Concordia Healthcare's (CHEHF) Mark Thompson on Q4 2015 Results - Earnings Call Transcript

| About: Concordia Healthcare (CHEHF)

Concordia Healthcare Corporation (OTCQX:CHEHF) Q4 2015 Earnings Conference Call March 24, 2016 8:30 AM ET

Executives

Adam Peeler - Vice President of Investor Relations and Corporate Communications

Mark L. Thompson - Chairman and Chief Executive Officer

Adrian de Saldanha - Chief Financial Officer

Edward J. Borkowski - Executive Vice President

John H. Batten - President of AMCo

Wayne Kreppner - President and Chief Operating Officer

Daniel Peisert - Vice President of Corporate Affairs

Analysts

Alan Ridgeway - Scotiabank

Doug Miehm - RBC Capital Markets

Martin Landry - GMP Securities

Lennox Gibbs - TD Securities

David Common - JPMorgan

Joseph Walewicz - Laurentian Bank Securities

David Martin - Bloom Burton

Prakash Gowd - CIBC

Doug Miehm - RBC Capital Markets

Operator

Good morning and welcome to Concordia's Fourth Quarter 2015 Results Conference Call. My name is Melisa and I will be your operator today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session [Operator Instructions]

At this time, I would like turn the call over to Adam Peeler, Vice President Investor Relations and Corporate Communications Concordia Healthcare Corp. Please go ahead.

Adam Peeler

Thank you and good morning everyone. Before we start, we would like to remind you all amounts discussed on this call are denominated in U.S. dollars unless otherwise indicated. Please note that statements made during this call may include Forward-Looking Statements and information and future oriented financial information regarding Concordia and its business and discloser regarding possible events, conditions or results that are based on information currently available to management which should indicated managements' expectations of future growth, results of operations, business performance and business prospects and opportunities.

Such statements are made as of the state and Concordia assumes no obligation to update or advise them to reflect events, disclosers or circumstances except as required by applicable securities laws. Such statements involves significant risks and uncertainties and are not guarantees of future performance or results. A number of these factors could cause actual results to differ materially from the results discussed today. Given these uncertainties, one should not place undue reliance on these statements and information. Please refer to the forward-looking statements and information and future-oriented financial information sections of our public filings including without limitation or MD&A, Annual Information Form and earnings press release for additional information.

Joining us today are Concordia's senior management team including Mark Thompson, Chairman and Chief Executive Officer; Wayne Kreppner, President and Chief Operating Officer; Adrian de Saldanha, Chief Financial Officer; Edward Borkowski, Executive Vice President; John Batten, President of AMCo; and Dan Peisert, VP of Corporate Affairs.

I will now turn the call over to Mark to provide a few opening comments. Mark.

Mark L. Thompson

Thanks, Adam. 2015 was a period of incredible growth for Concordia. We began the year as six products company selling into one main jurisdiction in United States. At the beginning of 2015, I told many of you that my goal for the year was to diversify our product base and build an international platform. I'm very pleased to say that we achieved both goals. With the acquisition of Covis and AMCo, we exited 2015 with more than 200 high margin products in 100 countries.

We believe that Concordia now stands alone in its peer group with the ability to acquire products on a global basis. We have a highly skilled team and as a result, I believe our M&A possibilities are seamless and dramatic. As many of you have noted, we disclosed last night our fourth quarter 2015 press release that we were reaffirming guidance for 2016. We are targeting 2016 adjusted EBITDA between $610 million and $640 million. As a result of our AMCo transaction, we now have a diversified corporate structure and our blended tax rate earnings approximately 10%.

I'll now hand the call over to Adrian, who will provide a brief overview of our financials and then to Ed who will continue to build Concordia and give an overview of the business.

Adrian de Saldanha

Thanks Mark. As many of you would have noticed from our press release last night, we have updated our operating business segments to better reflect our global business. We will report on the following sequence of segments. Concordia North America formerly referred to as our legacy business, Concordia International recently acquired AMCo business and Orphan Drugs. We have decided to wind down the operations of performance specialty healthcare division, which specifically [indiscernible] and other healthcare products and because of the results of that the business is continued operations.

My remarks today will focus on results from continued operations. On a consolidated basis, Concordia revenues from continued operations for 2015 were $394.2 million representing a $289.3 million or 276% increase from 2014. Our strong revenue growth reflects a combined impact of the Covis product portfolio acquisition effect of April 21, 2015 and the AMCo acquisition made on October 21, 2015. This is in addition to the impact of our full-year earnings from Donnatal and Zonegran, which were acquired in 2014.

Adjusted gross profit of $333.9 million increased by $243.5 million or 270% compared to the prior year. Adjusted gross profit excludes the non-cash fair value adjustments that industry acquired through a business combination. The adjusted gross profit percentage of 85% for the year is down margins from 86% for the prior year. The change in the consolidated adjusted gross profit percentage reflects the impacts of higher margins associated with the acquisition of the Covis portfolio offset by lower margins related to Concordia international, which I believe included in the consolidated results since October 23, 2015.

In 2015, net loss from continued operations of $29.4 million was mainly due to one-time acquisition related cost, restructuring and integrating cost as well as accelerated accretion and amortization of deferred financing charges related to the early repayment of certain debt as part of the Covis and AMCo acquisitions. Offset by higher revenues, gross profit and operating income in the early 2015 as well as a reduction in the differed tax liability to Concordia international in respect of the reduction in tax rates recorded in the fourth quarter.

Adjusted EBITDA, a key metric we use to assess business performance climbed to $265.7 million in 2015 representing a $206.2 million or 347% increase from 2014. Concordia North America formerly referred to as our Legacy business, revenues for the year ended December 31, 2015 was $268 million compared to $94 million in 2014. Representing an increase of $185%. The increase is primarily attributable to the acquisition of the Covis portfolio in April 2015 and the full-year impact of Donnatal and Zonegran, which we acquired in 2014.

Concordia North America revenues for the fourth quarter of 2015 were $74.2 million compared to $90.6 million in the fourth quarter of 2015. The difference is mainly due to the executive third quarter 2015 market entry of generic version of our Dibenzyline, the sale in early October of the ingestible products acquired as part of the Covis transactions. These items accounted for approximately $10 million of the quarterly sequential difference. Excluding these items the fourth quarter 2015 run rate would have been approximately $81 million.

In the third quarter, we discussed challenges related to the all supply of Plaquenil, those supply challenges also impacted our fourth quarter results. However, we are working with our CMO to increase production and we believe that these supply constraints have been resolved. In his comments Ed will discuss the impact on our efforts for Donnatal and Nilandron and how they will affect our revenue going forward.

For the year ended December 31, 2015 Concordia North America adjusted gross profit was $244.6 million compared with $81.5 million in 2014 an increase of 200%. The adjusted gross profit margins for our North American segments were 91% in 2015 compared to 86% in the prior year. An increase is primarily attributable to the addition of the Covis portfolio in April 2015 and the full-year impact of the 2014 acquisitions of Donnatal and Zonegran.

We have very deep space that our Concordia international segments which comprise of the AMCo business supplied in October 21, 2015 exceed our expectations for the 72-day periods since the transaction close. Concordia international reported revenue of $115.7 million adjusted gross profit of $81 million and adjusted gross profit margins of 70%. In his comments Ed will provide more color on our international segments.

Orphan Drug revenues for 2015 were $10.2 million marginally lower than in 2014. The increase in Photofrin in 2015 was offset by the conclusion of a distribution agreement with [FTL] (Ph) in Europe, which came earlier in the year. Our corporate cost center represents 13% flat not allocated to other operating segments including cost associated with our head office in Canada and cost associated with either party before the end of the year.

As previously reported, we did pay $45 million of our outstanding equity bridges in December 2015. We will continue to deliver in 2016 through 1% mandatory principal repayment of term debt and continued EBITDA growth. Our business generates strong cash flows and are delivering the ability to further increase after settlement of our projected 2016 turn off obligations. We ended 2015 with over $155 million cash on hand and also have an undrawn revolving credit facility of $200 million.

I will now turn the call over to Ed who will provide greater context on how we achieved these results and provide additional color on the integration of AMCo and our plan to continue building Concordia. Ed.

Edward J. Borkowski

Thanks Adrienne. Good morning everyone and thank you for joining our call. I look forward to meeting many of you in the coming months. I joined Concordia's board last year, because I believed in the team and believe they could build a high growth company that continues to provide important products to patients while delivering long-term shareholder value. The fact that this was achieved in one year and the desire to add to the senior management team made might decision a logical one to join the team, and I'm greater excited about our future.

For today's call, I want to focus my remarks on a couple of things. Our guidance and how we are going to achieve our targets for 2016 and I'll talk about how we plan to our build our business relative to its unique position in the marketplace.

As Mark stated earlier in the call, we are reaffirming our 2016 guidance on a constant currency basis. Our guidance has consolidated revenue growing high single-digits made up of our North American business growing low single-digits and our international business growing in the mid-teens. In North America, we expect our growth to come from approximately equal parts price and volume with volume being driven by the promotion of Donnatal and Nilandron.

We have recently added 91 FTEs bringing our headcount for the sales force to 175. We ran a pilot project recently with a small detailing team promoting Nilandron, our therapy for metastatic prostate cancer. The results were positive and as a result, we have directed 75 members of the sales team to detail Nilandron and Donnatal. We believe these reps will have a meaning impact on volume growth for these products by the second half of 2016.

For Concordia International our growth will primarily be driven by new product launches and pricing opportunities. We're very encouraged by the recent performance of our international business. Since the acquisition, they have outperformed our initial expectations largely driven by the recent launches from their pipeline.

This pipeline is a valuable asset, which will accelerate Concordia's organic growth and we are excited that the most recent launches are performing well. In 2016, the Concordia International Division will deliver over 60% of our total sales. Our increased geographic and product diversity continues our goal towards building a global company with a broad and growing revenue base.

For our orphan segment, we are running a clinical trial for PDT with Photofrin to evaluate its safety and efficacy as a potential treatment for cholangiocarcinoma. We are also supporting investigator initiated trials for indications such as mesothelioma. In addition, we continue to evaluate and develop new applications for Photofrin and plan to expand product sales into new geographic areas utilizing our new platform, which we expect will create additional new revenue.

As we have stated previously, we continually evaluate the pricing landscape to our international North American business and our pricing philosophy typically follows two main talents, we are not price leaders in any therapeutic category and in fact, for the vast majority of our products, we tend to be price near the average of the drug class. And the category typically has branded or generic alternatives for patients.

Moving to the integration of AMCo, our plans are proceeding very well and we are on track with our integration plan. Our teams are experienced with acquisitions and integration and the collaborative efforts of our teams make it seem as if we are already one organization. We are transitioning regulatory and medical, IT and financial work to our Mumbai based Center of Excellence and we are evaluating Concordia International products that could have opportunities in North America.

We are also taking steps to ensure pipeline is continually replenished by investing in the development of new and existing products. We are working with formulation development partners to identify international development opportunities that can make longer term contributions to our business.

We believe we are in the unique position in the specialty pharma industry, because of our global footprint, efficient cost structure, advantageous operating structure and experienced management team. And therefore on the M&A front, we continue to evaluate growth opportunities. We look forward to continue to build Concordia and delivering long-term growth for the business and our shareholders.

I will now turn the call back to Mark for closing remarks.

Mark L. Thompson

Thanks Ed. For those of you who have not met Ed yet, we are delighted to have him as part of our senior management team. His deep background in specialty pharmaceuticals including the seven years as a CFO of Mylan has already been invaluable to the company since he joined our Board of Directors in 2015. We also announced the addition of the new Director, Patrick Vink, who has deep international experience. It's quite amazing to meet with Vink two years since our first call and the team has grown geometric since then and I’m very pleased with the talent we have, because I think we have a group that stands apart from anybody.

I'll turn the call over now to the operator to questions. Thank you.

Question-and-Answer Session

Operator

Thank you [Operator Instructions] Your first question comes from the line of Alan Ridgeway from Scotiabank. Your line is open.

Alan Ridgeway

Hi good morning guys. Thanks a lot for taking the questions this morning. Just on AMCo. AMCo clearly posted a really solid first print here with the stub period in Q4. And while we were expecting the AMCo margins to improve from the levels that you guys published for the first half of 2015 where they came in the quarter were quite a little bit higher or stronger than what we were expected. So just wanted to get your comments on how we should think about AMCo EBITDA margins going forward, is this kind of a good level to think about longer term or do you guys think there is still some room for more improvement?

Adrian de Saldanha

Its Adrian. The margin came in at 70% and we think the margin may increase slightly above that. What I would do is look at blended margins for the business going forward of around 78% to 79%, the AMCo business is affected by the mix of the products, you know the jurisdiction is very solid and that does effect the margin. So slight above 70%.

Alan Ridgeway

So Adrienne that's on the gross margin line, but down at the EBITDA line if we breakout from what is in the MD&A, it looks like the EBITDA margin on the international business was about 55% to 55.5% is that a good level to think about or is there still some room there?

Adrian de Saldanha

No there is room is there, so I would take would take that closer to - below 60% overtime.

Alan Ridgeway

Okay that's excellent. Thanks. And then just a follow-up, again Adrienne with something you might you said earlier, I missed something a little bit of your commentary around the U.S. run rate. Can you just go over what you said in your prepared comments was it $81 million would have been in the U.S. if there weren’t issues in the fourth quarter and maybe just provide a little bit of color on those issues again. Sorry I missed it.

Adrian de Saldanha

No that's all right, so it actually top was the $91 million and you take of the items the Dibenzyline and injectable and that gets you to the $81 million. And then we had supply constraints typically with the Plaquenil and some of the other products also noted has a bit of lumpiness in the ordering pattern particularly on the generics.

Alan Ridgeway

Okay, great. Well I have used up my two. So I'll let you guys go. I’ll get back in the queue. Thanks.

Mark L. Thompson

Thanks Alan.

Operator

Your next question comes from the line of Doug Miehm from RBC Capital Markets. Your line is open.

Doug Miehm

Thanks very much. Could you describe what the foreign exchange figure was in pounds for the fourth quarter that you used?

Adrian de Saldanha

Yes that's blended rates was around 147.5.

Doug Miehm

147.5 perfect. And when we think about the of OUS business the AMCo business, are most of your drugs that your buying or contracting through your manufacturers, are they priced in euro, pounds et cetera, et cetera or are they are in U.S. dollars?

Adrian de Saldanha

Most of the costs are in Euro. And then the pricing would depend on the jurisdiction which they sell.

Doug Miehm

Okay perfect. And then maybe a question for Ed. Great to have you at the conference Ed, you did a good job. Just curious when you think about the mid-teens growth outside the U.S. as it relates to that business you indicated, part of it's going to be volume and then a new product introduction. So would you say that the base part of the business is going to be flat in terms of prescriptions with most of the growth coming from new launches or did I did I get that wrong?

Edward J. Borkowski

Doug, thanks and prior to that I’ll let John, since he is here with us to address some of that just so that you get it from the man on the ground.

John H. Batten

You are right about prescriptions of the core portfolio these products are very old they have a very - I suppose you have used the word loyal patient, they actually need these products. So typically the levels of scripts either stays flat, go down a bit, but it's a very, very stable business.

Doug Miehm

Excellent, okay. Thank you. I'll get back in the queue.

John H. Batten

Thank you.

Operator

Your next question comes from the line of Martin Landry from GMP Securities. Your line is open.

Martin Landry

Yes. Good morning. So just would like to get some color on your pipeline of product launches that you anticipate for 2016 in AMCo. Could you maybe provide us with how many products you expect to launch and what these products could represent in terms of revenues at the maturity?

John H. Batten

Okay, so we are constantly launching products. This business churns out products on a monthly basis, we expect to launch over the next three years 60 of them. These are products that are developments that our existing portfolio, they are in licensed products. We've had a great start to this period of our new [home] (Ph). We've had a great start, you will know that we launched Nefopam at the end of last year which is a great contributor to the excellent results that we've seeing in Q4. We expect to see many more products like this throughout 2016.

Mark L. Thompson

There other thing you know Martin, there has been a lot of questions about the pipeline and quite honestly its proprietary. So we can only give so much information particularly with what the kind of products are, where they are going to fit. We don’t give away too much information to our competitors. So I understand there is big desire for transparency on the pipeline, but you have to realize as a company that's proprietary information for us.

Martin Landry

Okay that's fair. And the next question on Donnatal, looking at the IMS data, it feels like the scripts have declined a little bit in Q1 or at a more rapid pace than what we've seen historically. Just wondering if you could comment on that? Is there anything that's impacting Donnatal in Q1?

Wayne Kreppner

Hey Martin its Wayne. I would just say that from a Donnatal perspective, you have to recall that as I mentioned we have repositioned the sale force, so we actually took the sales force out of the field for about two weeks while we launched at new National Sales Meeting as the resources and retargeted some of those sales personnel.

And so we saw a little bit of softness around that period, because obviously this is just a mostly sensitive product that was going to remind our detail. So seeing the doctors on a repeated basis is important and so on that basis, we saw a little bit of softness, but we are not fully staffed in the new sales force and the sales efforts as of the end of February. So we expect that to take up as we go forward this year.

Edward J. Borkowski

We really think to add is we have a lot of confidence in that product, we've always had confidence in that product and we wouldn't be increasing the size of the field force if we didn't have that confidence. So I was going to ask you, be a little bit patient and that field force take effect.

Martin Landry

Okay. Thank you very much.

Edward J. Borkowski

Thanks Martin.

Operator

Your next question comes from the line of Lennox Gibbs from TD Securities. Your line is open.

Lennox Gibbs

Good morning, thanks. Notwithstanding your comments regarding the proprietary nature of some of the information around the pipe, but can you provide us with some more detail on particularly the near-term launches with respect the timing, us this speeding to the backup half at that level of detail? And then secondly, can you better characterize the pipeline obviously on a no-name basis, but can you at least tell us if these are authorized generics reformulations, please put them into some kind of buckets that we can better understand?

Mark L. Thompson

I'll answer the first part of the question and I will let John answer the second part of the question. 60 product launches over the three years, we are actually going to invest more money, so there will be more product launches coming after those three years. Having lived in drug development for long time John has been there, Wayne has been there, things ebb and flow. So you never want to pin yourself down and say, “I’m going to have three products launched next week.” We are very comfortable with the number of products over the three-year period and so I think you just have to let us evolve and let those products come out and they will. John, you want the second part?

John H. Batten

Yes, sure they not authorized generics, you don't have really have such a concept in names provided business. They are products that are development of our own portfolio, changes and strengths and formulations that really just brings these products up-to-date for the modern patient. So for example, this is one product I can tell you about that we launched it, we launched whole range of new brand with prednisolone that were just not available in the UK. These are highest brands and they suite the new modern, bigger patient. So it changes life up to our existing portfolio that this business you will see over the next few months many-many more of these being launched in the UK, but also in some of our other big markets like Australia and like the Nordic regions.

Lennox Gibbs

Okay and then to just clarify just on the mid-teen organic growth scenario for AMCo, how much of that is attributable to the potential product launches as appose to the price?

Mark L. Thompson

It's a mix, it's around 50/50.

Lennox Gibbs

Okay, good, excellent. Thanks very much.

Operator

Your next question comes from the line David Common form JPMorgan. Your line is open.

David Common

Could I ask maybe this is a question for John, just think that you would be thinking about or we are suppose to think about just with all these headlines on Brexit? And then secondarily, I certainly gets the priority on deleveraging including just through EBITDA growth, but maybe you could helps us what to expect with use of free cash flow during the year to what extent that might go to debt reduction and to what extent that might go to acquisitions and I guess your note? Thank you.

John H. Batten

I think that’s probably a one for…

Adrian de Saldanha

What do you want to comment on Brexit?

David Common

I won't tell you which way where I'm voting.

Mark L. Thompson

Well I don't I think we're going to make comments on Brexit or the U.S. election quite honestly.

Adrian de Saldanha

So I'll take that question. So for 2016 and I have said this before, we essentially have natural hedge, because even though you may - if the pound continues to stay at a lower rate relative to the U.S. dollar. When you convert our GDP results to dollars, you see a decline impact there. What you have to think about is what you need from a GDP perspective. The AMCo business continue to perform very strongly and we will use that cash flow to service the obligations we have in GDP, particularly in 2016.

As you know we have the $144 million AMCo earn out to the seller of the AMCo business. We also have additional earn out for some of the acquisitions that were made by AMCo prior to our acquisition and the emphasis over the debt. So what find is while the translated result may reflect a decline, if you go back to the underlying GDP business that cash flow is there and that will be used to service GDP obligations including also the GDP debt that we have, because those obligations in U.S. dollar will be less.

David Common

I guess, sorry, I wasn't really thinking so much as the FX impact, but really the sort of the regulatory regime just completely foreign to me, what would need to be done if Brittan voted to exit the EU?

Adrian de Saldanha

Okay, as far as being in the line of business it comes and it won't have an impact one way or another really it's very difficult to speculate how Brittan. If it does it exist the EU, change its relationship with the rest of Europe, but people still need these medicines and there isn’t going to be any impact in terms of prescribing or in terms of supply chain or so on.

David Common

Okay. I'll watch the space. Thank you.

Operator

Your next question comes from the line of Joe Walewicz from LBS. Your line is open.

Joseph Walewicz

Yes. Good morning. Just two questions here obviously. One first with the U.S., are you seeing any changes in terms of the gross to net on your portfolio any trends in change of notes et cetera. I know you give color on that in your filings, but just wondering if you have some additional commentary on what is happening there. And then second with regards to international, just we know you have the pound debt and you have UK operations, it sounds like your cost of good is predominantly in Euros. Wondering what other currency is there, I'm just thinking about India and the Center of Excellence and how that impacts international results. Thanks I'll leave it with those two.

Adrian de Saldanha

We are not seeing any change of notes in our gross to net, pretty flat this time.

Joseph Walewicz

Perfect.

Adrian de Saldanha

Sorry, can you repeat the second question?

Joseph Walewicz

For the second question just trying to understand beyond the British pounds just the international currency impacts on Concordia International. Specifically the Indian centers of excellence, you have I think you said earlier in the call your cogs are predominantly Euro denominated. Just trying to tease that all or apart if you could just comment on the relative impact on international from various currencies?

Adrian de Saldanha

Yes. essentially as I mentioned before, so our purchase of product is primarily in Euro and that offset our Euro based revenues, there is not much of a currency impact that flows through. Australian dollars, Swedish Krona, but not really a big impact, the biggest impact would be GDP.

Joseph Walewicz

Okay perfect. Thank you.

Operator

Your next question comes from the line of David Martin from Bloom Burton. Your line is open.

David Martin

Thank you for taking my questions. The first one is does AMCo have seasonality in the business, the fourth quarter was ahead of our expectations and I'm wondering if there is a seasonal impact there?

Mark L. Thompson

No the products are generally chronic patients are on them, they don’t ebb and flow with for example the flu season. They really are steady throughout the year.

David Martin

Okay. And the second question I would say, in North America in the U.S. are you noticing increased push back from payers certainly drug pricing has been a big issue, do you see it impacting you in anyway?

Mark L. Thompson

So we've no push back on pricing, I had dinner on Monday night with a couple of long time U.S. pharma veterans and we talked about pricing at lengths and quite honestly this whole debate is a political issue, it's not an industry issue. Politicians will continue to talk about this unfortunately for rest of this election cycle and quite honestly I don’t think anything will happen. So we have seen nothing and we've never been price leaders, we don’t hold people hostage for products. So we are very comfortable with our position.

David Martin

Okay, thank you.

Operator

Your next question comes from the line of Alan Ridgeway from Scotiabank. Your line is open.

Alan Ridgeway

Hi, guys. Thanks for taking the follow-up. I just wanted to touch on the additional earn outs that are owed on some of the AMCo acquisitions prior to you guys buying the company. It's about $63 million I believe at the end of the year, but more importantly what is the timing associated with those earn outs are those due in 2016 or are they sort of spread over 2016 and 2017 going forward leave it at that. Thanks.

Adrian de Saldanha

In terms of disclosing our financials, but the bulk of them will be paid in 2016.

Alan Ridgeway

Okay, thanks.

Operator

Your next question comes from the line of Martin Landry from GMP Securities. Your line is open.

Martin Landry

Thank you. Just a follow-up for me on the U.S. business. The revenues from your portfolio of products that you acquired from Covis seems to have been a little lower than what we were expecting and certainly a little lower than Q3. I did not understand fully your explanation for that I know you have talked about Plaquenil having some supply constraint, but it's a little unclear what is going on. Is there anything else that's impacting your revenues there aside from [indiscernible] line obviously facing some generic competition?

Wayne Kreppner

Hey, Martin it's Wayne again. Yes with regards to the Plaquenil situation as we talked about in Q2 one of the things with Plaquenil was getting consistent supply from our CMO to continue to grow the authorized generic business. We've been working with our CMO since we acquired the products and we increase production with the understanding that more products for our authorized generic partner will result in greater share and so far they have delivered on that so we continue to work on that.

In Q4 so some of the issues we had with consistency in supply will continue and we were able to work with our contract manufacture on that but it meant that we had to prioritize something to authorized generic to continue to get share. And I can tell you that AG partner now with some of the supply issue resolved is now growing share fairly dramatically with another 4% or 5% increase in share coming in the first part of year, so we are quite happy with that.

But those issues impacted us on Q4 on both brand and AG, and are working through resolution now and we are hopeful that they will be resolved at the end of Q1. In addition to that as Adrian mentioned, we had some lumpiness in order patterns around other authorized generics and that's primarily based on the neat order pull back just for contract and some of the timing around those orders that happened late in Q3 and then it wouldn't happen again until Q1.

Martin Landry

Okay so if I understand correctly, you are going to have to face a little bit of headwinds still in Q1 and then I think should fall back into place in Q2?

Wayne Kreppner

Yes, quite frankly we are looking at having all supply issues and back order situations that we are prevalent at the end of Q4 resolves - at the end of February into early March so this timeframe right now looks like we are on track for that. And then as we go into Q2, we are continuing to get stable and increasing supply and our AG partners continue to share.

Martin Landry

And last question, in AMCo your revenues are mostly in British pound but your costs are in Euro, costs of your products in Euro, how are you hedging your currency risks there?

Wayne Kreppner

So we are not hedging the currency risks relative to Euro, so you have Euro denominated revenues as well as costs and those are essentially washed, so it almost takes the Euro out of the equation.

Martin Landry

But if Euro weakens or strengthens against the pound that could have a pressure on your margins, right?

Wayne Kreppner

That would, but that's not something that we are currently actively hedging at the moment, but if the Euro strengthens at the pound you also get your Euro denominated revenue increasing. So it all washed.

Martin Landry

Okay, thank you very much.

Operator

Your next question comes from the line of Prakash Gowd from CIBC. Your line is open.

Prakash Gowd

Thank you and good morning. Just a couple of questions on AMCo, first of all just wondering if you can comment on how the Q4 number compared with Q3, and can we use the Q4 revenue number as the right base on a go forward basis or was there potentially a stalking influence for Nefopam or others in Q4 that we should be considering? And secondly, of the 60 product launches over the next three years, just on the proportion basis, how many of those launches would be based on existing drugs versus the launch of new chemicals that are not currently in your marketed portfolio?

Edward J. Borkowski

Well to answer the second par first again, we are not going to give that kind of detail on the call because that becomes an exercising, our competitor is trying to figure out what we are going to launch. Can you repeat the first question again the Prakash?

Prakash Gowd

Just trying to understand how you felt about the revenue in AMCo in Q4 versus Q3 and just trying to get comfort that the Q4 number is the right base now that we should use on a go forward basis?

Wayne Kreppner

Yes, I mean the business performed very well on Q4, we are very comfortable with this growth rate all of the things that are happening. We did this deal to purchase AMCo very specifically to buy this kind of an assets, a strong growing asset that give us international research. So we are very, very pleased with what we have and how its performing. John and his team in UK did a fantastic job.

Prakash Gowd

Okay, was there any specific stocking of Nefopam in Q4 that might kind of come out in Q1?

Wayne Kreppner

No.

Prakash Gowd

Okay, Thanks very much.

Operator

Your next question comes from the line of Doug Miehm from RBC Capital Markets. Your line is open.

Doug Miehm

Maybe just a quick follow-up for you Wayne as it relates to Plaquenil, I know you have gone into a ton of detail on this and I don't want to be liberate. But what type of issues are we dealing with here and what is your degree of confidence that this can be addressed by the end of Q1 and won't drag on for the remainder of the year. It's an important consideration given the impact it had in Q4?

Wayne Kreppner

So without getting into specific on, the issue was around labor and resources associated with the product and we are comfortable that those have been fully resolved and that our product is getting a proper priority inside the facilities. We've done a lot of work with our partner to get there and they understand the importance of the product as well, but the issues were one-time issues that affected us negatively as I said in Q3 and linked into Q4, but going forward we are very confidence this has been resolved.

Doug Miehm

Excellent, okay and just on Donnatal, I know that one of the things you are contemplating or were contemplating of doing us trying to increase the total count per script as it was a few years ago. Can you comment on the success of that or is it just too early right now?

Wayne Kreppner

We have had some success specially in the territories where the reps have been there for a while so we are very excited about what we could do with that going forward with new field force.

Doug Miehm

Excellent okay and then finally Mark just for you I know that you are limited in what you can do in terms of product acquisitions and that sort of stuff perhaps this year. But given what is happening in the spec pharma market and across the broader market. What are you seeing in terms of opportunities that are going to be able to allow you to leverage the AMCo assets going forward in terms of - are there is many opportunities what does pricing look like et cetera, et cetera. So that we can get a better mid to long-term opportunity for the company when some of debts paid down and I'll leave it there. Thanks.

Mark L. Thompson

[Indiscernible] questions, but to answer your question, I think that we've never been better positioned. I think the dislocation right now in the pharma market is fantastic, you actually read my mind and what I was going to say at the close if the call. We have a platform that stands alone, nobody else has a platform like us. Yes we are capital restrained right now and yes our focus is on paying down the debt, but I'm not looking at this business as a quarter-over-quarter business, I'm looking at this business over the years t come.

And we are uniquely positioned in that time to pick up on that dislocation, I mean there is margins that are happening which will result in products being divested, units being divested. There are companies right now that are in this already and have no opportunity other than to divest product. So I have never been more excited about our business and we have more opportunities than we have ever had. Looking around the table, we have a fantastic team here, a fantastic around the globe, Center of Excellence in India. So I think we stand alone and really our future has never been brighter.

Doug Miehm

Great thanks.

Operator

There are no further questions at this time. Mr. Thompson, I turn the call back over to you.

Mark L. Thompson

Thank you and thanks for calling in everybody. I would like to thank all of the employees around the world now who help build our company and make it what it is, without their dedication and efforts we wouldn’t be here. And lastly, I would like to thank all of the shareholders who have stood by us in the phase of storm that we've been going through for the last almost seven months now. I believe the end is insight and I think that those of you who have hung in there will be awarded. Thank you everyone.

Operator

This concludes today's conference call. You may now disconnect.

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