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Hi Tech Pharmacal (NASDAQ:HITK)

Q4 2012 Earnings Call

July 10, 2012 10:00 am ET

Executives

David S. Seltzer - Chairman, Chief Executive Officer, President, Secretary and Treasurer

William J. Peters - Chief Financial Officer and Vice President of Finance

Analysts

Timothy Chiang - CRT Capital Group LLC, Research Division

Sumant S. Kulkarni - BofA Merrill Lynch, Research Division

Randall Stanicky - Canaccord Genuity, Research Division

Elliot Wilbur - Needham & Company, LLC, Research Division

Scott Eisler

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Hi-Tech Pharmacal Earnings Conference Call. My name is Stephanie, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

The company has asked me to read the following statements. Forward-looking statements, statements which are not historical facts in this conference call, are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not promise or guarantees, and investors are cautioned that all forward-looking statements involve risks and uncertainties including, but not limited to, the impact of competitive products and pricing; product demand and market acceptance; new product development; the regulatory environment, including, without limitation, reliance on key strategic alliances, availability of raw materials, fluctuations in operating results and other results; and other risks detailed from time to time in the company's filings with the Securities and Exchange Commission. These statements are based on management's current expectations and are naturally subject to uncertainty and changes in circumstances. We caution you not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Hi-Tech is under no obligation to and expressly disclaims any such obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

I would now like to turn the presentation over to your host for today, Mr. David Seltzer, President and CEO. Please proceed.

David S. Seltzer

Thank you very much. Good morning, everyone. I'm David Seltzer, and I would like to welcome all listeners to our conference call this morning. The purpose of today's call is to discuss this morning's earnings release for the company's fourth quarter and fiscal year ended April 30, 2012. Joining me on the call this morning is our Chief Financial Officer, Mr. Bill Peters. In a moment, Bill will review the financial results for the quarter and year-end, then I will discuss some of the highlights and give an update on more current events. With that, I turn the call over to Bill.

William J. Peters

Thank you, David. Sales for the quarter rose 7%, to $61.3 million from $57.2 million the previous year. Sales of generic products rose 10%, to $52.7 million. Strong unit sales of Fluticasone Propionate nasal sprays at lower average prices were responsible for much of the increase, as sales of our top product rose to $28.4 million from $26.9 million.

Products launched over the last year, including Ranitidine oral solution, Levofloxacin oral solution, Lidocaine sterile jelly, Nystatin oral solution and Lidocaine 5% also contributed to the increase. Pricing and quantity decreases in our Dorzolamide ophthalmic line partially offset these increases.

Sales of our Health Care Products division rose 59%, to $5.3 million in the quarter. While sales of the relaunched Nasal Ease and newly acquired Sinus Buster brands were the primary drivers of this increase, the company also increased sales of the Multi-betic, DiabetiDerm, Zostrix and Mag-Ox brands.

Hi-Tech's ECR Pharmaceuticals subsidiary declined to $3.3 million in sales from $5.9 million in the prior year. Sales of Lodrane prescription strength, the subsidiary's top product line, dropped to 0 from $4.8 million after the company discontinued the product at the end of August. Cost of sales increased to $29.5 million from $25.9 million, an increase as a percentage of sales to 48% from 45%. Lower sales of higher-margin products at our ECR subsidiary, as well as lower pricing on our Fluticasone and Dorzolamide products, were the reason for this trend.

Sales, general and administrative spending, which is now excludes amortization expense, increased to $13.7 million from $10 million. The increase was due to significantly higher advertising expenses supporting our relaunch of Nasal Ease and our newly acquired Sinus Buster products. Additionally, we increased spending in our ECR subsidiary as a result of 30 contract sales representatives we added in October 2011.

Subsequent to year-end, the company decided to cut back on the contract sales force, but we will not incur that expense after July. We now breakout amortization as a separate line item, because it has become a significant portion of our expense after several acquisitions over the past year. Amortization increased to $1.6 million from $700,000 in the previous year. This increase was primarily due to the TussiCaps and pain product acquisitions at our ECR subsidiary. Research and development expenditures increased to $3.4 million from $2.3 million as the company increased headcount and external development projects.

Royalty income declined slightly to $700,000 from $800,000. Remember that a key component of this income stream, royalties from products we divested from our former Midlothian division, will end during the fiscal first quarter.

The company reported net income from continuing operations of approximately $10 million compared to last year's $14 million. The diluted EPS from continuing operations was $0.73 per diluted share.

On April 30, 2012, the company had approximately $87.5 million of cash, up from $74.3 million in the previous quarter. This is the largest quarterly increase in cash in the company's history. As of today, we have 14 products awaiting approval at the FDA targeting brand sales of approximately $1.5 billion, including Mesalamine 400-milligram for which Hi-Tech had a financial interest but is owned by Par Pharmaceuticals.

As usual, we are not giving any formal guidance, but I will discuss the trends we are seeing as of now. First, we anticipate growing the top line this year in all of our businesses. Generic product launches, which will be discussed by David, will drive the generic increase. However, we do anticipate sales declines in our top-selling Fluticasone product as a result of the additional competitor which came on the market in January. We anticipate growth across our leading health care product, OTC product lines, with sales from the relaunch of Nasal Ease, the homeopathic allergy reliever. Additionally, we will get a full year of sales from our newly acquired Sinus Buster products, which we purchased in March. These factors will contribute to double-digit growth rate for this division.

We expect increases in our ECR branded pharmaceutical business with growth in our Bupap and Dexpak lines. TussiCaps sales are also expected to be much stronger, as we will have sales and marketing campaign for the full year, and we anticipate that sales will increase versus last year's weak cough, cold and flu season.

We anticipate that our cost to manufacture key suspension products, such as Fluticasone, will come down in the second half of the year as we bring new manufacturing equipment online and as we benefit from lower input costs.

Our R&D expense is expected to grow as we continue to work on 3 generic products, which will require clinical trials. All of these projects have different strategic partners and are in different therapeutic categories. We expect 2 of the trials will begin during the fiscal year, which will lead to higher costs at that time. Additionally, we have added internal staff to help grow our R&D pipeline.

I will now turn the call back over to David.

David S. Seltzer

Thank you, Bill. We are very pleased with the results that we announced this morning. Sales for the quarter reaching $61.3 million, up from $57.2 million for the same period last year. Our net income declined to $10 million compared to $12.7 million in the same period last year. The decline was due to several factors, including dramatically increased spending in the quarter as we advertise several of our OTC brands, including our Nasal Ease, Sinus Buster and our Mag-Ox brands. In addition, compared to the same quarter in fiscal 2011, we sold Dorzolamide ophthalmic products and Fluticasone nasal spray at lower average prices. The absence of a high gross profit from the Lodrane brand also impacted net income. For the fiscal year end, I'm very proud to report that we have surpassed the $200 million in sales mark for the first time. We recorded sales of $230 million, up from $190.8 million for the same period last year.

Net income for the fiscal year reached $48.4 million versus $41.5 million, and fully diluted earnings per share reached $3.59 per share versus $3.29 for the same period last year.

The primary growth driver continues to be our generic drug business. Sales for the fiscal year reached $197.9 million versus $157.4 million in the same period last year. Our Fluticasone nasal spray sales were an impressive $99.4 million in the period compared to $73.8 million in the same period last year. That's despite the addition of another competitor in January 2012.

In addition to Fluticasone, our generic business was quite strong, as a result of continued success in our growing base product line and newly launched products, including our Lidocaine/Prilocaine cream, Clobetasol Propionate line of topical products, our Levofloxacin oral solution, our Buprenorphine sublingual tablets, Nystatin Oral Suspension and the recently launched and licensed Lidocaine 5% Ointment.

We're continuing to launch new products and have 2 launches planned for the current second -- for the second quarter of the current fiscal year and several more for the balance of the current fiscal year. We have received a very strong response to our unit dose products that we currently market and have plans to bring an additional 5 to 6 new unit dose products in the current fiscal year, 2 of which will be launched in the second quarter of this year. We are awaiting the installation of a new high-speed filling and packaging line that will give us greater capabilities in unit dose products, and will put Hi-Tech in a position to become a market leader in this segment.

Research and development spending was $12.3 million for the year versus $9.4 million in the comparable period last year. In the past fiscal year, we received final approval from FDA for 3 ANDA products and submitted 7 new products to FDA. We currently have 14 products at the FDA, including Mesalamine 400-milligram tablets, which is in partnership with Par Pharmaceuticals. We have a very active development program, with approximately 20 products in development, including several in strategic partnerships with other firms. And we expect a continuous flow of ANDA submissions and timely approvals as well.

Net sales for our Health Care Products division increased to $17.2 million, up from $13.9 million for the same period last year. Aside from growth in our core products, the primary growth drivers were sales of our Nasal Ease allergy product, the Mag-Ox brand and the newly acquired Sinus Buster brands. While we did have an impressive increase of 23% in net sales, we also investment spent on advertising and product promotion this past year, particularly in the fourth quarter. We have several brand products which will benefit greatly from advertising, and while still early, we are seeing positive results which should result in continued sales growth this current fiscal year.

In addition to advertising and promotion, we do plan to continue acquiring and licensing strategic products for this division.

Our prescription branded business, ECR, had sales of $14.9 million versus $19.7 million in the same period last year. The primary reason for the decrease is the discontinuation of the Lodrane brand, which had significant sales and gross profit for the last fiscal year. We have spent the better part of this fiscal year acquiring and licensing approved products to replace the Lodrane products, which were discontinued this past August. We feel strongly that we have positioned the company for growth with these product acquisitions, led by TussiCaps, which we acquired in August 2011. TussiCaps is the only approved prescription extended release solid dosage product available today indicated for cough. Cough/cold products in general, including TussiCaps, did not perform to historic levels since this past winter was the mildest in more than 20 years. Despite the lack of Lodrane sales and the very weak cough and cold season, ECR had success with the gross of several products, including Dexpak and Bupap, somewhat offsetting the loss of the Lodrane products.

We are confident that the business can turn positive given a more typical upcoming cough and cold season and success with several of the recently launched tension headache, pain and wound-healing products. As a result of the success the company has experienced, we continue to generate cash and our balance sheet remains very strong. We are very pleased with the transactions that we have completed this fiscal year, and we are continuing to seek strategic growth opportunities for all segments of the business.

At this time, we are happy to take any questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Tim Chiang with CRT Capital.

Timothy Chiang - CRT Capital Group LLC, Research Division

So I wanted to ask you about the higher SG&A expenses. Is the $15 million sort of run rate that you showed this quarter, is that something we should extrapolate on a quarterly basis going forward?

William J. Peters

No. First of all, we did, as I mentioned on the call, we did decide to terminate the contract reps that we had hired for a little over 6 months. So they're going to be an ongoing expense through the end of July, and then once July is over, they will no longer be there. So that expense goes away. Also, the advertising at the Health Care Products division was very targeted this quarter to the allergy quarter -- allergy season, because of the Nasal Ease and the new Sinus Buster products. But that was significantly higher this quarter than it will be on an ongoing basis.

Timothy Chiang - CRT Capital Group LLC, Research Division

And then you talked about more R&D spending in the next 12 months. I mean, is there any sort of ballpark number that you could give us in terms of how much of an increase you'll have in the next fiscal year?

William J. Peters

First of all, we're not going to give out specific number increases, and part of that is because as these -- there's 3 products that we've mentioned that are going to require clinical trials. Once the spending on -- once the trials on those begin, spending will ramp up but these -- the beginnings of these trials are somewhat moving targets. It depends on how well the products are going, and things such as recruiting patients and just the regulatory environment in the countries where we're holding the clinical trials. So while we do anticipate at least 2 of those being started this year, I'll say none of them started in the first quarter. But we hope that later on in the year, we hope to start one in the second, and we plan to start the second one in the third quarter. So -- and those clinical trials each take 6 to 12 months. So that will cost a couple million dollars each, but we're sharing that load with our partner.

Timothy Chiang - CRT Capital Group LLC, Research Division

And David, just one last question for you, I mean, you've got almost, what, $90 million of cash now. I mean, is there -- how do you sort of look at uses of your cash going forward? I mean, is there any thought of maybe even buying some stock back in the next year?

David S. Seltzer

We don't comment on things like stock buybacks, but obviously, we're evaluating a lot of different possibilities. Obviously, the first and main focus for the company is to try to find some additional acquisitions of products and/or maybe companies to help -- that would be strategic, to help grow generics and brands. But obviously, nothing is off the table. We realize that we've been very fortunate in building a lot of cash, and we've looked at a lot of things, but we try to be prudent in what we're offering for these things and things are pretty competitive out there. There are not a lot of assets around, as you know. So our main thing is to look for things to help grow the business strategically, and -- but nothing else is off the table. But we don't comment on things like stock buybacks, stock dividends, et cetera.

Timothy Chiang - CRT Capital Group LLC, Research Division

And then have you guys heard anything on Asacol, on the Asacol filing at all, any update?

David S. Seltzer

We know what's public. What's public is that the FDA is going to require additional studies. So there's, obviously, a few logical alternatives out there. We are working closely with Par to try to communicate with FDA to see the best road to take, and we certainly believe that there is going to be light at the end of the tunnel. We just really can't give you too much detail on what road it is that the 2 companies are taking at this time. But we definitely believe that at the end of the day, this is still going to be a good product for both companies.

Operator

Your next question comes from the line of Sumant Kulkarni with Bank of America Merrill Lynch.

Sumant S. Kulkarni - BofA Merrill Lynch, Research Division

The first one is on generic Flonase. Would you say that the -- if you make any directional comments on the gross margin on that product, would you say that they were still higher than the corporate average in the past quarter?

William J. Peters

They're probably very close to the corporate average at this point.

Sumant S. Kulkarni - BofA Merrill Lynch, Research Division

And when you do have the input costs coming down, how do you expect the margins to trend? Or do you think the pricing will more than offset the margin trend there?

William J. Peters

I think that the pricing is going to come down a little bit from where we are this quarter. However, later on in the year, when we get the improved pricing, I think we'll more than offset that pricing decline. So I think the gross margin percentage will be fairly close to where it is today or maybe possibly even higher than it is today.

Sumant S. Kulkarni - BofA Merrill Lynch, Research Division

Right. And this one is for David, could you comment on the relative size of the new launches that are coming up in the generic division?

David S. Seltzer

I would say that in the second quarter, the 2 products that we're going to launch are probably, let's call them doubles, $5 million-type products. One of them is hard, because there's really not much IMS data to go off of. So I would call that one a $5 million opportunity for the fiscal year. The other one is probably a little bit less, potentially pending, obviously, on the market, when we do enter the market in the next couple of weeks. But I would say that one of them has potential to be a nice product, which is going to be launched, hopefully, in August, and the other product will be a nice single. And then we've got a bunch more products coming this fiscal year that will be good add-ons as well.

William J. Peters

Sumant, we did -- the one thing that we did disclose is that we do have that product that we purchased with a partner approximately last November, I think it was. We plan to launch that one in December, and that's -- we've been telling people that the IMS market for that product is $30 million, and that's a fully genericized market with just one purchase spin at the moment.

David S. Seltzer

But that's for the third quarter. The other products that Bill is discussing were the second quarter launches.

Sumant S. Kulkarni - BofA Merrill Lynch, Research Division

And on the ECR brand division, how core of an operation do you think that is to the company's future? And is there some kind of deficient point that you have internally on that?

David S. Seltzer

Right now, it's core. We believe that this was a transition year, that Lodrane was, obviously, 80% of the sales and profits of the company and we lost them all at one point. So we -- this was a transition year in that we were able to go out and acquire some good approved products that we had transformed into sales force, towards detailing these products. Unfortunately, the flagship product that we acquired, the TussiCaps, is indicated for cough cold, and we all know that this is the worst, well, the mildest cough and cold season that we've experienced in more than 20 years. So it wasn't really a very telling year.

I do think that we are watching the expenses carefully. We do think that this year is going to be a much better year. Number 1, given that we think TussiCaps will have a full year of promotion and advertising behind it and doctors will be more aware of it. And we do think that we will get into a stronger cough and cold season this coming year. So -- and we also believe that with the other products, the Orbivans and the Zolvits, that we also acquired last year, that those pain and tension headache products, and we have a wound-healing product that is starting to gain some traction. So we believe that, in combination of all these, that we can turn ECR into a nice niche specialty pharma company and build from there. Obviously, management is very aware of what we're doing there, and we are watching the expenses very, very carefully. But I think that at this point, we're not in a panic mode. We had hired 30 additional reps as Bill mentioned, and we let that go because it's really more seasonal, and we'll make a determination whether we're going to bring anymore additional reps on for next fiscal cough and cold season. But we're watching the expenses carefully. But right now, we do believe that it's important to continue to diversify the business. Not to get into a whole bunch of unrelated businesses, but brands we think are an important part of the company's future, both over-the-counter as well as prescription. So for right now, I would say that it is core to us. We do think that it's going to perform a lot better, but we're watching the performance and the expenses carefully. And it's not something that we can't move quickly on to cut back expenses if necessary.

Sumant S. Kulkarni - BofA Merrill Lynch, Research Division

Right. And on your business development efforts, are those focused towards any segment in particular? And if you're looking at companies, what would be the sweet spot for the size of the transaction?

David S. Seltzer

Well, we clearly want to grow our generic business, and we love the niche areas that we've gotten into. We licensed some successful products. I think Bill mentioned that we've licensed a nasal spray product that we're going to launch in December, and we recently licensed Lidocaine cream that we successfully launched. So we -- and we have the Buprenorphine tablets that we have with a foreign partner. So we think that we've done some good things in the generic area, and so that remains a focal point for the company. Obviously, it's our biggest driver, so we continue to focus on R&D. We think we're getting much better internally as far as making submissions and getting approval turnarounds from FDA, and then we're also being very active in partnerships, going after, continuing with these niche-type products that we don't think that there will be a ton of competition down the road. Obviously, you never know. But on the generic business, so we continue to spend money in R&D. We think that we're doing the right thing there and that we'll get big dividends in some future years. And on the branded side, we continue to look. We acquired the Sinus Buster products. We acquired Mag-Ox a couple of years ago. We acquired all these brand products for ECR. So I would say that there's probably more opportunities on the brand as far as products. There's not that much -- there aren't that many assets or companies, really, in the generic space, so it becomes a little bit difficult. But we're finding. We're being very aggressive. We're working very hard on the BD side. And we certainly have the wherewithal to do deals, because our cash balance has never been higher and our borrowing power has never been higher. So when the right deals come around, I think we will certainly, at least, try to move forward.

Sumant S. Kulkarni - BofA Merrill Lynch, Research Division

And my last one is for Bill, a quick one. What should we expect the tax rate to be going forward, because this quarter was somewhat low compared to the typical?

David S. Seltzer

Yes, it was a little bit lower for this year and that had more to do with just the annualization of certain tax credits that we'd spread across the year that -- across the quarter were there -- the income was a little bit lower. So the full year tax rate for this year is what I would use going forward.

Operator

Your next question comes from the line of Randall Stanicky with Cannacord Genuity.

Randall Stanicky - Canaccord Genuity, Research Division

For the questions, just a couple. First, David or Bill, maybe can you help us understand the rationale behind ending the 30 rep agreement? I mean, aren't we a couple of months away from the cough and cold or the initial cough and cold buy in right now? And what specifically didn't work there besides just the weak cough and cold season this year that drove that decision?

David S. Seltzer

Well, number one, it's -- you can turn these sales forces on and off pretty quickly. Number two, the sales of the TussiCaps in the winter season was so bad this year that we just decided that we were going to reevaluate how we go forward and whether we're going to maybe hire a few less, but maybe some full-time reps. We're really analyzing what's going to be the best way. We're not giving up by any stretch on TussiCaps, but we are evaluating the possibility of making some changes in how we strategically -- maybe we hire some more full-time reps that over -- I think, full-time reps are certainly much better than contract reps, no matter what you do. So we may take that road going forward where we would -- because we have, in addition to TussiCaps, we believe that the other products that we have, the tension headache products and the pain products and the wound-healing products also have a lot of potential.

So we may hire more of our own reps, maybe less than 30, but maybe more of our own reps in replacement for that. So don't take that as a signal that we're cutting it off and giving up on that and how are we going to represent the country when we do get into a better cough and cold season. We will certainly have enough representation out there, and we're actually in the next, call it, 30 to 45 days, going to make some key decisions as far as that's concerned. So I wouldn't be too concerned about -- overly concerned about that.

Randall Stanicky - Canaccord Genuity, Research Division

And for you guys, that initial cough and cold buy in, are we thinking the September time frame?

David S. Seltzer

Yes, you never know this year may be a little bit later depending on wholesale or inventories. The way that it usually works is the wholesalers and the chains get a little bit spooked by last year first so they may not bring in too much. And then you'll get an onslaught of the season, and then they won't have enough. And then -- so usually, we do expect to probably see some buy-ins in September, October.

Randall Stanicky - Canaccord Genuity, Research Division

Okay. And Bill, there's been a lot of discussion this quarter and last about gross margin. If we just think about taking from some of your comments from today, from last quarter and in between, if you will, the mix issue, the Fluticasone impact, some seasonality, year-over-year, the overall margin hasn't changed that much. But if we think about kind of the last couple of quarters, we've seen that trend come down quite a bit. How do we think about the margin going forward, even from a bigger picture perspective, as you think about all those moving parts? I mean, can we hold those margins relatively flat year-over-year looking at FY '13?

William J. Peters

I believe we can and -- but part of that will be that the first half will be -- of this year will be a little lower and the second half should be a little higher. So -- and that said, it might be difficult to get back to where we were for fiscal '12, so we might be a little bit lower on a gross margin basis. So we warned about that, and the particular drop has really been more on the generic business in the most recent quarter. I'll say that as well.

Randall Stanicky - Canaccord Genuity, Research Division

And should we still think about a seasonally or tougher April quarter, or is that just a function of how things have played out?

William J. Peters

Well, some of it had to do with seasonality from the perspective of lower cough and cold sales, which had generally have higher margins as well. The Wockhardt entrant certainly did push down the Fluticasone price, so we've definitely seen price declines on that. But they haven't -- they've been a fairly responsible competitor, I'll say, in that the pricing has held up fairly well. But we did also see pricing declines in the Dorzolamide product, which is our second biggest generic product as well.

Randall Stanicky - Canaccord Genuity, Research Division

One follow-up to that, because you talked about Fluticasone. And if we just hold the Scrips, the Scrips are growing nicely still, and if we hold Scrips relatively constant in the low double-digit range and we talk about a little bit of a hair cut to pricing, at least when we play with our model, we're not getting that big of an impact from a year-over-year perspective. It's -- I've caught a moderate year-over-year impact rather than a hit to your Fluticasone revenue growth. Is that the right way to think about it relative to what you guys are looking at right now?

William J. Peters

Yes, it is.

Operator

Your next question comes from the line of Elliot Wilbur with Needham & Company.

Elliot Wilbur - Needham & Company, LLC, Research Division

Let's see, maybe just a quick question for Bill here. So it sounds like it would not be appropriate to extrapolate and annualize current quarter SG&A for next fiscal year. But I'm wondering if the same -- it doesn't sound necessarily like that wouldn't be appropriate for R&D.

William J. Peters

No. R&D is definitely going up from where it is. And SG&A, I don't want to say it's going down, but it's going to trend more down than up because of the 30 reps that we've taken out at the end of July and the timing of certain advertising expense, which is going to be bigger and was bigger in the fourth quarter because of the, sort of, the seasonal products.

Elliot Wilbur - Needham & Company, LLC, Research Division

Right. Well, I guess I'm just going to cleverly ask if whether or not kind of the 3-plus level seems to be kind of the new floor, at least on a quarterly rate.

William J. Peters

For R&D?

Elliot Wilbur - Needham & Company, LLC, Research Division

Yes.

William J. Peters

Yes, it is the new floor. And then part of that floor is because we went from, I think, 31 people on R&D to 38 over the course of the year. We're probably going to hold that number fairly level on a going forward basis, but we do have the clinical trials that are going to be beginning in the next couple of quarters. So I would say that you're definitely going to see a double-digit increase on the R&D spend for the full year. However, a good portion of that increase is also going to be end of the year weighted, second half of the year weighted.

Elliot Wilbur - Needham & Company, LLC, Research Division

Okay. Then a couple of questions for David or yourself, Bill, as well. Maybe specifically just on the current pipeline, 14 ANDAs pending, and I know one of them is Asacol. And I think if I look back at some of your earlier commentary at some conferences and the like, I think you identified that of the current -- products currently filed at FDA, around 8 were ophthalmics and then there were 5 oral liquids, if I'm correct. And what I'm really getting at here is I think maybe myself and some other folks were maybe a little surprised and sort of realized that maybe there weren't any pending nasal spray products at the agency. I just want to confirm if that was true.

And then take it a step further, and I would certainly think, obviously, some of the products in development, obviously, would be nasals as well.

William J. Peters

Well, we didn't -- I don't think we said that there were no nasals. I think what actually maybe we are slight -- might have been a little misleading from the standpoint of, we mentioned Asacol, we mentioned 5 oral liquids, then we said there were 8 ophthalmic and other formulations. So and then we listed 4 products that were ophthalmics, and those 4 were the 2 Bimatoprosts and the 2 Gatifloxacins that we have already become public, because they are part of Paragraph IV challenges. The other 4 are either ophthalmic or others. So we don't want to say -- we have not said whether those are or not nasal spray products. I think we have publicly mentioned, though, that we have nasal spray products in the 20 products under development.

Elliot Wilbur - Needham & Company, LLC, Research Division

Okay. And in terms of thinking about your existing Flonase market position, when you have the newer equipment up and running, I mean, where are you in terms of kind of a unit production rate versus estimated full capacity run rate?

William J. Peters

We have, right now, as far as capacity goes, we could increase our current manufacturing rate. However, the market -- I don't think -- we don't need to just because of where we are in the market and the market supply right now. Right now, we're running one shift of Flonase production a day, 5 or 6 days a week. And if we wanted to, we could up that to a second shift, but then we would run into issues of pump supplies and API supplies. But in general, we're keeping a 3 to 5 month's components supply and raw material supply on hand and a 1 to 2 month's supply of finished product on hand. So we can meet any -- if a competitor had a shortage for some reason, we would be able to step in and fill that shortage, if there is a short term supply issue.

Elliot Wilbur - Needham & Company, LLC, Research Division

Okay. And the last question, I guess, for you, David, as well. You touched on, I think, what's going to be kind of a key issue going forward is just sort of the company's commitment to and sort of thinking on the ECR division as a whole. And I know you've mentioned you scaled back the contract reps, but I still think you have around 65 to 70 reps in-house. And I know there was a big step up in the rep count to support the Zolpimist's launch and that hasn't worked out, of course, consistent with your original expectations. But I'm just kind of looking at the raw numbers, I mean, it still seems like the rep count is maybe about 1.5, 2x as high as it was back when you had a sales run rate, roughly 1.5 to 2x kind of where you're currently at. And I know you lost a key asset along the way there, but I'm just sort of wondering at this point if, frankly, the right step might not be reduce rep count until you kind of have the right asset. Obviously, you want to keep the platform in place, I guess, for the seasonal uptick in TussiCaps and give that product full support. But after that point in time, I'm just sort of wondering kind of what you're thinking here is in terms of sort of the right level -- the level of dollar production per rep?

David S. Seltzer

Right. So as I mentioned earlier, number one, we -- the rep count increase was for TussiCaps and some of the other products, the approved products, that we had acquired in the last year, not necessarily for the Zolpimist. So we think that TussiCaps is the right asset to hold that 65 or 70 reps or -- but again, it's very tough to tell because of last year. So I think that this year will be a very telling year whether or not TussiCaps is the right asset, again assuming that we don't have the worst cough or cold season again due to another mild winter. So we do think that TussiCaps is the right asset to build the reps around.

We also believe that we've got some other good assets in the Bupap and the Dexpak, which are performing well today, and some of the other newer products as well going forward, the Orbivan and the Zolvit and some of the wound-healing. So we do think that we have the right assets at this time to hold the sales force at least at this number. But as I mentioned earlier, it's not as if we can't be very flexible. The business is still manageable, and we can move pretty quickly. So right now, we're confident that we do have the right assets in place, and that it's more a function of executing and getting the right message out there and having the right reps out there making the calls.

But again, we're cognizant of the number of reps to sales dollars. We think that this year was really a fluke, given it was a transitional year, number 1, and then we obviously made a big bet on TussiCaps and got into a very, very slow cough and cold season industry-wide. So I think that it's too soon to count us out as far as that's concerned. But I do believe, well, I know, that management is very much watching -- we're watching the P&L very, very closely. And hopefully, TussiCaps will turn out, and everybody is going to be very satisfied with that. But if things don't go the right way, we can always consider and make cutbacks.

Elliot Wilbur - Needham & Company, LLC, Research Division

But David, I mean, what should we be thinking about in terms of kind of a realistic production number, sort of based on the assets you have and the physician base you're targeting and what not? I mean, I'm thinking that sort of 400,000 to 500,000 per rep is an achievable number for that division. Is that a realistic performance goal?

David S. Seltzer

I think it is. Yes, I think it's very realistic.

William J. Peters

I think it's realistic, but I wouldn't say that it's necessarily going to happen this year.

David S. Seltzer

Based to a medical...

William J. Peters

Yes. I just wanted to clarify.

Elliot Wilbur - Needham & Company, LLC, Research Division

Okay. And then the last question that I wanted to ask is with respect to the last FDA inspection, the 483 observations that I think occurred end of last year, if my timing is correct. Any update on that? It's just been kind of a long dry spell, obviously, in terms of communication, at least that we've seen. And I don't know if that means we're out of the woods or...

David S. Seltzer

We haven't had any updates. We've been getting products approved. We've been getting supplements approved, so we take that as a positive sign.

Operator

[Operator Instructions] The next question comes from the line of Scott Eisler with Moors & Cabot.

Scott Eisler

I just have 2 simple questions. Can you discuss the ownership of the board right now, what percentage of the stock you guys own? I can't delineate that. And if you could also discuss, with 90 -- almost $90 million worth of cash, and just enormous amount of cash flow every quarter, and no debt, have you guys discussed about paying a special dividend, especially since dividend rate -- tax rate may change next year?

William J. Peters

First of all, on the stock ownership for insiders, including the board, our 10-K will be out either Friday or Monday, and that -- this information will be in that. But including options that are vested, David has about 14.8% and Reuben has about 7.4%, and the other executive -- all executive officers together and board members have about 24.3%. I'll let David answer the question on the...

David S. Seltzer

Yes. As I mentioned earlier on the call, we're very aware of the high cash balance that the company has. Our main priority being to find strategic acquisitions for the company's growth. However, obviously, we -- nothing is off the table as far as stock buybacks and stock dividends, but we don't comment on those type of things. So we really can't answer your questions further than that. We're very much aware of the -- of what's going on with tax rates and -- but the company's position is that we don't have -- we don't comment on that.

Operator

Ladies and gentlemen, that concludes the question-and-answer session. I would now like to turn the call over to Mr. David Seltzer for closing remarks. Please proceed.

David S. Seltzer

Thank you all for participating in this morning's call. Have a great day. We look forward to speaking to you next time. Thanks.

Operator

Thank you. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Great day.

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