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Akorn (NASDAQ:AKRX)

2013 Financial Guidance Conference

January 17, 2013 04:00 PM ET

Executives

Raj Rai - CEO

Tim Dick - CFO

Analysts

David Amsellem - Piper Jaffray

Steven Crowley - Craig-Hallum Capital Group

Jason Gerberry - Leerink Swann

Elliot Wilbur - Needham & Company

Michael Higgins - Brinson Patrick Securities

Sumant Kulkarni - Bank of America Merrill Lynch

David Steinberg - Deutsche Bank

Operator

Good afternoon and thank you for joining Akorn's Inc.'s conference call to discuss our 2013 financial guidance. Raj Rai, Chief Executive Officer and Tim Dick, Chief Financial Officer will host this afternoon's call.

This call is expected to last about 30 minutes and maybe accessed through our website at akorn.com. A reply of the conference call will be available shortly after this call. Interested parties can access the reply by dialing 888-203-1112 in the United States or 719-417-0820 internationally, and entering the access code 4965220.

Before we get started I'd like to remind everyone that any statements made on the conference call today that express a belief, expectation, anticipation or intent, as well as those that are historical fact are considered forward-looking statements and are protected under the Safe Harbor of the Private Securities Litigation Reform Act.

These forward-looking statements are based on information available to Akorn today, and we assume no obligation to update these statements as circumstances change. These forward-looking statements may involve a number of risks and uncertainties which may cause the company's result to differ materially from such statements.

Forward-looking statements are quantified by the inherent risk and uncertainties surrounding future expectations generally, and may materially differ from actual future experience. Risks and uncertainties could affect forward-looking statements including the failure to gain new product approvals and launch of new products. Such risks are described from time-to-time in Akorn's report filed with the SEC, including Akorn's annual report on Form 10-K for the year ended December 31st 2011. And the subsequent quarterly reports on Form 10-Q.

Also the company urges caution in considering any trends or guidance that maybe discussed on the conference call. In addition as required by Regulation G, reconciliation of non-GAAP financial measures mentioned during our call today to the most comparable GAAP financial measures can be found in our press release.

Thank you. And now I'd like to turn the call over to Raj Rai.

Raj Rai

Thank you Felicia. Good afternoon everyone and thank you for joining our guidance conference call. On today's call I'll summarize key highlights of 2012 and discuss the growth initiatives as well as operation plan for 2013. Then we'll discuss the details of our guidance later in the call.

The year 2012 was a successful year for Akorn. As we look back to last year, we accomplished a lot as an organization. First and foremost, we completed the acquisition of the manufacturing facilities in India to increase capacity, add new capabilities and expand our global footprint.

We have also completed the modernization and capacity expansion phase 1 project in (inaudible) New Jersey facility. In addition, we completed the revival of certain products that were in storage as well as launched five new products. In anticipation of new product approvals and to better support sales compliance for injectables we hired a hospital sales force consisting of 22 account managers and two regional managers. And finally we filed 25 ANDAS with the FDA by the end of 2012.

Moving on to 2013, we plan to build up our success from last year. Let me summarize the salient highlights of our plan for both our US and India operation.

First the US business. We expect a better growth region in 2013 due to market share gains from recently launched products. As you may know in the late 2012, we launched four products Latanoprost, Progesterone, Pantoprazole and the TD Vaccine. The collective market sized for these products are quite substantial with limited competition at the moment.

Second, we plan to harvest the maturing FDA filings. As outlined in the product pipeline chart in the press release, we expect to see few new products getting approved in the second half of this year. However, we expect next year to be the breakout year with consistent approvals.

Third, we plan to growth our over the counter ophthalmology business by increasing a private level presence. We currently have sold branch (ph) with three branded products on the market and have recently developed and sold five other branded products. In addition we have three additional branded products that will be launched later this year. Most of all these products are in the dry eye and allergy categories. We have established a relationship with the top three retail pharmacy chains and are planning to expand our business to other retailers throughout the year.

Fourth, we are increasing our investment in R&D to meet our stated goal of filing 35 to 40 ANDAs next years. And we will be moving to a larger R&D facility by the end of this quarter. The new facility will house up to 50 people and will have the capabilities to make high potential formulations such as oncolytics, hormones meant for our Indian manufacturing facilities. We are also investing in (inaudible) studies for high value ophthalmic and injectables that have limited competition in high barriers to entry.

And finally we plan to make strategic and opportunistic acquisitions within our core competencies as well as in our other businesses, the over the counter businesses as well as in our adjourned businesses, the over the counter business as well as animal health.

Next the India business, our top priority for India business is to implement the U.S FDA readiness strategy. As the first half, we have implemented our global quality policies in the facilities. The next steps are to file products from the four existing facilities this year. We have identified the products and these products are either approved or are in development. The (inaudible) trigger FD inspection in the early part of 2014.

Our second priority is to grow the international business through approvals of product registrations that are currently pending on various countries. We also plan to increase product registration in various regions around the world where pharmaceutical spend is projected to grow by double digits in the next few years such as the CIS countries, Middle East, Africa and Latin America.

And third, we are going to invest between 25 to $30 million in the next 18 months or so to build out oncology facility as well as expand an existing inject able facility to add new production lines and add lyophilization capacities.

In addition, we are making certain modifications to the facilities to comply with the US FDA CGFD guidelines. We feel we have adequate resources and infrastructure in place in India to achieve these objectives.

I’m optimistic about the growth opportunities that are ahead of us. With the planned step up in R&D activities and the onside of new capacities in the horizon, Akorn is poised to be in the leadership position in both ophthalmics and injectables in the next five years.

I would like to now turn the call over to Tim for his prepared remarks. Tim.

Tim Dick

Thank you Raj and good afternoon. We’ll briefly review our 2013 guidance and open the lineup for Q&A. Starting with revenue, 2013 revenue is projected to be between 325 million and 335 million. As Raj has mentioned the main contributors to the 2013 revenue growth include Progesterone Capsules which we launched in late October. With Latanoprost Ophthalmic Solution which we launched in late Q3, Pantoprazole injection the first generic approved for Protonix IV which we intend to launch in Q1 and though we have the capacity on this product supply approximately three million units a year and tetanus and diphtheria vaccine which we will launch in Q1 as well. The 2013 revenue guidance does not include the impact of any new product approvals from this point forward and excludes any material product acquisitions.

Moving to gross margins, 2013 gross margins are expected to be between 54 and 56%. We don’t expect to change in the margins on our base business but the four products just mentioned that are contributing to growth in 2013 are layering on at lower margins. In particular, in the case of Progesterone Capsules this is partnering product where we split gross profit with our manufacturing partner. Tetanus diphtheria vaccine is an end licensed product which was developed and is manufactured by our partner, and Pantoprazole injection and Latanoprost Ophthalmic Solution are both contract manufactured for Akorn.

The EPS impact of these expected lower gross margins on our 2013 revenue guidance is approximately $0.05 to $0.06 per diluted share. It's important to note the vast majority of Akorn's active R&D pipeline will be manufactured by Akorn with no partnering or shared economics, and as a result are expected to have significantly higher margins than the products contributing the growth in 2013.

Looking at our SG&A, 2013 SG&A expenses are expected to be between 51 million and 54 million as we begin leveraging the investment we have made in 2012 to expand our sales team as Raj mentioned in his comments. 2013 R&D expenses are expected to be between 22 million and 26 million, compared with approximately 15 million we have guided towards for 2012. As Raj noted, the main contributors to the growth, then we also listed these in our press release include generic drug user fee act fees associated with the projected 25 new filings we intend to file in 2013, cost of bio equivalent studies associated with high value products under development and the increased internal R&D cost due to the build out and staffing of a new larger R&D facility that will accommodate us and allow us to ramp up to 35 to 40 filings a year.

I'd also like to note that these R&D expenses can vary materially from quarter-to-quarter based on the timing of internal development activities, the achievement of external development milestones and in the case of 2013 the timing of some of the bio equivalent studies that we'll have underway.

EPS impact of the expected incremental 2013 R&D expense over the 2012 R&D guidance equates approximately $0.03 per diluted share.

2013 intangible asset amortization is expected to be consistent with 2012 at approximately $7 million. Our income tax rate is expected to be approximately 37% and we continue to look for ways to bringing this down further. 2013 adjusted net income is expected to be between 65 million and 69 million. We have reconciled adjusted net income to GAAP net income in detail in today’s press release. 2013 adjusted net income for diluted share is projected to be between $0.57 and $0.61 based on our projected diluted share count of $114 million shares.

Moving onto capital expenditures, capital expenditures are expected to be approximately $25 million in 2013. $15 million of this would be for an Indian manufacturing site as part of a two year effort to finish the construction and expansion efforts which we have previously disclosed with total approximately $25 million to $30 million in total. We anticipate the remaining amount will be spent in 2014 and the remaining $10 million of our $25 million total for 2013 would be spent on our two US manufacturing facilities as well as our new expending R&D center.

Based on this earnings guidance and anticipated capital spending, we anticipate free cash flow in 2013 of approximately $40 million. Please note this cash is not generated evenly throughout the year as a result of the clustering of outflows in certain quarters. These outflows include income tax installments, veritable debt, interest payments and an annual FDA fees.

That concludes my prepared remarks; we’ll now turn the call over to the operator to open the lineup for Q&A.

Question-and-Answer Session

(Operator’s instructions). We will go to David Amsellem of Piper Jaffray.

David Amsellem - Piper Jaffray

Thanks. I have just a couple. I just want to start with the Nembutal; does the guidance factor in another generic entrance?

Raj Rai

Well you know David as we have always said that since the time we brought the product portfolio from Lundbeck that our assumption and our thinking was and that was reflected in the agreement was that there was a generic filed at the time of purchase. So, we still maintain that stance that you know that there is a perhaps a generic in the mix. The timing of the approval is unknown at the moment.

David Amsellem - Piper Jaffray

So is the guidance risk adjusted for that possibility or are you…?

Raj Rai

No, it is not.

David Amsellem - Piper Jaffray

All right and then another question is regarding the injectable business. This is more question about the new approvals in late ’13 and then into ’14, any concerns regarding capacity constrains given that you’ll have a lot of new approvals and that India won’t be online for the US market yet?

Raj Rai

No, I think there is no concern about the capacity because all these product filings except for the one that from the other category all the ophthalmics and injectables are going to be manufactured in our facilities here in the U.S.

David Amsellem - Piper Jaffray

But just want to follow up on that I mean I know that you added more shifts indicators so what you’re saying is that you’ll have enough capacity out of the cater to accommodate all the additional approved products?

Raj Rai

That’s correct.

David Amsellem - Piper Jaffray

Last question and I’ll jump back in the queue. Do you have any backup sources of supply at the ready if you should need it?

Raj Rai

Well, India is the backup in the future but we have relationships with for example our Pantoprazole product is been made out of facility in India, that is maximized its capacity to make the from the lyophilization standpoint but they have capacities there at the approved; they have capacity to make other liquid injectables if we needed to.

Operator

We’ll go next to Steven Crowley of Craig-Hallum Capital Group.

Steven Crowley - Craig-Hallum Capital Group

I hadn’t planned to ask about Nembutal but I do want to ask a clarifying question. You presented your line of thinking about a possible generic filing on Nembutal at the time you acquired it as kind of good prudent business thinking gain series by your management team. Are you telling us now that you’re specifically aware of another generic filing or that you’re still implying that same methodology that says it could have happen therefore we have to plan on it?

Raj Rai

Yes. That is correct that we don’t know of a specific filer but we know that was in our thinking when we would made the acquisition.

Steven Crowley - Craig-Hallum Capital Group

Okay. So, you’re just planning on a hypothetical, I guess we’ll see what plays out there overtime. Okay. I just wanted to be clear on that. Now, in terms of the R&D uptick, obviously you are cranking up you development capability rather significantly and matching it with what you put in place or what you've bought in terms of manufacturing capability in India. The (inaudible) filings if we assume on 25 the standard rate for a filing, that's an increment of maybe 1.3 million. I guess what I'm trying to get a sense for, is the core R&D expense that you’re stepping up, is how much of the rest of that sizeable increase are set in another way, the bio equivalency study portion of your investment. Is that a couple million dollars? How should we think about that?

Raj Rai

So that number is going to be larger than a couple of million dollars. And because we've got around four to six products that we are working simultaneously on, so that's a bigger number. A portion of bigger, these are spent, allocate that to the BE studies.

Steven Crowley - Craig-Hallum Capital Group

And will those BE studies be a steady fixture of your future R&D budget such that you know we're going to continue to see a big or a sizeable assent to your R&D spending in dollars? Or is this a step up that will kind of be a new level that you can leverage going forward?

Raj Rai

Well there are few more products in our development that would require BE studies. So you know going into 2014, I cannot predict exactly what that number is going to be, but there is going to be investment again in those kind of studies going into 2014.

Steven Crowley - Craig-Hallum Capital Group

But likely not weighing more of those studies in ‘14 and ‘13?

Raj Rai

It could be equal number.

Steven Crowley - Craig-Hallum Capital Group

Okay, could be equal number, alright. That's good. And I sensed that your strategy for licensing the Indian facility to get product into the US is not only crystallized but it's in motion. Can you talk to us a bit about how you’re trying to optimally stage this for quickest response?

Raj Rai

Sure, so we have the first product that we will actually make out of there would be in this quarter. It's a branded injectable that we acquired, and that is going to be tech transferred in this quarter. So that would be the first product that we would file, since it's an NDA product we expect FDA to be more responsive in terms of its site visit if you may. And that would be sort of the trigger event for FDA to come in and then what we are also doing is in the next three quarters, every quarter we'll be filing one product and from three other facilities. So the goal is that by the end of this year we would have filed you know four products and the first product being an NDA product would bring FDA sooner than later to our facility. So again, our assumption is that in the early part of 2014, we should see FDA coming to our facility and since they are there, they would also have access to the filings that we have made in the other facilities. So the assumption that we are making in that all the four facilities will get inspected simultaneously.

Operator

We will go next to Jason Gerberry of Leerink Swann.

Jason Gerberry - Leerink Swann

First question about the guidance, can you talk a little bit about to the extent that it incorporates competition to your base businesses and what impacts if it does, if you are doing quick competition and does that assumption affects your numbers?

Raj Rai

Yes. We have factored in that there would a potential of more competition and I say that because there are some products that we may not see too much of competition given the nature of the products that we are selling and some are more run of the mill products that would attract more generic competition. So, it’s a sort of, you know you have the pluses and minuses and the all sort of you know now at the end of the day. So, that is definitely you know factored in to our thinking.

Jason Gerberry - Leerink Swann

So would you say, your assumptions are pretty conservative as it relates to thinking about the competitor impact in 2013?

Raj Rai

No, I am not saying it’s conservative but we’re factoring in that you know there will be some competition. Also keep in mind we have big part of our businesses contracted and you know through the GPOs for example to hospital injectables. So one has to wait for DRP cycle to kick in before a new entrant can come in.

Jason Gerberry - Leerink Swann

Got it okay and then can we just talk quickly about the modernization, initially about the cater, I think you guys were at one point capacity mix of 30 million units, what is going to be the incremental step up in 2013? Should we expect a significant increase in capacity in ‘13 and if you can address Somerset that will be great thanks.

Raj Rai

Sure, at the end of 2012, we manufactured little over 30 million units out of (inaudible) and given the staffing, the additional shift that we had, we believe that you know we can increase the capacity by another 33%. So we can go up to 40 million units.

Jason Gerberry - Leerink Swann

Got it. And in Somerset?

Raj Rai

And in Somerset, you know a big part of our expenditure was in modernizing the plant. And secondarily we added increase of formulation capacity to make additional ointment products and so we added another 6 million or so unit capacity to make ointments.

Operator

We’ll go next to Elliot Wilbur of Needham & Company

Elliot Wilbur - Needham & Company

First question for Raj. In looking at the table of projected launches by year that you provided and released today, you mentioned that you have generally used a standard 30 months from filing date to determine launch timing of pipeline products. So I'm guessing, based on that wording that you are using something slightly longer, but you didn't really indicate what that was in the release.

Raj Rai

Let me address when we said 30 months, I mean that’s the average that we use, there are some products that require and they are in the other category that require a BE study that we have obviously used a longer period.

Elliot Wilbur - Needham & Company

Okay. I guess in just thinking about the pipeline currently, how many products do you have currently submitted to the FDA that have been at the agency for 30 plus months and I guess how does that picture change as we get through the first quarter? I guess my expectation was that kind of moving through the first quarter that you had quite a few products, something in the high teens that were at the agency more than 30 plus months. Maybe that is incorrect. Maybe you could just talk about that a little bit.

Raj Rai

Yeah, sure. At the end of 2012, we had about nine products that had crossed 24th month of filing threshold. And a few of them were at the 30 month mark because the live at complex and complicated filings but these reminder are over 24 months. So, we are expecting that the ones that were over 24 months are the ones that have the best chance of getting approved in 2013 and the handful of the others would go into beyond 2013 and 2014 and ’15 maybe.

Elliot Wilbur - Needham & Company

And then two financial questions for Tim. With respect to the full-year revenue guidance based on the timing of approvals, it would seem to be a reasonable assumption that revenue should essentially grow throughout the year first quarter being the low point. I just want to make sure that is, in fact, a reasonable assumption.

And then as a follow-up, with respect to SG&A in the third quarter or in the conference call to discuss third-quarter results, you guys had talked about that investment peaking out and be able to keep growth at kind of an inflationary rate. And certainly at the high end of guidance today is something a little bit beyond that. So maybe you could highlight potentially what's changed from some of the earlier commentary.

Tim Dick

Sure, sure. So I see your first point, yes I would expect a ramp throughout the year as a result of the big contributors being for recent launches or to be launched products, particularly the couple of products I'll be layering on Q1, you know will gain momentum as the year goes on those products in particular.

And then as we release the SG&A, I mean if you look at Q3 we were at, I want to say at an annualized SG&A run rate of around 49 million, we're guiding 51 to 54. We had most of our sales and I believe it was about 6% increase over that Q3 run rate. So you've got (inaudible) living in there at a modest increase, but still seeing some leverage as a percentage of revenue and well we did have fully in the number in Q3, would have been our corporate office in India that we are still in the process of establishing. We had people circling on in through Q3, and a couple of positions that remain opened in to Q4. And that would be where the main increment above cost of living is coming in.

Elliot Wilbur - Needham & Company

Okay, then my last question for Raj. With the various channel expansions that you have completed over the last couple of years and also the significant expansion via the Kilitch acquisition and the capacity expansions in the US, the company seems to have a lot on its plate in the short term. Question is sort of tied to strategic opportunities that you are evaluating and what you think the company would be in a position to take on at this point, given a lot of these competing objectives. I mean, I assume that small complementary product acquisitions are very much a possibility, but I am wondering if you would still consider a small to medium sized company acquisitions and just what you may be seeing in terms of those types of opportunity.

Raj Rai

You know Eliot we've become a global player now in our core competencies. So there perhaps could be opportunities to expand geographic presence in different markets and that’s definitely not going to tax our business here in the US. The additional capacities that we have built domestically in the US, and even in India, once the sites gets FDA approved, we can easily buy basket of products, portfolio products that can be manufactured out of our facility. So, I think our platform has become very flexible and to answer your question we are looking at both kind of opportunities.

Operator

We will go next to Michael Higgins of Brinson Patrick Securities.

Michael Higgins - Brinson Patrick Securities

First off, if we go back over the last few years since you have been with Akorn. This press release, the guidance call is a bit different from the norm. Not necessarily a bad thing, but certainly a break from tradition. Can you give us any perspective as to why two weeks ahead of the Q4 call you are providing this conference call? Q4 numbers, I know, are coming earlier than usual, early February instead of a bit later because the market capsized, but even from that it is coming out a bit earlier. Any color you can provide for us?

Tim Dicks

We are reporting two weeks earlier than we would have otherwise but that’s still put us at the end of February. So, we were trying to be more proactive. I believe we issued guidance by press release last year almost the same exact time. We just didn’t have a call to go along with it so we thought it would be more fruitful to have that dialogue at the same time the press release went out rather than wait week until earnings to add a narrative along with it.

Raj Rai

And you know Michael we have lot of moving parts in our business, you know before business was small, less complicated, less attractive, you know we have grown I think you know we feel that there has to be little bit more transparency, there has to be more discussion on various topics you know we have different you know moving parts so we do need to have an outreach program where we can talk to people and address any questions.

Michael Higgins - Brinson Patrick Securities

Just a follow-up. You would expect a conference call then following the release of the Q4 numbers?

Tim Dicks

Yes in fact and I think we have noted the date in the press release, it will be on February 26. So all our convention of with 10 AM Eastern Tuesday morning call.

Michael Higgins - Brinson Patrick Securities

Okay. Regarding the Somerset plant in particular, you've pointed to modernization and some efficiency improvements, et cetera, at that plant. You talked about additional capacity essentially. Are you able to share for us in any fashion how the margins have improved for those products you have been manufacturing at that plant from prior to the efficiency modernization to afterwards? Because I know there was additional products that have come online from that plant and that same business line, but for those older products, I guess, we would call them the 2009 group, any changes you can report for us on those?

Raj Rai

Well the modernization obviously is more risk mitigation and the capacity expansion is where when we start to see margins perhaps improving in the near future. So, at the moment we have nothing report because we are just getting online with the expanded capacity but in the coming quarters we’ll be able to provide more color on that.

Michael Higgins - Brinson Patrick Securities

Okay. So, it’s baked into the 2013 guidance then.

Raj Rai

Correct.

Michael Higgins - Brinson Patrick Securities

I think we've really on the call tried to get some help on R&D in future years, but if I can come back to it again here in 2014 and I know we are not there yet, but it helps us with what kind of products you are looking at. Would you expect R&D to be more to the south or south of 20 million per year? Can you give us any color on that?

Raj Rai

Well north of 20 million, I mean you’re projecting 2013 to be between 22 to 24 million.

Michael Higgins - Brinson Patrick Securities

Is it the continued bio-equivalency studies and strategy that we should expect to continue in future years?

Raj Rai

Well, it’ll be the combination of making developing more products and there are still some high value products that are in underdevelopment that would require BE studies.

Michael Higgins - Brinson Patrick Securities

Okay. And then one last quick one. Tim, on the NOLs do we expect to get some benefit in 2014 from those?

Tim Dick

We have some state NOLs that were suspended, that those are remaining NOLs that we have and if the state acts as they said they would when they suspended them, they would be reinstated in 2014 we get benefit. I don’t have a good number off top off my head on what the impact would be there but I am a little skeptical with the state of things in our home state that those will get reinstated but we can always hope.

Michael Higgins - Brinson Patrick Securities

Right, right. Understood and we’re talking 4 or 5% kind of a thing?

Tim Dick

So our state tax rate is 9.5% and so it could be a meaningful amount as we work through those. But I'll have to get back to you on the details.

Operator

We'll go to Sumant Kulkarni of Bank of America Merrill Lynch.

Sumant Kulkarni - Bank of America Merrill Lynch

My first one is on the top line growth within the outlook that's not attributable to the recently launched or to be launched products. What are the components of that and what kind of margins do those revenues coming at?

Tim Dick

Sumant, this is Tim. So those are layering on at similar margins to 2012 as I mentioned in my comments, I mean our base business and growth that's coming from that base business I guess was implied in that comment is holding at the same margins of simply the new growth that's layering on that's at a lower margin. And we've had a nice organic growth rate for several years as we've been kind of catching up to the competition both on the products we have in the market on both ophthalmics and injectables, and we've made some decent inroads, so we're not expecting the same level of growth out of those but we have low to mid to single digit organic growth expected from the base.

Sumant Kulkarni - Bank of America Merrill Lynch

And given that the outlook does not include any new pipeline products, when can we realistically expect an uptick in the gross margin, is it a more by year thing or a few months or how should we think about that?

Raj Rai

Sumant this is Raj. As our internal pipeline, the products that we have developed and filed from our facilities, they come online, that's the time when we start to see you know the margins ticking up again. So I think the 2014 will be the year when you start seeing it. And then once we start longer term, start manufacturing more products out of India for US consumption as well as international consumption, that's when you know again it would further have a positive impact to the margins.

Sumant Kulkarni - Bank of America Merrill Lynch

And on your expected number of products, you have 720 and 12 in 2013 through 2015. If you had to pick what would be the competition levels beyond those and are there any truly limited competition products within those?

Raj Rai

On 2013 products…

Tim Dick

Depending on the three years.

Raj Rai

But in the three years, you know obviously the generic products are already have competition. So, the brands are the products that you know some we can estimate as to who the usual suspects are, that would come to the party. So, can’t tell you what the competitive landscape is going to be but where we have generic competition, there are some products that will have limited competition because of the nature of the products, especially in the ophthalmic space. So, it can vary product by product.

Sumant Kulkarni - Bank of America Merrill Lynch

Is there is any legal risk associated with the launch of the Protonix IV product given that there are patents still in the orange book.

Raj Rai

No, you know we obviously, the company that we acquired the product from order in the backlog, so we are still unclear.

Operator

We will go next to David Steinberg of Deutsche Bank.

David Steinberg - Deutsche Bank

A few questions and thanks by the way for the more detail on the market size of the opportunities going forward. First question, just on the tax rate. I was understanding that we should expect a 39% tax rate going forward. And I was just curious is it 37% you are forecasting for this year? And I think you mentioned possibly in 2014, is that solely related to NOLs or longer term could your tax rate be below 39%?

Tim Dick

You saw there was no NOL impact in 2013 and I have it accounted on it in 2014, so we are talking a longer term stepping down of the rate below 39%.

David Steinberg - Deutsche Bank

Okay. Tim, is 37% a reasonable tax rate to assume you know for the next three or four years, is that what you’re saying?

Tim Dick

Yes, now there are certain tax credits that we are receiving there that won’t be you know entirely applicable domestic production tax credit that as we are making product out of India, we won’t get the same size of the benefits that we’re getting say in the 2013 rates and I am giving you but I think 37 is a good number to use for the next several years.

David Steinberg - Deutsche Bank

And turning to your product launch table, the one that got my attention was 2015 on the other category. Two products, $700 million and it is generalized. That's pretty interesting. Do we assume that it's just one entrant right now? And secondly, do you expect other entrants in either of those two particular products?

Raj Rai

Well, it’s a sizable market size, so obviously we could expect more than just us coming in. I think I believe that there are three to four players already for those product categories.

David Steinberg - Deutsche Bank

And then just previous question asked in different way. The brands looks like you’re averaging about $100 million per product expect for the other which is $200 million approximately in 2014, I was curious, are there are you first to file on any of these?

Raj Rai

No.

David Steinberg - Deutsche Bank

Okay. And then also in your pipeline on a November call you indicated that there were 9 NDAs they were on file for 24 months and this year you’re talking about 7. So, is the inference that two of those products were approved between November and now or some other type of delay?

Raj Rai

No, Pantoprazole was one product that was approved, that was announced, so that took care of one end (inaudible) what the other product, well I think were attentive to that we were having that one out beyond 2013.

David Steinberg - Deutsche Bank

And then on Decatur, you just indicated that you had enough capacity to produce all the expected approvals this year and into next year. Know you have been focusing on these shortage products. Are you still fairly aggressive in pursuing those and do you have capacity?

Raj Rai

No these shortage products we brought a bunch of those products back to life in 2012 and subsequently the shortages sort of been resolved for products. So, we’re just making just a residual value perhaps 10 to 15% of what we were selling before, that’s what we’re making. So, the bottom line is that those ANDAs are warmed in the event that is shortage again we’ll be able to quickly respond to the storage because it took us a little bit longer last time when the shortage were happening. So no they are not impacting our capacity right now.

David Steinberg - Deutsche Bank

And just one final question. I just want to clarify previous questions on your base business. So 2013 includes no ANDA approvals. I think you said just a potential generic Nembutal is not included. And could you just clarify on the base, which often erodes with generic companies, are you assuming any erosion of any current products?

Raj Rai

Well the answer to the Nembutal question is yes, we have not factored in any unit and price erosion in our forecast. The base business eluded to modestly grow in single digits, that’s a forecast and that factors into any ups and down that we may see because of competitiveness.

Operator

We'll go to Steven Crowley of Craig-Hallum Capital Group.

Steven Crowley - Craig-Hallum Capital Group

One follow-up for me since the call has gone long. In terms of the sales force bifurcation and significant expansion you did in 2012, Raj, can you tell us what kind of, I will call them election returns you've gotten on the productivity and the effectiveness of this scheme with your sales force maybe as it relates to what they are doing with GPO contracts in compliance or anything else that might be an anecdotal way to answer the question.

Raj Rai

Steve, the bulk for our sales force came towards the end of Q3. That's where we completed, so you had you know fourth quarter as the sort of first quarter when we had the full sales force. So I think you'll have to give another 90 day or so to see the effectiveness, but definitely we have seen the impact because you know from a launch standpoint and that is yet to be determined because we have to launch Pantoprazole, TD vaccine and so in support. So those are the products are not effectively launched as yet. So that’s where they will come handy, so I think give us another 90 days or so before I can respond to that question with clarity.

Steven Crowley - Craig-Hallum Capital Group

It looks like these launch products that you have discussed today, either Q4 or Q1, put some new stuff in the hands of each group. I guess that’s pretty timely given you split them up.

Raj Rai

That is correct. And it was in anticipation of getting new products approved.

Operator

(Operator instructions). We will go to Jason Gerberry of Lerrink Swann.

Jason Gerberry - Leerink Swann

Thanks for taking the follow-up. Just one clarification point on Kilitch. As I am reading the press release, so will some of the facilities be inspected in 2013 or 2014 and could we see potentially products coming out of Kilitch in 2014 or do you expect all of the facilities to be inspected in 2015 and 2016 timeframe?

Raj Rai

So the four facilities that are currently operational you know our hope is that early 2014 will get the inspection, that doesn’t mean that the products will get approved. That means that you know the facilities will get and FDA or not. The products would probably get approved in the next a year after that or a year and half after that. When we have a new facility that we are starting to build out is the oncology facility and then we would expanding one excising general injectable facility to add new production lines and add lyophilization. So those two facilities will come online in 2015, that’s the time our hope is that we can get FDA, you know back in by 2016 to approve those facilities. So, those are a bit longer term but the first four facilities will come online, sometime in 2014 in terms of getting an approval from FDA but the products will take some more time to be approved.

Operator

At this time, I will turn the conference back to management for any additional remarks.

Raj Rai

Thank you for everybody’s participation. I look forward in speaking with you during our yearend quarterly conference call. Thanks once again.

Operator

And that does conclude today’s conference call. Thank you for your participation.

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