Welcome to the Lannett announces fiscal 2014 second quarter financial results. My name is John, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Mr. Robert Jaffe, Investor Relations for Lannett. Mr. Jaffe, you may begin.

Thanks, John. Good afternoon, everyone, and thank you for joining us today to discuss Lannett Company's Fiscal 2014 Second 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 at www.lannett.com. A playback will be available for 3 months 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 forecast 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 will then open the call for questions. With that said, I will now turn the call over to Arthur Bedrosian. Arthur? Arthur P. Bedrosian: Thanks, Robert, and good afternoon, everyone. I am pleased to report outstanding financial results for the quarter. For the fiscal 2014 second quarter, we recorded the highest net sales, gross margin and net income in our company's history. Net sales increased 84% to $67 million. Gross margin more than tripled. And net income grew to $17 million, which was nearly 6x the net income we recorded in last year's second quarter. We are pleased to have reported 5 consecutive quarters of record sales. Similar to the preceding quarter, the primary drivers for our excellent second quarter performance were the combination of price increases on key products, strong sales of existing products and a favorable product mix. We have seen the strength in our first quarter continue into the second quarter. And as a result, we are increasing our fiscal 2014 guidance, which Marty will address later. With that brief overview, I'd like now to turn the call over to Marty to review the 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, our strong momentum from the beginning of the year continued into the second quarter. This is our eighth consecutive quarter of growth over prior year for net sales and adjusted EPS. For our second quarter, net sales rose 84% to $67.3 million from $36.6 million in last year's second quarter. Net sales for our largest product category, thyroid deficiency, grew to $26.2 million or 39% of our total net sales. Our 2 other largest categories, cardiovascular and pain management, had net sales of $16.9 million and $6.8 million, respectively, representing 25% and 10% of our total net sales, respectively. As to net sales of our remaining categories, antibiotic was $4.3 million or 6% of total net sales; migraine was $2.3 million or 3%; gout was $2.0 million or 3%; glaucoma was $1.5 million or 2% of total net sales; gallstone was $1.1 million, equal to 2%; obesity was $844,000 or 1%; and other represented $5.2 million or 8% of our total net sales. Gross profit more than tripled to $41.0 million or 61% of net sales, from $13.4 million or 37% of net sales. Research and development expenses increased to $5.8 million compared with $3.6 million. Selling, general and administrative expenses increased to $9.9 million compared with $5.2 million in the same quarter of the prior year. Operating income grew markedly to $25.4 million from $4.7 million in the second quarter of fiscal 2013. The net income attributable to Lannett Company grew sixfold to $16.6 million or $0.46 per diluted share from $2.9 million or $0.10 per diluted share. Now comparing the first half of fiscal 2014 with the first half of fiscal 2013. Net sales rose 57% to $113.2 million from $71.9 million in the prior year. With respect to cost of sales, and as previously announced, we issued 1.5 million shares of our common stock in connection with the signing of the contract extension with Jerome Stevens Pharmaceuticals to continue as the exclusive distributor in the United States of 3 of their products. As a result, cost of sales for the first 6 months of fiscal 2014 included a nonrecurring pretax charge of $20.1 million related to this contract extension. Continuing with the remainder of the income statement and for completeness and comparative purposes, I will provide both GAAP and adjusted amounts for gross profit, operating income and net income. Gross profit on a GAAP basis was $42.3 million or 37% of net sales. Excluding the JSP contract renewal charge, gross profit was $62.4 million or 55% of net sales. This compares with last year's first half gross profit of $27.0 million or 38% of net sales. R&D expenses increased to $10.5 million from $7.3 million. SG&A expenses increased to $17.1 million from $11.3 million. Operating income reported in accordance with GAAP was $14.7 million. Excluding the JSP contract renewal charge, operating income was $34.8 million compared with $8.4 million in the fiscal 2013. GAAP net income attributable to Lannett Company was $10.6 million or $0.31 per diluted share. Adjusted net income, which excludes the impact of the JSP contract renewal charge equal to $12.6 million after tax, was $23.2 million or $0.69 per diluted share. This compares with fiscal 2013 first half net income attributable to Lannett Company of $5.8 million or $0.20 per diluted share. The first 6 months of last year included a favorable pretax litigation settlement of $1.3 million equal to $0.03 per diluted share. Our balance sheet at December 31, 2013, strengthened compared to June 30, 2013, with cash, cash equivalents and investment securities totaling $105.9 million. This amount includes $71.5 million of net proceeds related to our stock offering, which was completed in October of 2013. Turning now to our guidance for the fiscal 2014 full year. As Arthur noted, we have raised our guidance again for the fiscal year. The increase is due to the continuing effects of both price increases and strong sales of our existing product portfolio. In addition, we expect continued improvement in gross profit resulting from the price increases, strong sales and favorable sales mix. It is important to note that our fiscal 2014 guidance does not include the impact of the Jerome Stevens contract extension, which we expensed in the first quarter of fiscal 2014. With that said, we expect net sales in the range of $275 million to $285 million, up approximately 12% from the previous guidance of $245 million to $255 million. Gross margin as a percentage of net sales of approximately 61% to 63%, up 4 percentage points from 57% to 59%. R&D expense in the range of $30 million to $32 million, up from $27 million to $29 million in the previous guidance. SG&A expense ranging from $39 million to $41 million, up from $35 million to $37 million. The full year effective tax rate to be in the range of 36% to 38%, unchanged from previous guidance. And capital expenditures in fiscal 2014 are expected to be in the range of $28 million to $32 million, unchanged from previous guidance and includes $15 million for the purchase and partial fit-out of 2 buildings recently acquired by the company. With that, I will now turn the call back over to Arthur. Arthur P. Bedrosian: Thank you, Marty. Our financial performance has been tremendous with 5 consecutive quarters of record sales. In addition, we hit a market cap of $1.3 billion and began trading in December on the New York Stock Exchange. To fund our future growth, we completed a successful stock offering, raising more than $70 million and established a $50 million credit facility. Considering all these accomplishments, we believe Lannett's future is very bright. As I have mentioned before, we continue to invest in our product development initiatives. These efforts include products that we believe can generate more revenue and higher margins than we have typically experienced historically. Our current pipeline includes 17 product applications pending at FDA. We have an additional 55 products in various stages of development, including our ANDA for thalidomide, which we expect to file momentarily. Regarding our oxycodone oral solution, we are optimistic that we will receive FDA approval in the current fiscal year. We currently have 12 sales representatives detailing our C-Topical solution product. We commenced our Phase III clinical trial in January and the target date for our new drug application submission remains December 2014. We continue to evaluate several potential acquisition candidates. Our team is looking at products, as well as companies that are a strategic fit and accretive to our business. We completed the acquisition of 2 buildings in Philadelphia. Our long-term plans for the site include consolidating existing facilities and providing space for future expansion. We are extremely pleased with our second quarter results, and I would like to take this opportunity to thank all of our staff at each of our locations for their hard work in helping us achieve these excellent results. I would especially like to express my appreciation to our sales team for a job well done, as well as for the support from our shareholders. All of us at Lannett are excited about the opportunity that lie ahead, and we look forward to reporting on our progress. Marty and I would now like to address any questions you may have. Operator?

[Operator Instructions] Our first question comes from Sumant Kulkarni from Bank of America Merrill Lynch. Sumant S. Kulkarni: The first one is, could you comment on the sustainability of your gross margins going forward? And also, on the main therapeutic areas that contributed to the increase in the outlook range? Arthur P. Bedrosian: On the outlook range? The main products that -- I wasn't clear on the last part. The main products for the outlook range? Sumant S. Kulkarni: Yes. So the gross margin outlook range is higher now relative to when you last issued it. So which were the main products that contributed to that delta? Arthur P. Bedrosian: Okay. Martin P. Galvan: Yes. So Sumant, this is Marty. So as far as the sustainability of the gross margin, the outlook, what we have in our guidance right now is -- let me comment -- we have -- we projected in terms of our second -- in terms of our third and fourth quarters, we have -- we see sales in the third quarter being a bit higher than the fourth quarter in the guidance. And consistent with that, we have a stronger, a slightly stronger gross margin in the third quarter than we have in our projections for the fourth. Now the reason for that is that as we sit here today we have, obviously, better visibility into the next 2 months, let's say, of our fiscal third quarter. And that gross margin we feel reasonably comfortable with. We've taken a conservative look or we've kind of positioned our guidance conservatively for the fourth quarter because we have less visibility, let's just say, and we are anticipating -- in some major products, we're anticipating that the success that we're having will draw other competitors and that is in our guidance. Going beyond that though, when you look into 2015, at least, right now, from our perspective, we think that the gross margin that we have in our fourth quarter, we think we can reasonably sustain that into fiscal 2015. The key products -- the larger products on which we've seen significant price increases, we've kept those outlook in 2015 and our thinking to be conservative at this stage. We've allowed for competitors to come in. But right now, as we stand, we think we can sustain that fourth quarter gross margin into fiscal 2015. And as far as I think the other part, Arthur, was the key products? Is that right, the key products? Well, the key products that are driving it from a -- driving our gross margin from a price increase perspective, the key ones from a magnitude perspective are the Levothyroxine Sodium product and also Digoxin. But I also must say that we have been able to increase prices on more than just those 2 products and it's the portfolio of products and their price increases which is driving that gross margin that you see. Sumant S. Kulkarni: And specifically on the thyroid deficiency products, given that Pfizer's Levoxyl is now showing up as available on the FDA's drug shortage website, should we think about that as growing in the second half of the year from this base of $26 million that you reported this quarter or shrinking? Arthur P. Bedrosian: I see their market probably increasing but at the expense of Synthroid, because Synthroid seems to have benefited from the removal of Levoxyl from the marketplace. Synthroid sales revenues grew dramatically. And we believe a lot of the brand business from Levoxyl went to AbbVie's Synthroid product. So we just see that shifting back, possibly to Pfizer, although I think Synthroid, or AbbVie, will probably be able to hold on to most of that revenue increase. So we don't see it impacting our business. The more emphasis there is on brand in the marketplace the better it is for us. Sumant S. Kulkarni: And my last one before I jump back into the queue is a bigger picture one. Now that the stock has done well and your cash position has built up, have the goal posts for your acquisition targets changed at all? Arthur P. Bedrosian: No. We're actually talking to the same people we started talking to. That we felt that we would need to raise funds if we went ahead and acquired one or all of them. We'll continue to talk to the same group with one addition. So there's a lot of discussions going on, but there's what we would call dating at this point. Nobody's kissing anybody just yet.

Our next question comes from Scott Henry from Roth Capital. Scott R. Henry: I guess just a background question first, just as far as expectations. Obviously, the stock has had a very strong run, and I imagine that management has somewhat of a considerably concentrated wealth in the company at this point. Should we expect to see normal diversification over the coming months, perhaps some 10b-5 plans? Just trying to understand what expectations there should be. Arthur P. Bedrosian: Sure. Thanks, Scott, for the question. That's true. Several members of the board and management have stock options that were granted about 10 years ago and are set to expire in May of this year. In the coming months, we may see transactions involving the exercise of some or all of these stock options, which total approximately 100,000 shares. I'm certainly happy that our stock price has increased so these options have value. I'm also pleased that the members of the board and management waited to just before these options were set to expire, before exercising the options. I think that speaks to our collective belief that Lannett's common stock represents an attractive long-term investment. I'm part of this group, and intend to sell enough options to cover the tax liability related to the options and hold on to the rest. Scott R. Henry: Okay. Shifting gears to a couple more specific questions. First in the Digoxin market. I mean, we've got this Lanoxin coming in from Par, I guess, it's an authorized generic of Covis' product. Are you seeing any impact in that? I'm not seeing any impact on the prescriptions yet. And what are your expectations for how that product will do in terms of market share and how it will impact the category? Arthur P. Bedrosian: Well, we've estimated -- of course, we're getting these estimates from our sales team. We feel we'll probably have some reduction in units. We're not sure of the exact amount, but I would say it would be less than 20% in terms of the total market. So we don't see a big impact on us personally. But we were anticipating it in the marketplace. There's really not much harm that it's going to do to our expectations because that's all baked into our guidance at this point. We do know that Covis, which acquired the brand with GSK, has been -- has selected Par as an authorized generic. And we see Par as one of our rational competitors in the marketplace. So we believe they'll capture a certain market share, as will Covis, because they'll probably put a little bit of an emphasis behind the brand. But sometimes when they put some movement behind the brand, it actually expands the generic market as well. So again, we're always conservative when we give our guidances out, and we believe we've more than anticipated any impact this will have on us on the Digoxin sales. Scott R. Henry: Okay. And then you're looking at the quarterly progression throughout the year to get to your new guidance of $275 million to $285 million. I mean, it looks like we're probably going to get a boost of around $10 million in Q3 and maybe $20 million in Q4. Is the main driver there continuing to be kind of annualization of these Digoxin price increases? Or I'm just trying to think, sequentially, what is driving the increase? Could it be some of the oxycodone solution? What are the main levers for the rest of the year? Martin P. Galvan: Scott, let me just address that. First of all, just to calibrate here. If you take a look at our full year outlook and the guidance, the midpoint, the $280 million, we see the second half of the year -- we see the revenue for the second half of the year in the third and fourth quarters being fairly similar but skewed more to the third quarter. And so what happens when you look sequentially from the second, third and to the fourth quarter, the second quarter -- the actual results essentially do not reflect the full impact of what's going on within our business, let's say, essentially the price increases, which is the significant part of the growth as you go from the first to the second and on through the quarters. So in the third quarter is, really, the first quarter where you will see the full impact of the price increases. So there's more of a step change in our numbers going from the second quarter to the third quarter. And in fact, the fourth quarter actually comes down a bit in our guidance expectation. And what's driving that essentially is that, okay, as I mentioned earlier, we have good visibility now for the remainder of this third quarter that we're in. And again, the third quarter has the full impact of the price increases. So the third quarter is our strongest quarter in our outlook for the entire 4 quarters of 2014. And then we've actually in our guidance have dropped our third -- our fourth quarter, I'm sorry, dropped our fourth quarter a bit, because we are just expecting that the success that we've had will draw competition. We have -- we believe we've factored in all the competition we know of right now in our numbers. But I think as we've been doing here at Lannett, we've basically been -- we work with guidance on a more conservative basis, if you will. And to that extent, like I said, we have our fourth quarter dropping a bit from the third quarter. And it's basically driven by the thought that there'll be other competitors in the marketplace that we don't know of today. Scott R. Henry: Okay. I appreciate that color. And I guess that leads into another question. Just in broad terms when we think about 2015, obviously, you've got some -- you have some positive levers. You have new products and you have Q1, which will be an easy comp, and part of Q2 will be an easy comp. But you will have more competition. So when we think about 2015, factoring all that in, do we think of that as an up year, a flat year or possibly even a slight decline year? I'm just trying to think of how you think about 2015 without looking for any specific numbers. Martin P. Galvan: Right. Well, we see it as an up year. We do believe strongly that there's sustainability in some of the price increases that we've been -- that we are seeing right now that are in our third quarter numbers from a guidance perspective. We feel pretty comfortable with those price increases. A couple of the main products, be it Digoxin and Levothyroxine, we've been conservative in our outlook when we look at 2015. But if you take the fourth quarter of 2014 as a launch point into 2015's quarters, we see growth and we also see -- and then also, you'll have the effect that in 2014, we didn't have the price increases for the full year. So 2015 in our mind starts looking along the lines of an annualization of the fourth quarter of 2014. And as I said, we have the fourth quarter sales dropping a little bit from the third quarter, but both third and fourth quarters are in the same ballpark.

Our next question comes from Steven Crowley from Craig-Hallum Capital. Steven F. Crowley: In terms of some of the elements in the future, in terms of C-Topical and the experience your sales force is having with the product, maybe you could give us some color on that. I know it's early, but some color would be helpful. And the applications that seem to be emerging to drive the utilization of that product. Arthur P. Bedrosian: Okay. First of all, it's easy to answer the second question first. There are new applications for which this product seems to be ideal, that has to do with the balloon sinuplasty, and also the eustachian tube-plasty that they're doing now as well. Everybody's laughing at me because I finally pronounced eustachian correctly. That's a little slight joke here. And so out of the last -- the product is doing well and those 2 areas are new areas for the product. We've had some contacts with the people that sell the balloons themselves, so there's a little bit of cooperation going on there. As far as the product and the detail for us, we just launched, around January 16, I think, was the launch dinner. So they've just been on the road a little bit. We're certainly getting some good feedback and we're still very encouraged by the effort that we're putting into that. So much so that even though we don't have any, let's say, preliminary results, we're starting to fill in for the other 8 positions. Originally we were suggesting 20 people. We have 12 out on the road. We are starting to recruit for the other 8. So we're a bit optimistic on that whole opportunity. Again, we have no experience in the brand market so, clearly, we don't have a lot of history to fall back on and we are relying on a lot of advisers in that field. But we're pretty comfortable this is going to be a great drug for us, and we've also seemed to have found another companion product for post-operative surgery that we might be able to detail to the same surgeons that we're offering this product to, which would make the whole concept of the detail more profitable. The goal is to always have more than 1 product to offer. So that's going good so far. Steven F. Crowley: Is that something you've acquired, Arthur, or in-licensed that product or you're in the process of doing so? Arthur P. Bedrosian: No. It's an idea we had for one of our products and we would be filing a suitability petition to see if the FDA agrees that we could file this as an ANDA under one of our already existing applications. It would just be a lower dose of one of the narcotic products. Steven F. Crowley: Excellent. Now in terms of your ANDA filing plans, you might have touched on this, you said you had a number at the agency, a number in development. What's a realistic, maybe slightly conservatively colored objective for ANDA filings out of your group this year? Arthur P. Bedrosian: Well, we've earmarked -- our goal is to file, this is a very unusual year for us as you'll all understand, our normal expectation is around 14 applications to 16. We pushed the envelope and asked our staff to get 30 applications to the agency. With that being the total goal, we're certainly very optimistic that between 25 and 30 may achieve that goal. We rely on a lot of third-party people, suppliers and what have you, so any one of them could certainly delay any of these applications. But as we speak today, we are certainly thinking we'll have filed 25 ANDAs with the agency by June 30 of this year. That would be a huge accomplishment for a company our size. Steven F. Crowley: Absolutely. Now just one more for me. In terms of oxy and your confidence in finally getting that through the logjam. And in a strange way, the delay in timing might actually work for you from a comparison standpoint because it sounds like you're hoping by the end of the year and that would put it in play to relaunch for early next year. Is that the right kind of expectation for us to have? And what gives you some confidence that, that might actually happen this go-round? Arthur P. Bedrosian: Well, first of all, this is a best guess of my regulatory staff. We feel, at this point, there's probably up to 4 applications that are just ready to be approved. We're doing our best; we've engaged Washington counsel to deal with this problem. Sometimes we turn to the Ombudsman, there's a number of -- well, they're actually Ombudswoman at the agency that we're turning to, to find out why these products are being delayed and what we can do about it. Apparently, we're not the only people complaining about these delays. It's really a lack of transparency that we're complaining about. It's not like I want to be moved out of the queue. I'll stay in line, but I'd like to know how long the line is. And we're certainly trying to get that information. But I'm always the optimist here. And I still believe that within this fiscal year, we will get at least 3 of the 5 that I said we should get this year. I originally was hoping for 5. I've curtailed that to 3 of the applications. There's just nothing else left to be done with them. So we think the logjam will break up shortly, and I am expecting them in the fourth quarter for sure. But you said correctly, that, that probably would be a benefit to us picking up those additional revenues in the next fiscal year.

Our next question comes from Rohit Vanjani from Oppenheimer.

So on Digoxin you said that Par is a rational competitor. Are you seeing anything on the pricing front from them in terms of discounting? Arthur P. Bedrosian: Well, discounting to our price, no. We've seen their prices discounted to the brand, of course, but we're not troubled by their pricing in the marketplace. Not at all.

Okay. So you think it's in line with yours and they've followed suit in terms of that price increase? Arthur P. Bedrosian: It's hard to say what's in line. It's not doing us any harm, but I don't know how you describe what's in line. I don't talk to them, so I don't really know how they determine their pricing. But remember, they're distributing a product as well and they certainly don't want to harm the brand market for which they are offering the authorized generic. So I believe that restrains them. And that's not hurting us. The prices that they're quoting are not doing us any harm at all.

Okay. And then are you seeing any other competitors come out in Digoxin this year? Arthur P. Bedrosian: We don't expect any in the short term at all at this point. One of them we know is at least a year away. I don't want to identify names, but -- so there is one that possibly could be, but they're not talking about it. So that always leads me to believe they're not ready to enter the marketplace. So I'm expecting that 2 additional competitors probably entering the field next fiscal year. So sometime after July.

Okay. And then just to drill down on the guidance a little bit. Was that -- so is the revenue take-up, is that where you're baking in more on the price increase on Levo and Digoxin or migraine? Is that all now baked in or is it now -- is there still some left over, I guess, or can you say? Martin P. Galvan: So for the third quarter, the price increase we currently have or the pricing levels we currently have, that's in our guidance for the third quarter. It's in the fourth quarter where we've been a little bit conservative. And like I said, I actually brought down the sales outlook in the fourth as compared to the third quarter.

Okay. And then the pipeline products, are they at all included in guidance or -- I guess, you're saying it's now 3 out of the 5 that will be in fiscal 2014, will those add to sales in that fiscal fourth quarter or not really substantially? Arthur P. Bedrosian: Not significantly. Because we'd only have 1 quarter at best, and nobody is sitting with an empty shelf waiting for us. So I would say it would have no impact on this fiscal year at all, even if we got them before the fiscal year was over.

Okay. And the oxycodone product, that will be fiscal 2015 now or is that still fiscal 2014 with no appreciable sales? Martin P. Galvan: Just to be -- to clear, Rohit, we do have a modest amount of oxycodone in our fourth quarter at this stage and then it continues on into 2015.

Okay. So you're still expecting approval this fiscal year? Martin P. Galvan: Yes. Yes.

That's one of the 3 of the 5 -- the 3 products that you originally had? Or out of the 5 products, you're now saying 3, oxycodone is in that 3? Arthur P. Bedrosian: That's correct.

[Operator Instructions] We have no further questions at this time. Arthur P. Bedrosian: Thank you again for joining us today. We're 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.