not dramatic. So sales kind of followed along, although they never linked directly. We did not have inventory load going on in first quarter. We did get some shipments of EMVERM out, because it was ready to go, but not substantial, and believe we're set up for a good year with the Brand division again. Obviously, we're going to pay close attention to prescription growth now that we've got more than 100 representatives out there of both Zomig and Rytary in front of the neurologists and then see what they can tug with the EMVERM situation. On Welchol and Renvela, we made it through 15 questions without anybody asking that. That's pretty good. We have not given guidance on those two products. Obviously, they are critically important to us. We believe we're progressing very nicely through the regulatory process. And we look forward to put those into the marketplace as soon as they are available. We will be ready when approved, and so we just are waiting and hopeful that approval comes.

And let me just add on that, we stated in our February earnings call that those two products are not included in our 12 to 14 target launches this year, just due to the uncertainty with the FDA changing the guidelines several times.

Got it. Thank you.

Thank you. Next question, please.

Your next question comes from the line of Pravesh Khandelwal with Deutsche Bank.

Hi. This is Pravesh on for Gregg Gilbert. Thanks for taking the question. So the first one is, how does the mix single-digit price erosion compare to what you saw in 2015 versus 2014? And the second one, does the current generic environment make you any less bullish on the concept of getting bigger in Generics or does it increase your sense of urgency to get bigger in Generics? Thank you.

So I think we've kind of hammered on the pricing piece pretty well. We had anticipated price in the mid single-digit range, the price degradation. That's what we're seeing essentially in the first quarter. That's what we experienced during the second half – well, actually all of 2015. We see pricing pressures on the individual products as more competition comes, and so that's offset generally by product launches. So we don't really see anything that in the wins that have dramatically changed any pricing pressures in the environment. We've said that probably for two quarters now. And we've now heard other people starting to step-up and say many of the same things, Teva, and Mylan, and others describe this scenario fairly similarly on their calls. Second question was?

The concept of getting bigger?

Concept of getting a bigger, yeah, I mean, I think look at the end of the day in my mind the generic industry is build on the strength of the product portfolio. Size is nice, but it's not critical. So we do what we would like to get into the top 10 of the generic suppliers of product. But we're not going to get there through commodity items; we'll get their products that are effectively selected and then brought into the marketplace as well as acquisitions that are targeted on that type of product.

Okay.

Thank you all for joining us this morning. That concludes our call. At 9:20 AM Pacific Time we will be holding a fireside chat at the Bank of America Healthcare Conference. Thank you, again. We look forward to speaking you soon.

That concludes our call, Tabitha.

Thank you. Ladies and gentlemen, you may now disconnect.