Cambrex. Management Discusses Q4 2013 Results - Earnings Call Transcript

| About: Cambrex Corporation (CBM)

Cambrex. (NYSE:CBM)

Q4 2013 Earnings Call

February 11, 2014 8:30 am ET

Executives

Gregory P. Sargen - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Steven M. Klosk - Chief Executive Officer, President and Director

Analysts

Daniel D. Rizzo - Sidoti & Company, LLC

Dmitry Silversteyn - Longbow Research LLC

Steven Schwartz - First Analysis Securities Corporation, Research Division

Operator

Good day, and welcome to the Cambrex Fourth Quarter and Year End 2013 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Greg Sargen. Please go ahead, sir.

Gregory P. Sargen

Thank you, Lisa, and good morning, everybody. Welcome to Cambrex's Fourth Quarter 2013 Earnings Conference Call. Before we begin, I'll provide the following comments regarding forward-looking statements. Today's discussion will contain forward-looking statements, including statements regarding expected performance, especially expectations with respect to consolidated or product category sales, gross margins, operating expenses, EBITDA, earnings per share, cash flows, capital expenditures, acquisitions, divestitures, collaborations, agreements or other expansion opportunities that may occur during our prepared remarks or during the question-and-answer session. These statements are based on Cambrex's current plans and expectations and involve risks and uncertainties that could cause actual outcomes and results to materially differ from those included in the forward-looking statements. Further information regarding such risks and uncertainties, please refer to Item 1A under the heading Risk Factors and to the Forward-Looking Statements portions of our Form 10-K filed this morning with the SEC, as well as the Forward-Looking Statements section in our earnings release issued this morning.

During this conference call, in order to provide greater transparency regarding Cambrex's operating performance, we'll refer to certain non-GAAP financial measures that involve adjustments to GAAP results. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by GAAP and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on the call are reconciled to the most directly comparable GAAP financial measure in a table at the end of our earnings press release issued this morning and available on our website at cambrex.com. A replay of the call will be available shortly after we end today through next Tuesday, February 18, by calling 1 (888) 203-1112 domestically and (719) 457-0820 internationally. Please use the pass code 8076565 to access the replay. A webcast will also be available on the Investors section of the Cambrex website.

Today's call will begin with a business review by Steve Klosk, our President and CEO. I'll follow Steve with a few comments on our financial results before opening up the call for question and answer.

With that, it is my pleasure to introduce Steve Klosk. Steve?

Steven M. Klosk

Thank you, Greg, and good morning, ladies and gentlemen. We finished the year with a record quarter. Sales were up 46% to $103 million, and EBITDA was $22.2 million, an increase of 70% compared to the fourth quarter last year.

Full year sales were $317.2 million, representing growth of 12.8%, excluding currency effects, which was above the high end of our most recent full year guidance of 12%.

Adjusted EBITDA for the full year 2013 was $67.4 million, a $10 million increase or 17% over 2012 results.

We generated strong free cash flow during the fourth quarter, reducing debt net of cash by $19.5 million to $56.5 million at year end. During 2013, we invested $41.6 million in capital projects to support key growth projects and $10 million more related to projects where the customer will reimburse us for the capital over the next 2 to 3 years. All of the significant projects were successfully completed on time, allowing us in certain cases to fulfill aggressive customer startup and demand schedules and positioning us to support continued growth.

I will now provide some commentary on performance within each of our product categories and our 2014 expectations for each category. Any forthcoming comments on actual 2013 versus 2012 revenue growth rates or expected 2014 growth rate exclude the impact of foreign currency between the respective years.

Custom development revenues were $40.8 million for the quarter, an increase of $36.4 million compared to the same quarter last year. For the full year 2013, custom development revenues were $66.6 million compared to $10 million in 2012. For both the fourth quarter and full year, the increase in this category was primarily driven by sales of commercial launch material from our Charles City, Iowa site for a large product for which, we signed a supply agreement in 2012.

Consistent with our strategy over the past several years, our business development efforts for the custom development category focused on securing development and manufacturing business for clinical programs entering late Phase II and Phase III trial. During 2013, 3 of our customers' products within our late-stage pipeline received regulatory approval. These products will be reported within the custom manufacturing category in 2014. We now have 13 active Phase III projects as we start 2014. We believe our current pipeline of custom development projects, which includes those we have already won and projects we are competing for, is as strong as it has been in many years.

The European pipeline has improved and the U.S. pipeline remains robust. In addition, as some of our innovator pharmaceutical customers become more familiar with our world-class quality and regulatory systems, they are often willing to consider alternative Cambrex sites versus just the initially targeted site. This allows us to utilize available capacity more efficiently. We expect 2014 custom development revenues to be between $28 million and $32 million, which, after deducting the late-phase products that will now be reported in the custom manufacturing category, represents an increase of approximately $20 million to $24 million. We believe that this expected increase in clinical phase revenue suggests that our strategy of targeting late-stage clinical projects and positive market dynamics are properly aligned.

While there are no guarantees that we will secure the level of clinical phase business that we project or that these projects won't incur timing or regulatory setbacks during the year, in 2014, we are focusing on ensuring that we have sufficient resources available, both people and physical assets, to meet customer time line.

Moving to custom manufacturing, which includes commercial products sold to innovator pharmaceutical companies, revenues were $24.3 million during the quarter compared to $32.9 million in the same quarter last year. The decline was primarily due to the timing of orders. Full year reported sales in this category were $106.1 million, virtually flat compared to last year. And excluding the impact of foreign currency, we're down approximately 2% compared to the full year 2012.

Our primary strategy to grow custom manufacturing revenues is to win late-stage, clinical-phase projects, which I discussed as part of our custom development product category. If these products are approved for commercial sale, we expect to and typically will negotiate a supply agreement to provide commercial volumes that are reported in this product category. We also seek to obtain supply positions for late-stage and already-approved commercial molecules, where we can offer an improved cost position or other innovative benefits to the customer. This strategy was successful in positioning us for a potential supply agreement for a commercial product in 2014.

We expect 2014 revenues in this -- in the custom manufacturing product category to be between $160 million and $165 million compared to $106.1 million in 2013, with the increase primarily driven by products within the custom development category in 2013 that have moved to the custom manufacturing category. Combined, we expect custom development and custom manufacturing revenues for 2014 to increase 9% to 14% to between $188 million and $197 million compared to $173 million in 2013.

Sales of generic APIs in the fourth quarter were $23 million, down 7%, excluding the impact of currency compared to the same quarter last year, primarily due to lower levels of generic orders during the year primarily in the U.S. Full year 2013 sales were $94.4 million, down 11% versus 2012. We believe that the combination of a few domestic customers suggesting supply levels in 2013, we expect to further

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R&D spend shortly. We expect sales of generic products in 2014 to increase in the low- to mid-single digit percentage range, with the significant portion of the increase due to sales of new products.

Unit volume should drive the increase, with prices on existing products expected to be moderately lower and the overall profitability mix to be lower than 2013.

During 2014, we also expect to spend approximately $2 million in R&D expense to codevelop one or more generic finished dosage form drug products with one or more generic drug company partners. In a typical arrangement, we would contribute a portion of the development costs through regulatory approval and receive a proportionate share of the future commercial profits. Although we have no formal arrangements in place yet, we are discussing one specific opportunity and will consider others as the year progresses.

Sales of controlled substances, which we define as those classified as Schedule II products by the DEA, were $12.2 million in the fourth quarter, a $7.7 million increase over the same period last year. Controlled substances revenues were $37.6 million for the full year 2013, consistent with previously communicated expectation versus $42.2 million in 2012.

During the last several quarters, we have positioned Cambrex to be a primary or a secondary supplier to most of the key players in the growing ADHD market that we serve. Additionally, we continue to expect to be the primary supplier of API to several customers who filed or are developing Abbreviated New Drug Applications, or ANDAs, to enter the ADHD market.

We continue to develop additional controlled substance products, including opiates, an important segment of the market in which we do not currently participate. We expect to begin sending samples to prospective customers for 2 new opiate products in early 2014. While we do not expect commercial sales for these products until late 2015, this is a key strategic initiative for Cambrex.

We expect full year 2014 controlled substances revenues to be between $44 million and $48 million, an increase of approximately $6 million to $10 million or 17% to 27% over 2013. As with 2013, we currently expect a relatively even distribution of revenues between the first half of the year and the second, although individual quarters can fluctuate significantly from year to year.

Sales of active ingredients utilizing our drug delivery technology, primarily related to the Nicotine Replacement Therapy, or NRT, market, were $2.7 million during the quarter, a decrease of $1.7 million compared to the fourth quarter last year. In line with previously communicated expectations, full year sales of these products were $12.5 million, $2 million less than 2012. During 2013, we renewed multiyear supply agreements with each of our key customers in this product category, providing a secure base of business as we start 2014. We expect drug delivery revenues to be approximately flat in 2014 compared to 2013.

Zenara Pharma, in which Cambrex owns a 51% stake, is focused on the formulation of finished dosage form products and supplies NRT gum products to a leading global consumer health care company to the Indian market. Zenara continues to prepare regulatory filings in order to introduce its NRT gum, lozenge and mini-lozenge products in various targeted markets, and we expect these activities to continue throughout 2014. Zenara began shipping product during the fourth quarter of 2013 to support our customers' new marketing efforts for an NRT gum product to the Indian market, although it is too early to determine the success of the new marketing efforts.

During the quarter, the company began shipping a non-NRT finished dosage form product that is being custom-manufactured for a large, generic customer. We have received additional orders for this product for the early part of 2014. The Zenara facility in Hyderabad is approved as a supplier of this product in several European markets.

As this morning's earnings release stated, we expect consolidated 2014 sales to increase between 8% and 12%, excluding the impact of currency and EBITDA to be between $70 million and $76 million. We are very pleased with our financial performance over the past few years, and we believe that our growth strategies, combined with positive market dynamics, will lead to continued success in 2014.

I'll now turn the call over to Greg.

Gregory P. Sargen

Thanks, Steve. I'll add a few comments on fourth quarter results and 2014 guidance, and then open it up for questions. Steve discussed our sales performance in 2014 guidance, which is included in this morning's release, so I will comment on certain other financial statement items.

Gross margin this quarter increased to 33%, compared to 30% in the same quarter last year, resulting primarily from plant efficiencies related to higher production volumes to support higher sales levels and a 1.3% increase in price, partially offset by unfavorable product mix. For the full year, gross margin was just over 20 -- was just over 32%, virtually unchanged from the prior year.

Selling, general and administrative expenses increased $3.3 million during the fourth quarter, primarily related to higher stock and performance-based compensation expense due to a higher share price and performance versus peers. For the full year, SG&A expense increased $2.3 million versus the prior year, with the increase primarily driven by higher stock-based compensation expenses and the negative impact of foreign exchange.

Research and development expenses increased during the quarter and the year by $600,000 and $800,000, respectively. Higher R&D expense was primarily driven by increased personnel to support a higher level of product development. We've added R&D resources to support more product development opportunities that meet our return expectations. In addition to the $2 million that we expect to spend on the finished generic drug product initiative that Steve described, we expect to increase spending on R&D at all sites in 2014 to support or accelerate the development of an expanding -- expanded set of products, primarily for the generic and controlled substances markets. Currently, we expect total R&D expense for 2014 to be approximately $5 million higher than 2013. While this obviously impacts our short-term profit growth, we believe this increased investment will drive sustainable growth and higher returns in the future.

Operating profit increased to $16.4 million in the fourth quarter from $7.4 million in the same quarter last year. For the full year 2013, operating profit, excluding the gain on the sale of an office building earlier in the year, increased to $44.9 million compared to $35.7 million in 2012, a 26% increase.

The company's 51% share of Zenara's net loss was $500,000 for both the fourth quarter of 2013 and 2012. The company's share in Zenara's EBITDA was a loss of $200,000 for the quarter. For the full year of 2013 and 2012, Cambrex's share of the net loss for Zenara was $2 million. Cambrex's share in Zenara's EBITDA loss for the full year 2013 was $800,000.

The provision for income taxes in the fourth quarter was $5.6 million for an effective rate of 37%. Full year effective rate for 2013 was just under 36% after excluding the impact of the gain on the sale of an office building. The 2013 full year reported rate, including the gain on the office building sale, was 33%. We expect our full year 2014 effective tax rate to be between 33% and 37%, and we expect to pay only a small amount of cash taxes in the U.S. during the year.

During the quarter, the company recorded $500,000, net of tax, within discontinued operations for revised estimates of costs related to environmental investigation and remediation. These revised estimates were based on recent communications from regulatory authorities overseeing the remediation programs.

Capital expenditures were $9.6 million, and depreciation was $5.8 million for the quarter. And for the full year, capital expenditures were $41.6 million, and depreciation was $22.2 million. We ended the quarter with debt, net of cash, of $56.5 million, reflecting free cash flow of $19.5 million during the quarter.

Cash flow benefited primarily from a high level of profits in collections of accounts receivable during the quarter. We expect adjusted income, continuing operations for 2014 to be between $0.99 and $1.10 per share, computed in a manner consistent with 2013 and 2012 results in the table at the end of this morning's release.

Capital expenditures are expected to be between $35 million and $39 million in 2014. In 2013, we completed a few larger capital projects, including a significant expansion at our Charles City, Iowa facility. 2014 capital spending will include numerous smaller-growth projects within existing site footprint. Various infrastructure upgrades, including the implementation of a new company-wide enterprise resource planning system, the build-out of offices at one of our sites following the sale of an office building during 2013 and several projects to ensure we maintain leading-edge compliance with ever-increasing worldwide regulatory requirements.

Debt, net of cash, increased approximately $16 million during the full year 2013, due primarily to increases in working capital accounts to support strong second half growth and $57 million of cash outlays for capital, including projects to be reimbursed over the next few years. We expect 2014 to be a very positive year for cash flow, and we therefore expect to see debt, net of cash, improve by between $25 million and $30 million during 2014. We expect depreciation to be between $25 million and $27 million for 2014, at the midpoint, a $3.8 million increase over 2013.

I would now like to open up the call for questions. Lisa?

Question-and-Answer Session

Operator

[Operator Instructions] And we will take our first question from Daniel Rizzo from Sidoti & Company.

Daniel D. Rizzo - Sidoti & Company, LLC

On the generic APIs, so are -- what you're saying is that this destocking and the market share erosion, has that kind of ended and it's kind of flattened out now, or is it still going to be somewhat of a hindrance going forward?

Steven M. Klosk

Well, we're hoping, Dan, that in 2014, that that's stabilized, and we're going to see some growth versus 2013.

Daniel D. Rizzo - Sidoti & Company, LLC

But the growth is going to coming from new products, not from the stuff that you -- from the older, more established products, correct?

Steven M. Klosk

I think on a net basis, that's right.

Gregory P. Sargen

Yes. The older products, we expect, will be effectively flat year-over-year, and we expect new products to drive the gain. But there's lots of movement in the old products, so they're not all going to be flat. Some will be down. Some will be up. There's close to 70 products that will get sold, so it's a lot of different movements.

Daniel D. Rizzo - Sidoti & Company, LLC

Could it be something like -- I mean, you've seen with -- I've seen with the APIs before where it's -- where you get a positive surprise where, like, one quarter you get this huge order and that kind of takes care of the year, I guess, somewhat...

Gregory P. Sargen

I guess, I'm hesitant to kind of say where our positive surprise might come. But I guess, what -- I might hope for a positive surprise will be a better mix in the profitability of products versus what we're projecting. That's -- while sales are up, our margins are down in that category a bit. So I would be hopeful that maybe we can get either some efficiency there on the cost front or to get a better mix of product sales, if I was looking for upside there.

Daniel D. Rizzo - Sidoti & Company, LLC

And then just a little more color on the finished dosage form. You said you're working on a joint venture with that. Is that for domestic lease? Is that going to like -- I mean, what's the size we're looking at here? Is it -- any information you can give.

Steven M. Klosk

Well, Dan, we can't really say much more on the opportunity we're looking at. It would be an ANDA, so it would be for the U.S. market initially. And I really can't say much more than that in terms of size, but it would be a good opportunity for Cambrex going forward.

Daniel D. Rizzo - Sidoti & Company, LLC

Okay. And then, I'm sorry, you said CapEx for 2014, can I just have the number, again, please?

Gregory P. Sargen

It's $35 million to $39 million.

Operator

And we'll take our next question from Dmitry Silversteyn from Longbow Research.

Dmitry Silversteyn - Longbow Research LLC

Just a couple of questions, if I may. The custom development pipeline looks to be pretty strong. I mean, you're going to be losing something like $20 million to $24 million in revenues, but still not losing, but moving to custom manufacturing, but still delivering almost a very, very strong result regardless. So are these all new products that you already have in-house, or is there sort of still more to come in terms of -- are you hoping to sign some projects to meet this revenue guidance in the -- how many projects do you have now in Phase III production, and then how many more do you look to add towards 2014?

Steven M. Klosk

Okay, so I'll start at the latter portion of your question, Dmitry. We have 13 Phase IIIs going into 2014. And just to kind of show you the strength, that's after 3 that were in Phase III that, that became approved and went into custom manufacturing. And the growth that we're going to see -- we're expecting to see in 2014 is a combination of the 2013 products that we know we'll be working on in 2014 and winning, hopefully, some of the late-stage projects that we're chasing at the moment.

Dmitry Silversteyn - Longbow Research LLC

Is it likely or is it possible, or how do you look at some of these 13 Phase III projects in 2014 getting FDA approval towards the end of the year, and perhaps, moving into your custom manufacturing business into 2015?

Steven M. Klosk

If I look at it, I think there may be 1 perhaps 2 at the most in 2014.

Dmitry Silversteyn - Longbow Research LLC

Okay. The large -- your Phase III product that's turning to a prelaunch quantity that's now turning into commercial supply, I remember, at least in -- during 2013, you talked about this being -- having some visibility in the first half of the year in terms of supply, and then expecting to see something [indiscernible] but not sure of the level. Given what you're looking at the whole year now and you sort of know that the project's been approved or the product's been approved, can you expect a more even sort of quarter-to-quarter business out of this one project, or is it still going to be more weighted to the first half of the year?

Gregory P. Sargen

No. We're just going to say it's going to be weighted towards either half of the year. But based on the final determination of shipment dates with our customer, it will fall in certain quarters, and the nature of the shipments may be such that those quarters spike up in orders where there are no shipments of that are a bit more subdued. So I don't think it will be evenly spread throughout the year, but it will fall in certain quarters. I'm just not certain which right now.

Dmitry Silversteyn - Longbow Research LLC

Okay. Is your -- my question is [indiscernible]. Is your guidance for a lower first quarter, or at least not as strong a growth in the first quarter and the balance of the year, having to do with this project, or are there some other [indiscernible] thinking about in other divisions that will be challenged there in terms of comps in the year-over-year basis in the first quarter?

Gregory P. Sargen

Yes, it's a variety of things. It's not any one particular item. The large product was not really impacting the first half of last year, so it's not really a factor, at least as we start the year.

Dmitry Silversteyn - Longbow Research LLC

Okay. [indiscernible], and that they're going to see is kind of a disconnect in year-over-year results? I'm just trying to understand, in the context of your annual guidance, which promotes large -- promotes some of your major businesses [indiscernible] across in the first quarter. I'm just trying to understand which division is sort of the culprit here.

Gregory P. Sargen

Yes. As far as the product categories go, it's -- we just see a slow start across the board from just the timing of orders, and there's no -- there's not a lot of rhyme or reason to it. It's just the nature of what's sitting in-house right now and what our folks expect looking into the start of the year versus a little later in the year. So I don't want to get too specific about the quarters in the product categories, but there's particular areas of weaknesses as we start, and then some of those turn to strength later in the year and vice versa.

Operator

[Operator Instructions] And we'll take our next question from Steve Schwartz from First Analysis.

Steven Schwartz - First Analysis Securities Corporation, Research Division

Steven, in your prepared remarks, I think you suggested that customers were looking at utilizing some other facilities overseas. And I just wondered if that comment related to this new major customer that you have.

Steven M. Klosk

No, it didn't.

Steven Schwartz - First Analysis Securities Corporation, Research Division

Okay. And just with respect to the major API you've been producing, what do you expect will happen with your pricing on that product as it plays out -- as that contract plays out?

Gregory P. Sargen

Yes. We're not going to comment specifically on any one product and pricing or volume thereon. But in general, as time passes with any customer, due to either cost reductions, volume increases, efficiencies, yield, numerous factors in competition, you name it, price tends to decline over time.

Steven Schwartz - First Analysis Securities Corporation, Research Division

Okay. And responding to one of Dmitry's questions, Greg, you mentioned that shipments with this major customer could be volatile from quarter-to-quarter. It looks like their product pipeline, though, is hitting the market with some very strong demand. So can you speculate on what will drive the nature of those shipments in terms of being up so much one quarter versus the prior?

Gregory P. Sargen

No, it's just going to be the timing of whatever our customer -- or customers, for that matter, tell us they want delivery times in, and we endeavor to do whatever we need to do to meet them, period. That's what's going to drive it. So if we get a steady slate of deliveries throughout the year, evenly spaced, then that's what we'll do. If they're concentrated into 1 quarter or 2, then that's what we'll do, but that tends to be a work in process as the year progresses for most customers.

Steven Schwartz - First Analysis Securities Corporation, Research Division

And when you're shipping those products internationally, how would you describe the competitive landscape for those opportunities from a regional basis?

Gregory P. Sargen

Most of our products get shipped to sometimes one, sometimes multiple locations. I think most innovator pharmaceutical companies these days look at Western Europe and the U.S. somewhat indifferently, as far as where they produce, where they ship to, where they do finished dosage form, where they market out of, et cetera. So we just ship it to wherever they ask us to ship it to. There's no rhyme or reason to it from our perspective. And generally, we're agnostic to it.

Steven Schwartz - First Analysis Securities Corporation, Research Division

I see, okay. And the generic codevelopment opportunity, Steve, I think you avoided suggesting what that might be worth to revenue. But I think you did say that there would be the equivalent of a royalty or a profit-sharing stream that could come. I'm wondering if you could give us just a general idea of what that might be worth in the context of your current revenue level.

Steven M. Klosk

I really can't be more specific at this point, Steve. We haven't formalized the arrangements. But in general, the way the arrangements would go, as I said, is that we would codevelop a product. Our contribution could be the API, it could be helping -- sharing the costs, it could be in managing formulation or finished dosage form services. And ultimately, it will be a sharing of the downstream profits. And how we share, what percentage of those profits we share, will be related to the percentage of the costs that we share along the way. So any of these -- each of these opportunities will have something slightly different about it.

Steven Schwartz - First Analysis Securities Corporation, Research Division

Okay. Have you done anything like this in the past, or do you have something like this going on right now?

Gregory P. Sargen

We've contemplated it, but we haven't actually executed a transaction. And I think that where we see that we have a unique opportunity, either from an API perspective or relationships with certain parties in the market that we built up over time, and parties then come to us with opportunities, and we then -- we're more aggressively evaluating those opportunities now given our interest in the generic space, and especially kind of niche generic growth product opportunities, given the potential for the profit streams down the road.

Operator

And we'll take our next question from Lynne Yasui [ph] with Stofftov Partners [ph].

Unknown Analyst

I was just wondering if you could comment on the large contract that you signed in 2012 that had such a significant influence on your company's results. If you can give us either any update, or based on commentary as you see [ph] -- how influential that is in your future performance on how long that contract is for, and how long you could potentially ask for, and if you will be giving us any updates in the length of the contract, not the pricing or the customer, as the year goes on?

Gregory P. Sargen

Yes. We have an agreement that runs through 2015 with that customer with certain minimum volumes attached to it. And that's all we have in place with them right now, and we'll deliver to the best of our ability into the contract. And to the extent that we look beyond that, we'll evaluate that as those discussions naturally come.

Operator

[Operator Instructions] And we'll take a follow-up question from Dmitry Silversteyn from Longbow Research.

Dmitry Silversteyn - Longbow Research LLC

So just a couple of things. First of all, you provided some top line guidance and EBITDA guidance. As you look at your gross margin year-over-year basis, you mentioned some negative mix impact in one of the divisions. So are you looking for basically flattish margins here, or -- and just half the growth in top line leverage to the bottom line, or do you expect your gross margins to expand as well?

Gregory P. Sargen

Yes. I guess I'll revert back to my typical line on the gross margin that if there's significant changes to the product mix over time, we'll see more permanent changes in that number. But assuming no significant, unexpected events, I think that we would see gross margins in the low 30s percentage-wise, give or take, as we move forward.

Dmitry Silversteyn - Longbow Research LLC

Okay. On Zenara, you've mentioned that you began shipping product for the launch of the NRT product in India, but the business still lost money in the fourth quarter, and I think your expectations are that it'll lose money in 2015 as well. Sort of what has to happen with that business in terms of revenue levels or the success of this product that you launched at India, or is it a question of going beyond India or going beyond this product? Sort of give us a kind of a roadmap for getting this business to be a profitable contributor rather than a detractor.

Steven M. Klosk

I think, Dmitry, if the product launch or marketing launch in -- for the NRT product in India is "successful" and the non-NRT contract manufacturing products that we're currently working on continue to grow, and we were supplying to additional territories, then I think this business will begin to turn around and then thereafter, it will be getting more non-NRT custom manufacturing. And then finally, getting new supply agreements for NRT products in different territories or selling to additional customers in India and Asia, where we're already approved.

Dmitry Silversteyn - Longbow Research LLC

So as you look at all of these what-ifs, sort of what probability or what time frame should we think about this business becoming a contributor?

Steven M. Klosk

Yes. Well, I think, at this point, I think '15, '16 is probably the right way to look at it. We're trying to be conservative about where the business is because it hasn't gotten to where we wanted as quickly as we thought it would. There is some momentum there, so let's see how it goes in -- throughout [indiscernible].

Dmitry Silversteyn - Longbow Research LLC

Okay, got it. And then just one final question on the 3 products that are moving from custom development to custom manufacturing. Four of the products that you have currently in custom development that may get approved during this year or early next year, are any of them of the -- sort of maybe not of the same size, but sort of the same sort order of magnitude as the large product that we've been talking about sort of the past year?

Gregory P. Sargen

No.

Steven M. Klosk

No. I mean, I would characterize, Dmitry, as maybe 2 or 3 that could be $10 million plus. I'm talking about maturity now for API sales. And maybe 5-or-so, that would be in the $5 million to $10 million, and then the others would be less than $5 million.

Gregory P. Sargen

Dmitry, just to clarify, that if you're referring to the 3 that moved into custom manufacturing, 2 of those 3 being smaller products and one of them being the larger product.

Steven M. Klosk

Correct.

Gregory P. Sargen

The other 2 are not anywhere near that level of potential.

Dmitry Silversteyn - Longbow Research LLC

Right. And my question, Greg, was that, obviously, you have 3 products moving in the $60 million delta or so is attributed mostly to that one product. But as you look at your current Phase III that may get approved this year and get moved into 2015 numbers, if there was a potential for sort of a step-up in the custom development, custom manufacturing business.

Gregory P. Sargen

Yes. If we get approval and maintain the supply position, we're bullish on a couple of them, but time will tell.

Operator

And Mr. Sargen, it appears we have no questions at this time.

Gregory P. Sargen

With that, we will call it a day, and I thank everyone for your time, and we look forward to talking to you next quarter. You can end the call.

Operator

And that does conclude today's conference. And we thank you, all, for your participation.

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