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Flamel Technologies SA (NASDAQ:FLML)

Q4 2012 Results Earnings Call

February 28, 2013 8:30 AM ET

Executives

Bob Yedid - ICR, Investor Relations

Mike Anderson - Chief Executive Officer

Siân Crouzet - Principal Financial Officer

Analysts

Matt Kaplan - Ladenberg Thalman

Peter Butler - Glen Hill Investments

Russell Cleveland - RENN Capital

Operator

Please standby. Good morning, ladies and gentlemen. And welcome to the Flamel Technologies Announces Fourth Quarter 2012 Results Conference Call. Please note that this call is being recorded. There will be a question-and-answer session following the speakers’ remarks. (Operator Instructions)

I’d now like to turn the call over to Mr. Bob Yedid, Investor Relations. Please go ahead, sir.

Bob Yedid

Good morning. And welcome to Flamel Technologies 2012 fourth quarter conference call. This is Bob Yedid of ICR, Investor Relations. Before we begin I will start with some cautionary statements.

The following presentation regarding Flamel Technologies S.A. includes a number of matters particularly as it relates to the status of various research projects and technology platforms that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

The presentation reflect the current views of Flamel’s management with respect to future events and are subject to risks and uncertainties that could actual results to differ materially from those contemplated in such forward-looking statement.

These risks include risk that product and development stage may not achieve scientific objectives or milestones, or meet stringent regulatory requirements, uncertainties regarding market acceptance of products and development, the impact of competitive product and pricing, and the risk associated with Flamel’s reliance on outside parties and key strategic alliances.

These and other risks are described more fully on Flamel’s public filings except as required by law, Flamel did not intend and disclaims any duty or obligations to update or revise any forward-looking statements contained in this presentation reflect new information, future events or otherwise.

After the prepared remarks we’ll be opening the call to question-and-answer period. At this time, it is my pleasure to turn the conference over to Mike Anderson, Chief Executive Officer of Flamel Technologies. Mike?

Mike Anderson

Good morning, ladies and gentlemen. Thank you all for joining us today. Flamel continues to make great progress in our transformation from being a standalone drug delivery company to a specialty pharma company with outstanding drug delivery capabilities. This is an important distinction that we’ll discuss later.

We are gaining momentum on a number of fronts and becoming a more vertically integrated specialty pharma company. We continue to believe that this is our best opportunity for delivering sustainable growth and increasing shareholder value.

The ability to compliment our core revenue streams with new proprietary products is critical to providing both sustainable revenue and earning growth for Flamel. Now I’d like to be very clear here, however, that in despite the development of our own product pipeline, we have not abundant nor have we slow down in the drug development project side of our business.

We believe we have excellent technology and we intend to broaden it use. Moreover, we continue to make strong progress on the business development front and we will look forward to sharing more details on new deals in the coming quarters.

First, as we mentioned on our last call, our NDA submission for a new hospital-based product was accepted by the FDA in September 2012. This is Flamel’s first ever NDA submission and I’m confident that the NDA leveraged the wealth of expertise and experience that we have in both clinical and in regulatory fairs at Flamel.

The FDA’s PDUFA target action date for our NDA is May 31, 2013. While we wait the FDA’s action, the company has already preparing for launch. We expect to have product available to providers and to patients as quickly as possible after an approval. If the product is approved on time, we expect the product to generate sales in 2013 and to have a positive and significant impact on our financial results, including positive margin contribution.

For competitive reasons in order to maximize the value of the product and its potential launch, we are not disclosing the molecule or the indication at this time. But we have said that it’s targeted for the hospital setting and could contribute from $25 million to $35 million in annual revenues for Flamel at maturity.

Moreover, we anticipate the drug will generate gross margins on par with other proprietary pharmaceuticals typically seen in the specialty pharma space. Since this product will be marketed by Flamel directly, the entire operating profit stream flows directly to our bottom line.

Second, beyond this submitted NDA our pipeline of proprietary products is progressing as expected. The greatest progress to date on our growing clinical portfolio is the pipeline of the acquired Eclat projects. Having recently filed our second NDA, we anticipate the FDA’s acceptance of it in the second quarter. We will not shed any more light on that submission until it is officially -- until that’s accepted.

Of course, it’s important to note that the filing fees for many NDAs increased back in October of 2012 from $750,000 to almost $2 million, which is a substantial increase that should certainly cause smaller companies to think before filing applications. In fact, it could serve as a barrier-to-entry in the future.

We will be updating investors at the appropriate time with substantial information about our status. I will be discussing our pipeline at greater length after Siân’s remarks. Third, as we announced Flamel completed a debt financing with one of our shareholders that raised $14.5 million in net proceeds.

This additional financing provides us with the means to advance our extensive R&D portfolio to adequately prepare for product launches and to pursue attractive business development opportunities. At this point, I’d like to turn it over to Siân Crouzet, Flamel’s Principal Finance Officer, to discuss the financial results from the fourth quarter. Siân?

Siân Crouzet

Thank you, Mike and good morning. Total revenue for the fourth quarter 2012 was $7.3 million compared to $8.6 million in the fourth quarter of 2011. The decrease was primarily driven by lower product sales and services, offset by higher license and research revenue, in part due to revenue received on the termination of the research partnership.

In addition, other revenues in the quarter which consisted primarily of royalty income from GSK on the sales of Coreg CR was $1.7 million in the fourth quarter of 2012 compared to $2.2 million in the prior year quarter, reflecting a decline in sales of Coreg CR.

Total costs and expenses during the fourth quarter of 2012 decreased to $1.2 million versus $10.9 million in the year ago period. As explained in our press release of this morning, these amounts include two large non-cash accounting entry. The first is a favorable $16.5 million adjustment from the updated fair value measurement of the liabilities outstanding for the acquisition of Éclat.

As a reminder, the consideration to the acquisition consists of a $12 million note, whose repayment is tied to the approval and net sales of certain Éclat products, $3.3 million warrants and earn-out payments based on the gross profit achieved on the Éclat products. These commitments were valued as acquisitions of over $60 million and are now valued just under $32 million.

It’s valuation is based on current intimation and data, including financial projections related to the potential of the Éclat products, as well as the share price and interest rate and so far as they influence the value of the warrants.

The second non-cash entry is an impairment of assets of $7.2 million, which reflects a revaluation of the Éclat Pharmaceuticals assets acquired in March 2012. Excluding these adjustments, fourth quarter 2012 operating expenses would have been $10.6 million compared to $10.9 million in the prior year period. This decrease demonstrates management cost discipline as the fourth quarter 2012 includes the additional expenses from the Éclat business that were not present in the prior year quarter.

Now, I would like to briefly run through some of the expense categories. Costs of goods and services sold for the fourth quarter of 2012 were $1.5 million versus $1.9 million in the fourth quarter of 2011. Research and development costs in the fourth quarter 2012 totaled $6.2 million versus $5.9 million in the year ago period. This increase was primarily due to R&D conducted to support Éclat portfolio and also to spending on select cross development projects.

SG&A expenses were $2.9 million in the fourth quarter of 2012 versus $3.2 million in the prior year quarter, again, assumptions of improved cost discipline. Total interest expense for the fourth quarter of 2012 was $1.6 million which was essentially the passage of time on evaluation of Éclat acquisition liability.

Net income for the fourth quarter of 2012 was $9.1 million compared to a net loss of $2.1 million in the year ago period. Net income per share was $0.36 compared to a net loss per share of $0.08 in the fourth quarter of 2011. Excluding the impact of the remeasurement of acquisition liabilities, asset impairments and deferred taxes, net loss on loss per share for the fourth quarter of 2012 is $3.6 million and $0.14 respectively.

With respect to cash and marketable securities, we ended the year with $9.2 million compared to $24.5 million at the end of 2011. As Mike mentioned, we closed the debt financing in February 2013 for net proceeds of $14.5 million.

This financing is advantageous. As it allows the company to invest in products that we anticipate will come through the market in the near term as well as products in our R&D pipeline while avoiding dilution to the current equity holders.

With that, I will now turn the call back over to Mike.

Mike Anderson

Thank you, Siân. At this point, I would like to take a few moments to provide a broader discussion of Flamel’s corporate strategies so that our current and our perspective shareholders understand the direction we’re taking. The first area is the execution on the Éclat pipeline that was acquired in March of 2012 and when I joined the company as CEO.

As I mentioned previously, the NDA for the first product was filed last year and we have a PDUFA date of May 31st. We focused significant resources on other products in that pipeline and in fact as previously mentioned have submitted a second NDA that has not yet been accepted.

We also anticipate filing additional NDAs from that pipeline in 2013. With regards to our corporate strategy and therapeutic focus of these products, we cannot and will not discuss specifics at this point for competitive reasons. However, as we receive product approvals or product acceptances from the FDA, we will communicate our strategy proactively with investors.

At this point, I’m comfortable telling you that we have more than a dozen molecules in various stages of R&D completion, including several that are clinics stage. Those products cover again that of therapeutic categories including CNS, Hepatitis C, heart disease, pain management and others.

Second, Flamel continues to aggressively pursue partnerships using our world-class drug delivery platforms with large and small pharma partners. Some of those projects are moving along at a reasonable pace and are in fact funded by our pharma partners. Of course, some of these projects are dependent on our partners and are in some cases, out of our direct control.

This area of our business continues to progress well. From an operational standpoint, we reorganized our R&D effort to boost productivity and accountability. One group in R&D will focus on project completion. That is getting products into the FDA and approved over the goal line. The other group will be more focused on product innovation, but adds value over the long-term, not only to the products that we pursue but to the technology base itself.

Finally, an extremely important to our progress, Flamel has a series of four internal proprietary products in our pipeline. These products, some of which will use the 505(b)(2) pathway are being actively developed by us today. We are self funding them and we have made product selections based on our view of the eventual commercial value of the products.

We also believe that as a general rule, they will be faster development projects, less expensive and ultimately less risky, although of course technical hurdles are always possible when you add drug delivery to molecules. If we are correct then our stakeholders should see progress much faster than has been the case in the past.

These products utilize one of Flamel’s proprietary drug delivery technologies that will either, increase the efficacy of the drug, reduce costs versus alternative therapies and or reduced patient side effects and thereby improve patient compliance, which reduces healthcare cost in the long run.

Each of the products is designed, understanding that most third-party payers will no longer arbitrarily pay only for convenience. At a logical stage of the development process, management will evaluate, whether we can affectively commercialized them ourselves or whether our shareholders would be better served by our funding partners who can more affectively create value in the marketplace.

We view these pipeline projects that I’ve just described as mid-term and long-term revenue opportunities for Flamel. Overall, from a revenue standpoint, we broadened Flamel from a drug delivery company with just one source of revenue a year ago to a specialty pharmaceutical company that now has three distinctive sources of revenue, covering the short-term, the mid-term and the long-term.

This three-front strategy is build upon a very contemporary and the state-of-art portfolio of drug delivery technologies. We intend to use it to differentiate and to protect our products. Medusa, our injectable technology has proven its value in solving problems associated with proteins, peptides, small molecules and in some cases, monoclonal antibodies.

Trigger Lock, our proprietary technology that makes it significantly more difficult to abuse narcotics, made very well to be one of the few technologies capable of meeting FDA’s new draft guidance on the abuse resistant requirements.

LiquiTime, an extended release liquid technology is expected to play a role in the market with few competitors and of course, Micropump and association with our previous approval on Coreg CR is a proven and approved technology. In short, our portfolio is broad, it is novel and it’s effective.

Ultimately, the senior management at Flamel believes that execution of this strategy will be a value for shareholders and not just in the long-term. We are committed to increasing the visibility to our shareholders into our pipeline, as our programs advanced and look forward to sharing meaningful updates from our pipeline as they become available.

We have made substantial progress in 2012 and management understands that there is more to do in 2013 and 2014. I can assure you that we are committed to moving ahead on this aggressively.

Thank you for participating on today’s call. At this point, operator, I’d like to open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) We will hear first from Matt Kaplan with Ladenberg Thalman.

Matt Kaplan - Ladenberg Thalman

Hey, Mike. Can you hear me?

Mike Anderson

We can. Good morning, Mattie.

Matt Kaplan - Ladenberg Thalman

Good morning. Thanks for taking my questions. I have a number of questions for you. Maybe just kind of, first start out with I guess some of the numbers that you announced this quarter and help me better understand some of the one-time charges that were announced in terms of the $16.5 million adjustment and also the $7.2 million R&D impairment asset charge.

Were these I guess related to the Eclat product, specifically in a way that some of the products that you intended to develop or having that in the Eclat acquisition pipeline, have they formed by the wayside or what cause these charges in terms of -- especially in the $7.2 million R&D impairment?

Mike Anderson

Right. So, great question and I will be the first to admit it is somewhat confusing giving that notion that you are constantly reevaluating and reassessing the value for a period of time. Since the acquisition of Eclat back in last March, there was early on one product that wasn’t part of the original equation that did dropout of the pipeline and so that obviously impacts it.

As Siân addressed math at same time, the share price, the value of the warrants, the impact of time and interest, all of those things also impact those adjustments. So it’s a combination of the two. But in terms of the impairment itself, a large piece of it clearly was having dropped in entire project that was originally cited to be developed.

All along throughout the process as a general rule of thumb, pharma companies including Flamel, we reassess marketplaces and those things change from time to time. Sometimes you change your assessments up, sometimes your forecast may decline and so what’s going on in the marketplace, pricing, there are a number of different parameters that go into that. And so that’s what you see and that’s what sort of makes up the bulk of those kinds of numbers that we’ve described.

Matt Kaplan - Ladenberg Thalman

Fair enough. Okay. Thanks for additional color. Congrats on filing the second NDA. I recall prior in our -- in our prior remarks, you said that Eclat had a kind of a handful size of NDAs that were planned. So this mean there are four NDAs planned at this point and, or are there -- in terms of when you speak about the 12 molecules at various stages of development, is that referring to Flamel in total or is that referring to Eclat specifically?

Mike Anderson

You are talking about the number of molecules that we talked about.

Matt Kaplan - Ladenberg Thalman

Yeah. You started talking in your prepared remarks and started talking about the Eclat pipeline in the NDAs number one and two and additional NDA is expected. And then you made a comment that there are more than 12 compounds, molecules at various stages. I was wondering if that is reflective of Flamel in total and includes the four internal programs that you mentioned, proprietary programs or is that Eclat only?

Mike Anderson

Okay. Well, first of all…

Matt Kaplan - Ladenberg Thalman

Another question I kind of mixed in there, I apologize.

Mike Anderson

No. And I think, hopefully, I’ll answer all of them. Number one is we are not prepared at this point to give a precise number of projects that are in that Eclat pipeline. But understand that there was a finite group that started with and we’ll continually looking, it’s a sort of different approach as you may be aware and even though we’ve not described it. And we are continuing looking whether it make sense for us to develop products under the same auspices that we did those other ones.

In terms of the second question which was the number of molecules? My saying, I was comfortable with over 12 -- to advice you of over 12 molecules actually does not include the Eclat projects and it does not include our own internal projects. Those are projects that we have going on with a variety of partners and as you can imagine are moving at various paces.

One of the issue is that’s quite clearly occurred over the past number of years is that standalone drug delivery firms had found themselves becoming fewer in number. Reason for that is just a lot of consolidation. But at the same time, people who are serious about molecules for the most part, not always, but the most part, will bring back work in-house.

So it’s very difficult when you are dependent solely upon the partner coming to your door, providing you with a molecule or too and then progressing at your partners pace. It’s very difficult to build a sustain business doing that. In fact today, I’d almost describe this impossible.

And that’s why our new three-pronged approach, we believe better protects and creates value for shareholders because we are, A, no longer solely dependent upon partners and B, we are able to look at addressing needs of the company in both the short and the medium-term rather then almost exclusively in the long haul. Did I answer all your questions?

Matt Kaplan - Ladenberg Thalman

Yeah. No. That’s good.

Mike Anderson

Okay.

Matt Kaplan - Ladenberg Thalman

And I just want to focus on the Eclat pipeline for a minute. Can you give us just a sense in terms of a typical product and I’m not asking what indication, et cetera? Can you give us a sense in terms on a typical product, the timeline of the ramp to peak revenues?

And then also give us a sense of the commercial infrastructure needed to launch these products at Flamel as you are doing it on your own, in aggregate I guess now for the four products, four projects that you have?

Mike Anderson

Okay. Good questions. The average ramp time will vary. I would guess if I were to and if we just see speculation on my part that.

Matt Kaplan - Ladenberg Thalman

Yeah.

Mike Anderson

It would be much more rapid then as if you were doing a brand new chemical entity that had unique properties and had to be sold by 2000 person sales force. It’s faster than that and not nearly as fast as generic.

But so I think if you look to 12 months as being 18 months to getting to peak, you’d probably based on the molecule not be to too far off. So that was in terms of availability of the product and the ramp up, that’s pretty much what you would be talking about. And refresh me on the second part of your question again, Matt?

Matt Kaplan - Ladenberg Thalman

I guess the second part is, I guess, that’s typical for each of the four ramp-up? And then second part was the commercial infrastructure needed at Flamel to launch these four NDAs.

Mike Anderson

Okay. Sure. I -- let me try to answer it that for you by using example. If you look at specialty pharma companies today, you see specialty pharmacy companies specializing in most -- in many cases in focus therapeutic categories. So they’ll go out and hire a small group of people who can go call a neurologist or go call a gastroenterologist or whatever would be and the largest company gets the more.

We -- as we’ve mentioned before, our approach with these products is such that we believe that we are going to be able to do an effective job without a great deal of infrastructure.

I’m not -- so in other words, we do -- we are not planning nor do we believe it’s necessary to go out and hire a 100 reps or 200 reps. We are going to have to invest in the launch of those products and in fact we are doing that as we speak. But there are many other ways that you can effectively promote products today unless you are selling and at a hypertensive medication that’s a new chemical entity.

More and more frequently you see tools used such as e-detailing. You see sampling can be done without the benefit of the sales force. You can do collateral material and dispense it to people who are known through IMS and other market research to be drivers of particular products of therapeutic categories. So what we are doing, I would like and to more of a surgical kind of an approach, reaching the decision makers for these projects without lot of feet on the street so to speak.

So I didn’t give you a specific number because I can’t. But I can assure you that we are not in a position to be able to go out and hire, catch the thousands to promote this and quite candidly, we don’t even need to be able to do that. So we are going to use these other tools and we’ll continue to assess our product progress as we move throughout the launch period.

Matt Kaplan - Ladenberg Thalman

So, what I’m hearing is that, potentially is something like a handful to 10 people to do something like this and perhaps you’ll leverage specialty pharmacies, as well as to help you distribute the products or is that…

Mike Anderson

Matt, you are expanding it now, I think to say that we have few people involved in the sales and marketing of this is an appropriate way to put it, and we haven’t described whether we’d require specialty pharmacy or whether its, these are projects that you would -- products that you would expect to be able to distribute through normal pharmaceutical channels.

Matt Kaplan - Ladenberg Thalman

All right. All right. And then just a couple more questions, I’ll jump back in the queue. But just wanted to shift gears a little bit in terms of your, the internal projects that you are working on and can you give us a little bit more color on the four projects, in terms of timing and when do you think will have kind of some proof-of-concept type of data and you’ll be able to make the pivot point in terms of decision rather you are kind of continuing on your own or partner it or continue the project all together?

Mike Anderson

Yeah. Well, they vary and the projects that I was eluding to will have -- each has slightly different set of circumstances. But the long and short of it is, is that we have already begun the development process.

We could very well, if we do everything right and don’t have any hiccups, we could even potentially file one up from this year. I would tend to look out the more as very clear 14 filings. And we would make a decision long before then as to whether we are going to market them ourselves or whether we are going to find the partner.

Understand that, if you are not dealing with a brand new peptide or protein, and you are dealing in most cases with existing molecules, proof-of-concept and that sort of thing are very differently defined then it is if you are taking a molecule that you’ve just inherited, and know nothing about the talk, safety and all those other parameters. So we’ve looked for those in our pipeline for projects that we think add significant value to the healthcare system.

I’m not talking about simply making something more convenient, those days are gone. These are projects that we think that are so commercially attractive that once we approach a partner with them that we won’t have difficulty finding an appropriate partner if that’s the decision that we make to do.

Operator

(Operator Instructions) We’ll hear next from Peter Butler with Glen Hill Investments.

Peter Butler - Glen Hill Investments

Good day. Good day.

Mike Anderson

Hello Peter.

Peter Butler - Glen Hill Investments

Hi. I had a -- my first question is a couple of parts through it but where do you think Flamel is going to look like in the fourth quarter. I think investors are looking for some guidance on where you think you’re going to be. And you talked about the acquired pipeline, I take it as four, five products in that pipeline.

Are all going to be filed this year? Are all going to expected to be cleared by the end of next year. In the fourth quarter, are you going to make any money, free cash flow et cetera. And when do we -- it’s a clear victory and you say we’re on a sustainable earnings growth trajectory?

Mike Anderson

Okay. So let me address the ones that you’ve got there. First and foremost, I’m a little apprehensive about prognosticating what fourth quarter looks like but I can tell you this. We have constructed a corporate and strategic plan that calls for us to get a product approval or multiple product approvals perhaps this year.

But certainly, one we’re planning on, we’ve given you the scope of what that project could amount to the company. We’re going to continue to be careful with our spending and we hope and our objective will be to be able to ride fourth quarter that looks erratically different from the fourth quarter that you just saw.

As these products come to maturation i.e. they are filed, they are proved and put into the market place. I don’t believe that it will take long if any time whatsoever much after, end of ‘14, before we can be able to show profitability on a sustain basis. That’s what our objective is.

Every employee at Flamel clearly understands the objective is to make money. We have some long suffering shareholders and we believe that they are entitled at this point to seeing the benefits of this new contemporary strategy. And we believe the balls in our court to execute, we’ll be able to do that.

In terms of the timing of the projects, it’s a little different goal to go into all of those. And I don’t want to do that but we have said that we earlier in our prepared remarks that we would expect to potentially file additional NDAs over the course of the year. And that even our internal pipeline at Flamel could provide something close to the end of the year.

It may be early ‘14 but either way you look at it, we’re clearly on the right pathway here. And the good news about all of those projects whether they be the original Éclat projects or the newly inserted, internally developed Flamel projects is that they all have good commercial value. They are not all blockbusters but they have good commercial value and when you string a series of doubles together, you end up with a couple of runs. And that’s what we’re looking to do.

Peter Butler - Glen Hill Investments

Okay. This speculation in the stock market that this first Éclat drug may have sales potential significantly more than year, hopefully conservative estimate. I’ve heard numbers like $60 million, $70 million, even maybe getting up to $100 million.

And how conservative is your forecast and does that -- does your forecast include -- nobody has asked about your pricing power and how are you going to price your drugs. Do you expect to have really good pricing power, in which case you could add substantially to the sales potential of these entities?

Mike Anderson

Well, the forecast that we described is what we -- best I can tell you is that’s what we expect to do on them. I don’t -- I really don’t have much else to add on that. We described it as potentially a peak thing $25 million to $35 million and we’ll stick with it -- that at this point.

Operator

(Operator Instructions) We’ll hear next from Russell Cleveland with RENN Capital.

Russell Cleveland - RENN Capital

Hello, Mike.

Mike Anderson

Hi Russell.

Russell Cleveland - RENN Capital

Presentation here today, a little bit more on the Éclat products. Now, you mentioned $25 million to $35 million, we have a new NDA coming in, kind of, following up to last gentlemen’s question. What is the thought on the potential revenues of that? Is that going to be somewhat to the first product and so it’s coming on? So that’s the first question. And then I have one more. So give us some thought.

Mike Anderson

Okay. So, Russell, it’s a good question and at this point in time, we’re really not prepared to answer that. As we move further down, we’ll try to provide the same sort of color. I have to be candid with you. We didn’t announce the first project until it had been accepted by the FDA. And we’ve done something a little different this time because we talked about the difference in cost of PDUFA fee. And that’s a substantial investment for company of our size.

So we wanted to at least draw your attention to the fact that as we go forward typically, the minimum entry point for -- and the point that we paid on the one we just did was a $2 million net. That’s a large -- at Pfizer, that’s not material, with Flamel it’s very, very material.

The ultimate result of that will be is that people including Flamel will be very careful about projects that you develop and file, knowing that you now have a much bigger nut built into the front end of the process. So I promise you that at some time hopefully, next quarter, we’ll be able to provide you with more description on that second NDA. And hopefully, we’ll be able to share some really good news on the first.

Russell Cleveland - RENN Capital

Okay. And I think it would be hopeful to shareholders if we talked in terms of goals. I mean, not forecast but what’s our goals here for these projects as they come on? I think that would be very helpful.

Now, the last question, there is perception and then there is realty and they are often times ready for our part. Now the perception on some shareholders at Flamel is that we have a number of good projects that were [technical difficulty] but they will be material to some?

Mike Anderson

Russell, we’re having a little trouble hearing you here. I don’t know whether it’s the connection or what?

Russell Cleveland - RENN Capital

May be my cell phone here. So it’s still…

Mike Anderson

There you go. That’s much better.

Russell Cleveland - RENN Capital

Is that better? Okay.

Mike Anderson

Could you ask the question again, I’m sorry.

Russell Cleveland - RENN Capital

Yeah. As I mentioned, there is perception and there is realty and there has been a perception that we have a number of projects that are very material and good, particularly drug delivery and so forth. But we just seem to either be dragging our feet or something is not braining these to fruition. So can you comment on that from your perspective?

Mike Anderson

Yeah. I’ll be glad to. Well, first of all, the projects that people who have held interest in Flamel over a period of time have come to expect our partnered projects, right. And their projects that were under the control of a partnered for better or for worse and they proceeded at the partner’s pace. The partner makes the decision as to when they want to do it, how they want to do it most of the time and whether or not at the end of day they would want to do it at all.

And in many of those cases, partner’s interest change, so we sit here in the older model, which was appropriate and quite popular a number of years ago and we wait on those things to come to pass. Sometimes, time goes on and therapies change. There are just so many different things that are also but impacted.

So it’s still an important part of our business. It’s still a part of the business we want to pursue. But we can no longer wait for that kind of result because, as you have seen it sometimes doesn’t come. So what we are doing is we are being much more proactive in controlling our destiny by moving the Eclat projects forward by inserting our own identified commercial opportunities in our pipeline.

And between the three of them, we believe we are going to be able to build a good business here, one that is profitable, one that grows and one that has legs. And you’ve seen this happen, company after company, standalone drug deliveries more send to either specialty pharma companies or in some cases be absorbed.

The real beauty here is that we really do have very good technology. We just need to put it into the right spots. We need to have a blend of short-term, medium-term and long-term opportunities and I think we are going to be just fine.

Operator

We’ll hear next from Matt Kaplan with Ladenberg Thalman.

Matt Kaplan - Ladenberg Thalman

Hey, guys. Thanks for taking my follow-up. Just want to get -- you talked about business development. Can you give us an update in terms of the status of your business development effort in particular with alpha-interferon for ex-U.S, beta interferon ex-U.S. and your Trigger Lock programs and update with that as well?

Mike Anderson

Okay. Well, as you are aware, we -- Merck Serono, with whom we had a partnership on interferon beta has terminated the agreement for convenience. We’ve talked about that later in the 2012 period. We still have an interest in interferon beta and we are going to look around and see if we can find the right partner for it. We still have Interferon-Alpha, which as you know is still isn’t partnered.

We’ve had a number -- we still believe by the way, while both of those products have been around for a while we still think there is value in both of them. That value may not necessarily be in the U.S. or Canada or maybe even Western Europe. But if you go back and look at where hepatitis is, it didn’t in any of those three places to start with. So we have conversations ongoing.

Business development conversations are an interesting thing. They proceed along, they stop for a while, they precede some more and no matter how much you try to speed them up. They just take their course. And sometimes they don’t happen like you think they will. But we have good discussions ongoing with those projects and we have as you know from a historical perspective, other what I will call Biobetters that we worked on, that have I think potential in the marketplace. I think historically, we talked about things like the Exenatide XL and others.

So we still believe and we are actively pursuing potential partners. There are a lot of big pharma companies today. Some that might surprise you by looking to build Biobetter operations. Some that you never would have guessed 10-years ago are actually trying to get into a Biobetter kind of a play. It’s outside their -- what would appear to be their core and they are. And we actually have some ongoing conversations with them.

In terms of Trigger Lock, best I can tell you is we have some Trigger Lock partnerships and we are continuing to work on those. And we think that given that FDA’s new abuse resisted guidance, the draft guidance. Once you read it and you look at the characteristics of Trigger Lock. We feel kind of good about it and so we are doing everything we can to move those projects along and to also find new potential opportunities, and it might be but that’s something we could do ourselves, who knows.

Matt Kaplan - Ladenberg Thalman

Just going back to alpha-interferon for a second, I know you had previously commented in prior comments that you had hope that you felt that it was kind of a near-term opportunity to get something done there ex-U.S. Is that one that’s kind of elongated in terms of the timeline or is that something that you still characterize as good discussions ongoing, hope to get done in the near term?

Mike Anderson

Matt, I’m sorry. You broke up just a little bit.

Matt Kaplan - Ladenberg Thalman

The alpha-interferon -- previously you had stated that that was something that you could get done, hope to get done in the near term in terms of ex-U.S. partnership. Is that something that you now characterize as good discussions ongoing and is pushed out and, or is that something you get done in the near-term you think?

Mike Anderson

Well, it’s based on….

Matt Kaplan - Ladenberg Thalman

I know what are you thinking. Yeah.

Mike Anderson

Well. No. Yeah. But it’s already little longer-term then what I had originally anticipated. It will go exactly like I want or think they should go. But we -- I should tell you we still have some active discussions among several parties actually.

Matt Kaplan - Ladenberg Thalman

Okay. Very good.

Mike Anderson

So leave it that if we could.

Matt Kaplan - Ladenberg Thalman

Great. Thanks for taking my questions.

Mike Anderson

You are welcome, Matt.

Operator

We’ll take a follow-up question from Peter Butler of Glen Hill Investments.

Peter Butler - Glen Hill Investments

Yeah. Hi, again. I think I was cut-off on my last question. I was asking about how you intent to price the acquired drugs and you haven’t talked about competition, but do you think you are going to have pricing power and could that be a surprising plus that would add to your conservative sales estimates?

Mike Anderson

Peter, we can’t obviously talk about pricing and we have pricing concepts in discussions that we have here all the time and the Eclat projects are no different than that. We talk about pricing for our -- we’ve already certain about pricing for our internal projects. I hate not to directly answer your question, but I will take you back to what we said previously and that is that our margins, we expect for -- across the breadth of our line when you leave out just those partnerships programs we expect to be income search with what specialty pharma companies get. I typically view those margins as north of 80%, and in terms of gross margin and I don’t think these projects are any different than that.

Operator

And at this time, this will conclude the question-and-answer session. I’d like to turn the call over to Mike Anderson for closing remarks.

Mike Anderson

Yeah. Thank you very much, Operator. Thank you again for joining us on the call today. We appreciate that we understand it was a little longer than normal, but we will also look forward to updating you on our business in the coming months.

Here’s hoping you have a great day. Thank you.

Operator

This does conclude today’s conference. We thank you for your participation. You may now disconnect.

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