Lauren Stival - IR Mike Anderson - CEO Mike Kanan - CFO

John Boris - SunTrust Jason Gerberry - Leerink Partners Matt Kaplan - Ladenburg Thalmann Jim Molloy - Laidlaw & Company Scott Henry - ROTH Capital

Good morning, ladies and gentlemen, and welcome to the Flamel Technologies First Quarter 2016 Earnings Call. Please note that this call is being recorded. I would now like to turn the call over to Lauren Stival, Senior Investor Relations. Please go ahead.

Good morning, and welcome to Flamel Technologies' first quarter 2016 earnings conference call. Before we begin, I will start with some cautionary statements. The following presentation regarding Flamel Technologies S.A. includes a number of matters that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risk and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. These risks include risks that products in the development stage may not achieve scientific objectives or milestones or meet stringent regulatory requirements, uncertainties regarding market acceptance of products and the impact of competitive products and pricing. These and other risks are described more fully in Flamel’s public filings under the Exchange Act including the Form 10-K for the year ended December 31, 2015 which was filed on March 15, 2016. Except as required by law, Flamel undertakes no obligation to update or revise any forward-looking statements contained in this presentation to reflect new information, future events or otherwise. After prepared remarks, we’ll be opening the call to question-and-answer period. On the call today, we have Mike Anderson, CEO; and Mike Kanan, CFO. At this time, it is my pleasure to turn the conference over to Mike Anderson, Chief Executive Officer of Flamel Technologies. Mike?

Good morning, ladies and gentlemen. As always, we appreciate your joining us today. The first quarter of this year was pretty transformational for Flamel in many ways as we were acquisitive for the first time in the company's history and also took some meaningful steps toward advancing our proprietary pipeline. Today's call will focus on a number of topics including our operational strength and cash flow from the Éclat portfolio products Bloxiverz and Vazculep and outlook for our third Éclat portfolio of product Akovaz, which was received FDA approval on April 29. Also, the acquisition of FSC Pediatrics, which we completed on February 8 and the integration of its sales force and four commercial stage products, in particular the prescription market for Karbinal ER. Progress of our proprietary pipeline products including Micropump sodium oxybate, Trigger Lock hydromorphone, Medusa exenatide and our LiquiTime platform. And finally, our business reorganization and developmental plans. After my remarks, Mike Kanan, our Chief Financial Officer will discuss the first quarter financials. Based off of data from Symphony Health Systems, we held a majority share of the neostigmine market during the first quarter with Bloxiverz averaging a 45% share by volume split between three players. We estimate Bloxiverz net pricing declined approximately 15% which was better than anticipated. Vazculep, our phenylephrine product offered in three presentations, a 1, 5 and 10 ml vial size, averaged approximately 43% of the overall market by volume which consisted of 100% share in the 5 and 10 ml and about 35% in the 1 ml where our product competes with Westward. We finished the quarter in line with our revenue expectations and ahead of consensus. However, as stated previously, we have assumed in our revenue guidance another competitor in this market beginning midyear, although as of today we have no visibility to one. We estimate finishing the year with approximately 30% to 35% of the neostigmine market. Baked into our 2016 guidance, we also anticipate a Q3 launch of our third NDA Akovaz which was approved on April 29. Akovaz, our formulation of ephedrine sulfate for injection will be used to address clinically important hypotension in the setting of anesthesia. Based off the wholesale acquisition cost, we estimate the current market size to be somewhere in the range of between $150 million and $175 million of which we expect to gain approximately 20% to 30% share following our launch in Q3. While the $150 million to $175 million represents a gross sales number, the real markets size will be reduced based on the competitive landscape and ultimate pricing to hospitals. Akron currently sells an unapproved version of ephedrine sulfate for which it has stated that it has filed an NDA sometime in 2015. We have no reason to believe that we will be alone in the ephedrine market at any point. However, we do believe it has the potential to provide meaningful cash flow to the company. We want to reiterate that our three approved UMD products are simply a means by which we generate cash to pay for the more strategic and patent protected Flamel portfolio of products. The Éclat assets have done exactly what they were meant to do, providing cash flow to fund our internal R&D pipeline, and giving us some financial flexibility to grow inorganically such as our FSC acquisition we completed in February of this year. FSC is a commercial stage specialty pharma company that provides us with both a 45% sales force and four FDA approved products. We are particularly pleased with the sales performance so far from Karbinal ER, a liquid extended-release on antihistamine available only by prescription. We've witnessed strong growth from Karbinal ER with approximately 3,500 prescriptions written over the two months. Over the past several weeks we have seen new highs and PRXs for the product. Although we are currently in the prime allergy season and that product is in its early stages of launch, feedback from physicians appears to be very favorable and we expect to continue to see a solid uptake in the market for the balance of the year. We are also very excited about Flexichamber which is a spacer advice for use with metered dose asthma inhalers. Flexichamber has not yet hit the market but we expect to launch it sometime later in the year and the market size is estimated to be somewhere between $50 million and $60 million today. The market for spacer devices is not very visible or noisy and with few players, we expect to gain some traction once launched. Although sales from our other FSC products AcipHex Sprinkle and Cefaclor have been generally flat over the past few months, we still expect the sales from the combined four FSC products to be in line with our previously issued guidance of $10 million to $15 million in revenues over the course of 2016 and to be neutral to operating profit and cash flow. Over the last two months we have taken important steps to ensure this leg of our business continues to see growth including the reassessment of territories to make sure our sales force is targeting primary physicians outside area heavily covered by Medicaid and increasing our efforts to ensure that there is both supply and access to our products in the areas we do cover. Now we'd like to move on to the proprietary pipeline utilizing our patented drug delivery system. As outlined in our corporate update release in early January, we have elected to submit a Special Protocol Assessment or SPA for once-nightly Micropump sodium oxybate. We filed our SPA with the FDA at the end of March and expect feedback from FDA shortly. Based upon that feedback and the resolution of any recommendations FDA may have, we plan to move forward with patient registration and enrollment by mid-year. The pivotal trial which is anticipated to be a placebo-controlled efficacy study of approximately 200 to 300 patients and to be conducted at 50 to 60 clinical sites in North America and Europe is expected to run through mid-2017. As mentioned numerous times in the past, we view sodium oxybate as our most valuable product candidate and we are taking every step necessary to remove as much risk as possible associated with the FDA's approval process. Filing and having an FDA-accepted SPA is a strategy designed to mitigate any risk that a sponsor may complete the study only to be assigned additional requirements for approval at the pre-NDA meeting. Sodium oxybate is currently approved for both excessive daytime sleepiness and cataplexy in narcoleptic patients and our objective is to have FDA accept our clinical trial design, the powering of the trial and the endpoints. Flamel’s goal is to obtain approval at a minimum for both indications in one trial rather than conducting multiple trials after the drug is first approved. We remain on track to receive FDA feedback on our Trigger Lock product FT227 and abuse-deterrent extended-release oral hydromorphone product before the end of this month. And this feedback should give us greater clarity as to what the FDA is looking for in a pivotal study. Following this feedback we plan to look for a partner to who we would license our Trigger Lock technology for applications across all opioids. The market for opioids is in excess of $6 billion per year and Flamel does not have the resources nor the inclination to compete with large and well established sales forces that are required in this market. We are currently running a Phase 1b trial for FT228, our once-weekly subcutaneous injection formulation of exenatide using our proprietary Medusa technology which following data this year we will evaluate next steps which would likely include some sort of external partnership. Much like Trigger Lock, the market for GLP-1s is a large and well saturated for which we would need a tremendous sales force to make any meaningful market penetration. We continue our partnership with Perrigo to whom we licensed exclusive rights to our LiquiTime technology for use on the OTC marketplace. We continue our joint work on both Guaifenesin and Ibuprofen and have started to evaluate and identify some new products that we will announce in due course. Additionally, we continue to evaluate and look forward to announcing LiquiTime projects for the prescription market. We are evaluating the feasibility of a number of interesting opportunities and plan to discuss these in more depth during the second half of the year. We ultimately plan to market LiquiTime prescription products autonomously, which, following the acquisition of FSC, we are now prepared to do. I will now turn the call over to Mike Kanan, our Chief Financial Officer to discuss Flamel’s financials in further detail. Mike?

Thank you, Mike, and thank you all for joining us today. As Mike mentioned, we are very pleased with our top line results in the first quarter of 2016 as we finished slightly above the consensus. We're also very pleased with our operating cash flow for the quarter which was $22.5 million. I'll talk more about cash flow in a minute. We reported total revenues of $36.2 million compared to $32.9 million in the first quarter of last year and $43.4 million in the fourth quarter of 2015. Given the changing neostigmine competitive landscape, we are pleased with our first quarter top line results. Total revenues for Bloxiverz were $24.7 million in Q1 compared to $34.9 million in the fourth quarter of 2015. Although this decline due to the entrance in late December 2015 of a second competitor was expected, it was not as much as we thought it could have been. Our share for the neostigmine market averaged 45% in Q1 compared to 53% in Q4. For the balance of 2016, we expect a gradual decline in market share for Bloxiverz to 30% to 35%. However, through the end of April, we continue to see market share in the mid-40s. However, this could begin to decline at any time. Sales of Vazculep were $9.4 million in Q1 compared to $3.5 million in Q1 of last year and $7.4 million in Q4 of 2015. The increase in revenues resulted from higher market share in the 1 ml package size and accounted for much of the increase when compared to Q4 of 2015. Our team has done an exceptional job of managing that price and in some cases winning new business in each of our product categories. As Mike mentioned, FSC’s revenues met our expectations for the roughly 2 months that we have owned these assets and we expect a steady revenue ramp up for the balance of the year, as Karbinal ER continues to gain traction in the prescription antihistamine market. Now, let me run down the rest of the P&L for you. Our GAAP net loss was $6.4 million or $0.15 per diluted share for the first quarter of 2016, compared to net income of $11.6 million or $0.27 per diluted share in Q1 of last year. The largest driver of our net loss in the first quarter was a few adjustments we made to our Deerfield contingent liability and our unreasonable tax rate, which I'll talk about more in a minute. Gross margin was 88.7% in Q1 2016, compared to 90% in Q1 last year and 94.4% in Q4 of 2015. This slight decline was a result of the FSC acquisition, which carries somewhat lower gross margins than our Éclat products. Research and development expenses during the first quarter of 2016 totaled $5.4 million, compared to $6 million in first quarter last year and $5.2 million in Q4 of 2015. The slight decline compared to Q1 last year was largely due to timing of spend associated with ongoing projects, but we expect a ramp up in spending for the balance of the year, as we initiate our Micropump sodium oxybate trial. SG&A was substantially higher at $9.4 million in the first quarter of 2016, compared to $4.5 million in the prior year period and $6.8 million in Q4, 2015. The increase in SG&A resulted from continued investment in infrastructure and personnel during the quarter, as we made a number of key hires across our finance, marketing and regulatory teams to ensure proper financial controlling practices of our employees and we have the manpower to smoothly run our clinical studies. We also incurred higher professional fees as a result of certain structural changes we are making. The consolidation of FSC also added to the SG&A expenses when compared to last year's first quarter and the fourth quarter of 2015. Now, with regard to our contingent liabilities I just referred to. As many of you know, 20% of our gross profit on the Éclat products is due indefinitely to certain related parties. Each quarter, we true-up this long-term contingent liability for among other things, changes in our long-term forecast and other assumptions, and as a result, we incurred a charge on a GAAP basis of $7.9 million in Q1, 2016. This non-cash charge is included as a deduction to our operating income. In addition, we owe royalties on total revenues of the Éclat products to certain related parties. Each quarter, we also true-up this long-term contingent liability and as a result, incurred a charge on a GAAP basis of $1.9 million in Q1, 2016. This true-up was included in interest expense. Also on a GAAP basis, we incurred a foreign exchange loss of $2.9 million in Q1, 2016, compared to a foreign exchange gain of $11.5 million last year. These forex gains or losses primarily result from us holding US dollar terminated monetary assets in France. During the first quarter of 2016, as many of you know, the US dollar weakened compared to the euro, producing this FX loss on these assets. In last year's first quarter, the dollar significantly strengthened, producing a significant FX gain for us. Now, moving onto our tax expense. Let meet say a few words about our unreasonable tax rate in the first quarter. Our GAAP effective tax rate for the first quarter was 933% and our adjusted non-GAAP tax rate was 85.3%. As we have said in the past, all of our pre-tax profits are earned in the US and are taxed at a US corporate tax rate of 35%. However, a substantial portion of our SG&A and R&D expenses are incurred in France and Ireland. As a result of our history of losses in these countries, under the accounting rules, we are not allowed to provide any tax benefit for these expenses. This perfect storm creates this unreasonable effective tax rate. We can expect this unreasonable rate to fluctuate quarter-to-quarter. The problem is complex and we are working on it diligently. But it will take a little more time to make meaningful changes to our structure in order to reduce our tax rate. However, as you may know, we do have a significant amount of NOLs in France and Ireland. We continue to evaluate the use of these NOLs and we do believe some portion will be available to us for use. However, until we establish a track record of profitability in France and Ireland, we will not be able to release the valuation reserves for accounting purposes. As we have said, we have taken the right steps to lower our effective tax rate. I'm confident the structural changes we have made or will soon make will gradually lower our effective tax rate to a more reasonable level. As part of these structural changes, as some of you may know, we will be asking our shareholders via our proxy to vote in favor of a reincorporation to Ireland from France. This cross-border merger provides a number of compelling business reasons to complete this reincorporation, including corporate governance and potential tax advantages. In addition, we have hired an internal senior tax director to, among other things, help us in our efforts to lower effective tax rate. He brings over 15 years of domestic and international tax planning and compliance experience and he is a welcome addition to our management team. Now, let me talk briefly about our non-GAAP results. I believe our non-GAAP results paint a more complete picture by which to measure our financial results and provide for more comparability quarter-over-quarter. Adjusted EBITDA was $11.8 million in the first quarter of 2016, down from $12.9 million of EBITDA in the prior year period and down from $21.2 million in the fourth quarter of 2015. We believe adjusted EBITDA is an important metric when talking about value and while not a complete proxy for cash flow, it illustrates how well our company is doing from a cash earnings standpoint. And EBITDA strips out the impact of our unusual tax expense, which can vary significantly each quarter. Adjusted EBITDA was down from first quarter last year as a result of the higher SG&A investments that we've been making and the decline in EBITDA when comparing the first quarter of 2016 to the fourth quarter of 2016 was a result of the loss of margin associated with $7.3 million of lower revenues in Q1 and higher SG&A expenses. Adjusted net income in the first quarter of 2015 was $1.5 million versus adjusted net income of $4.7 million in the year ago period. Adjusted earnings per diluted share was $0.04 in the first quarter of 2016 versus an adjusted earnings per share of $0.11 in the first quarter of 2015. This decline on slightly higher sales was all driven by higher SG&A that I discussed a few moments ago and a higher effective tax rate. Our non-GAAP effective tax rate, as I said, was about 85% in Q1 2016, compared to 63% last year. Adjusted net income and adjusted diluted EPS excludes the after-tax adjustments of our contingent consideration liabilities and is replaced with related cash impact. Adjusted net income and adjusted diluted EPS also excludes amortization of intangibles, purchase accounting adjustments associated with FSC and foreign exchange gains or losses. For a more complete reconciliation, please refer to the supplemental information on our earnings release for a reconciliation of GAAP to non-GAAP results. Now, moving onto the balance sheet and cash flow. At March 31, 2016, our balance sheet remained strong with no bank debt and $160 million in cash and marketable securities. That's up $15.2 million from the $144.8 million at December 31, 2015. Cash flow from operations was a strong $22.5 million in the first quarter of 2016 and we expect to remain cash flow positive for all of 2016. And finally, we are reaffirming our 2016 full year revenue guidance of $110 million to $130 million and R&D spending of $35 million to $50 million. As we have said, we expect to launch Akovaz in the third quarter of 2016 in a one other competitor market. This timing and competitive dynamics are reflected in our revenue guidance. We also expect a ramp up of R&D spending in the second half of 2016, as we begin patient registration for our pivotal trial for sodium oxybate. With that, I'll turn the call back over to Mike before we answer some of your questions. Mike?

Thanks, Mike. In summary, the first quarter of 2016 was stable, even with increased product competition. We continued to make key hires during the quarter and working to integrate FSC’s products and sales team into the broader company. Meanwhile, we will continue to focus on advancing our product development pipeline. We look forward to announcing the FDA's acceptance of our SPA and subsequent enrolment in our pivotal trial for Micropump sodium oxybate and gearing up for the launch of Akovaz in the third quarter. This, in our view, is an exciting time for the company, and we look forward to providing updates throughout the coming quarters, as Flamel continues its mission of building a strong specialty pharma company with outstanding drug delivery capabilities. We appreciate your participation on today's call, and with that, we will take any questions. Operator?

[Operator Instructions] And we will take our first question from John Boris with SunTrust.

Thanks for taking the message or the questions and congrats on the results. First, on your operating cash flow that came in at $22.5 million in the quarter. If we look at what you are projected to generate in revenue and obviously understanding the higher tax rate, is a good number somewhere between $70 million to $80 million of operating cash flow in 2016, something that is potentially billable. Secondly, on the launch on Akovaz, Mike, you indicated that the gross numbers in that market were in the 150 to 175 range when you entered the market. What do you anticipate the net would be based on what you’ve learned out of, say, the neostigmine market going forward? And then last question just has to do with Éclat 4, any update on whether you will continue to pursue Éclat 4 and timing around that asset? Thanks.

John, it’s Mike Kanan. I'll take the first question on cash flow. Yeah, we did have a strong cash flow quarter of $22.5 million. I will point out in the first quarter, we did not make any tax payments, so we had zero on tax payments, but we will have to make some cash tax payments for the balance of the year. We did about $80 million of operating cash flow last year. I do not expect that we will repeat that performance that we did last year, so I would not expect that we will do just by taking $22 million and multiply them by 4. We will do something less than the $80 million we did last year because our revenues are going to be less than last year as well. We haven't tied it specifically on cash flow. We will be positive and I would just say that we will have another strong cash flow year, but it won't be as good as what we did last year, just because our revenues will be down as well.

So, John, I’ll take the second two questions, if we’ve addressed that one for you. With respect to Akovaz, yes, the numbers that we just talked about were higher on what we did, as you know, took the average number of vials used per year and multiplied it with WAK [ph] price. With respect to a duopoly or two player market, we would expect the revenue stream and the gross to net deductions to be quite modest. With respect to - when you go to compare them with both phenylephrine and neostigmine, given what's happened historically in the market, I would expect it to be somewhere in the same range, if not a little improved over what we saw in neostigmine and phenylephrine and because the current incumbent has taken some price as you know, over the past six months or so, so we are going to be very responsible about price. It’s a large market and we believe that at the end of the day, it will have probably greater value than we originally anticipated. So hopefully that answers the question. I don't have a crystal ball, but I can tell you from our perspective, we are obviously, we consider ourselves to be pretty responsible pricers. With respect to Éclat 4, we haven't had anything much to say about that, but we are continuing to pursue a fourth Éclat project and that project is, we will have more to talk about in the next couple of months, but suffice it to say, we are continuing with that. As you know, there are probably handful of additional products that are available, as unapproved drugs that wouldn't make sense to pursue. We think we've identified one of them, just as we have with these first three and we are going to continue and we will have more to say about it in the coming months. Does that answer your question?

Sure. It does, Mike. Thanks.

We will take our next question from Jason Gerberry with Leerink Partners.

Hi, good morning. Thanks for taking my question. First question, just Mike on the whole 505(b)(2) thing, Endo Pharmaceuticals commented about them just being a big part of their generic strategy and it seems like they have identified several product opportunities in their pipeline. You’ve commented now that you think there is one additional product out there that is interesting. Is it just a function of other players you believe, are they ahead of it, it’s just not worthwhile to pursue more UMDs, I'm just trying to understand the disconnect between the commentary from Endo that made it sound like there are several interesting 505(b)(2) opportunities ahead of them versus your comments?

Interesting question Jason, so I can’t comment as to what Endo may or may not have met or what they’re pursuing, I don't know, what I can tell you is, is that over the past several years since the clock, we have at various times looked at an entire list of products that are sold that are currently unapproved and at least for our purposes and the direction that we chose to take for these unapproved products, we think there is a limited number of them out there. We have in the past precluded developing a product or two because we thought someone was significantly ahead of us but I can’t - other than that I really can't comment on what Endo is pursuing, any of that sort of thing. What I can tell you is, for right now we've identified another one, we’re pursuing it, if there are other products that we decide to continue to develop we will do that and we will talk to them in appropriate time but I don't know what products they are developing so it’s impossible to comment on it.

And two follow ups, can you just comment one on Akovaz, when you do launched in 3Q, will you be supply constrain in anyway and then my second follow up was just any additional color you can provide on the new chemical entity status issue, I know that you’re expecting an update from the FDA later this month but any additional color you can provide there would be great? Thanks.

Well, first of all as to the supply, we at this point in time, we anticipate no problems with our ability to supply and obviously that's a key factor in this unapproved market given that FDAs had concerns in many cases of shortages of supply for particularly in the hospital injectable products over a period of time but we think we'll be in good shape. So that’s the answer to the first part of the question. As to the second part of the question, regarding our position in the marketplace with respect to Akovaz, we are awaiting the process by which exclusivity is offered, there is a different process, we have said since day one that our belief was that you if you were waiting on this, you would put a very low likelihood that we would have exclusivity with respect to this product for a number of different reasons but we don't have an answer yet and we’ll have to wait and see what the FDA decides with respect to any kind of exclusivity that may or may not be granted. We should know that over the course of the next several weeks. So I don't have any more to add on that other than tell you that we've said all along the likelihood that we would have exclusivity was pretty small.

The next question comes from Matt Kaplan with Ladenburg Thalmann.

Just a follow-up on the last question in terms of NCE, will you know I guess definitively after about several weeks if you get NCE or could they just give you an answer to that they haven't decided yet and it could drag on for a little while?

Matt, we are told that they - this is the second hand from our regulatory experts who have been in contact with the FDA that those decisions are made by separate group of people at FDA and that they are typically made in the - they meet on a at least once a month basis and in some cases twice a month and those decisions are made during those meetings, our product was approved on April 29, which means that we would expect to hear something and see it listed in the Orange Book with absent an official response sometime in May. So I can't authoritatively comment there is another way that couldn't afford a decision, I don't know I'm just - we’re just kind of regurgitating what we believe to be the case.

And then before I leave Akovaz, could you dive a little bit deeper in terms of the market dynamics there and potential for the product in terms of a number of vials, the pricing and then is it a growing market, a stable market or is it a market that you see declining over the last few years?

That’s a great question and actually the market is a market that if you look back at IMS data over the past number of years, you’ll find it's not growing but it's neither it is declining, it’s pretty stable, I can’t - over the last several years there has never been one year when according to IMS numbers the vial usage was under 5 million vials per year. In some years, last year for example I think it was a little higher 5.2 million perhaps. So I would say that it’s stable marketplace with respect to the selling price, we believe the selling price is modestly under the wholesale acquisition cost, which is what you would expect it to be and we’ll just have to see how and if that changes once a second player specifically Flamel is in the marketplace, it will change some but I wouldn't complicate it being a zirconium change in way, shape or form?

What about the timing for the second NDA that's been filed?

For - say that one more time, oh are you talking about the Akorn NDA?

Yeah the Akorn.

We don't know, it’s my understanding that on a - in a communication they had with The Street they alluded to they’re having filed but didn’t give any data as to the date of the filing, a PDUFA date or where it stood and we have no way of knowing.

And shifting gears in terms of sodium oxybate SPA, obviously sodium oxybate is very important for the company, when do you expect to hear that from FDA and SDA and then start the typical study there?

By statute the response time is 45 days and so we would expect to hear back from FDA very, very shortly. And predicated upon what we hear, firs of all based on our phase 2 meeting, I mean our pre-IND meeting we really don’t contemplate a lot of commentary, we’ll certainly have some and the likelihood is that if the FDA came back with some recommendations depending upon what they are we would most likely accept them without even a whimper and begin the study. We’re interested in beginning that study, we are very excited about this product, we want to do it correctly as you know, we are filing the SPA, we were told by many people wasn’t necessary but - and there were right, it wasn't necessary but we feel like it's the safest way to mitigate the likelihood that something happen. We ultimately think we have something special here and we’re going to continue to move it forward and do it correctly, you’ve seen people hired over the course of this quarter, at least through our numbers and discussed in our SG&A to help support this study and we’ve pulled out all the plugs to make sure that we do it correctly. And so we would hope that we'll hear in the very, very short-term and that whatever recommendations FDA made can be resolved very quickly and we’ll move on with the study.

And then one last question in terms of FSC products, you seem to highlight the Karbinal, and the spacer, what about the other two products in terms of their potential?

So, that's a good question Matt. There were four products, the two we talked about, the other two are the AcipHex Sprinkle and Cefaclor which is a sole source generic is what it amounts to. There is no IP protection as I think we’ve called out several times. We think those products have some potential, we are adjusting the way we promote them, obviously [indiscernible] so little bit seasonal, we’re a little bit out of the season for now. AcipHex Sprinkle on the other hand we’ve taken some steps, we’re looking at things like co-pay, helps and coupons and different things that we can help to make access in step therapy broader for a wider number of patients and those initiatives are underway but I would tell you that the reporting period for which we are talking about FSC really only involves seven weeks. I mean we acquired the company on 8th of February. So we've had to make some of those things you know some of these kind of changes in their end process and we’re working on it. We don't think that either one of those two products should be flat and we’ll continue to work on making them a bigger part of the portfolio but clearly Karbinal ER and the Flexichamber are the - in our view the best opportunities for us.

Our next question comes from Jim Molloy with Laidlaw & Company.

I was wondering if you could talk to Akovaz, you made it very clear you won’t be the only player out there but with Bloxiverz and Vazculep the generics came back to the market sooner than anticipated. Can you talk a little bit about the life span for Akovaz and potential upside or mitigate the downside if things come in quicker than expected.

One thing on your first part of your commentary. So with respect to phenylephrine, there has been no generic approval yet. Westward was always out there with 1 ml when we got - we’re out there before we were - we got an approval on the one, five and ten year recall, entered those marketplaces, an unapproved improved product left the 5 and the 10 ml market putting us out there by ourselves. We have modeled Jim the presence of a competitor at least in our revenue guidance earlier this year. We modeled a competitor to come into the marketplace in June and we’ve not changed our guidance but we have seen no sign of that competitor whoever it may be coming into the marketplace. So if over the next couple of weeks we made very well we’ll look at our own numbers from a modeling perspective. So there is no generic to phenylephrine. With respect to neostigmine, yes, we would expect - we didn't expect to see a competitor at the end of 18 months, we had modeled 30 and 40 month average marketplace and so I think does reflect FDA’s interest in getting generics on the market quicker. But so far knock on wood, we haven't seen the kind of degradation either in pricing or in chair that we originally anticipated, so as Mike I think pointed out earlier that’s going better than we had contemplated at this point. With respect to Bloxiverz, we've never modeled being in the marketplace by ourselves ever at any given time just given our experience in the past. I think that even in view of competitor coming out, the competitor now that we are now the reference listed drug being the first approval would have to match up to our product with their product on stability and remember no one else is in the marketplace today. In the case of neostigmine, West-Ward was already in the marketplace, so they had formulation, they probably had stability and for them it was just a matter of filing In this case assuming nobody has developed it, they would have to start from scratch. So it typically would take a little longer. But only thing we can comment on this is, is during the time that we have the product and we have an opportunity to increase our cash flow, we’re going to take every steps we can to gain share and to mitigate and minimize any kind of reduction in the price or gross margin, but we don't know when a generic will come, I have no idea.

Do you have pricing power as well to raise price?

I'd say at this point, we are you know there has been a price set in the marketplace, I don't know, I wouldn't totally dismiss it but there is nothing really that says that we'll have you know that we’ll an opportunity to take a lot of price, we'll see what happens.

And then the Trigger Lock, I'm sorry the FDA meeting for Trigger Lock, what sort of the - what will be the best result out of that and what’s kind of will be a less good result that you anticipate?

I don’t know, if there is a good result or a bad result. I think we are just looking for some definition on what we’re going to be required to do. And then doing that, we will have a better way of providing a potential partner, what a potential pathway for approval would be. We’ve said and as you know, we are attempting - we are already having some discussions with potential partners about any interest it makes for licensing Trigger Lock and the entire platform that would be ideal for us. I think the big issue with this category of drugs is FDA’s position on what constitutes of huge deterrence. We have seen mixed signals, we have seen mixed results over time and this is fairly straightforward. It’s a huge marketplace, a great opportunity. It’s not just going to be an opportunity for one person. So we have a robust technology, which we think we do than our partner will be interested and we’ve begun those discussions.

Excellent. Last couple of questions on one is for Mike, maybe I know you touched on in your comments, but the G&A number pretty - your pretty good G&A number is - are FSC salespeople being factored in there? Should we expect that to continue to ramp going forward, is that the number - the number for the year. And then, again back Mike Anderson, in the FSC sales force, you get some products in there, obviously leveraging additional products in there, does that make sense, and should we expect something along those lines in 2016?

Jim, it’s Mike Kanan. Yes, the SG&A number was the highest number of late, about $9 million going forward and it does include FSC. We consolidated FSC, so that number doesn’t include the FSC sales force and all of their SG&A, which by the way we are looking hard at synergies and we are beginning to integrate FSC into the Flamel organization. Going forward, I would not expect that $9 million to substantially increase from where it is today, so that’s probably the near peak number, I would say unless something dramatically changes around our infrastructure here. We have been spending a lot of money on professional fees as well as to get our cross-border merger up to speed. So once we complete that, those costs will go away. So going forward, $7 million to $9 million, I believe is where we will be each quarter on SG&A.

And Jim, as it relates to your question about putting additional products into FSC, absolutely, and we have discussion - we have a number of discussions ongoing today. It doesn’t mean the all come to fruition or that any of them will come to fruition, but we’ve identified and had been approached even by people who know now that we have a commercial infrastructure and makes us a very different kind of a partner for somebody. And we have a number of discussions ongoing. It’s a primary interest to us to make that the FSC representative and to make that bag they carry, if you will to be more effective and longer than what it is today. And obviously, we are in a financial position to be able to do that. And so we are going to continue. We think that - we think it’s an interesting opportunity for us and we are moving it forward. But again, it’s just been a very short time that have had it. So we want to make sure we don’t jump ahead of ourselves here. Yes, we are looking to add additional products into there, both from our own development and from an organic growth perspective.

All right. Great, thanks for taking the questions. Mike, thanks for your comments on SG&A. I know you guys recently made a massive upgrade in Investor Relations, you got to pay to get the best so.

Yes, we are very happy to have Lauren Stival with us now in the Flamel team, she is a welcome addition.

Our next question comes from Scott Henry with ROTH Capital.

Thank you. Most of my questions have been asked, but just a couple of small ones. First, in the first quarter, cost of goods sold was a bit higher than I expected, even factoring in FSC. Was there any variance in there or just trying to understand why that number kind of jumped up a little bit?

Well, the cost of goods sold, the margins will be a little bit lower than the normal Akovaz business because of FSC. The FSC product mix carries margins that are slightly lower than Akovaz, so you will see a slight degradation in our gross margin percentage as a result of consolidating FSC going forward.

Okay. But FSC, could have been more than $1 million in the first quarter.

No, it wasn’t. Their sales were less than $1 million. We look at - I think you need to look at gross margin on a percentage of sales basis rather than the absolute number and it did slightly decline Q1 versus other periods because of the FSC acquisition.

Okay. Hopefully around with that. Second question, the licensing research revenue may not really material, but $860,000, should that be winding out or is there some amortization going across on that?

That’s the Perrigo amortization. As you recall, we got $6 million last year near the - I believe near the end of third - near October, first part of the fourth quarter, we got $6 million and we are just amortizing that licensing revenue into our numbers.

That will be there for a while?

It will be there all of 2016 and partly in 2017.

Okay. And then final question, Vazculep was a pretty strong number in Q1. Let’s say that next competitor came right on the last day of Q2, is this $9 million - is that a good parameter for Q2, if there is not another competitor just trying to get a sense if there was any kind of one-time stocking in any of the lines?

We have kind of provided that guidance, Scott, this is Mike, but I can tell you that in Q2 so far, our sales looked, I mean it’s a month old, look pretty much on par with what we saw in Q1, but we don’t know how that will - if that will change over the course of the remainder of the quarter. But at least, it was a drop off as we began in Q2.

Okay, great. Thank you for the additional color. Thank you for taking the questions guys.

You bet.

Our next question comes from John Boris with SunTrust.

Thanks for taking the follow-up. Mike, just want to clarify one point on ephedrine and if you look at the FDA, they do send out a list that indicates that ephedrine continues to be on a shortage list. Does that influence at all the panel that’s going to be deciding on exclusivity? Does that have to be off that list before they can decide? And what are you expecting out of that May meeting, are you actually expecting a decision that you will know that you will know that you will be able to communicate and how will you communicate whether you get it or you don’t?

Well, that’s an interesting question. Actually, we are not aware that ephedrine has been on shortage or has been in short supply. Sometimes, John, there are disconnects. We saw this a lot with neostigmine between the FDA’s official list as to what’s in short supply, and what’s really in short supply. And they are not - they don’t know how to gather 100%. So as it relates to that, I am not aware today - it’s not been our understanding that there has only been any shortage on a sustained basis or if at all on ephedrine in the marketplace. With respect to as to whether or not, the FDA would use that supply issue to - I got very seriously if that has anything to do a bit. First of all, you have - it has nothing to do with the case at all. I mean, it’s a different subject altogether. And I would tell you, it would be very surprising if that were a criteria for whether or not they were exclusivity. And the way we understand it happens is that it will show up in the orange book as either having an exclusive status or not and we will - if we find out that’s the case, we will let people know.

And our next question comes Jason Gerberry with Leerink Partners.

Thanks for taking my follow-up. Mike, just on sodium oxybate, there is a possibility that you could - have to deal with a 30-month stay after you file that product and that could push you out at the market until 2020 and your IP goes I think to 2027. So I guess, it would seem like the best way to monetize this asset would be in the hands of the incumbent player in the market versus you guys either going BID generic or JAZZ with potentially an improved version of their molecule. I am wondering if you have given any thought to publishing more detailed Phase 1 data such that your potential market competitor could actually take a look at the quality of the program and then you avoid taking the risk of potentially getting blocked from the market on some of these IP entanglements. Thanks.

I don’t exactly know how to answer that, but I am going to give it a shot, Jason. So first of all, with respect - we have said all along that our objective is to market this ourselves. At the end of the day, we will do whatever is in the best interest of our shareholders, and as we get further down the road on this, irrespective of whether you end up the 30-month stay. As we move down the road with this and the data gets more mature and we have more visibility to what this data will do, then I can assure you that somebody might have an interest and you’re assuming it would only be the incumbent and you shouldn’t assume that - well, what I can tell you is the price would go up. As it relates to the 30-month stay, obviously we will have to certify against any rims patent or whatever that may still exist and we will be prepared to do that. As at the end of the day, we believe or talk to the FDA about not having to do the same rims then we will do that as well. As it relates to sharing of the data, we are today not in the cards for us, we are not going to open up and share the Phase 1 data, there is no point in doing that. As we enter into in the pivotal and as we have data points, we can report, we will be more transparent. But I think going with what the original data that we have in our view doesn’t make sense for our shareholders. Now, I will tell you this that we have - it’s not just us who has looked at that Phase 1 data, we have had that data looked at by analyst, by experts, by biostatisticians and we have yet to have anybody who has questioned the validity of that data. So it’s not just us doing this. We are engaging in this pivotal study and the people who you will eventually see as being involved in it or some of the original people that worked on sodium oxybate when it was an orphan medical drug. So we feel pretty comfortable with where we are and we will - obviously, we are going to do what we think is in the best interest of the shareholders in a long time. We never suggested that what we are doing is designed for people to be able to cash in and get that in 15 minutes or less. This is a longer rates than that and we are moving this project forward. We have nothing that’s more important to the company and we are going to focus on executing it. I don’t know if I answered your question, but I think that -

To the extent that you could - I get it.

Okay. Did you have another one, Jason?

No, that’s it. Thank you.

All right. Thank you.

And ladies and gentlemen, this does conclude today’s question-and-answer session. So at this time, I will turn the call back over to Mr. Anderson for any additional or closing remarks.

Yes, thank you very much again for your time. We appreciate you joining us today and we look forward to updating you on future calls and through a number of different healthcare conferences that we have been invited to attend and which we will be sneaking. So thank you for your time and we wish you a good day.

Thank you for your participation. This does conclude today’s call.