Teligent's (TLGT) CEO Jason Grenfell-Gardner on Q2 2016 Results - Earnings Call Transcript

| About: Teligent, Inc. (TLGT)

Teligent Incorporated (NASDAQ:TLGT)

Q2 2016 Earnings Conference Call

July 28, 2016 4:15 p.m. ET

Executives

Jason Grenfell-Gardner - President & CEO

Jenniffer Collins - CFO

Analysts

Matt Hewitt - Craig-Hallum Capital Group

Greg Gilbert - Deutsche Bank

Rohit Vanjani - Oppenheimer

Elliot Wilbur - Raymond James

Operator

Good afternoon, and welcome to the Teligent Inc. Second Quarter 2016 Results Conference Call. All participants will be in a listen only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please also note this event is being recorded.

Except for historical facts, the statements in this presentation, as well as oral statements or other written statements made or to be made by Teligent Inc. are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties. For example, statements about the company's anticipated growth and future operations, the current or expected market size for its products, the success of current or future product offerings, the research and development efforts, and the company's ability to file for and obtain U.S. Food and Drug Administration approvals for future products are forward-looking statements.

Forward-looking statements are merely the company's current predictions of future events. The statements are inherently uncertain and actual results could differ materially from the statements made herein. There is no assurance that the company will achieve the sales levels that will make for its operations profitable or that FDA filings and approvals will be completed and obtained as anticipated. For a description of additional risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission, including its latest Annual Report on Form 10-K and its latest Quarterly Report on Form 10-Q. The company assumes no obligation to update its forward-looking statements to reflect new information and developments. Investors are advised that the company’s results for the second quarter of 2016 are attached to its filing on Form 8K available at sec.gov.

I would now like to turn the conference call over to Jason Grenfell-Gardner, President and CEO. Please go ahead.

Jason Grenfell-Gardner

Thank you, Bianca and good afternoon, ladies and gentlemen. Welcome to the Teligent business update covering the second quarter of 2016. I'm Jason Grenfell-Gardner, the President and CEO of Teligent; and I'm joined today by Jenniffer Collins, our Chief Financial Officer. Thank you for joining us today.

Since our last call in April Teligent has continued to execute our plan to grow and diversify our business. We submitted further [AND] with the FDA, we received approvals for existing pipeline drugs and we launched drugs into the market. I believe it’s fair to say that Teligent is firing on all cylinders as we accelerate towards the second half of 2016.

Today, I’ll be giving you an update on our revenue model, our pipeline and our product launches and our view for the remainder of 2016. Jenniffer will then provide a more detailed breakout of our financial performance for the second quarter. This afternoon we released the best quarter of revenue yet for Teligent.

Revenue for the second quarter was $17.1 million up 93% over the same quarter in 2015 and up 9.2% over the first quarter of this year. In particular, I would know that the revenue of Teligent label products was up 66% over the same period last year, to reach $11.1 million in the second quarter of this year. And that's up from $9.2 million in the first quarter of 2016 or 21%.

This growth has been driven by new product launches and products that have been improved from our Teligent pipeline. In particular, the second quarter of this year saw significant contribution from our launches of Lidocaine 5% ointment which launched at the end of Q1 as well as our launches of Desoximetasone Ointment and Triamcinolone Acetonide Ointment in the United States and Centeno [ph] for injection in Canada.

In the balance of our portfolio, we have seen market dynamics to be stable across the portfolio of products. Market stability combined with our product launches has allowed us to deliver the best numbers yet for Teligent. Adjusted EBITDA for the quarter has now grown to $3 million, up from negative 1.2 million in the same quarter last year. And again, all this has been achieved despite a continued significant spend in R&D to drive our pipeline. As you know, this is why we track adjusted EBITDA before R&D costs which grew from $2.2 million for the second quarter of 2015 to $7.8 million for the second quarter of 2016.

Based on this R&D investment, Teligent filed two NDAs in the second quarter and received two approvals ending the quarter with 33 ANDAs on file. This pipeline of ANDAs represents a total addressable market of $1.6 billion based on IMS health data as of May 2016. We remain on track to file 15 ANDAs for the year and 8 ANDSs in Canada. With the continued interaction that we have with FDA and Health Canada on our pipeline, we feel even more confident today about our expectations for the delivery of this pipeline that we anticipate for the remainder of this year.

This together with our current results allow this provide an upward revision to our guidance for the year 2016. We now anticipate full-year revenue for 2016 between $65 million and $72 million. We expect gross margins between 54% and 56% for the full-year. We expect full-year operating income of between $2 million and $4 million. And we anticipate achieving our earlier stated targets for R&D productivity.

Turning now to our physical brand expansion, I'm pleased to report that we continue to make significant progress on our capital program to add incremental capacity and new sterile capabilities to our site in Buena, New Jersey. We recently completed Phase 1 of our project with our development teams and support staffs moving into their new premises and Phase 2 is well under way and on target.

So, let me now turn the call over to Jenniffer to provide some more details on the financial results for the quarter. Jenniffer?

Jenniffer Collins

Thanks, Jason. Good afternoon, everyone. And again, thanks for joining us today. A total revenue for the second quarter of 2016 was 17.1 million, an increase in 9% over the first quarter of this year, an increase of third 93% as compared to the same quarter last year. Revenue for the second quarter of 2016 included a 11.1 million of net revenue from the sale of our own products, compared to 9.2 million in the first quarter of 2016 and compared to 6.7 million in the same period last year.

As our portfolio continues to diversify, revenue from Miconazole represented a 11% of our total revenue in the second quarter, compared to 51% in the same quarter last year, and 14% in the first quarter of 2016. Revenues from Lidocaine ointment 5% represented 16% of total revenue in the second quarter, compared to zero last year. We launched Lidocaine ointment 5% in March of 2016. We were able to grow Teligent sales approximately 66% over last year, whilst reducing our product concentration rate.

Revenue increased this quarter compared to last year due to the expansion of our generic injectable product portfolio in the fourth quarter of 2015, to achieve product acquisition as well as conform new product launches that started this year. Product sales from our contract services business was 6 million in the second quarter of '16 compared to 2.2 million in the same quarter last year and 6.5 million in the first quarter of 2016.

We were fortunate enough to secure orders from two new customers in the fourth quarter. Some of which continued in the first and second quarter of 2016. We expect additional orders in the third quarter from one of our customers albeit smaller than their orders in the previous quarters. It's quite possible we will not see these orders continue in the fourth quarter of '16. These orders were higher margin contract customers where we manufactured one of our products in a private label.

In addition, we had a higher than expected demands from two of our distinct contract customers in the second quarter of 2016. As we often talk about our contract services business is a purchase order business. Due to a greater than expected revenue in the second quarter, we expect contract services revenue to decline in the third quarter 2016 as compared to the second quarter. Fortunately, the strategy focuses on the continued diversification of our product portfolio in our topical injectable complex and ophthalmic generic prescription products.

Teligent product sales grew 21% sequentially in the second quarter of 2016 because of our continued success in penetrating new markets, and planned approvals and product launches for the remainder of this year we expect to see sequential quarterly growth continue for our Teligent label products throughout the remainder of 2016.

Contract manufacturing and formulation services revenue from our pharmaceutical customers represented 92% of second quarter revenue compared to 75% in the same quarter last year. Sales of OTC and cosmetic products were 8% in Q2 of this year compared to 25% last year. Gross margin in the second quarter of 2016 was 56% compared to 41% in the same quarter last year and 51% in the first quarter of 2016. The margin improvement over last year was a direct result of three factors.

Our new product launches, the addition of our new injectable products in both the US and Canada and the additional private label in our contract services business. Gross margins in 2015 were negatively impacted by the decline in pricing of Econazole Nitrate Cream in April of 2015. Sales of injectable products represented just over 23% of total revenue in the second quarter as compared to approximately 30% in the first quarter of 2016 and it was zero this time last year. SG&A in the second quarter of 2016 was $3.7 million compared to $2.1 million in the same quarter last year. SG&A in the second quarter of 2016 includes amortization of $0.7 million compared to approximately $30,000 in the same quarter last year. The increased amortization resulted from our acquisitions in the fourth quarter of 2016. SG&A as a percentage of sales for the second quarter of 2016 was 22% compared to 24% last year. We do plan to make continue to make some additional investments in the corporate services group to support the growth of our business.

We expect SG&A as a percentage of revenue to be flat to down depending on the range of revenue. Consistent with our TICO strategy and our dedication to building a foundation to expand our product portfolio we continue to invest significantly in R&D. We invested $4.8 million in the second quarter of 2016 as compared to $3.4 million in the same period last year. We filed 15 ANDAs in 2015 and we expect to file at least 15 this year in the US and 8 ANDAs in Canada in 2016. We still expect total R&D to be between 28% and 32% of revenue.

For the quarter ended June 30, 2016 net cash provided by operations was $2.8 million which included $4.8 million of R&D expenses. For the quarter ended June 31, 2016, cash used in investing activities was $8.6 million, primary related to $4.2 million in capital expenditures for the expansion of our facility in Grainne and New Jersey. We expect the final budget for the facility expansion including necessary equipment utilities, process purchase controls for the increased topical production and new sterile still unfinished suite to approximate $50 million. We hope to have this expansion completed before the end of 2017.

In addition, in accordance with our agreement, we exercise our options to buy out the royal fee obligation related to the products we acquired from AstraZeneca for $3 million. We’ve no further obligations under this agreement.

In the second quarter of 2016, we recorded a net loss of $2.9 million compared to net income of $9.4 million in the same quarter last year. The decline in net income compared to last year includes the few components. We issued a 143.75 million, 3.75% convertible senior notes in December of 2014. Net income in the second quarter of last year included a non-cash gain of $14.5 million related to the accounting for the mark to market of the associated derivative liability. The net loss since second quarter of 2016 included a loss related to foreign exchange of $0.6 million.

As you may recall when we completed Alveda acquisition we established Teligent subsidiaries in both Canada and Estonia to complete the purchase. The transaction was funded by Teligent US primarily through the establishment of intercompany to these wholly owned subsidiaries. The loans were originated in US dollars and are held in Canada and Estonia in their local currencies. The original loans total $4.6 million in Canada and $28.2 million in Estonia payable in US dollars. Because of the fluctuation in foreign exchange rates during the second quarter of 2016, we recorded a non-cash loss of $0.6 million related to the foreign currency translation of these intercompany loans to our wholly owned subsidiaries.

Depending on the changes and foreign currency rates we will continue to a record a non-cash gain or loss on translation for the remainder of the term of these loans which were due in 2022. Due to the nature of this transaction there is no economic benefit to the company to hedge this transaction. For the quarter ended June 30, 2016, net loss included amortization and depreciation of $1 million compared to a $168,000 in the same quarter last year. The increase relates to amortization of intangible assets for acquisitions we completed in the fourth quarter of last year.

Finally, we increased our R&D spend by $1.4 million compared to last year to support out TICO strategy. We’ve revised our financial guidance for operating income for 2016 to be between $2 million and $4 million which are after we spend 28% to 32% of top line on R&D. Our net loss in this quarter included $2.1 million in non-cash interest expense primarily related to the amortization on the discount related to our convertible note. Non-cash interest in the same quarter last year was $1.8 million. We believe it's helpful for investors to review our adjusted EBITDA, earnings before interest, taxes, depreciation and amortization, as well as our adjusted net income. Non-GAAP disclosure related to how we calculate EBITDA and adjusted EBITDA and adjusted net income is included with our result. We will continue to provide this information as long as we determine it to be helpful to investors to monitor the operations of our business, excluding certain items as outlined in the table.

Our adjusted EBITDA for the second quarter in 2016 was $3 million which was after our R&D spend of $4.8 million in the quarter. As always Jason and I are grateful for your participation and look forward to updating you soon.

Jason Grenfell-Gardner

Thanks Jennifer, tomorrow marks my fourth anniversary as your CEO here in Teligent and I am remarkably impressed by the progress that our team has made over these four years. Teligent continues to execute on the business plans that we set out both for 2016 and on our broader plan of building a leading player in the specialty engineering pharma space founded on our TICO strategy. With this focus on execution I am confident that we will continue to deliver on our goals.

With that let me now open up this call for questions. Bianca.

Question-and-Answer Session

Operator

Yes. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Matt Hewitt with Craig-Hallum Capital Group. Please go ahead.

Matt Hewitt

Good afternoon Jason, Jenniffer congratulations on a very strong quarter.

Jason Grenfell-Gardner

Thanks Matt.

Matt Hewitt

First a couple of questions regarding the product launches and then I have got one follow-up on the remainder of the year, but regarding lidocaine obviously a very strong start post launch I am wondering if is the success you had there can we expect that with other launches or was there something different about the lidocaine market that’s enabled or has allowed you to take such diverse share that you have since launch?

Jason Grenfell-Gardner

Yes, I mean I think the core part of the success of lidocaine launch has really been down to the sizable lidocaine market. It's a relatively large market both in terms of dollars and units. It's also a fairly diversified market across classes of trade and channels so there is probably slightly broader market in utilization of lidocaine, but overall we still maintain I think fairly specific and targeted goals as we go into product launches and I think our team executes them pretty well.

Matt Hewitt

Regarding that product as we look at the remainder of the year obviously very strong start, is that a product that don't mean to put you on spot, I mean is that a product that could generate $6 million to $10 million in revenues for you this year?

Jason Grenfell-Gardner

As you know Matt we don't really give product specific guidance on forward looking basis. But it's certainly a product that has a lot of runway and a lot of potential. And we will be doing our best to position it appropriately in the channels.

Matt Hewitt

Okay. How is that product launch gone? It's little bit harder to track that product relative to some of the others and given that it has been out of the market for a while, what has been your experience since you launched that one?

Jason Grenfell-Gardner

Well, at the beginning I think there was a stocking effect in the channel because the product had been on shortage for some time. What generally happen within is you end up with a fairly large channel product that moves through the distribution channels and into supplying back orders of existing customers. And then, you kind of enter into a bit of a low period while people work through that inventory and then we will start getting back to normal run rate. So it's obviously it's a smaller much more market than lidocaine it's a small market generally in terms of anti-infective but we are pleased with the launch. I think it's gone fairly well. It's positioned well. It's on contracts. And we do see utilization of the product which is just great.

Matt Hewitt

Okay good. Maybe two more from me. As we look at the back half of the year and obviously you have a lot better visibility than we do but if you are comfortable providing how many target action days do you have over the back half of the year recognizing that just because you got these hits so does it mean the FDA is going to actually hit them but even just a range or ballpark would be helpful?

Jason Grenfell-Gardner

Yes, there is about seven or eight target action dates in the back half of 2016 and about six to seven [indiscernible] dates in the back half of 2016 as well.

Matt Hewitt

Fantastic and then one last one from me and this is probably little bit more for Jenniffer. The new facility you have moved one of your - couple of your teams over already but how should we be thinking about the impact on gross margins once you have that up and running from a manufacturing perspective?

Is that it sounds like that's early 18 type scenario but will that have an initial hit to gross margin until you ramp utilization as your hope and expectation that you will have products approved and ready to go that you can immediately move into your facility and maybe not experience that head to gross margin?

Jenniffer Collins

As your comment we are continuing to make our tropical product the best facility through the expansion process. So we will continuing to add products, continuing to add launches so by the time we get to the end of the 2017 we will have significantly more products hopefully approved by the FDA than we have now. So when you talk about $50 million some of that equipment a lot of it actually related to the physical plan over kind of the normal depreciation line you shouldn't see a significant impact to margin when that goes online at the end of 2017 beginning of 2018.

Matt Hewitt

Okay great. Thank you very much.

Jason Grenfell-Gardner

Thanks Matt.

Operator

The next question comes from Greg Gilbert with Deutsche Bank. Please go ahead. Mr. Gilbert? Okay. The next question is from Elliot Wilbur with Raymond James. Please go ahead.

Elliot Wilbur

Thank you. Good afternoon. Question for either yourself Jason or for Jenniffer or perhaps both of you. Maybe if you could just rank order the two or three key items that led to the upper division in your top line outlook and gross margin guidance for the full year?

Jason Grenfell-Gardner

Sure Matt, I think Elliot, great to hear from you. So a few things and first we are certainly seeing better correspondence in terms of the pipeline with FDA and we feel good about the ability to action a number of these target action dates and difficult dates. If you think back to when we gave our guidance originally at the beginning of this year, we were still in a very early period with {indiscernible] we were also still in, I think in a bit of an early phase in terms of target action dates and how the FDA would reduce them. And as we’ve had the experience of working through that over the course of the past many months one starts to develop I think a better view of how these products and these products in the pipeline will be processed moving forward. So, I think that’s the first part and that means there are some increasing probabilities around product launches that we see in that pipeline.

The second is that we’ve seen I think a fairly strong base performance in the business of both our existing product portfolio which has been relatively stable in the market and the success in recent product launches and those have gone fairly well, we’re pleased with that. Remember that the original guidance that we gave was based on the low end of $60 million with everything that we had in hand and on the high end of assuming some of these product launches. We’re now obviously further along. We’ve seen what that businesses look like for the first half so we know what we have in hand, we know what we’ve got to launch and we do feel better about how that pipeline looks now.

Elliot Wilbur

Alright, thanks. If I could just follow that up with additional question, maybe just if we could do a little bit of a deeper dive around launch dynamics of some of the recent approvals and specifically thinking perhaps about the lidocaine market looks like weak you kind of moved up to around 7% share a little over, the relevant market. But looking at that market the bigger players at the top seem to have basically been able to maintain share while it looks like you may have taken share away from one of the smaller competitors and I am just sort of wondering if in fact we may see some cessation over seeding of share by some of these larger players at the top that will enable you to continue move share up and trying to get a better sense frankly of what the switch pricing dynamic have been whether or not those guys at the top have been a little bit more resistant to giving up a little bit of share to try and protect the integrity of market?

Jason Grenfell-Gardner

Well, I would start by saying that this is the market that's pretty crowded to be getting late. I mean we have a number of players I think we are the fifth player in this market if I am not mistaken. And so you have a market that already has a number of players. You also have market in which there has been a recent market entrant over the course of the past year. And that I believe has an impact on overall market dynamics just as we find them as a new market entrant. In markets that are already fairly busy for us as a market entrant our strategy is always been defined places in the market that we think are appropriate given the size of the market and given our position of entry. I think overtime we have always said that as you get into these markets you take what is a an appropriate share and then you kind of wait and you wait for other people to mess up and when that happens Teligent is usually in a good position to supply the market and to make up share. We see that happen time again on these product launches. It's a strategy that we continue to execute.

Elliot Wilbur

Okay then one last question if I may. Maybe you could just provide us with an update on the re-submission or re-filing process for some of the acquired AZN products and also the CO portion of the TICO strategy I think you had mentioned on the last call that perhaps we may see some up down like submissions by midyear just wondering where some of the opportunities on the CO part of the development strategy stand?

Jason Grenfell-Gardner

Sure. So on the injectible side; we have been working with our partners to bring back a number of these products. Obviously, first of them but there are more there that we need to do. Remember of course that some of these products were withdrawn. Some of them were discontinued an across the balance of those we have been trying to frankly find the right CMO part with the right cost structure to be able to support bringing those products back. I would say that that's been challenging because certain CMOs have cost structures that frankly don't work for the sizes of some of these markets, the volumes that are required and the overall pricing dynamics of the market. And in those cases, and I believe I said this on our last call as well, we've purposefully elected to reserve some of those products for 2017 when the Teligent scale capabilities and capacity is available.

With that being said, of course, there is still a number of products that are moving forward. And we have some submissions that are coming in the second half of this year that will continue to support that Eco pipeline. Some of those will be new submissions because they are working off of pillar John, and ANDAs and NDAs; some of them will still be prior full supplement. But it's been a longer process than I had originally hoped.

On the CO side, the Complex side is moving ahead pretty quickly and we are excited about that. The work on of the first of the generic Orphan type products continues to move ahead. And I'm hopeful that we'll see some concrete data out of that. If not at the end of year, at the beginning of Q1 2017. On the Ophthalmic side, we are working with our ophthalmic contract manufacture to submit the first PAS for that site transfer. I will say that and that PAS will require us to, has required us to make a change in the resins that are used for the primary packaging material that is the Ophthalmic and that takes us a little bit more time, a little bit more work, but it's worth it.

And we still anticipate seeing that being submitted this year. And hopefully we would be able to launch that product, if not by the end of 2016, then very early in 2017 depending on FDA review times.

Elliot Wilbur

All right, thank you for taking the question.

Jason Grenfell-Gardner

Thanks, Elliot.

Operator

The next question is from Greg Gilbert with Deutsche Bank. Please go ahead.

Greg Gilbert

Thanks. Good afternoon, guys. Had a couple of questions. First, can you break down Jenniffer for us the injectable sales by Canada versus US, you have that handy?

Jenniffer Collins

Now, the international sales were 2.8 million and then at the 23% the injectable sales were 1.1 in the US.

Greg Gilbert

Can you also, any examples of the growth margin through the AstraZeneca portfolio, sort of before the buyout versus after especially kind of gauge what you're getting for what you're paid there?

Jenniffer Collins

You mean, in terms of our payment for the royalty stream?

Greg Gilbert

Yes. And what the margin would be after that?

Jenniffer Collins

Right. So, that we have that cannot has considered part of the purchase price and as we launch those and allocation of the capitalize some actions and allocated to each product individually. So, as we launch each individual product, then the associated dollars will go against those individual margins which are already anticipated in the kind of margin profile for those products.

Greg Gilbert

Could you give us a sense for the overall gross margin profile of that casket once launched?

Jenniffer Collins

I think it will depend on whether they've made it a CML or whether they're made in our new facility in Buena, New Jersey but typically it's their contract manufactured products, they are somewhere in the mid-30s. If we make it in our facility, we're probably somewhere closer to 50.

Greg Gilbert

Got it. That's helpful, thanks.

Jenniffer Collins

And then obviously that's depended on price of individual products, those are just our parts overall.

Greg Gilbert

Got it. Jason, you mentioned relative stability in your business. Have you noticed any changes in competitive intensity in sort of going forward based on approvals that have occurred so far in the State but not yet led to launches?

Jason Grenfell-Gardner

I can say that I have, it's been a relatively calm quarter.

Greg Gilbert

Okay. And then on the R&D side, sort of a couple of part question. It wasn’t too long ago that you described your R&D teams effort just focus largely on sort of answering questions of the FDA, sort of versus playing off hand and new filings. How would you describe that dynamic now that's some time as to ask?

Jason Grenfell-Gardner

Let's see, like, it's more balanced. We probably in our stride in terms of understanding just the sheer volume and resources required to be able to manage the information requests and the data requests that are coming from FDA. So, I think they were in a bit of a more balanced position than perhaps where we were a year ago.

Greg Gilbert

And then lastly, you commented on increases with probability of launches or your confidence and predict in that probability has gone up for the remainder of the year. Is that a function of GDUFA sort of environment and really enhanced interaction with the agency, supported by some examples or is that something else that's just sort of normal course as all of your application move towards the paces?

Jason Grenfell-Gardner

I think it's really hiss down to the change that we've seen in the communication net patterns of the FDA. Over the course of the past year, as they work through target action dates, having to do it for Go dates, we see much stronger communication from FDA with more data I think stronger reviews. And based on the question that one gets, the degree of complexity around the information requests that FDA is looking for, it makes it easier to understand where your product is and whether you're going to face any specific regulatory challenges or hurdles as you move towards approval. And then, so the completeness and the quality of that communication has certainly changed a lot over the past year.

Greg Gilbert

Thanks for the questions, guys, and happy anniversary, Jason.

Jason Grenfell-Gardner

Thanks, thank you.

Operator

[Operator Instructions] The next question comes from Rohit Vanjani with Oppenheimer. Please go ahead.

Rohit Vanjani

Hi, Jason and Jen. Thanks for taking the questions. Last quarter and this quarter you said you're going to file 15 ANDAs in the US and eight ANDSs in Canada. I think you had three ANDSs file at that time. Think you said you filed two ANDAs in 2Q '16. So, I just want to confirm that you have 10 remaining to be submitted in the US and then for Canada I think you had eight last time, you said you filed one this quarter, so there's seven remaining, so it's 10 and seven. Is that right?

Jason Grenfell-Gardner

That is correct.

Rohit Vanjani

Okay. And then on the contract manufacturing side, Jen I think you said something very similar last quarter where you have these two high margin customers in 4Q and 1Q and you expected them to drop off in 2Q. And it sounds like they didn’t or there was some kind of dynamic where they did but then some other contract manufacturing picked up. I mean, what makes you so certain, I guess, or you kind of said the same thing that you expect contract manufacturing to go down. But what makes you so confident because contract manufacturing remains kind of elevated almost at the same level from 1Q or 2Q?

Jenniffer Collins

Now, there are two factors. One is that kind of our core contract manufacturing business. We have pretty good predictability based on a longer history of ordering patterns for that. So, I'm very confident in what that number will look like in Q3, just based on the orders that are in already in-house and the manufacturing schedule. On the private label side, I think we did see orders decline in Q2, and we went from two customers to one in that particular business for us. While there are some orders in Q3, already they're not as they give Q2.

So, and there is no orders for Q4. And order for them to be able to do that, they need to put orders in already. So, it's not something that and again we don’t have a lot of history with that business and it was two customers initially and it's already down to one. So, think all of those things combined, we are pretty confident what Q3 will look like. But before we look like is certainly is something that could be upside but not something that we're planning on at the moment.

Rohit Vanjani

And so, it's kind of a 20% decline, is that fair or is it do any kind of magnitude there because it's a hard number to predict for us, I guess?

Jenniffer Collins

Yes. In terms of the overall contract manufacturing business, like it will, it will probably be a number that's a little bit larger than that just because private label was so significant just for a bit, Q2 to Q3 movement.

Rohit Vanjani

Okay. And then Jason, you kind of touched on this. But the pricing environment that you're seeing is I think the last time you kind of said you are the price disrupters but then your markets were stable. Is there any change there, you're still, is it still kind of stable pricing?

Jason Grenfell-Gardner

Yes. Markets have been stable. I mean, we look at our price volume variants in out to across the portfolio. It's been and very stable.

Rohit Vanjani

Okay. And then, Jen, for Fluocinolone, I think two competitors entered that space within the last six to seven months. Are you seeing any fresher in that market?

Jenniffer Collins

No, we've done a very good job in that product. We had originally predicted a little bit on no deterioration in terms of share but we've been pretty consistent. We I think the players have moved around a bit year-to-date in 2016 and we feel pretty comfortable with where we are for the rest of the year.

Rohit Vanjani

Okay. And the last one from me, I mean, it's been there some before the Lidocaine 5%. Is that doing better than your expectations in the quarter or is that on track. And if its doing better, then why is it doing so well, I guess?

Jason Grenfell-Gardner

Then I would say that it's pretty much on track. You might, the second quarter might be a little bit ahead of where we originally have thought to be but not significantly. So, we think we just continue to execute here that and see where we end up.

Rohit Vanjani

Okay, right. Thanks for taking the questions.

Jason Grenfell-Gardner

Thanks, Rohit.

Operator

We have no further questions at this time. This concludes our question and answer session. I would like to turn the conference back over to Jason Grenfell-Gardner for any closing remarks.

Jason Grenfell-Gardner

Okay, thanks Bianca. And thank you all of you for joining us on today's call. We appreciate these calls in the sandwich year and we appreciate your continued support and interest intelligent. Thanks again and have a great evening.

Operator

The conference is now concluded. Thank you, for attending today's presentation. You may now disconnect.

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