Sagent Pharmaceuticals' (SGNT) CEO Jeff Yordon on Q2 2014 Results - Earnings Call Transcript

Jul.30.14 | About: Sagent Pharmaceuticals (SGNT)

Sagent Pharmaceuticals Inc (NASDAQ:SGNT)

Q2 2014 Earnings Conference Call

July 30, 2014 10:00 AM ET

Executives

Jim Polson - IR

Jeff Yordon - Chairman and CEO

Jonathon Singer - CFO

Analysts

Elliot Wilbur - Needham & Company

David Amsellem - Piper Jaffray

Louise Chen - Guggenheim Securities

Randall Stanicky - RBC Capital Markets

Gregg Gilbert - Deutsche Bank

Sumant Kulkarni - Bank of America Merrill Lynch

Operator

Good day, ladies and gentlemen, and welcome to the Q2 2014 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today’s call, Mr. Jim Polson, Investor Relations. Sir, you may begin.

Jim Polson

Thank you, and good morning. On behalf of Sagent Pharmaceuticals, I’m pleased to welcome everyone to the second quarter 2014 earnings conference call. I’m Jim Polson, Sagent’s Investor Relations Advisor.

Joining me on the call this morning are Jeff Yordon, Sagent’s Chairman and Chief Executive Officer; and Jonathon Singer, Sagent’s CFO. Jeff will start with an overview of Sagent and our recent progress and Jon will follow with a discussion of our 2014 second quarter financial results and 2014 fiscal year guidance. We will then open the call for Q&A.

Before we begin, we would note that this call may include forward-looking statements, which are subject to risks, uncertainties, and other factors which may cause actual results to differ materially from those discussed. Although Sagent believes that expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurances that our expectations will be attained. Please refer to the complete Safe Harbor statements within the press release.

More information on these factors is included in the risk factors and MD&A section of Sagent’s Form 10-K filed with the SEC on March 7, 2014. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments.

We would also note that some of our prepared remarks this morning will refer to non-GAAP financial measures. You can find a reconciliation of these non-GAAP measures to the most closely comparable GAAP measures within the earnings release issued earlier this morning.

With that, I would like to turn the call over to Jeff.

Jeff Yordon

Thanks Jim and good morning everyone. I’m very pleased to welcome you to Sagent’s second quarter 2014 earnings call. We appreciate your time, interest, and participation in this event. As we reported this morning, we are pleased to have had another very strong quarter with our revenue and margin performance mainly driven by broad demand across our diverse product offering.

Revenues for the quarter were $69.2 million, which is a 16% increase over the prior year period. Adjusted gross profit for the second quarter of 2014 was $24.1 million or almost 35% of net revenue. Jon will provide additional detail on the results during the financial review portion of the call.

In addition to a very strong financial performance over the first half of the year, we had a phenomenal six months of product development activity resulting 15 ANDA filings, bringing our total pipeline to 75 ANDAs on file pending approval with the FDA.

The impetus for this accelerated activity was the change in filing requirement with the FDA. Effecting June 20th new filings will require an increase from one stability batch to three batches and an increase from three months to six months of stability debt. I want to personally recognize the tremendous efforts of the regulatory quality and project management teams along with our tremendous partner network that worked around the clock over the last several months to support a pace of filing that we haven’t seen since the early days at Sagent.

This whole process reinforces our unparalleled expertise across the product development life cycle; equally impressive to the pace of filing is the value projects will contribute to the overall pipeline. A couple of impressive statistics to note, the products serve IMS markets greater than 3 billion in current value. Three of the filings were developed at Sagent China Pharmaceuticals or SCP our state-of-the-art manufacturing and development facility in Chengdu, China.

Five of the filings were for pre-mixed bags or pre-filled syringes dosage volume that we believe will be highly attractive to our customers and two filings are Paragraph IVs.

In fact with these additions our new product pipeline includes 46 products represented a 75 ANDAs which we have filed or licensed likes to that we’re under review by the FDA and four products represent by 11 ANDAs that have been recently approved and we’re pending commercial launch.

We also had an additional 19 products represented by 29 ANDAs under initial development at June 30, 2014. To give these numbers from context recent submissions meeting that we now have more products in our development pipeline than we have in existing portfolio, in fact we estimate the IMS value of the entire development pipeline is in excess of $20 billion.

We feel confident that we have one of the most appreciated (ph) high value portfolios of life saving critical care oncology and anti infective injectables in the entire industry. In addition to these filings, we continue to invest resources to accelerate the expansion of our product pipeline and our overall footprint with a focus on the following objectives; seeking niche proprietary injectable products of interest to our customers, working on the reformulation of existing high volume generic injectables that will provide our customers with significant advantages and provide Sagent with the manufacturing cost advantage and evaluating product opportunities that leverage our vertical integration capabilities for either the US or the Chinese markets. These objectives are attainable and reflect the power and value proposition of our flexible business model. Maximizing the types of products we submit and the related margins by leveraging our large, diverse and highly skilled partner network as well as our own manufacturing capabilities, allows us to supply the market with a broad range of injectables, building upon the infrastructure that is critical to long-term sustainable growth.

Our focus on long-term strategic initiatives and a commitment to internal investment and product development will continue to expand our product offerings, diversify our product portfolio and continue to build a company that produces a long-term sustainable growth for our shareholders.

We will continue to supplement our organic development initiatives with the valuation of external growth opportunity. The M&A market continues to be quite robust and we are consistently evaluating opportunities that would enhance our pipeline and or vertical integration competencies at a fair market value. Over the last several months, we have been asked about our ability to be competitive in the M&A market given our size. Frankly, we believe our size is becoming a competitive advantage as the industry goes through consolidation and the large acquirers look at targets as portfolios without regard to the operational and commercial strength of the organizations, companies are increasingly attracted to Sagent to explore potential partnership for acquisition opportunities. Our flexible business model, unparalleled expertise across the product life cycle and entrepreneurial environment is very attractive to many niche competitors across the globe. While we have nothing to specifically report at this time, we believe M&A will play a part in our growth strategy going forward. With that I will turn the call over to Jon for his commentary on our financial performance.

Jon Singer

Thank you, Jeff. I’ll walk through the 2014 second quarter and year-to-date results provide some information on the balance sheet, and then close with a review of our guidance for the year. Net revenue for the three months ended June 30th, 2014 totaled $69.2 million, an increase of $9.6 million or 16% as compared to the $59.6 million for the three months ended June 30th, 2013. The launch of 26 new codes or presentations of 10 products since June 30th, 2013, contributed $17.2 million of the net revenue increase in the second quarter of 2014, net revenue for products launched prior to June 30, 2013 decreased $7.6 million in the second quarter of 2014 due primarily to declines in Zoledronic Acid vials which we launched at market formation in March of 2013. In addition, we estimate that approximately $2 million of the overall increase in revenue for the second quarter of 2014 was an acceleration of demand from the third quarter due to the timing of the 4th of July holiday. Revenue by therapeutic class for the second quarter 2014 was 38% anti-infective, 28% for the critical care and 34% oncology.

The comparable amounts for the second quarter of 2013 were 33% anti-infective, 23% critical care and 44% oncology. Gross profit as a percentage of net revenue was 32.7% for the three months ended June 30, 2014 compared to 39% for the three months ended June 30, 2013. Adjusted gross profit as a percentage of net revenue was 34.8% for the three months ended June 30, 2014 and 40% for the comparable prior year period.

The decrease in gross profit and adjusted gross profit as a percentage of the net revenue is primarily due to the impact of 1.2 million of unabsorbed manufacturing costs at our SCP facility and reduced margin contribution from Zoledronic Acid. Adjusted EBITDA for the three months ended June 30 of 2014 totaled $7.4 million, a decrease of $5.9 million compared to $13.2 million in the second quarter of 2013. The decline is driven by $5.6 million of incremental product development spending in support of the accelerated ANDA filing activity and $2.6 million in incremental SG&A due to spending associated with SCP and other employee related costs.

With the completion of the acquisition of our joint partner’s 50% interest in SCP during the second quarter of 2013, our existing equity interest was remeasured to fair value resulting in a non-cash accounting gain of $2.9 million reported as a gain on previous held equity interest in the prior year quarter. Including the impact of interest and other non-operating expenses; the net income for the three months ended June 30 of 2014 declined to $3.1 million or $0.09 per share compared to a net income for the first quarter of 2013 of $13.4 million or $0.46 per share.

Turning to the six months ended June 30, 2014, net revenues totaled $140.1 million, an increase of $20.3 million or 17% as compared to $119.8 million for the six months ended June 30, 2013. Revenue by therapeutic class for the first half of 2014 was 38% anti-infective, 29% critical care and 33% oncology. The comparable amounts for the first half of 2013 were 35% anti-infective, 27% critical care and 38% oncology.

Gross profit as a percentage of net revenue was 30.7% for the six months ended June 30, 2014 compared to 34.8% for the six months ended June 30, 2013. Adjusted gross profit as a percentage of net revenue was 31.9% for the six months ended June 30, 2014 and 35.9% for the prior year period. Adjusted EBITDA for the six months ended June 30, 2014 totaled $16.7 million a decline of $10.7 million compared to $27.4 million in the first half of 2013.

Termination fee for 2013 as a reminder represented the $5 million in one-time fee received in connection with the amendment of the Company’s manufacturing and supply agreement with Actavis. Including the impact of interest and other non-operating expenses the net income for the six months ended June 30, 2014 was $8.2 million or $0.25 per fully diluted share compared to $23.2 million or $0.81 per fully diluted share for the first half of 2013.

Turning to the balance sheet, at June 30, 2014 we had $161.7 million of cash and short term investments with no outstanding borrowings against our $40 million revolver.

Looking at our guidance, as a result of the strong start to the year, we are pleased to near our guidance range. And we provided broad guidance at the offset of the year that considered a number of uncertainties that need to be managed as the year progressed including limited visibility to approval time line, competitive pricing and the impact of market shortages. As it stands today, we received FDA approval from most of our key launches for the year product pricing has remained relatively stable and we do not forecast additional market shortages for the remainder of the year.

Therefore, Sagent’s outlook for the remainder of fiscal 2014 truly anticipate net revenue of the year to be in the range of $270 million to $290 million driven by 10 to 15 product launches; adjusted gross profit as a percentage of net revenues in the range of 26% to 30%, an increase from the previous range of 24% to 28%; product development expense in the range of $30 million to $36 million, which is a $10 million to $16 million increase from 2013; and selling, general and administrative expenses in the range of $35 million to $40 million.

Based upon the above assumptions, the Company anticipates reported net income for fiscal 2014 to be in the range of breakeven to $10 million in earnings. Although we are focused on driving towards our full year commitments, we do have some constituents that focus on the quarterly details. It’s important to note that the third quarter is traditionally the weakest quarter for demand in our industry due to declines in discretionary procedures and lower demand for anti-infectives during the summer months.

We’ve historically managed through the reduction in demand through new product introductions. However, in the third quarter of 2014, we do not anticipate any significant launches that will offset the weakness in demand that we’ve traditionally experienced. In addition, as mentioned above, we believe approximately $2 million of our revenue during the second quarter was in acceleration of orders due to the timing of the 4th of July holiday.

Accordingly, we anticipate a substantial sequential decline in revenue in the third quarter with return to solid growth in the fourth quarter driven by product launches in difficult Q4 demand spikes tied to cold and flu season.

With that, we’ll turn the call over to the operator for the Q&A portion of the call.

Question-And-Answer Session

Operator

Thank you (Operator Instructions). Our first question comes from Elliot Wilbur with Needham & Company. Your line is open.

Elliot Wilbur - Needham & Company

Thanks, good morning. If I could just on our -- perhaps a couple of product specific questions for Jeff. Maybe just update us on any recent developments or an action with the agency around a couple of generics you have talked about in the past, specifically Pentobarbital, whether or not you still think that's a possible launch this year, and also any updates on iron sucrose in terms of whether or not you've responded to the complete response letter.

Jeff Yordon

Elliot, the first the Pentobarbital based on the complete response letter and our interaction with the agency we still believe that we will be launching that product in the fourth quarter this year. We’re planning on that. We had a significant interaction with the FDA regarding iron sucrose the result of the meeting was a clear path forward in terms of approval and we feel very confident that at some point next year the product will be approved.

Elliot Wilbur - Needham & Company

Okay. And then maybe with just respect to the pipeline here, I actually lost track a little bit, but you were anticipating 10 to 15 new products. You said that most of the key launches have -- or most of the key approvals have come through. I guess of the 10 to 15, how many of those do you actually have approval for as of the moment and how many have actually been launched?

Jonathon Singer

Elliot, this year we have launched two of the products already. We have approval pending launch on four products and then we have got a tentative approval on ropivacaine which we we’ll launch at market formation. So, and then when you add pentobarbital and then a couple of other smaller products into that mix and also ibandronate, we also have tentative approval on. So, that gets you to the 10 and then there is couple of smaller products that we think still could get through this year.

Jeff Yordon

Let me also add, Elliot, that because of the new procedure with the complete response letters, as you know all of a sudden your granted approval and in the past we have much more visibility and our goal was to try to launch products the day after we get an approval. So, in some cases it could take three to five months before we are able to gear up and launch with the amount of inventory that we need. So that’s something that we will continue to have to work on as we move forward in the new FDA environment.

Elliot Wilbur - Needham & Company

And just one last question and then I will get back in the queue. Jeff, obviously the M&A environment is very robust and we've talked in the past about very rich valuations and now you have Pfizer dropping down to acquire a company like Innopharma which is perplexing to say the least. But last quarter it seemed like you teed us up for the possibility that the Company could be looking outside the U.S. I don't know if that was just because there's just many more assets out there available, or maybe the valuations are better or there is just less shoppers, but going forward obviously we are still all very much anticipating your first deal, but maybe just sort of talk about any relative difference between the U.S. and the ex-U.S. opportunities, or if you still think there is pretty robust opportunities that are across the road no matter where you look? Thanks.

Jeff Yordon

I really don’t think that outside of the United States or inside of the United States makes much of difference. We are focused on a bunch of opportunities that include products that include additional capacity that includes smaller companies. We feel very, very good about the amount of opportunities out there and we feel very, very good about our chances of talking about something in the future, so stay tuned.

Operator

Thank you. Our next question comes from David Amsellem with Piper Jaffray. Your line is open.

David Amsellem - Piper Jaffray

Thanks. Just had a few questions. Wanted to focus on the current commercial portfolio, first on Propofol. Can you talk about how much of a contributor that was and how do you see the competitive dynamics on Propofol playing out? Secondly on Heparin, I think you've hinted in the past that shortages could arise again. So maybe talk about why you think that could happen and how you are positioned to capture additional business if more shortages happen. And then on Zometa, maybe if you could talk about the competitive landscape there, specifically do you think there may be some exits given that it is a very crowded market, and presumably there may be some players who are bit players who may not be making money on the product? Maybe if you can talk about that, that would be helpful. Thanks.

Jeff Yordon

Sure, good question. So, we will start with Propofol, on Propofol we have had a significant increase in uptake. We had to sort of completely reintroduce that product. We had some issues with getting it in to the wholesaler after it had not move for sometime from the previous manufacturer. So that’s really going to be a nice contributor for the rest of this year and we think that it will be a nice contributor for next year. The dynamics, now there is really only three players in the market and we don’t anticipate any new entries for a while. The Heparin, we are currently not experiencing any shortages in that and we have had some additional players enter the market.

Heparin will continue to be an interesting product for us from a revenue standpoint but certainly we would anticipate that with new competitors in a market that’s already has a limited gross margin. The margin on that will not be attractive. And last I think that you hit it right on the note. There is about 14 competitors on Zometa. We have the advantage of having the only premix bag in addition to the fact that there is a shortage on sodium chloride. The appeal of premix bag is even more important, so we are doing very, very well. I think the answer in terms of will people drop out when you are forced to make a decision on making your next batch or not and you haven’t been able to move the last batch.

Historically, what happens is the players that don’t have any reasonable share will drop out. So we believe that it will still be a good contributor for a while we believe that we still have the advantage of having a dosage form no one else has and there should be less competitors as we move down the trail.

Operator

Our next question comes from Louise Chen with Guggenheim Securities. Your line is now open.

Louise Chen - Guggenheim Securities

Hi. Thank you for taking my questions. I have a few. The first is on the sustainability of generic injectable drug price increases. You as well as your competitors have cited that as a source of earnings upside and I was wondering what is driving that? Is there more upside here? Is it sustainable going forward? And then any update on your GPO contract discussions? Wondering how those are progressing relative to expectations. And then lastly just on SCP, I was wondering if you could give us a little bit of an update regarding your integration and if you still expect profitability in 2016 or sooner? Thanks.

Jeff Yordon

Let’s start with the sustainability in terms of price increase. We have never talked about price increases. We have talked about the fact that the prices have been much more stable, they’ve been much more reasonable. Some of the irrational competitors have not shown their irrationability per se. So for the most part, we believe that this period will continue and to be honest the real test will be next summer with both premier innovation have their three year awards. Then we’ll see how stable the prices will continue. But I think everybody is sort of strategically moving towards that big moment next summer. So the jury is still out.

In terms of GPO contracts, and I think you’re relating to the fact that we’re talking about tiny agreements with GPOs on products that have been historically shortage products but have a little bit higher price. We continue to make good progress in that area. There is an interest by these GPOs and there is also an interest more and more for them to have private label agreements. And we are actively involved in all of that type of activity.

Lastly, we are very pleased to say that the progress at our Beijing China Pharmaceutical has been fantastic. Their ability to supply product, their ability to develop products now, their ability to do stability batches on very difficult products, the fact that they have filed three ANDAs thus far and they have four pending bodes very, very well for us in the future. We will be testing the CBE30 approval route and a bunch of products there and we should have a better answer on that in the fourth quarter.

Operator

Our next question comes from Randall Stanicky with RBC Capital Markets. Your line is now open.

Randall Stanicky - RBC Capital Markets

Great, thanks, guys for the questions. Jon, can you just help us given the strength of the gross margin this quarter even if we exclude the JV contribution, what is driving that? And how do we think about that as we go into the third quarter on what can be as you said a little bit lighter top line? And then the follow-up is just as we think about the China SCP spend for the year, how do we think about the back half contribution or spend versus what we have seen so far in the first half? Thanks.

Jonathon Singer

So, the margin is really just a blend there is not a single product that I can point to that is contributing an outside contribution to the margin. We’ve gotten good blend from the portfolio and as we talked about on previous calls, if you look at the products that we’ve launched over the past 12 to 18 months on average they’re delivering margins in the 50% range. So when you start blending that in to the overall portfolio you see the margin expansion. I also think that we’re although SCP is a drag on the margins overall as we try to get the full absorption that investment is moving along and they’re doing a very good job of managing their cost structure intelligently and improving their absorption.

On the cost side in the equation, we continue to invest in product development. The back half investment will be similar to the front half investment. Assuming the SG&A guidance, we’re comfortable, we’ll probably see a little bit of trending off as we begin to prepare for support of the launches. There was one other question. Did I get everything Randall?

Randall Stanicky - RBC Capital Markets

I was just trying to get a sense of back half spending SCP versus first half, but I think you addressed that.

Jonathon Singer

And it’s going to look very, very similar. Their plan is pretty level loaded and so I don’t see a lot of incremental spending and I think they had a good quarter from production in the second quarter but we’ll be doing a lot more exhibit batches and testing as Jeff indicated manufacture around CBE30. So we could see a slight drop off in the absorption in the back half but the overall spending will look similar.

Randall Stanicky - RBC Capital Markets

And a follow-up for Jeff. You have 75 ANDAs pending, it continues to ramp. I think you said last quarter roughly half of those were filed in 2010 or prior. Obviously there is some possible approvals you could argue are coming up. You've got into10 to 15 next year. As we think about -- or sorry, for this year. As we think about next year, I know you are not going to give early color guidance, but how are you thinking about both top line and then, Jon, some of that margin spend or cost spend on SCP starting to tail off in terms of the overall leverage to the business?

Jeff Yordon

Yes, I think we continue to talk about the fact that we should have 15 plus launches next year depending on when iron sucrose hits, will certainly have a big impact and we have the capability because of the model to constantly be able to find additional opportunities and we certainly, none of that is forecast, but we certainly anticipate that that will happen, and I for one believe that the shortages although we don’t forecast any shortages we certainly believe that that will continue for next year. So, our job is to continue to file, we talked about the fact that the company had a incredible first half in terms of filing. That’s going to bode well particularly if some of those are dosage forms that don’t currently exist and have the possibility of getting a little bit quicker approval than most, we just need to keep our eye on the ball and we should be in good shape.

Operator

Our next question comes from David Lewis with Morgan Stanley; your line is now open.

Unidentified Analyst

Hey guys, it’s actually Scott on behalf of David, congrats on a good quarter. Just a quick one on leucovorin, it seems, and you call on leucovorin last quarter as one of those products where competitor dropped out. And I was just wondering what you’re continuing to see, whether you’re continuing to gain share directionally in that particular product line and also if you guys see any of that dynamic happening for any of your other drugs. Thank you.

Jeff Yordon

The leucovorin I think pretty much has been flat in terms of sales, we are the principal supplier, there are two other suppliers that occasionally are in and out of the market, so the market is good margin, it’s good revenue and we anticipate that this will continue as we move forward. The product offerings are getting so big that, yes, we have that experience with other products but at this point in time I can’t give you the specific products but what happens is that we get a substantial market share, if that holds for a couple of years people drop out and there is even a capability of raising prices occasionally when that happens.

Operator

Thank you, our next question comes from Gregg Gilbert with Deutsche Bank; your line is now open.

Gregg Gilbert - Deutsche Bank

Thanks. Good morning, gentlemen. I have a couple of high level ones. First, Pfizer and Sun bought injectable assets recently and, Jeff I was curious if those were assets you were interested in at a price. And in general are you finding it tough to find assets that don't overlap significantly with things you already have in-house or with partnerships? That's the M&A question. And then the pricing question you sort of touched on it already, but your largest competitor is enjoying some nice, what they called broad-based price improvements and they seem satisfied with recent GPO contracts, et cetera. You point out the importance of next summer, I get that. But I am curious, do you see a growing sort of reluctant acceptance by the buyers to accept this new pricing reality that you have been sort of calling for and predicting to some degree? Thanks.

Jeff Yordon

Good question, Gregg, in terms of pricing, again what we continue to talk about is that there is a period for about the last nine months of relative stability, I don’t see price increases. Now the competitor that you’re talking about has a slew that are exclusive and they don’t have a lot of competition and the dynamics on those kind of products are a little bit different. In terms of your first question, the acquisition particularly of Innopharma, we believe that we have the internal capabilities of doing the same kind of activity without having to pay that kind of money and with the strength of the pipeline, what we’ve felt that they wanted for their business was not something that we were willing to pay for. In terms of opportunities, there are a plethora of opportunities and again we are focused I know, we have talked about this many many times but we’re in a position that we have narrowed our focus on four or five very interesting opportunities that will bode well for us in the future.

Operator

(Operator Instructions) Our next question comes from Sumant Kulkarni with Bank of America. Your line is open.

Sumant Kulkarni - Bank of America Merrill Lynch

Good morning. Thanks for taking my questions. The first one is around iron sucrose. Given that that product has been in development for some time now, how many competitors do you expect when that product is eventually launched?

Jeff Yordon

Sumant, the information that we have and most of the good information that you can get is from raw material suppliers. We still continue to say what we have consistently said we believe that we are quite a bit ahead of everybody and we believe that we will be there by ourselves for some time.

Sumant Kulkarni - Bank of America Merrill Lynch

And on Propofol, you mentioned that that product has become better for you. Is there any opportunity for you to increase margins on that product?

Jeff Yordon

I wouldn’t say that there is going to be an increase in margins. To be honest one of our principal competitors took a price increase and that help the margin for everybody across the board. In terms of the relationships that we have we don’t really have to discount to get share. So the margins are good but we don’t think that the margins will be increasing on that product.

Sumant Kulkarni - Bank of America Merrill Lynch

The last question is a bigger picture one. Is there some point the Company would reach that would necessitate the addition of more internal manufacturing capacity either Greenfield or by M&A activity?

Jeff Yordon

We don’t anticipate that that’s an issue when you consider that there are 38 facilities and the consortium we have a lot of capacity. If we look at an M&A target that has additional capacity say north and something like that it would be of interest but it’s not essential.

Sumant Kulkarni - Bank of America Merrill Lynch

Thank you.

Jeff Yordon

Also remember we will be stating a second line at SCP that will in essence increase our capacity there almost four fold. So, that along with anything else that might happen we should be in real good shape.

Operator

We have a follow up from Elliot Wilbur with Needham & Company. Your line is now open.

Elliot Wilbur - Needham & Company

Thanks. A question for Jeff, I guess, just going back to the pipeline and sort of the longer term dynamics here, given the filings at FDA which I think you said was around actually 50 chemical entities or actives in the current book of business, and there is only around 75 products or so that actually matter in injectable space. I am just wondering where you guys are in terms of sort of targeting the commercial book of business that you wanted to have when you formed the Company, and then just as a follow on to that, if you look at sort of most financial models out there, they generally assume that R&D spend continues at roughly a rate equivalent to what you are spending in 2014 or increases modestly in line with sales. I am just starting to think that spending $40 million annually is going to be tough to do. Just wondering if it might not be a lot more earnings leverage in the out years as you will have sort of pre-spent on the portfolio. Thanks.

Jonathon Singer

Elliot I am going to answer the question when you look at the value of the pipeline as we indicated when you take everything that we’ve got in development we believe that we’re addressing an IMS market of over 20 billion so I don’t think we’ve even be gone to tap the potential that we see in the injectable space. Just based on what we see as opportunity in front of us as well as things that are going to be coming off of patent we are making investments today for 19, 20, 21, and we continue to see tremendous opportunity as we go through the operating plan process right now we’ll get the better assessment of what we think we’re going to spend next year. But I think we’ll see similar opportunity for investments.

And then in addition as we talked about in conjunction with the M&A strategy, we are looking at global expansion. So the ability to leverage our existing portfolio into the global marketplace making investment in order to expand where we have products available for either direct sale or distribution. So, we believe very confidently that we’ve got a tremendous opportunity in front of us and we’re just getting going.

Operator

Thank you. I am showing no further questions at this time. I would like to turn the call back to Jim Polson for closing remarks.

Jim Polson

Thank you for your interest and participation in Sagent’s second quarter earnings call. We look forward to speaking with you again and providing further updates on our third quarter call in the fall. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone have a great day.

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