Amneal Pharmaceuticals, Inc. (AMRX) Q2 2018 Earnings Report, Transcript and Summary

Good morning, my name is Tom, and I will be your conference operator today. At this time, I would like to welcome everyone to the Amneal Second Quarter 2018 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. [Operator Instructions] I would like to turn the call over now to Mr. Mark Donohue. Sir, you may begin your conference. [Technical Difficulty] Mr. Mark Donohue. You may begin your conference.

Thank you, and we apologize we’re getting a few minutes late start here. We got an issue with the phone. So good morning, everyone, and welcome to Amneal's second quarter 2018 earnings call. A copy of the slides that will be presented on this call are available within the Investor Relations section of Amneal's website at amneal.com and as part of the webcast. Our discussion today includes certain forward-looking statements, and actual results may differ from those presented here and 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 then disclose 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 provide 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 this morning’s press release. On the call this morning are Rob Stewart, our President and Chief Executive Officer, and Bryan Reasons, our Chief Financial Officer. Following their prepared remarks, we will hold a Q&A session. Also on the call and available for Q&A is Paul Bisaro, our Executive Chairman. And with that, I'm going to turn the call over to Rob.

Thanks, Mark, good morning, everyone, and thank you for joining us today. We’re excited to be here to report earnings for the first time as the new Amneal Pharmaceuticals. The second quarter was defined by solid financial performance and several strategic achievements including the completion of the combination with Impax Laboratories, which closed on May 4, we also enhanced our specialty franchise with the previously announced acquisition of Gemini Labrotories and continued to build our biosimilar pipeline with an agreement with MabXience to commercialize the biosimilar candidate Avastin. Although we’re revising our 2018 guidance to primarily reflect the delayed timing of deliveries of our Epinephrine Auto-Injector product from our third-party manufacture Pfizer and the timing of certain launches, as I'll touch upon later, we are confident in the long-term growth potential for Amneal. We are focused on leveraging our enhanced portfolio and executing on our operational and commercial priorities to fuel growth, generate synergies and strong cash flow and delivering long-term returns for our shareholders. We've delivered solid sequential growth in a combined adjusted revenue, EBITDA and dilutive EPS, as we began to realize the benefits of our combination with Impax. Through this combination, we have strengthened Amneal's market position, and have already made tremendous progress with our integration. By combining the Impax in Amneal, we have advance to the top tier of companies in a fast changing healthcare market. On a combined adjusted basis, second quarter revenue increased 8% to $462 million compared to this year's first quarter. The combination of higher sales, favorable product sales mix and cost synergy resulted in a 45% increase in adjusted EBITDA of 79% increase in adjusted net income, and a 71% increase in adjusted EPS. Compared to last year's second quarter, combined adjusted revenue was down 2%, but adjusted net income grew 9% and adjusted EBITDA increased 17%, as we rationalize the portfolio. Following the May 4th close of the combination, our team has hit the ground running with the rapid and seamless integration of the two companies. We have focused on capturing targeted synergies, driving for excellence in customer service, containing costs and ensuring that we are efficiently utilizing our resources. I'm very proud of the progress we've made so far. We are on track to achieve more than $200 million in cost synergies. We anticipate at an accelerated pace and progressing ahead of schedule with the closure of the Hayward, California facility, a major driver of synergy. In addition, we've initiated the rebranding of the Impax's specialty as Amneal's specialty, which is an important step forward in leveraging potential sale synergies in the future. And with an expanded set of capabilities, scale and resources, the new Amneal is solidly positioned to deliver sustainable growth, value and success and we are already excited about the possibilities that lie ahead. Before Brian reviews the details of our second quarter results, I would like to review the highlights from our segment performance. Let's start with the Generics business on Slide 6. In the second quarter, on an adjusted basis, the Generics business achieved 7% topline sequential growth, as we capitalized on 16 product launches during the first six months of 2018. This included the launch of generic versions of Concerta, Mephyton and Welchol. We also benefited from the greater level of sales from high value opportunities like generic Vagifem, Aggrenox and Voltaren Gel, which more than offset the anticipated seasonal decline in generic Tamiflu. On the year-over-year basis, generic revenue declined 6% due largely to the ongoing intermittent supply on Epinephrine Auto-Injector as well as the competition on base business and our decision to proactively discontinue low value products. Regarding Epinephrine, we continue to experience intermittent supply of product from our third-party manufacturer throughout the second quarter, and during the month of July. We are optimistic in May that the availability of supply would improve that has been slower and below our expectations. We are continuing to work closely with Pfizer in order to meet the high patient demand for our product. We have a strong track record for getting complex, hard to manufacture generic products approved and launched. Year-to-date we have received 33 ANDA approvals and 9 tentative approvals from the FDA, of which we launched 22 products, a metric that I believe sets us apart from our peer group. Amneal leads the industry in approvals and launches over the past six months. Turning to the Specialty Pharma division on Slide 7. In the second quarter, on a combined basis, we've delivered topline growth of 16% sequentially and 27% year-over-year as we capitalize on strong demand for recovery. This performance reflects the benefits and we are beginning to see from the changes that were made last year to the Rytary programs than within the sales and marketing organization. We had two significant litigation developments in the quarter. This included settling the ongoing Rytary litigation with Actavis and receiving a favorable U.S. Court of Appeals ruling regarding the patent validity for Zomig Nasal Spray, which expires in May of 2021. We also advanced the development of IPX203 extended-release formulation of carbidopa-levodopa and with patient enrollment for Phase 3 study scheduled to begin in early Q4 of 2018. Moving to Slide 9, growing our pipeline to drive expansion into complex dosage runs and technologies is a top priority for Amneal, and we're making good progress on this front with 10 ANDAs filed so far in 2018. We continue to target more than 30 ANDAs to be filed this year. Today, Amneal has one of the largest pipelines to file and develop products in the U.S. We currently have 258 projects in the pipeline targeting more than $114 billion in value in the U.S. brand and generic sales, more than half of which are considered high-value opportunities. We have a solid track record of getting products approved and commercialized, and we have confidence in our ability to execute on our pipeline. With that, I'll turn the call over to Bryan to review the details of the second quarter. Bryan.

Thanks, Rob. Good morning, everyone. Our earnings release this morning, include GAAP results from the May 4th closing date of the combination with Impax as well as the combined adjusted results for full-quarter as at the combination closed on April 1st. My remarks will focus on the combined results, as we believe they provide a better comparison of our performance and trends in the quarter. A full reconciliation of our GAAP to adjusted results can be found in the tables in our press release. Turning to Slide 10, and a review of the Generics division results for the second quarter of 2018. On a sequential basis net revenue increased 7% compared to the first quarter of 2018, the largest driver of this increase was new products launched during the first half of this year, which added approximately $41 million in second quarter sales. Additionally, we benefited from increased sales of key products as Rob noted. As expected, sales of generic Tamiflu declined $43 million from this year's first quarter due to seasonality. Compared to the second quarter 2017, net revenue declined 6% as a result of additional competition on base business products, and lower sales of Epinephrine Auto-Injector, which had an unfavorable impact of $12 million year-over-year due to intermittent supply. The pruning of our portfolio of low value products accounted for approximately $8 million of year-over-year decline in sales. This action was slightly favorable to our overall gross profit. Our adjusted gross margin improved in the second quarter by more than 500 basis points on a sequential basis, primarily due to favorable product mix. Adjusted operating income in the second quarter of 2018 increased to $112 million, up 29% compared to the first quarter due to an improvement in gross profit. Compared to last year's second quarter, adjusted operating income increased 6%, driven by lower operating expenses as we tend to realize the benefits of synergies. Moving to Slide 11, and our Specialty division results. On a sequential basis, adjusted net revenue in the second quarter increased 16%, driven by growth in RYTARY. We're very pleased with the consistent growth in RYTARY scripts, which recently passed 4,200 weekly TRXs. We expect the growth to continue throughout 2018. Compared to the second quarter of 2017, net revenues increased 27% due to higher sales of RYTARY and Albenza. The year-over-year increase in net sales of Albenza was primarily due to a supply disruption, which impacted last year's second quarter sales. Adjusted gross margin in the second quarter was 79%, up a couple hundred basis points from this year's first quarter. Adjusted operating income in the Specialty Pharma business increased to $38 million, up 24% from this year's first quarter, and up 104% from the same period last year, primarily due to favorable product mix. We recorded severance charges in the second quarter related to the combination with Impax, which impacted our GAAP results. As shown on Slide 12, this included charges of approximately $213 million for acquisition, transaction and integration expenses. This included a non-cash charge for profit participation units related to annual historical capital structure, and awards to its global workforce in connection with the combination not paid by Amneal. We also recorded restructuring and severance charges of $45 million, as we continue to execute on integration and cash or cost synergies ahead of plan. And we recorded approximately $50 million in inventory related non-cash charges, primarily due to higher amortization of purchased accounting for inventory. On foreign currency movements, we recorded a $26 million foreign exchange loss caused by fluctuation in the Swiss franc and Indian rupee. As part of the closing of the business combination with Impax, we refinanced the debt of those companies. We entered into a senior credit agreement that provided term loan B with the principal amount of $2.7 billion. The term line bares a variable annual interest rate, which is LIBOR plus 350. The refinancing resulted in a $20 million charge for loss on early extinguishment of debt. During the first half of the year, cash flows were impacted by several items including severance and product transfer costs as we accelerated integration and synergy capture, increases in inventory and accounts receivables, as we launch new products and prepare for future new product launches, and several non-recurring items, including the acquisition of Gemini and legal settlements. We expect this cash flow trend to reverse in the second half of the year. So as Rob mentioned in his opening remarks, we delivered a solid second quarter with combined adjusted net income of $70 million or $0.24 per share. I'll now turn the call back to Rob for a review of our guidance and closing remarks.

Thank you, Bryan. Now let's turn to Slide 14 to discuss our updated outlook for 2018. As the second half of '18 unfolds, we continue to expect our financial performance to benefit from the full year impact of new generic product launches, exclusive positions on generics Vagifem and Aggrenox, synergy capture and growth within our Specialty business. While we believe there is some potential for upside from projects in the pipeline, we determined that it's prudent to revise our guidance expectations to reflect the reduction of Epinephrine Auto-Injector deliveries through July of this year. Additionally, the timing of approval of certain key launches has had an impact on this year's results. As a result, on the full year pro forma adjusted basis, we now expect adjusted EBITDA between $580 million and $620 million, and adjusted diluted EPS between $0.90 and $1. Slide 15 reflects for the second half contributions to adjusted EBITDA results, are expected to come from. As mentioned, we expect the number of positive drivers to more than offset competition in our base business. This includes the full year benefit of products launched in the first half, synergies and branded product growth, continued exclusive markets on generic Vagifem and Aggrenox, and the benefits of second-half product launches. As we have said before, we continue to expect double-digit growth in adjusted EBITDA for 2018 compared to last year, which we more heavily weighted to the back half of the year with sequential quarterly growth throughout 2018. Looking ahead we're focusing on delivering on our operational and commercial priorities, we will drive toward our targeted post transaction synergies walking currently positioning Amneal to strengthen our generics growth engine by continuing to invest in strategically focused R&D, maintaining high levels of quality and compliance and providing superior service to our customers. We will prioritize our efforts to maximize the value of our enhanced commercial portfolio in order to grow revenue and profits. And we'll bring products to market on time with consistent supply. And finally, we will strategically deploy our capital and pursuit of longer-term value enhancing opportunities. In conclusion, the new Amneal is solidly positioned to deliver long-term value, and be one of the most relevant and dynamic companies in the industry. We are committed to executing against our long-term growth plan, which includes investing in organic growth through targeted R&D, pursuing creative business development to substantially strengthen our key portfolio and continuing to evaluate additional adjacencies as market dynamics develop. With an expanded set of capabilities, a compelling mission, a defined strategy and a track record of success, we are excited for the opportunities that lie ahead for the new Amneal, our employees, customers and our valued shareholders. I want to thank all of our employees for their hard work, commitment, and passion for delivering a solid quarter. With that, we'll open the call for questions.

Thanks, Rob. And so before we open up call to questions, I just ask you to keep your questions to minimum so we can get to everybody in the queue. Now, I will turn the call back to the operator.

[Operator Instructions] Your first question comes from the line of Gregg Gilbert of Deutsche Bank. Your line is now open.

It's Greg Fraser for Gregg Gilbert. How much visibility do you have on potential resolution of FB [ph] supply issue? And are you assuming the supply issue to continue through year-end in the revised guidance? And then are there any periods tied to competitive generic therapy destinations that are affecting your launch timing or that you could benefit from in the future on your own launches?

So regarding the supply of EAI, we continue to work with Pfizer. We're seeing an improved performance around their deliveries, and we're able to keep supply to patients. But unfortunately the ramp-up has been slower than expected, and because of the seasonality of this product being largely second and third quarter. That's why we took our guidance down because of -- just because of the seasonality and coupled with the delivery and performance. We do expect continuing to rebuild our inventory levels here throughout the course of the year. But at this point, it is still intermittent supply from Pfizer due to some of their compliance issues and some of their challenges that they are having with their Hospira manufacturing operations. With regards to launches and launch timing and exclusivities, the number of kind of dates certain or exclusive launches are not necessarily big drivers for our performance this year. We have a number of dates certain launches that are relatively small in the brand scheme of things, if you thin look at the number launches that we have available to us in the balance of this year. But our portfolio is really driven by first of market opportunities that are not necessarily tied to exclusivities. And by default, because of the fact that the first market and you are more in the incumbent position, those are generally longer durable -- more longer duration type of assets and more durable, but they are not necessarily tied to exclusivities.

Thanks, Greg. Next question please.

Your next question comes from the line of David Risinger of Morgan Stanley. Your line is open.

So, I have a number questions. I'll try to keep those relatively quick. So first could you just provide a little bit more perspective on reducing your target for new product launches from 60 to 47, I guess, what has surprised Amneal in the last few months? And then, with respect to your slide on the EBITDA bridge, why would 25 over the rest of 2018 contribute such a small amount of just $40 million at the midpoint as reflected in that EBITDA bridge bar chart? And then finally, if you could just talk about some of your top products and the assumptions you've made for either new competition coming in, in the second half of the year or not, so for example, on Yuvafem or Diclofenac or other top products, just what your assumptions are that you've baked in?

Regarding the launches, we had said we had up to 60 launches when we initially launched the company on May 7th. We said that we have the ability to share to launch up to 60. We always said too that we didn’t include all 60 in our guidance assumptions because there is always timing issues, there's always additional request for information from FDA, and things along those lines. I think still the fact that we have got great approval and launch success within the company, as I mentioned in my prepared remarks, that we are the number one company this year in terms of number of approvals that we've received and launched, if you look at over a three-month period, six-month period, full-year period that you -- we're continuing to really, I think, accelerate our launch engine, and a lot of those launches that you see you come through already this year with some of the more complex ones. We still have good opportunities in front of us for pipeline launches. Their timing of such as always a question mark and challenge in terms of that they happen in the fourth quarter of this year or first quarter in 2019. That’s where we're up against in terms of kind of some of the findings. But that kind of gives you a flavor for that still I think that we got a very productive R&D and launch engine within the company. Regarding the EBITDA bridge, if you look at that Slide 15, when you kind of look at that small bucket now that's on the -- between the 2018 adjusted column for the full year guidance, some of that moved from the right hand side of this graph over to the left hand side where that first column on full-year first half launches. So some of those have happened, and that's why you see kind of a reduction in the contribution. So state it differently, we don't need that many more launches or contribution from launches to be able to get to the guidance that we've provided. And although, we still have opportunities to outperform that because of the Epinephrine situation and because of the seasonality of that, we took the steps to lower our guidance. Regarding the top product assumptions, we did assume competition on Diclofenac Gel, we have not assumed competition on Yuvafem or on Aspirin DP. And so -- but then we do have within our overall portfolio a competition assumption and base price erosion that's factored into our guidance. But in terms of top products that once that you had mentioned, that's the assumptions on those three products.

Thanks. Next question please.

Your next question comes from the line of Chris Schott of J.P Morgan. Your line is now open.

So look at this back, so I’m sure, I'm clear on the new launch forecast. I think, obviously you got the buckets moving from one to the other. But if I should like to add, Q1 slide, where I think you’re targeting a $160 million of EBITDA for new launches. Where does that number stand if we’re looking that on an apples-to-apples basis? Is that still 160 or is it something last? Just any color there would be appreciated. And the second one was on Yuvafem, and you just mentioned that you haven't assumed additional competitions on a great product for you. Is the $30 million or so run rate that we saw this quarter? Is that a decent way to think about that product until we see additional competition or could that further step-up from you? Thank you.

Regarding the new launches, Chris, what I would say is that when you look at kind of apples-to-apples, a number of those launches have now actually happened. So for example, in the past slide deck that we used, one of the launches that was assuming at that point to come with potassium chloride, will now that's just happen. And that's why you see a shift from the right hand side to the left hand side. Another one would be cyclophosphamide that was in a launch to go assumption in the past. Now it's embedded within our kind of first half numbers to get to the full-year. They came late -- either late in the second quarter or very early in the third quarter, but that kind of gives you a little bit of things that color the in terms of kind of the apples-to-apples comparison. Regarding Yuvafem, I think the run rate that you've assumed is the right run rate assuming that there is no additional competition. That's the way we are modeling it as well.

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

This is Dan Busby on for Randall. First question, just given some of the dynamics we've discussed including some of the new launch delays, has your view changed at least qualitatively around your EBITDA projections given what you've seen this quarter?

No, absolutely not. We're committed to the $1.1 billion in the out years, and we're standing firm on that, in fact we're even more bullish around our assumption. So even with the delayed launches we're delivering great quarter-over-quarter -- sequential quarter-over-quarter growth here in 2018. We see that continuing into the future and we've got a great pipeline that's going to drive growth as well as synergy capture. And I don’t want to undermine that the performance on a specialty side as well that is also continuing to drive great growth year-over-year as well. So when I look at the Specialty performance, the generic performance in the assets that we have available to us in the pipeline coupled with synergy capture, I'm very, very confident in the out year in the outlook for the future.

And then just one follow-up question. You said in the last call that your top five generic products accounted for approximately 27% of your revenue base. It's fairly concentrated, and I think it ran a click shortage demonstrates one of the risks associated with that. Did you expect that percentage to come down overtime as the pipeline matures and products rotate in and out or is that a realistic base line going forward?

Look, I think, we've got a very diversified portfolio that's not necessarily concentrated. We're not reliant on anyone particular product and you see that even with some of the launches that we've just had. Potassium is going to be a great product for us and a good contributor. Cyclophosphamide will be a good contributor for us as well. So were not concentrated on any one particular product. So Epinephrine is just in unfortunate situation where we've got intermittent supply. But that could -- if not for that supply, we would have frankly a blowout quarter here in the second quarter. But I'm confident that we're not concentrated that you'll see -- continue to see diversification in our portfolio, especially as you see some of these pipeline assets come through and launched. A number of them we just recently launched.

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

David?

First question on Unithroid and levothyroxine. So, one on the brand you've seen some strong volume growth, so wanted to get your thoughts on what you're doing to drive the brand going forward and what is admittedly a pretty complex market? And then related to that, what are your thoughts in being able to expand your relationship with the JST. I know there's been a lot of chatter about what that is trying to do in terms of renegotiating its agreement. Wanted to get your thoughts on the potential opportunity for levothyroxine on the generic side. Thanks.

So we’re happy with our Gemini acquisition here, and specifically Unithroid. There is a tremendous amount of brand loyalty to that brand and we see that in terms of its performance year-over-year and quarter-to-quarter. We are the small -- just to kind of provide you a little insight, we do have a small sales team that has the niche strategy in terms of out there doing some limited promotion around the product. But this is a great brand that patients once on therapy desire to stay on therapy, and we see good adhesion and stickiness to that business because it's a good asset. Regarding, you know looking at how do we expand that relationship? I know there's a lot of speculation out there around what's going to happen with the generic relationships that Jerome Stevens has. We are like the Jerome Stevens family, and we've got a good working relationship with them. We certainly would be interested in that asset and expanding the relationship further. But beyond that, I’m not going to comment because, obviously, it's a delicate situation. So -- but I like the relationship, I like what the position that we have with Gemini, we got, I think great performance with that brand, and we'll see what comes next.

Your next question comes from the line of Dana Flanders of Goldman Sachs. Your line is now open.

I guess my first one here, can you just talk a little bit about the price increases you took across the portfolio in Q1? And how sticky has that been and is that something that you're continuing to evaluate as you get into the back half? And then on just the new launches, again, I mean, is that solely been a timing issue or how's the value of any of any of these new launches change? And I guess, 3-2 is just how the competitive landscape is playing out in the generic environment maybe you can just comment on that. Thank you.

Regarding price increases -- that the price increases we called out in the first quarter was specifically on the Impax side, because it was such a big component of their quarter performance. We think price increases routinely, and the stickiness of those depends on product to product. But overall, when we generally take them they generally stick. And we’re always disciplined and making sure that we're getting the right value for our capacity. And so the generic industry is always a dynamic one. And so we've always got to constantly evaluate our portfolio and see where there's some opportunistic when there's optimistic price increases available to us, and we will continue to do that. But the -- for the most part they generally, from what we see, stick. On the new launches, it's all purely timing for us. There is always going to be products that may not necessarily do as well as you had initially modeled because of either competitive aspects for the brand groups become a bit more defensive and do stronger contracting and rebating. That's just an inherent part of the business that we just have to continue to adjust to. But then there are other products that outperform what you assume because you don’t have as much competition. I would say that the way that we've kind of modeled out the business, the net-net effect is that the assets in the portfolio are generally producing the returns that we had expected and had modeled. So in terms of the actual contribution of the new products, this is purely a timing issue where something moves from second quarter to third quarter, third quarter to fourth. But these continue to ramp up. And I've also say is that when you are in somebody's more competitive type of programs where you launch a product via REMS Program, the uptake on some of the those product are generally slower than anticipated. But then, on the flip side, when competition comes in full mounted business longer than you've made have initially thought, because the ramp-up is slower, but then the ramp-out is slower as well. And so I think that the fact that when you look at Amneal's portfolio and the type of assets that we have, even if there is a slower uptake, I feel good about the ultimate return on that investments that we've made because we're going to hold on to the asset longer than maybe what we had originally modeled as well. So there is plus and minus in there.

Your next question comes from the line of Louise Chen of Cantor Fitzgerald. Your line is open.

So I wanted to see -- two questions. I wanted to see if you could break out the components of the restructuring expenses for the Amneal acquisition, and how you expect those to play out for the rest of the year? And then my second question was just before you had mentioned that you might consider adding an OTC or cash pay component to your business down the line, is this something that you are still thinking of? And then the last thing here is just on the market disruption, Bryan, you've been a leader in talking about this. It’s been really quite here for while, but does the pill pack deals, do you have any of your thoughts here?

I'm going to take this question off. I'm going to pass -- I'm going to pass the financial one to Bryan. And since my Executive Chairman here and he's been so outspoken around disruption in the industry. I'm going to allow him to point on that one.

Sort of a confusing quarter, because there is quite a bit of restructuring type activity, but as far as the care of cash charges, the bulk of it is around severance. And going forward until completion, the two main cash kind of severance and tech transfers of inventory and it is probably 75% of severance and the rest tech transfers. And then all the other items that I described like the charge for the stock, the one-time bonuses and stuff like that are behind us. So in NOV, so it will be fully broken out in our 10-Q in the restructuring and integration foot note that would be filed at 431. So I guess the one thing I will add is the bulk of the restructuring charge has taken in Q2. So you will see the actual severance tail off quickly.

Hi, Louise. It's Paul. Actually there's a lot -- obviously, there's a lot going on disruption-wise, in the marketplace right now. We certainly have seem a lot of the things that we had talked about starting to come to pass, certainly the Amazon [indiscernible] deal is a prelude to what we had originally started talking about almost a year ago. And that's access for Amazon to achieve pharmacy access across the 50 states and be able to move into that space. So it's certainly not a surprise. And I think from our perspective, we have to continue to focus on -- we're three or four months now into our integration and we want to make sure we focus on that integration. The good news is that sort of as I see is this integration is creating for us the infrastructure and the skill set that we need at Amneal to be able to make integration one of our strong leads. And that will help us as we move forward in capital deployment. And so as Rob said in his prepared remarks, our long-term capital deployment is, obviously, to continue to invest in R&D and internal R&D, but also creative business development to support our specialty franchises. And then finally, those adjacencies, which were the OTC cash paid kinds of adjacencies we were talking about, and even potentially distribution. For now, our focus has to remain on completing the integration, making sure that we do the blocking and tackling we need to do to get the company ready to be able to make those leads. I’m pleased to report that we are very far along in that process. And we can now start thinking about and turning our attention to participating in the changing market dynamics. But yet on all the hot buttons we're looking at them.

Your next question comes from the line of Gary Nachman of BMO Capital Markets. Your line is now open.

Rob, the upper end of the R&D guidance 10% to 15% seems high to me. So how aggressive do you want to be pushing the pipeline for while also managing EBITDA growth in the long-term target that you've talked about? And then is Epinephrine something you could look at bringing it out at some point to avoid the lease issues with Pfizer? I know you talked about that at some point, but any updated thoughts there?

Gary, that seems to be the upper end of R&D is driven or I should say our R&D spend is driven by couple of things, one we have kind of timing of synergy because we are synergizing the generic arm of Impax with Amneal. And so there's some kind of timing anomalies there as we transition some of that activity across. We also have a number of innovation products that are going into clinical studies. We had one basically completed. We got two more that we expect to start one in the third quarter, one in the fourth quarter, registered on clinical trials that obviously you can see which ones they are. But we expect that that will have some ramp-up spends in that as well as IPX203. But we committed to staying in around that 10% of topline is what we would expect to be at a steady state. So you may see that number kind of flex a little bit quarter-to-quarter. But overall, what we're trying to do is kind of peg roughly around 10% of our topline as an R&D investment. But again, some of these bigger investments whether it would be 203 whether it would be somebody's bigger clinical studies for inhalation, could potentially flex that a little bit in the quarter but these are going to be the type of opportunities that we're going to continue to invest behind. We think they are great assets and we think that this could be very durable assets even in a competitive environment for us. Regarding EAI, that is something that we potentially could bring in house, obviously we're thinking that through as it relates to some of the challenges that we're having with Pfizer. I mean our near-term focus has to be and working with Pfizer to address kind of the -- let's call that short-term supply issues and making sure that we've got enough capacity, but if we have to supplement that capacity with internal capability, we are prepare to do that.

Thanks, Gary. Next question please.

Your next question comes from the line of John Boris of SunTrust. Your line is open.

First one, Bob, on Slide 6, you've laid out your key product launches year-to-date. I think they were seven on there. Can you just give some commentary around what percent of your revenue that they accounted for and what the contribution was to the EBIT line from those seven assets? Second question just has to do with your synergies, you certainly get commentary about the cadence of the synergies, and certainly Haywood being close sooner than expected. Obviously, that's paid up against your long-term strategy to bring a lot of the product opportunities in house. Just some thoughts around the cadence of the synergies at least going forward. And then last one for Bryan, what was your free cash flow in the quarter?

So I'll start on the key launches, I believe the number was roughly around $40 million in total for the second quarter that's just to kind of give you a general idea. And again some of the timing of these launches should have been late in the second quarter or maybe not necessarily having full launch quantities in the second quarter. So I've just put state that in the sense that you can't necessarily look at that as kind of a run rate type of thing. But you'll see continued improvement as the quarters do progress here -- through the year around what the contribution is on those new product launches. Regarding synergies, we are well ahead on already announcements associated with that, I think will be largely completed with our integration with the first calendar year of our announcement. We're ahead of schedule in terms of the shutdown activities of Hayward and the transfer activities. There is always going to be a timing component for this because, although we may have executed the closure of the facility, you may necessarily recognize the full benefit in the P&L until you've exhausted the inventories that were manufactured out of that facility. So there is always kind of the lag within the P&L in terms of when you would actually see the savings. But all of that decisions that needed to be made to get to the $200 million have already been made. And so that's why I feel we're not only ahead on that decision making process, but we're ahead of around on the execution that goes with it. Regarding the free cash flow, I'm going to turn that one back over here to Bryan.

Free cash flow during the quarter was negative. And we expected that, the key things driving that are severance and product transfer costs, dealing with integration, and allowing us to capture synergies ahead of schedule. We did have quite a bit of inventory bills and account receivable bills as a result of the new product launches. The $41 million of new product launches that that's predominantly sitting on our balance sheet in the form of receivables. And we continue to build inventory an anticipation of the new product launches in the second half. And then we did have -- on the non-operating side, we did have -- with the Solodyn settlement as well as on the acquisition of Gemini during the quarter. So all is that has anticipated created negative free cash flow during the quarter, but we do expect that to quickly reverse in the second half.

Thanks, John. Next question please.

Your next question comes from the line of David Buck of B.Riley FBR. Your line is now open.

Just a couple of quick ones maybe for Rob, can you talk a little about -- you mentioned price increases, can you talk a little bit about what generic pricing was for your business overall in the second quarter and what's the assumption for the remainder of 2018? And then just a couple of housekeeping ones, what is the impact of proven products on 2018 sales expected to be? What's the impact of Gemini for full year sales? And then may be, if I could sink one for all -- can you talk a little bit about your view of the return on complex products, including biosimilars going forward? Do you think there is adequate return for your investments? Thanks.

Yes, so, I will talk about general pricing here. I still see that we're seeing a lot of positive signs in terms of price stability, especially as large companies like Teva and Myland and others have been rationalized in the portfolio just like we have as well. I think that that's creating a different discussion with the buying groups and therefore also driving, I think a bit more stability in pricing. I think it's also a function of a little bit more maturity in the market as well as people now have realized the consequences of some of these owners' terms and conditions with some of the agreements that people are realizing that there needs to be more profit embedded kind of within their pricing structures. And so overall, I do see that there's more stability in pricing and more disciplined in pricing than what we have seen over the last, say, several years. Regarding price expectations, we don't get into disclosing our target because that's just becomes the starting point of that negotiations on any RFPs. And so we’re not going to get into the business of forecasting what the price assumptions are going to be in the remainder of the year. I will say just say that we have generally used an overall kind of assumption within our models. And again we just are not going to provide that or telegraph that. Regarding pruning of portfolio, I'll let Bryan to talk specifically around that.

Thanks, Rob. So for the products that we pruned in the last yea, the impact for the full year will be around $20 million give or take, but we do actually the slightly positive on our gross margin. The business is continually evaluating the portfolio. So that's really the products that we have pruned in the last year.

And Paul maybe you want to talk about some returns?

Look, I think everyone is surprised at sort of the fact that the biosimilar return is not achieving what I think people anticipated. Certainly, the rhetoric coming from the administration of the FDA, is positive and potentially reversing that trend. Amneal is, I think well positioned to participate in the biosimilar programs, and I think in a responsible and thoughtful way. The partnerships that we have have a lot of this sort of spread that that risk and participated in the upside it does, in fact appear income. I would expect that ultimately it well. And I would also make the observation there is different levels of complexity in the franchises that we talk about. Certainly the most complex would be the biosimilars, but there are other complex products and high value assets that Amneal is working on that don’t suffer from loss of value. And I think, it's very important to recognize that a lot of the stuff that we're working on can be called complex, but they are very difficult to do. And that's really the more important thing. And as we are able to bring those to market is either first or one of just a few participants, we are recognizing the value that we expected to recognize from those products. I don't know if you want to add any?

Yes, I think, that's exactly right. I mean, every company has erosion assumptions and it really depends on the product mix. On the Amneal side, we have a better mix if you can call it that, of higher barrier products. And I do think that our approach to these markets whether it would be more of the complex type of products, is to make sure that were putting the right effort and the right investment behind products that we think ultimately would be still durable for us even in a competitive marketplace. And on the biosimilar side, we're still kind of evaluating how that is all going to play out, which is why we've taken a partnered approach where we haven't committed a lot of upfront capital to those businesses or to those type of portfolios. And we're taking a little bit more of a wait and see approach. But we do think that this marketplace is going to open up. As Paul said, the rhetoric coming out of both the HHS as well as FDA, as well as the administration. It certainly suggests the need for a competitive biosimilar market. And I think there is recognition within the administration on steps that they have to take in order to be able to have a healthy biosimilar environment. And we'll participate in that, but we're going to take a little bit slower approach to it.

Thanks, John. Next question please.

Your next question comes from the line of [Indiscernible] of Barclays.

I'm interested in hearing more -- a few more details on the new product launches of ANDAs that are approved that are yet to be launched. You had 22 new product launches year-to-date. How many of these 22 are from the 33 that have been approved this year? And then of the approved ANDAs that weren’t launched, do you ever expect to launch these or will these ANDAs just to be kept on the shelf?

Out of the 33 ANDAs approved this year and out of 22 launches this year, I think all but one of them were from approvals this year. And so that would suggest that we have a few more that we have not launched. Some of those are either launching imminently or some of them were basically taking a wait and see approach because we don't necessarily a commercial opportunity for few of them. Some of them have been kind of deep prioritized just because of other, let's call, use of our capacity for other products. So there is not a specific answer, each one of them has kind of its own unique answer. But the launches that we have not actually executed yet, there's a number of them that that we will launch in the second half of this year.

Great. Well, thank you all for joining us today. We really appreciate it for the time. And if you should have any questions, investor relations will be available all week to follow up. Thank you and enjoy rest of your day.

This concludes today’s conference call. Thank you for your participation. You may now disconnect.