Welcome to the Investor Relations for Lannett Conference Call. My name is Leslie, and I'll be your operator for today. [Operator Instructions] Please note that this conference is being recorded. I'll now turn the call over to Mr. Roger Pondel, Mr. Pondel, you may begin. Roger S. Pondel: Thanks, Leslie, and good afternoon, everyone. Thank you for joining us today to discuss Lannett Company's fiscal 2013 third quarter financial results. On the call today are Arthur Bedrosian, President and CEO; and Marty Galvan, Chief Financial Officer. This call is being broadcast live on the Internet at www.lannett.com. A playback will be available for 3 months, accessible on Lannett's website. I would like to make the cautionary statement and remind everyone that all of the information discussed on today's call is covered under the Safe Harbor Provisions of the Litigation Reform Act. The company's discussion will include forward-looking information reflecting management's current forecasts of certain aspects of the company's future, and actual results could differ materially from those stated or implied. This afternoon, Arthur will provide a brief overview, and Marty will discuss the financial results for the quarter in more detail, followed by Arthur's concluding remarks. We'll then open the call to questions. So with that said, I will now turn the call over to Arthur Bedrosian. Arthur? Arthur P. Bedrosian: Thanks, Roger, and good afternoon, everyone. As you are probably aware, today, we reported excellent results for our fiscal third quarter. In fact, we generated record net sales and net income. The momentum we achieved in recent quarters continued, and we significantly improved our operating performance in all major areas of measurement. For the third quarter, net sales rose significantly, up 27% over the prior year period, to $39 million. Operating income doubled to $4.7 million, and net income climbed to $3.9 million. The quarter exceeded our expectations, which is why we pronounced preliminary results last week. I want to take this time to thank our entire team for their hard work, long hours and extraordinary achievements. With our press release today, we also announced that we are increasing our guidance for the fiscal year, and Marty will provide the details. Marty will review our financial performance in detail momentarily. The growth we achieved in the quarter reflects solid sales of our base products and growing market penetration from our more recently approved products. Our gross margin was positively impacted by favorable sales mix and price increases, as well as enhanced manufacturing efficiencies related to incremental sales volume. With that brief overview, I'd like now to introduce our CFO, Marty Galvan, to review the third quarter financials in more detail. Then I will provide an operational update, and we'll open the call to questions. Marty? Martin P. Galvan: Thank you, Arthur, and good afternoon, everyone. As Arthur mentioned, we posted excellent fiscal third quarter financial results. Starting with the top line, net sales increased 27% to $39.0 million from $30.7 million in last year's fiscal third quarter. I want to note that the sales growth for the most recent quarter was achieved despite essentially no sales of oxycodone, for which we soon expect FDA approval of our ANDA. We had approximately $700,000 of oxycodone sales in last year's third quarter. Net sales for our largest product category, thyroid deficiency, grew to $14.0 million or 36% of our total net sales. Our 2 other largest categories, cardiovascular and pain management, had net sales of $7.0 million and $5.0 million, respectively, representing 18% and 13% of our total net sales, respectively. As to net sales of our remaining categories: antibiotic was $3.5 million or 9% of total sales; gallstone was $1.4 million or 4%; obesity was $1.1 million, equal to 3%; migraine was $1.3 million or 3%; glaucoma was $1.6 million or 4%; gout was $1.8 million or 5%; and other represented $2.4 million or 6% of our total net sales. Gross profit for the fiscal 2013 third quarter rose significantly, to $15.2 million from $10.9 million for last year's third quarter. As a percent of net sales, gross margin rose to 39% from 35% for the fiscal third quarter of last year. The increase was primarily due to favorable sales mix and price increases, along with enhanced manufacturing efficiencies related to our higher sales volume. Strict cost control also was an important contributor. Regarding operating expenses, R&D expense rose to $5.2 million from $2.9 million a year ago. As we discussed in previous earnings calls this fiscal year, the increase is due to our significant incremental investment in R&D in order to drive future growth. However, we now expect Q4 R&D expense to be in the range of $4.0 million, less than we've previously anticipated, primarily because some of the planned expenses for fiscal 2013 we now expect to be incurred in the first half of fiscal 2014. SG&A amounted to $5.2 million, down slightly from $5.6 million for the same quarter of last year. Operating income increased sharply to $4.7 million from $2.4 million for the comparable quarter last year. The effective tax rate was 25% compared to 38% for the third quarter last year. The decrease was primarily due to the reinstatement of the R&D tax credit, retroactive to January 1, 2012, which was recorded in the third quarter. An increase in incentive stock option exercises also provided additional tax benefits during the quarter. All these metrics resulted in net income attributable to Lannett of $3.9 million or $0.14 per diluted share compared with $1.7 million or $0.06 per diluted share for last year's fiscal third quarter. Our balance sheet at March 31, 2013, remained strong, with cash, cash equivalents and investment securities of $39.0 million. As Arthur mentioned, and as we stated in today's press release, we are revising our guidance upward for the fiscal 2013 full year. We now expect net sales of $147 million to $149 million, up from the previous guidance of $140 million to $142 million; gross margin as a percentage of net sales of approximately 38%, up from 36% to 37%; R&D expense in the range of $16 million to $17 million, down from $17 million to $18 million; SG&A expense ranging from $22 million to $23 million versus $24 million to $25 million; other income of approximately $2.0 million, essentially equal to the favorable litigation settlement the company reported in the first quarter and year-to-date gains on investments; the full year effective tax rate in the range of 35% to 37%; and capital expenditures in the range of $7 million to $9 million versus $10 million to $12 million in the previous guidance. And with that, I will now turn the call back over to Arthur. Arthur P. Bedrosian: Thank you, Marty. We are pleased with the third quarter performance, the improvement in our stock price and the recognition by our shareholders of our achievements. As we have discussed for several quarters now, we are stepping up our product development initiatives with products that we believe can generate more revenue and higher margins than we have typically experienced in the past. We have submitted our first Paragraph 4 filing, and additional Paragraph 4 product candidates are in the later stages of development. We are awaiting our approval of our oxycodone hydrochloride solution, which we expect soon. Our specialty pharma division continues to lay the groundwork for the expansion of our detailing of our C-Topical. We expect to a sign a contract, which will add a number of salespersons over next 2 quarters, and we are on track for the FDA filing by December 2013. Our ANDA for thalidomide is on track for FDA filing in the fall. We were hopeful to file sooner, but faced delays in receiving an API for our commercial production of our exhibit batch. We have begun talks with a number of potential generic manufacturing candidates, which would add complementary products that we believe would be accretive. We look forward to hopefully conclude a transaction with one or more of these firms. Our current pipeline includes 15 product applications pending at the FDA and an additional 30 products in various stages of development. This is an exciting time for Lannett. In addition to our excellent financial results, we are developing a strong pipeline, making changes to our board and investing in the company's future. We look forward to continuing to report on our progress. Marty and I would now like to address any questions you may have. Operator?

[Operator Instructions] Your first question comes from Randall Stanicky with Canaccord Genuity.

This is actually Dana Flanders filling in for Randall. So first, Arthur, can you just give us an update on contract negotiations with JSP and potential timing on when we could see an agreement come through? Arthur P. Bedrosian: Yes, we have been having ongoing discussions with the Jerome Stevens Pharmaceuticals company, and I will be submitting to them a term sheet with regards to certain adjustments we plan to make to the agreement that we have in place. Currently, that expires March of 2014, and I expect that we will conclude something shortly.

Okay, that's great. And then, second, I know last quarter, you talked around some of the issues at Cody regarding product development. I was wondering if you could give us an update on some of the progress you made there and integration of that asset. Arthur P. Bedrosian: Well, not much to say in one quarter in terms of the integration, but we are actively working closely with Cody. And I'll have more to report in the next couple of quarters, when we could see the integration actually taking root. But there's definitely a lot of movement in that direction, and I do expect that the cooperation between the 2 companies will become more seamless than it has been in the past.

Okay, great. And then regarding quota with the DEA, have we -- have you been having discussions regarding this calendar year? Where does that stand? Arthur P. Bedrosian: Well, we have discussions with them every calendar year. Besides the annual submission that we make in April for the next calendar year that we have to do every year, we also have ongoing discussions about additional quota, or not receiving enough quota and going back for additional quota. And so far, at this point in time, there hasn't been any particular unusual delays with our quotas.

Okay, perfect. And then last question to wrap up, can you give us a more color on the M&A front? I know you just gave some closing remarks regarding some companies that you're in discussions with. What sort of companies are those, what areas and how close are we to potentially seeing a transaction? Arthur P. Bedrosian: Okay. Well, first of all, they're all in the generic drug space, as we are, and they're all manufacturing businesses. And we've made some discussions, I'd say, that date back a few months with some, with others we're, you might say, at the earlier stages. But clearly, there are 3 transactions that we're looking at. And the size of the companies are modest compared to our size. Certainly, the type of acquisitions that would fit in nicely, the companies bringing product to the table that we don't currently have; a form of dosage form that, while we make ourselves, they offer quite a larger portfolio products in that dosage form. And I believe that the relationships will get stronger as we continue to court these companies. At this point in time, there's been no due diligence, but there has been an interest on the part of one of the companies, that was an overseas company, to sell their U.S. subsidiary. However, that might -- it doesn't mean that we'll be the one that acquires it, but that's a decision that apparently has been reached. And the other companies are privately held companies, and we've had some preliminary discussions with them. So at this point, I really don't have much more to say than that.

Your next question comes from Steven Crowley with Craig-Hallum Capital. Steven F. Crowley: In terms of a couple of things, drilling down, you gave us some nice granularity there, Marty. And a couple of things stood out to me, and I'm hoping we might be able to get a little bit more color. For example, the antibiotic category, you seem to have quite a bit of success, maybe on a little different scale than historical. What was that all about? Obviously, you're gaining market share. Or is that one of the areas where there was price increase? Martin P. Galvan: Yes, the -- Yes, Steve, well, some of the favorable results you've seen in that particular category are the result of some market conditions, where there have been some shortages actually in the marketplace. So one of the opportunities that Lannett generally benefits from are from these circumstances. With a range of over 40 products, we're in an excellent position to take advantage of shortages that do develop, and this is one instance where that has happened. Steven F. Crowley: And in terms of the pain management category, there was also some nice sequential and year-over-year growth there. I know that's part of your longer-term strategy to drive that category, but this little bit of a pop was pre-oxycodone. Was that a function of several products or one product in particular? And is that the start, hopefully, of a trend? How would you characterize it? Martin P. Galvan: Well, I would say that some of the success -- as you've heard us talk, we perceive our C-Topical product to be a significant opportunity for Lannett going forward. And one of the primary drivers of that category, in this third quarter sequentially, was just the uptick in that particular -- in the performance of that particular product, so that's what you're seeing. Steven F. Crowley: Okay. Now you gave us some good guidance on research and development backing off temporarily here in the fourth quarter, before it goes north again in 2014. On the SG&A font, I'm trying to -- you gave us some overall year guidance. It seems to allow for a jump in SG&A in fourth quarter, maybe with some of that commercialization that Arthur -- additional investment and commercialization of C-Topical that Arthur referenced. So we should think about a jump in the fourth quarter, I guess, of as much as maybe $1 million or so. What are the variables in that equation that you're weighing? Martin P. Galvan: The big driver in SG&A, that's separate and apart from a run rate, you might say, is the expense that we're allocating or providing for the detailing effort behind the C-Topical product. So as you recall, in the 3 months ago, in the guidance, we said, okay, we're going to go forward with the -- with an expansion of that sales force, and we provided additional monies in our guidance for SG&A. At this point in time though, we're seeing a bit of a delay in that expansion. And the guidance now, the reduction in the SG&A outlook for 2013 is because of just moving back a bit that expansion, the timing for it. So that's -- but there is still money in the fourth quarter for it. So the uptick you see would be less than we had before, but there was still some in there before that. Steven F. Crowley: Okay. And I would think on the downtick in CapEx, is that really just a pushout also to next year? And is there any preliminary look at what you might spend on the CapEx front next year? Martin P. Galvan: No preliminary outlook that we can provide at this time, Steve, for that one, but the reduced CapEx in the fiscal 2013 is primarily timing. Like any company, as we put forward, as we start the year, we have a whole lot -- we're ambitious and have many projects. And just as the months go by, we're just not able to get to everything might like to think we're getting to. So all those projects, probably the bulk of them won't move into 2014. But conceptually, the 2014 projects may be moved into 2015. So I think it's primarily timing. But for now, for 2013, it will come in less than what we had previously guided to. Steven F. Crowley: And then one more for me, which is in terms of your revenue guidance, the approach you took coming out of last quarter, so Q2, the December quarter, was you had a period where most things went well within the product mix. It looks like you had another one of those quarters. But your approach was to not assume that was a steady-state condition, in other words, not everything would go well in the next quarter. And it looks like in the June quarter, the implication of your guidance is that revenue is likely to be a bit below the March quarter. Is that a function of that same exercise and process and conservatism? Or are there some things that are fairly certain to drop off here in the fourth quarter? Martin P. Galvan: I would say it's a bit of both, Steve. The guidance is such that, you're right, the fourth quarter kind of looks like our first and second quarter, closer to that second quarter. So yes, 3 months ago, we were saying the second quarter would be the new norm. And the guidance right now kind of says, okay, the fourth quarter will kind of look like the second quarter. But the third quarter had some even better than the second performance to it. So sequentially, it was up significantly, as you see. But there is that conservative aspect to our outlook for the fourth quarter. But there is also a couple of business dynamics, that we are aware of right now, that we're not prepared to share on this call. But there is some business arrangements or things that help tell us or help our ability to forecast in this -- for these business situations. We can expect -- we should expect to see the sales drop off a little bit. So we don't disclose [ph] all those factors in that fourth quarter outlook.

[Operator Instructions] Your next question comes from Scott Henry with Roth Capital. Scott R. Henry: I guess, to start on the big picture, we've got 3 quarters down in fiscal 2013. I guess, can you give us kind of some big picture outlook for 2014? I mean, business is hitting on all cylinders right now. Do expect 2014 to be kind of a growth year? Just want to get any color that you can provide kind of from the top. Arthur P. Bedrosian: Well, first of all, it's a bit early to be commenting on 2014. We expect to provide full year fiscal 2014 guidance on our next conference call. Having said that, I'll touch on a couple of key items that we'll be thinking about as we put together our outlook for fiscal 2014. First, we expect fiscal 2013 was much improved over fiscal 2012. The progress is largely due to strong sales of many of our traditional products, several new products gaining traction and opportunistic price increases and, of course, enhanced manufacturing efficiencies, as well as a gain on the settlement of litigation. Naturally, the $0.03 gain is a nonrecurring item. So regarding our very early outlook for 2014, the early indications are that we expect continued strong sales growth and anticipate the percentage increase in that sales to be in the high-single digits to low-double digits. Regarding expenses in 2014, as you know, we have moved a significant amount of spending to 2014 that was originally planned for 2013. This has contributed to the higher-than-expected earnings per share for 2013. But the traditional -- excuse me, but the additional expense in 2014 has the effect of holding down earnings per share next year. You may recall that we originally guided 2013 to be flat year-on-year with 2012. Now we are thinking 2014 earnings per share may be similar to 2013 earnings per share, but at a much higher earnings per share level than we were discussing a year ago. Hope that helps. Scott R. Henry: That is actually very helpful Arthur. Now just drifting to some of the specifics. Certainly, a new accomplishment getting a P-4 filed. Can you give us any color on that? Do you think you're the first filer? Any thoughts on the market potential for that product? I mean, obviously, you don't want to give a lot of color but I just -- I thought that was interesting so... Arthur P. Bedrosian: It's -- well, we haven't received our acceptance letter. So until we receive that, we won't be able to put the innovators [ph], the patent holder on notice. But the market opportunity for that, I believe, is in the $50 million range. But I believe we are the first to file on it. Scott R. Henry: Okay. You said you believe you are the first to file. Arthur P. Bedrosian: Yes. Scott R. Henry: Okay. And a lot of R&D spent in the quarter. Any color on kind of what the bolus of that is for? I mean, any projects specifically or just multiple things going on? Martin P. Galvan: For the R&D, the expense, it's high in the quarter because we do have some -- we've talked a lot, Scott, about the Phase III trial for C-Topical. So the quarter does have a -- that's causing the blip essentially, and as compared to the other 2 quarters of this fiscal year. Scott R. Henry: Okay. And then on the pain management franchise, and I know I've asked you about this in the past, but there were some recent events on the abuse-resistant front that make abuse resistance, at least to me, appear an appealing category going forward. Have you thought about how you may incorporate abuse resistance into some of the things you're doing at Cody? And what are the opportunities there? Arthur P. Bedrosian: Yes, so it's something we've been looking at for sometimes. So we were not surprised by this announcement from the FDA. Just the opposite, we were expecting it. The good side to this, of course, is we're going to now have brand products introduced into this marketplace that was traditionally dominated by generic drugs. Now all the companies that are coming out with their patented abuse technology platforms and introducing either new opiates like the Opana, the oxymorphone, as opposed to the traditional oxycodone, the OxyContin formulas, I believe you're going to see a greater opportunity in front of Lannett for these brands. And at the same time, the generic marketplace, where most of the narcotics are currently in, is also going to be open to us for our vertical integration. So we kind of benefit in 2 ways. We capture a share of the market for which we provide our own raw material, and then we see the market growing in the brand area. Now what's exciting about that, of course, is the brands introduce these products at substantially higher prices than what, typically, generics sell for, which means our profit margins going forward will be higher than I was anticipating. So this, just to me, is additional good news. On the issue with the abuse technology, really the biggest stumbling block, I would say, facing us at the moment isn't creating an abuse technology. It's really making sure that the ones we create and use in our products are not involved in patents that are pending at the office, but not been approved yet. I'd hate to find out that a technology I developed and used and launched my product, will get approved to be used in my product, suddenly belongs to somebody who happened to file a patent on it. So we are considering, as a result of that risk on some of the more vulnerable products, to possibly license existing patented technologies, so I don't have worry about running across anybody who has a patent pending, but has not announced that formulation yet. So we look forward to this market as really expanding what we were anticipating doing in that market, with more opportunities for Lannett. Scott R. Henry: Okay, great. Final question, the pricing environment has been pretty favorable for your product portfolio, and I would speculate that it's been pretty favorable for the Levothyroxine franchise. Could you talk about -- I mean, is the environment for pricing there -- it's obviously good right now. Are you concerned that it may change in the near term or does it seem relatively stable? I guess in an increasing price environment, you would think it would be stable. But I'm just curious if there's anything that I would expect to change that in the short term. Arthur P. Bedrosian: Well, we're in a generic drug space. So for me to sit there and not tell you that we're not vulnerable to price declines would be foolish. However, with this particular drug, there is some unusual aspects. The physicians and the patients have a lot of extra work in front of them every time they want to switch a patient to another product. So even if another generic comes along and offers the product at a lower price, most of the customers have rights of first refusal. So the likelihood is I will not lose one customer. I conceivably could lose profit margins. But in the past, where we've encountered competition from some generic brand, so let's just say are 1/3 the quality of the product that we sell, we've refused to match those prices and we've retained those customers. Sometimes we'll make a bit of a compromise, but we've never actually had to match a competitor's price on this product. And as a result, because our product is never involved in recalls and we're a good supplier -- actually, a great supplier on the product, we're able to command a better share of the market and a higher price for our product. And I believe, while I expect there might be competition coming up, I really don't think it's going to have a major impact on us.

Your next question is from Marco Rodriguez with Stonegate Securities.

This is actually Dan Trang sitting in for Marco Rodriguez. Marty, did you mention that there were new sales of oxycodone-based drugs in this past quarter? Arthur P. Bedrosian: Yes, Marty did. Yes, that's true.

Okay. Could you give me some color as to why? Arthur P. Bedrosian: Well, the FDA had asked us to -- in exchange for withdrawing our grandfather product and filing an application, they would expedite the application's approval process. So we agreed to stop marketing the product in the third week of October of 2012, filed the ANDA prior to that, and we're expecting and were promised an expedited review. At this stage, of course, I always hate to predict anything when it comes to FDA approval process, I am expecting it by the end of June, in which case, we'll relaunch the product.

Okay, and I knew that you mentioned that you expect to sign a contract in the next 2 quarters for C-Topical. Just wondering, launch. How soon after that contract is signed, would you expect to go to market? Arthur P. Bedrosian: Well, probably within 60 to 90 days after they are put through some training. As you know, there's a lot of legal requirements for detailing brand products these days, and we're not brand experts, but we're certainly working with them to make sure that we don't run afoul with any of those regulations that are out there with regards to the physician contact and things like that. So I would say that we'll start hiring and start training. And after the end of the 2 quarters, most likely, we should have that sales force on the field the month following. But within those 2 quarters, we should start to see some of those people in the field literally. We do have 2 people in the field currently, the original 2 of the test market that we started last June. But they're still on the payroll, and they're continuing to do the work. We have been successful with that pilot study, and that's why we decided to expand and increase the number of salespeople out on the road.

[Operator Instructions] And I show no further questions at this time. Arthur P. Bedrosian: Okay. Thank you, again, for joining us today. We are always available to answer further questions and look forward to reporting on our continued progress on our next call.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.