Flamel Technologies' (FLML) CEO Mike Anderson on Q2 2016 Results - Earnings Call Transcript

| About: Flamel Technologies (FLML)

Flamel Technologies S.A. (NASDAQ:FLML)

Q2 2016 Earnings Conference Call

August 8, 2016 10:00 am ET

Executives

Lauren Stival - Senior Director, Investor Relations and Corporate Communications

Mike Anderson - CEO

Mike Kanan - SVP, CFO

Analysts

John Boris - SunTrust

Jason Gerberry - Leerink Partners

Matt Kaplan - Ladenburg Thalmann

Jim Molloy - Laidlaw & Company

Jason Butler - JMP Securities

Scott Henry - ROTH Capital

Operator

Good morning, ladies and gentlemen, and welcome to the Flamel Technologies Second Quarter 2016 Earnings Call. Please note that this call is being recorded.

I would now like to turn the call over to Ms. Lauren Stival, Senior Director, Investor Relations and Corporate Communications. Please go ahead, ma'am.

Lauren Stival

Good morning, this is Lauren Stival and I want to welcome to you all to the Flamel Technologies' second quarter 2016 earnings conference call. Before we begin, I will start with some cautionary statements. The following presentation regarding Flamel Technologies S.A. includes a number of matters that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risk and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements.

These risks include risks that products in the development stage may not achieve scientific objectives or milestones or meet stringent regulatory requirements, uncertainties regarding market acceptance of products and the impact of competitive products and pricing. These and other risks are described more fully in Flamel's public filings under the Exchange Act including the Form 10-K for the year ended December 31, 2015 which was filed on March 15, 2016. Except as required by law, Flamel undertakes no obligation to update or revise any forward-looking statements contained in this presentation to reflect new information, future events or otherwise. We'll be using a slide presentation for today's call which can be accessed by going to the Investor section of our website selecting the Events and Presentations page. After prepared remarks we will be opening the call to question-and-answer period.

On the call today, we have Michael Anderson, CEO and Mike Kanan, CFO. At this time, it is my pleasure to turn the conference over to Mike Anderson, Chief Executive Officer of Flamel Technologies. Mike?

Mike Anderson

Thank you, Lauren. Good morning, ladies and gentlemen. As always, we appreciate you joining us on our call today. Overall we had a very solid second quarter that was marked by strong product sales, a third NDA approval for ephedrine sulphate product, Akovaz and continued clinical progress on a number of different projects.

I'll begin the call by addressing a few of our clinical projects for which we have recently received updates and will then touch on progress as it relates to our largest and most important project Micropump sodium oxybate. Market dynamics and sales for our core products and near-term milestones and events for the third quarter.

At the beginning of July, we received positive data read out from a Phase 1b trial FT228, a once weekly subcutaneous injection formulation of exenatide using our proprietary Medusa technology. Medusa as you know, is a hydrogel depot technology that enables the modified or controlled delivery of drugs. Our study achieved all pharmacokinetic and pharmacodynamic objectives and demonstrated a favorable safety profile. One dose per week for FT228 at 140 micrograms was administered at twelve Type 2 Diabetes patients over a four week period. Following each administration a continuous release of exenatide was observed over a period of up to 14 days and a relative bioavailability exceeding 94% was demonstrated. The PD performance which looked at glycated hemoglobin decreased fasting plasma glucose reduction and weight loss was comparable to current marketed products Victoza and Bydureon.

A low and sensor prolonged gastrointestinal side effects and mild injection site reactions were observed. These positive data serve as further proof of concept for this technology. Given the development cost and bandwidth needed to market, a GLP-1 product. We are actively seeking a partner for this technology and it is unlikely that we will proceed with any further clinical studies until engaging such a partner.

We feel our time is best served focusing on projects which are further down the clinical pathway. In addition to positive data read-out [ph] for Medusa, we received feedback from the FDA regarding the clinical development pathway for FT227, an abuse-deterrent, extended-release, oral hydromorphone product using our proprietary Trigger Lock drug delivery platform.

Following this guidance from FDA we will be conducting an in vivo alcohol interaction study during the third quarter of 2016, which should provide further confirmation of the robust abuse-deterrent capabilities of Trigger Lock. Although we have already started discussions to out-license this technology for use across all opioids, we believe the alcohol interaction study will strengthen our prospects of the successful deal. To-date the Company has completed two pharmacokinetic studies of FT227 in 30 healthy volunteers. In addition to an independent in vitro study confirming FT227's superior resistance to extraction/recovery in various media under several different conditions as compared to both Exalgo and Oxycontin.

In late 2015, the Company licensed its LiquiTime technology for OTC use Perrigo with the first two products being identified as guaifenesin and ibuprofen. Based on further analysis and some commentary from the agency, we believe the pathway to approval for ibuprofen will likely be more lengthy and costly than initially anticipated and we Flamel and Perrigo are contemplating a replacement which we will update investors on sometime in the second half of this year. We are still working on guaifenesin and expect to run our pivotal study sometime in the first half of 2017.

On the LiquiTime prescription front for our own commercial purposes, we are running a few very promising feasibility studies and once we feel we are ready to move into the appropriate PK studies, we'll update you with more information. This will likely be towards the end of 2016 or early 2017.

Now concerning our largest pipeline opportunity, Micropump sodium oxybate. As many of you know, we filed a Special Protocol Assessment or SPA at the end of Q1. By mandate the FDA has 45 days to respond with suggestions or comments which the company must then address. We have had dialog with FDA and are expecting an agreement in the very near future. There have been no substance of issues and we are still very comfortable with our overall timeline of filing our NDA by the end of 2017 or early 2018.

Even though we have not received official acceptance of the SPA. We have been actively engaged in the completion of our agreement with the CRO, registration of clinical sites, discussions with potential investigators and alike. We are very excited to get this trial up and running and as many of you know, we recently received what we feel is positive news in regards to our competitors IP landscape.

And in a part review there's this risk evaluation and mitigation strategy patents or REMS patents, which surround the distribution of the brand Xyrem ruled against the validity [indiscernible] except the seven REMS patents, which we view as being one of the larger gating [ph] items to commercializing our sodium oxybate product, should it receive FDA approval. Because we don't know what action the FDA will ultimately take, we continue to move forward in developing our own REMS strategy.

Overall we are extremely excited about the potential for this product and we will look forward to providing updates, once patient registration officially kicks off. Moving onto our commercial products, Bloxiverz and Vazculep. We are happy to report that market conditions have remained stable with price declines less than anticipated at the beginning of 2016.

During Q2, Bloxiverz held between 40% to 45% of the neostigmine market. Vazculep continued its run as sole supplier of the 5 and 10 mL markets and grew it share to 32% of the 1 mL vial market. Ultimately finishing the quarter with approximately 40% of the overall phenylephrine market volume. We will be announcing the launch of our third previously unapproved marketed Akovaz later this week. Akovaz which is our formulation of ephedrine sulfate. We estimate this market now to be over $200 million and assume we will be splitting it with Akorn who currently sells an unapproved version.

I'd like to briefly touch on FSC before returning the call over to Mike Kanan. Sales for our FSC products have been at this point slightly below our expectations, as we continue to fix certain product distribution matters, third-party payer access and refining sales territories to maximize effectiveness. We feel that we've made our way through and improved upon a number of these issues and are even beginning to harvest some cost synergies as we've recently closed the former Charlotte office.

Although sales were slightly below expectation for the quarter, they are up almost $1 million on a quarter-over-quarter basis and each of our three products Karbinal, Cefaclor and AcipHex were able to grow. We plan on launching our fourth FSC product Flexichamber early in the fourth quarter and believe there is a strong market for this product, which should help to drive the revenue in this business segment.

Now I will turn the call over to Mike Kanan, who will discuss our financial results in more depth. Mike?

Mike Kanan

Thank you, Mike and good morning to all of you as well. As Mike mentioned, we're very pleased with our top line result. We reported total revenue of $38.9 million compared to $48.6 million in Q2, 2015. This decline as many of you know is due in part to Westward's generic entrance to neostigmine market in late December 2015. As you've read in today's release I'm also pleased to say that in the second quarter of 2016, we now have concluded that we can more completely estimate our gross in that deductions at the time we ship product to our customers, the wholesalers.

As a result, we have adopted a point of sale revenue model, whereby we now will record revenue at the time our wholesalers receive our product. Previously as many of you know, we used a sell-through model. This had the effect of postponing revenue until the time our indirect customers, the hospitals received the product. This change increased revenues in the second quarter by about $5.9 million. Excluding this impact, our revenues in the second quarter would have been approximately $33 million slightly above the Wall Street consensus.

Gross margin was 89.9% in Q2, 2016 compared to 94.3% in Q2, 2015 and 89.2% in Q1, 2016. This slight decline compared to the prior year was a result of the FSC acquisition which carries lower gross margin than our Éclat products. But our gross margin was up slightly sequentially from Q1.

Research and development expenses during the second quarter of 2016 totaled $7.6 million compared to $7.2 million 2Q, 2015 and $5.4 million in Q1, 2016. This increase is due to the ramp up in spending as we initiate our Micropump sodium oxybate pivotal trial. SG&A was substantially higher at $11.3 million in the second quarter of 2016 compared to $5.9 million in the prior year period and $9.5 million in Q1, 2016.

As I've mentioned in our last earning's call, we continue to invest in infrastructure and personnel as we work to strengthened our finance marketing and regulatory teams to ensure proper financial controlling practices are in place and now we have the people power to smoothly run our clinical studies.

We also incurred some legal tax and accounting fees as we continue to plan and execute our cross border merger. Much of these costs are one-time and we do not expect to level [ph] of these to continue into the second half of the year. The consolidation of FSC, also added to the SG&A amount when compared to last year's Q2.

As many of you know, as part of the acquisition Éclat, we are required to pay 20% of our gross profit on the Éclat products indefinitely to certain related parties. Each quarter we true up this long-term contingent liability and as a result incurred a change on a GAAP basis of $23.9 million in Q2, 2016. This true up was included as a deduction to operating income on a GAAP basis. In addition to this gross profit earn out, we also owe royalties on the total revenues of Éclat products to certain related parties. Each quarter we also true up this long-term contingent liability as a result incurred a charge on a GAAP basis of $2.8 million in Q2, 2016. This true up is included in interest and other expense.

I would like to point out, that these although we took a large charge against for these items. These charges are indicative that we are more bullish on the long-term outlook for our Éclat portfolio. We've revised upwards our long-term outlook for Akovaz and Bloxiverz to better reflect our long-term view of these markets.

It's important to note, that the more favorable future market conditions are for these products, the higher discharge may become [ph]. These charges are reflected on a GAAP basis only and are not reflective of the cash payments we actually make on a quarterly basis. Also on a GAAP basis, we reported a foreign exchange gain of $1.7 million in Q2, 2016 compared to foreign exchange loss of $3.6 million in Q2, 2015. These amounts are also included in the line item entitled Interest and Other Expense in the slide presentation.

These forex gains or losses primarily result from holding US dollar denominated monetary assets in Europe. During the second quarter of 2016, when compared to last year the US dollar strengthened versus the euro, producing an FX gain on those monetary assets.

Now moving onto our cash expense, as I said in the past all of our pre-tax profits are earned in the US and our tax at the US corporate effective rate of 36%. However, 40% to 50% of our SG&A and nearly all of our R&D expenses are incurred in France and Ireland where we generate operating losses.

As a result of our history of losses in these countries under the accounting rules, we do not allow to capture any tax benefit from the expenses we incur in these countries. This jurisdictional mismatch of earnings and losses creates this unreasonable tax situation. We can expect this mismatch of earning and losses to continue until we are able to benefit from a meaningful amount of revenue from our Irish subsidiary.

I wanted to assure you that we are currently working on other tax planning ideas that could potentially assist and lowering our cash taxes and I will update you as soon as these ideas have been properly vetted and implemented. In the meantime, we are always looking for opportunities to [technical difficultly] our tax situation.

So on a GAAP basis, our net loss and loss per share for the second quarter $20 million or $0.48 per diluted share compared to GAAP net loss of $16.9 million or $0.42 per diluted share in the same period last year. Now, let me talk briefly about our non-GAAP results. I believe our non-GAAP results paint a more complete texture by which to measure our financial results and provide for more comparability quarter-over-quarter.

Adjusted operating income was $9.8 million in the second quarter of 2016 down from $23.6 million in the prior year period and down from $11.8 million in Q1, 2016. We believe adjusted operating income which approximates adjusted EBITDA is an important metric when thinking about value and while not a complete proxy for cash flow, it does illustrate how well our company is doing from a cash earning standpoint. And adjusted operating income excludes the impact of these non-cash changes in the fair value of our related parties contingent liabilities which as you know, can vary significantly each quarter.

Adjusted operating income was down sequentially from Q1 as a result of higher spending for SG&A and R&D. Adjusted net loss in the second quarter was $985,000 versus adjusted net income of $1.9 million in last quarter. Adjusted loss per diluted share was $0.02 in the second quarter of 2016 versus an adjusted earnings per diluted share of $0.04 in Q1, 2016. This decline was driven by higher investments in SG&A and R&D in the higher non-GAAP effective tax rate.

I know our tax expense can be confusing and our miss and adjusted EPS this quarter compared to the street consensus is primarily due to tackles and slightly higher SG&A. For modeling purposes, here's the way I would look at our tax expense. So starting with gross profit which is sales minus COGS subtract from gross profit, the amount of SG&A incurred in the US, which is about 50% to 60% of SG&A. And the amount of the R&D in the US which is largely nothing [ph] and they you'd would multiply this result by our effective tax rate of 36% and that's roughly what our non-GAAP tax expense should approximate each quarter. This is not a precise calculation but it should get you in the ballpark for modeling purposes.

Moving onto sales by product, total revenue for Bloxiverz were $25.6 million in Q2 compared to $24.7 million in the first quarter, 2016 and $44.3 million last year. Excluding the impact of revenue change which I discussed earlier which increased Bloxiverz sales by $4.6 million? Bloxiverz's revenue would have been approximately $21 million, a decline of $3.7 million from Q1, 2016.

Although this sequential decline due the entrance of Westward in late December, 2015 was expected. It was not as much as we thought it could have been. Our share for the neostigmine market average north of 40% in Q2 compared to roughly 45% in Q1. Although we initially estimated that Bloxiverz pricing would see a decline of approximately 30%, we only lost about half of that of our price since January.

For the balance of 2016, we expect a gradual decline in market share to 30% to 35% for Bloxiverz. Sales of Vazculep were $10.4 million in Q2 compared to $3.6 million in Q1, 2015 and $9.4 million in Q1, 2016. Excluding the impact of revenue change which increased Vazculep sales by $1.4 million sales would have been roughly $9 million which is largely flat with the first quarter of 2016.

Our team continues to do an exceptional job at maintaining share and winning new business in some cases in each of our product categories, and we very much look forward to the launch of Akovaz here shortly. In Q2, FSC sales were $1.7 million and excluded in this other line item in the slide presentation. As Mike pointed out earlier this is a bit above our expectation, but we are optimistic that we will begin to see stronger growth in the second half of the year.

Moving onto the cash flow summary, at June 30, our balance sheet remains strong with no bank debt and a significant amount of cash and marketable securities and we continue to be cash flow positive, as can be seen from our cash flow summary. We grew our cash and marketable securities to $154.9 million from $144.8 million at December 31, 2015. We expect cash flow to be neutral to slightly positive for all of 2016.

We have adequate liquidity to fully and completely fund our clinical programs and for use in selective, strategic and organic growth opportunities. Moving onto our outlook for the remainder of the year. I'm pleased to report that we've raised our 2016 revenue guidance due to the stronger than expected market share and pricing for Bloxiverz slightly better market conditions for Akovaz and the revenue change I discussed earlier.

We are increasing our full year 2016 revenue guidance to $125 million to $140 million, from our previous guidance of $110 million to $130 million. Additionally, we expect to spend a substantial amount of our R&D spending for our sodium oxybate trial. However the timing of the spend will be slightly shifted to 2017 and as a result, we lowered our 2016 R&D spending guidance to $30 million to $40 million from $35 million to $50 million.

And lastly before we turn it over for questions. I want to make you aware that revised our second quarter and year to date 2015 financial results for what was previously reported in our June 30, 2015 Form 6-K that we filed with the SEC in December 31, 2015 for various immaterial items pertaining to sales rebates and income tax matters. These adjustments were very immaterial and for more details of this revision, they can be found in our June 30, 2016 Form 10-Q that we expect to file in the next few days.

With that I'll turn the call back over to Mike before taking some questions. Mike?

Mike Anderson

Thank you, Mike. We appreciate your participation on today's call. We believe we've covered most of the pertinent issues. At this time operator, we'll be pleased to take any questions.

Question-and-Answer Session

Operator

[Operator Instructions] and we'll move first to John Boris with SunTrust.

John Boris

First question, just has to do with the ephedrine market. Your assumption is that it's about $200 million market in terms of volume, how do you view the market size. Secondly, it appears on your competitors' call that they indicated that they put a fairly substantial amount of product into the channel somewhere close to around $60 million, how should we be thinking about that, which is possibly the price at discount $33 a vial relative to your launch price and how that may impact your ramp going forward. And then I just have some follow-up question on sodium oxybate.

Mike Anderson

Sure. John thanks for the question and we are very excited about Akovaz as we mentioned on the call, we're going to actually be shipping this week which is exactly on time, with what we had originally suggested we would be shipping and we're excited about that. Yes, we think the ephedrine market is actually larger than what we've original expected and modeled. The reason for that differentiation is because as you may know the industry research folks at both at Symphony and IMS really don't pick up anything other than what shift from a wholesaler to a hospital or whatever the case and there is a fairly large market place for a compounders, I guess is the best way to put people who takes vials and put them into pre-filled syringes which takes the market size of about $5 million vials per year and takes it closer probably although numbers are not precise to somewhere around $7 million vials per year.

So it is significantly larger, we have to be quite candid we never intended to be able to supply the entire market on day one, but we will - we do have do expect to get our fair share of the business as you know we have some advantages available in the market place. specifically ours is a vial versus a glass ampoule which we think is a preferred dosage form eliminates people have been using filtered needles or cutting their hands when they break ampoules, so that we think will generate - will allow us to get a premium for our product and will be - so we think that will define.

I can't comment on Akorn suggestion that they loaded the marketplace. If I know and you know that they were to have gotten an approval back in June, why they would chose to load the marketplace with unapproved market in front of an approval on such short notice is somewhat baffling but I don't, I can't speculate on that. I hope I answered your question. It is larger we do expect to be able to generate a premium and we'll start knowing that for sure, sometime this week and next.

John Boris

Thanks for that Mike and just moving on, Micropump sodium oxybate opportunity. Obviously you did comment about six or seven of the REMS patent overturned by the IVR [ph]. The one patent you didn't, do you have any commentary on is the valproate patent, the 2033 patent that is gating your blocking patent, how do you view that relative to your strategy to develop in other REMS and then can you give any commentary on the SPA with the FDA in your dialog there. Obviously delayed from where you originally wanted to rollout for clinical. Can you also may be give us some dynamics around the size of the clinical and what the primary endpoints are of the FDA, I want you to capture that.

Mike Anderson

Okay sure, first of all as it relates to sodium oxybate and the patent landscape that remains valproic acid patents. We've not gone into any great detail on those but we have said I think in the public domain that it was upon our discussions with patent council that we feel fairly comfortable, we'll have to with our ability to not impugn those patents and as we get closer that will become more definitive, we'll have [indiscernible] this point in time. The patents that gave us the most heartburn frankly were the REMS patents and since now those, for the most of those REMS patents have gone away, we feel significantly more comfortable than we did before they were described as being in valid.

So to answer your question, that's about the best I can give you, without giving you any more detail on our specific position related to valproic acid patents. We do feel based on our discussion to council comfortable in that area. So that takes care of that and in terms of delay if you will, I mean there as you know better than most. There are lot of steps going into beginning of clinical study. Our decision to file a spot approval was a decision that we made in an effort to mitigate the chance that when we got to the end of the study, we sit back to do more work and we recognized that have some small risk of taking extra time which it has and, but we still feel entirely comfortable not only with our ultimate timeline but with our decision to do that SPA.

It's an interesting scenario how it works. We talked earlier about there being no substantive issues. There have not been, but the way it works is that the FDA has 45 days to which to give you response. If they come back and they were to say for example, we can't read the third line in the fourth page, we would have to respond to that and that would start a new 45-day clock. So at the end of the day, there really haven't been at this point substantive issues.

We expect in all of our conversations to this point have been exactly what we contemplated them to be and we don't think that it's going to pose a problem and then in the near term, we're likely to receive that approval. But we have - I want to make sure that you understand that we have been doing work that needs to be done in the interim. If we wanted to start the clinical today, we could do that. we have IND approval in the US, we have Canadian approval, we have approval I think last I was updated on eight of 10 European countries that we intend to do and are wrapping up the other two and so if we want to begin dosing patients tomorrow morning, we can do that.

We made a conscious decision to wait until we get that SPA approval before, we put this in anybody's body. But in the interim, we've done all the preparation that needs to be done and we're comfortable that we're on time. We have - as you've seen from clinicaltrials.gov there are 264 patients that may change slightly, probably won't. But if we're 264 patients across I think 60 clinical sites in Europe, the US and then Canada and so we feel like we've got that covered pretty well and we're excited to get this started. Notice that we had not changed our timing for potential submission of the NDA approval. Hopefully, that answers some of your questions, John.

John Boris

Sure, it does. Just one final question, just an accounting question on the guidance raise for Mike. Mike, on the change and accounting for product when shipped, what percent of the increase in guidance was accounted to from the change in accounting?

Mike Kanan

Well, I mean John. Thanks for the question. As you do know, we did change our revenue to a point of sale. It was around $6 million that picked up in Q2, that number actually that would have been recorded in the third quarter as we've been on a sell-through model. So really it's, you have to kind of wait till the end of December, in order for us to ultimately know what will it impact before year, but in terms of our guidance change, it's roughly $5 million that we put in for additional sales because of this revenue change.

John Boris

Great, thanks for that and I'll hop back in.

Operator

We'll now take our next question from Jason Gerberry with Leerink Partners.

Jason Gerberry

Just a couple on Akovaz, just wanted to make sure so, you guys are thinking about this as a $200 million market inclusive of any sort of gross to net deductions, when you come in the market. It sounds like you won't need to take any price discounts on a relative basis to the incumbent product and then secondly, just what are your thoughts on a third potential competitor in the ephedrine market. What is your competitive intelligence telling you regarding what are the potential third NDA filer? Thanks.

Mike Anderson

Well, thanks for the question Jason. First of all from a competitive intelligence perspective, listen we've heard that there are people who are working on it as I'm sure you have. We have no knowledge today of anybody who may have already filed and if under this program somebody has not filed an NDA because it is in process, then they're going to have to wait, to begin to get a samples of our product as the reference listed drug, to make sure that they match up from while I don't want to impetus any kind of large obstacle, they still would have to have copies of our product which here forward they haven't been able to get because we haven't put it into the channel yet. So the long and short of it is, they would have to match up to us to be approved and if they had not already had an application pending at FDA then whatever application they may file would have to go to OGD and through the normal generic approval process. So and listen I think it would be unreasonable to say that nobody would do it.

Jason Gerberry

Is it fair to say that for the and the filers because you went to vial from glass, were all the UMD product glass ampoule does that kind of create a delay in the UMD suppliers who were in the market the ability to convert to and the product.

Mike Anderson

Well there is only one guy in the market of course and he's the man ampoule in an order to, he can't submit until he has an approval for a vial because it's an unapproved right. So he's going to have to wait till he gets an approval and then if he wants to switch people to the vial which we were told they do and you would then they'll have to wait until they get that approval supplemented and put it up on stability in the vial. If you're having issues with leachables and other kinds of things that you don't have with an ampoule all the time. So as a result, they'd have to do but yes, if you're - since there is only one guy and he's market again in ampoule.

Jason Gerberry

Any legacy suppliers in that category besides Akorn, I don't know dating back they were other suppliers and someone who can dust off a product and filing into Akovaz?

Mike Anderson

Yes, well so Jason I think there was a I think if I'm not mistaken, I think Sandoz was there in one time and the other guy was small guy who actually introduced the product about a year ago as an unapproved product and the FDA slapped him in about 5 seconds flat. So you'd have to get an approval - I think that they have to redo it, they couldn't just take an ampoule and unless they want it to sort of apply an ampoule and submit that, they and if they did the other they'd have to put it in a vial, put it on stability and make sure and they'd have to address anything that may result from leachables and those kinds of things. Did I answer your question, Jason?

Jason Gerberry

Yes. You did. And just about market size?

Mike Anderson

Yes, so originally we contemplated it to be $5 million vial market, it appears if it's substantially larger than that, based on a whole sub-section of compounders who buy vials, most of the time directly from manufacturers where it doesn't show up in IMS and they take the vial and put into a pre-filled syringe and sell up to a hospital and that's a fairly vibrant business not only here, it's also a vibrant business with phenylephrine. And to reasons I'm not sure I 100% understand, it's also a business model with neostigmine. So all of those kinds of numbers never really show up and unless you have contacts within these specific compounders you really can't get a good feel for what that looks like, but from what we believe now, the market size is not $5 million vials but $7 million vials and/or some close proximity to that and if that's the case then you figured and the of course I think if I'm not mistaken our unapproved competitor, if I'm not mistaken did about $60 million last quarter and that's a whack [ph] of $33 a vial, that's $240 million. So it may - actually be larger than that unless as just pointed it out, they dumped it all in the market I don't know.

Jason Gerberry

Yes and my last follow-up from me is that, when you do have your update on the SPA, I'm just kind of curious who you'll provide the information to us, will clinicaltrials.gov be an exhaustive list of all your prospective study endpoint just kind of curious, what we'll learn when you actually do finally reach finality on that?

Mike Anderson

We will obviously will issue a press release and it will be a balloon circling New York city and other places since there is so much interest in that and but we will call back more detail and then as we get into the fall we'll also, we're going to try to set up venue for being able to have more visibility not only to our study but to narcolepsy and our also the rest of our pipeline and our R&D portfolio altogether, which will be forthcoming probably sometime in the late fall or mid fall.

Jason Gerberry

Okay, great. Thank you.

Operator

We will now take our next question from Matt Kaplan with Ladenburg Thalmann.

Matt Kaplan

If you could touch on your pipeline and thanks for the prepared remarks, but with respect to, I guess first Trigger Lock, what are your plans for that program? Let's say after you complete the alcohol in vivo study, strategically is that something you develop on your own or is that something you try to partner?

Mike Anderson

Never. Matt if we said I think in the past that, well first of all. There's certainly no short of people with pursuing abuse- deterrent technologies and products. We think ours are really pretty good, but we don't have the commercial capabilities, we don't have the capabilities of taking Trigger Lock and applying it to all the appropriate opioids where it can be used and so our ideal scenario and one that we are actively pursuing today is the scenario by which we would find a licensing partner and we're in some discussions ongoing. We find a licensing partner who would not only be interested in starting with hydromorphone and funding the remainder of that, with some contribution from an R&D perspective from Flamel. But then who would also have the rights to apply that Trigger Lock technology to all other opioids as well.

It's from our perspective, we want to tend to focus our attention at this point in the R&D area on Micropump which is quite robust and on our LiquiTime technologies and for a company our size, for us to be able to do those really as well as we should, we need to vote not only the people resources but financial resources to developing both products in those areas and finding other alternatives for the other ones, which is what we're going to do and that would include Medusa in that as well.

Matt Kaplan

That's helpful, thank you. And then in terms of the LiquiTime proprietary program when should we expect to see some additional detail from you guys with respect to those internal programs and your strategy there.

Mike Anderson

You will see some before the years out, could lead over into early next year, but I feel with a progress that we've made we have a number of projects that we've identified that are ongoing feasibility studies. LiquiTime as a technology is an excellent technology. It's got broad application potential but it doesn't work on every molecules and so we've made substantial improvements in it from just couple of years ago. But what we would prefer to have these feasibility studies completed successfully before announcing or working on product Z which has a market value of this and then find out later that something inherent in the technology won't provide you to get good stability or whatever the case may be-- so before the end of the year, most likely.

Matt Kaplan

Thanks and then in terms of with given all the market dynamics you've described in terms of ephedrine market. How do you guys think internally about the Akovaz launch going into I guess in 2016 and 2017 and the potential for your market share this year or next?

Mike Anderson

Well, we haven't really said much about that, we did earlier in the year talk about our expectations we could get up to about a year or saying up to 30% share. [Indiscernible] we may be able to do a little bit better than that everybody expected to. It is as I mentioned, a larger market than we originally contemplated and so we're, we want to make sure that we are able to be successful in addressing all the demand that we have for our product. From the time we introduce neostigmine and then subsequently phenylephrine and now with ephedrine, we've never had a day where we weren't able to supply a product and we don't - we think that's meaningful to the FDA. We think they're really interested in having some product available particularly important products like ephedrine, so that there are not shortages in the market and we're going to do what we can to make sure that happens.

Matt Kaplan

Thanks and with respect to FSC, your number is a little bit weaker than you expected. What are you - are you readjusting your thoughts on that and then I guess, with specifically Flexichamber that product that you have high hopes for I know and tell us what you're thinking there?

Mike Anderson

Well we're not changing our numbers. We think we're on the right track. We've had to do some work to get FSC into position to be able effectively grow and there were distribution issues and still are some, there were some Akovaz [ph] third-party payer access issues which all companies have and we've addressed some of those and then we've also just recently completed project where we optimized our sales force to make sure that we were calling at the appropriate that sort of thing and making sure that have the appropriate targets being called on and then and Flexichamber will be really good at the end of the year, we should have that.

Mike Kanan

And through that Matt, we've actually we've close the Charlotte office so now we've begun to harvest some cost synergies as well from FSC. So you know we're working hard on the top line, we knew we would have some challenges on the top line and we're beginning to see some cost in our [technical difficultly] as well through some synergies.

Matt Kaplan

Great. Thanks guys and congrats on the progress.

Operator

We'll now take our next question from Jim Molloy with Laidlaw.

Jim Molloy

I was wondering if you could take a little bit about the timing of the Ireland re-domicile and you know any, what might have hit that, delay that or not. Things seem to on hopefully be on track, and on the pipeline it seems like, a new [ph] development is a challenging and things crop up, but and lot of things have been moving out in the pipeline, is that reflective do you think of perhaps in the past you'd mentioned you'd staff up on some of the people onboard, is that sort of reflective of that or is it with the timelines moving on?

Mike Anderson

Well address the first or the second question first. No I'm not sure I think that it's substantively moved out Jim. I think that all projects particularly with technology can have ebbs and flow. So I think we've seen some of those, but I think for the most part we've tried to keep our pipeline going as we have suggested, we have come to look based upon. I mean we were small company dealing with four very distinctive unique platforms and our ability as a small company do those well and effectively, will be a challenge for any company, our size and so this decision to kind of fine tune our effort to looking at Micropump, where we've had a great success and LiquiTime where we are having good success internally is, we feel like the right way to go.

So I feel like we'll continue to work on that. We have projects, that we have not talked about and for the reasons we talked earlier. As I relates to Ireland, we contemplate having that cross border merger completed on January 1.

Jim Molloy

Excellent, thank you. And then certainly you're doing a tonne of work with the small group over there, that's for sure. Can you talk a little bit about dropping the Ibuprofen and how does the partnership, is there any financial impact from that or do the partners?

Mike Anderson

No financial impact and basically it's I believe - and what we're little bit limited because we're speaking for a partner now and our partner should be involved and approval of discussion points, but at the end they're some believe that the FDA is not really interested in approving and extended release Ibuprofen for fear that parents won't monitor their kids appropriately and I think in order, we believe that in order to satisfy that, it would be an expensive uphill battle and the question is, is to view what the client [technical difficultly] and that's really what it amounts to.

Operator

We'll now take our next question from Jason Butler with JMP Securities.

Jason Butler

Just another follow-up on the Akovaz market. When you talk about the additional roughly $2 million vials that come from compounding pharmacies, to what extent do you expect to penetrate or gain market share from that proportion to the market versus the other $5 million and may be you can provide us some context from some Bloxiverz and Vazculep to what extent have you gain market share from that compounding pharmacy component acknowledging that the [indiscernible] not are an estimate at best.

Mike Anderson

So, that's a great question. Jason. Thanks for it. I think that with respective of Bloxiverz and Vazculep. We've begun to show even stronger growth with some of those compounding areas and we expect to be a participant in that area in the ephedrine market place as well and it's a big market and there's some advantages to do in that, there's some drawbacks, we have good relationships with the GPO's we want to make our product available under our label to hospitals that, if you've got somebody sitting on the side you can put all that in a syringe and do your work for it, that's not bad either.

So I would expect to see us a significant competitor in both of those areas to the market. If we ended up at the end of the day of $7 million vial market with $3.5 million vials, I think that would be good.

Jason Butler

Great. Okay. Thanks for taking the question and then, just another one on the Perrigo partner products. When you think about guaifenesin as the lead compound, is any compound that you would select, is it necessary for that second compound to have the ability to be combined with guaifenesin in a finished product or is that not necessarily the most important consideration.

Mike Anderson

That is not necessarily the most important consideration, can you think of combinations with guaifenesin and would make a lot of sense absolutely, but there are a lot of other combinations, since you could use two.

Jason Butler

Okay, great. Thanks for taking the questions.

Operator

We'll now take our next question from Scott Henry with ROTH Capital.

Scott Henry

Just a couple questions left. First, when factoring in your second half 2016 guidance could you talk about how you expect the competitive dynamics to play out with regards to Vazculep and Blox [technical difficultly]?

Mike Anderson

Yes, that's a good question. I mean at this point, Scott earlier in the year when we first gave guidance in the beginning of the year, we had modeled at the presence of competitor in the neostigmine marketplace to come in June and the course that came six months early in December, 2015 that being Westward and to-date, we have no visibility to anybody else in the [indiscernible] modeled an additional competitor to come in this year, although certainly that could happen.

As it relates to Vazculep, we had originally a modeled competitor to come in, in June. It's now August and there's no competitor, so as a result we've done better than what we had originally expected and so we at this point in time, we've not changed those original numbers and in fact, as Mike described we've just based on Akovaz and our progress with both those [indiscernible] we've reached our guidance for the year. If a competitor comes in, that would change that obviously, but we don't have any visibility to that today.

Scott Henry

Okay, now Mike maybe just for clarity. I mean obviously for Vazculep you expected a competitor by now or do you now put that competitor coming in Q3 and then if, they don't come in Q3 you'll it will be at the higher end of your guidance or have you removed that competitor [technical difficultly].

Mike Anderson

We haven't removed the competitor, we're just going and we don't - Scott we don't sit down and say well, it's June so now they're going to come in July and in July say, they were going to come in August. What we've done is, we've looked at this market place and we've modelled it predicated upon it being what it is for the remainder of the year and that's about the best, I can tell you.

Scott Henry

Okay.

Mike Anderson

In those numbers and in the increased guidance, you don't see any - well they'll come in November so we'll take it that and.

Mike Kanan

So just to be clear, we've not raised guidance because we've taken out the competitor with Vazculep that was not in [indiscernible].

Scott Henry

Okay and how would you estimate that market currently for Vazculep? Total size?

Mike Anderson

Well, I think we shared we did about $10 million last quarter and so if you and that was relatively flat, so if you looked at it, our share was being about $40 million and we said there's been an aggregate we have about 40% shares so it's like $100 million market give or take and I would look at it, to continue like that.

Scott Henry

Okay, fair enough and. Okay and just a couple small modeling questions. SG&A in the quarter, you mentioned there might be some one-time events in there, how should we think of Q2 representative to the rest of the year? Is this going to be high quarter for the year?

Mike Kanan

No, I mean the second half of the year Scott will be and SG&A should be lower than the first half of the year because we've had some one-time cost associated with this cross border merger that will drive down the second half of the year cost, those are one-timers that we don't expect to continue. The second half of the year should be lower than the first half, not appreciatively but you know it will be lower than the first half of the year. Does that help you, Scott?

Operator

Henry, are you still on the line?

Mike Anderson

I think we've lost him, operator.

Operator

Okay. We'll now take a follow-up question from Jim Molloy with Laidlaw.

Jim Molloy

Can you please talk about the Slide 4 any thoughts, if that's going to go forward or what that might represent? And then, I know partnership is hard to know until it happens but can you talk a little bit about what you think of timing might be on the partnerships for the Medusa and for Trigger Lock?

Mike Anderson

Question number one, on Éclat number our we still were having internal discussion and discussion with FDA. So we'll keep you posted, we don't have anything to add on that. And it would probably be construed to dissipating or even bigger moron if I were to suggest the timing on doing a deal for either Medusa or Trigger Lock. As you know these kinds of development discussions have ebbs and flows. We do have some people who have an active interest and we've really not done a big job beginning to talk to people about Medusa. We've had a couple of inquiries and we'll continue to roll those through but Jim, I don't know that I would say that I think we should get a deal done by the end of the year necessarily, but what I can tell you it is, is that with respect to Medusa. We're not going to spend any more money on Medusa, until we do have a partner lined up. We've spend enough on it.

Jim Molloy

Great, thanks for taking the questions.

Operator

And it appears there are no further telephone questions. I would like to turn the conference back over to the presenters for any additional or closing remarks.

Mike Anderson

Sure. Well ladies and gentlemen, thank you very much for joining us on the call today. We will be participating in number of investor's conferences over the coming months and will look forward to updating you on our progress as the remainder of the year goes by. Thank you again, has a great week.

Operator

And once again that does conclude today's conference and we thank you all for your participation. You may now disconnect.

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