Par Pharmaceutical Companies, Earnings Call Insights: Gross Margin, Competition

On Tuesday, Par Pharmaceutical Companies, Inc. (NYSE:PRX) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared with analysts and investors.

Gross Margin

Gregory Gilbert – Bank of America Merrill Lynch: I have a few. First can you comment on gross margin and whether its tracking in line with your expectations for the year and highlight any color you think we should have on that specific item?

Michael A. Tropiano – EVP and CFO: Greg, this is Mike. We are tracking and even into Q2 everything looks very much like Q1. We are pretty much where we expected to be. Obviously when we go into Q2 and we include PROVIGIL, which is a high-margin product we get a little bit of a lift there.

Gregory Gilbert – Bank of America Merrill Lynch: For Paul, can you talk about the investments you have made on generic Lovaza so that we can get a better sense of your launch readiness if you win or possibly the pain if you don’t win?

Paul V. Campanelli – EVP and COO and President, Par Pharmaceutical: I think from preparedness side Greg, I think we’ve always said that essentially we have been preparing for success. So from an infrastructure standpoint we’ve over series of years ago we invested in a facility. We have got products ready to go. We are just waiting for both the FDA and the Judge to make the final ruling which we anticipate will be coming momentarily.

Gregory Gilbert – Bank of America Merrill Lynch: So would there be material write-offs if you lose the case? I am glad you are ready to launch but just trying to assess whether we are talking about a material amount of products.

Patrick G. LePore – Chairman and CEO: I think quite right now it’s a bit premature because there is always going to be an appeal process. We are not at that stage where I am worried about write-offs.

Gregory Gilbert – Bank of America Merrill Lynch: Then lastly for Pat in a recent letter your largest shareholder urges management to conduct strategic planning through the length of what premium you could fetch if the company were to be sold, so can you offer some context around that given the newness of that letter. Thanks.

Patrick G. LePore – Chairman and CEO: You are referring to Relational.

Gregory Gilbert – Bank of America Merrill Lynch: Yes.

Patrick G. LePore – Chairman and CEO: It is as usual for us. I’ll let Tom respond to it though.

Thomas J. Haughey – President: So, thanks Rick. So obviously Relational gave an update in their 13-D filing and they had increased their investments. So in part we are flattered that sophisticated investor has invested in the Company and continues to invest. Obviously in their filings we also talk about strategic alternatives, but they also they like what management is doing. So they are not shy I am sure we’ll see future filings from them. We like what we are doing and we are very much focused on integrating the companies and executing in growing the business in that fashion.

Competition

Unidentified Analyst – Piper Jaffray: This is (indiscernible). First can you remind us to (capital) spending and what’s your expectation regarding competition.

Patrick G. LePore – Chairman and CEO: You broke up on that one. Could you repeat please.

Unidentified Analyst – Piper Jaffray: Can you just remind us who else has pending ANDAs on Entocort EC and what’s your expectation regarding new competition over the next couple of years.

Paul V. Campanelli – EVP and COO and President, Par Pharmaceutical: I believe the only other company that is involved in that process to the best of my knowledge is Teva.

Unidentified Analyst – Piper Jaffray: Just any new color on generic Focalin XR, probably more specifically with FDA issuing draft guidance? Do you feel that you have all the boxes checked in terms of what the agency is asking for? Also, do you get the sense in your dialogue with the agency that they’re moving towards an approval decision?

Paul V. Campanelli – EVP and COO and President, Par Pharmaceutical: Yeah, sure. This is Paul. I think from what you are referring to is draft guidance which has kind of pointed out partial AUC which is somewhat akin to how the FDA was looking at methyl-phenidate. I would say at this stage of the game from a technical standpoint, we feel very confident in our position regarding the partial AUCs as outlined in the draft guidance. I think from an FDA standpoint, we are backlogged and timing is always unpredictable, but in terms of where we are right now today, we are very comfortable in our position to bring this product to market.

Unidentified Analyst – Piper Jaffray: Just lastly, any color on why Toprol-XL sales are holding up reasonably well despite the additional competition?

Paul V. Campanelli – EVP and COO and President, Par Pharmaceutical: Yeah. Again, on Toprol, we are staying very steady. Our market share, we are ranging between 42%, 43%, of course, price came down a little bit in the December timeframe when Mylan received their approval, but we have retained our fair share of our market and it was really based upon the confidence in the AG products. So, market share, 42%, 43%, pricing slightly eroded based upon having the Mylan entering back in December. Right now, it’s kind of business as usual.

Unidentified Analyst – Piper Jaffray: Just one last one on pricing, but more related to PROVIGIL. How should we think about pricing as we get closer to the end of the exclusivity period and how many additional entrants are you planning related to this year on the product? Thanks.

Patrick G. LePore – Chairman and CEO: The way we have priced it, as you should be looking at it as a four player market, right. I think that’s where we – I am sorry, a three player market, I apologize. We originally thought that there would be four players in the market, we ended up pricing it as a three player market and on day 181, I think there is going to be a lot of competition and at that stage of the game, it’s just going to dictate by the number of competitors. I think it’s going to be a challenge on day 181 for everybody, but right now look at it as a three player market.