Bob Yedid - MD, Healthcare Mike Anderson - CEO Sian Crouzet - Principal Financial Officer

Jason Gerberry - Leerink Partners Jim Molloy - Laidlaw & Company John Boris - Suntrust Robinson Humphrey Scott Henry - ROTH Capital Partners Matt Kaplan - Ladenburg Thalmann

Good morning and welcome to Flamel Technologies' second quarter 2015 conference call. This is Bob Yedid of ICR Investor Relations.

Before we begin, I will make some cautionary statements. The following presentation regarding Flamel Technologies 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 risks 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 development stage may not achieve scientific objectives or milestones or meet stringent regulatory requirements, uncertainties regarding market acceptance of the products and the impact of competitive products and pricing.

These and other risks are more fully described on Flamel's public filings, including Form 20-F for the year ended December 31, 2014. 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.

After the prepared remarks, we will be opening the call to a question-and-answer period. At this time, it's my pleasure to turn the conference over to Mike Anderson, Chief Executive Officer of Flamel Technologies.

Mike?

Thank you, Bob. Good morning, ladies and gentlemen.

As always, we appreciate you're joining us today. I am excited about our company as Flamel continues to make significant progress in a number of commercial and pipeline areas this year.

Not only have we had an excellent second quarter, but we will also talk about some very meaningful catalysts for our future. Today's call will focus on a number of topics, including Bloxiverz sales and developments in the neostigmine market, our price increase on Vazculep and market share gains during the quarter, new senior level additions to Flamel's management team and progress of our pipeline of proprietary products including Micropump sodium oxybate, Trigger Lock Hydromorphone and LiquiTime.

After my remarks, Sian Crouzet, our Principal Financial Officer will discuss our second quarter financials. The company continued to enjoy strong market share and sales for its FDA-approved Bloxiverz or neostigmine methylsulfate.

According to the most recent prescription data sources, Flamel was supplying just under 70% of the neostigmine marketplace to wholesalers at the end of Q2. The company averaged approximately a 70% share throughout the second quarter, following the launch of Fresenius Kabi's competing product during the first week of April.

To-date, our market penetration is above where we had originally expected it to be. As you know, we increased our wholesale acquisition cost for Bloxiverz from approximately $36 to $99 in mid-January and they've been contracting with GPOs for the entirety of Q2 based of this WAC price, net the various discount fees and charge-backs.

The company recognized revenues of $45.5 million from Bloxiverz alone in the second quarter. Flamel's second FDA-approved product, Vazculep or phenylephrine injection reaped the benefits of a price increase in market share gains in the second quarter.

Flamel is the only company supplying FDA-approved phenylephrine in all available vial sizes, the 1 ml, 5 ml and 10 ml. Most recent data shows that Flamel supplies about 75% of the 5 ml market and 100% of the 10 ml market vial size, as we have seen the unapproved product from Sandoz being exhausted in the marketplace.

The company expects to be at 100% of the 5 ml market once inventories from Sandoz which halted manufacturing and distribution in March of 2015, are depleted. This should occur during the middle of the third quarter.

In the 1 ml vial size which is approximately two-thirds of the market's vials -- of the marked revenues, we're substantially smaller than West-Ward which had been on the market with an FDA-approved product over a year before we entered the market. Flamel recognized sales of $3.6 million from Vazculep in the second quarter.

The company raised WAC prices on the 5 ml and the 10 ml vial sizes to over $27 and $54 respectively which correlates to parity on a per-ml basis with the 1 ml vial size. The price increase, combined with a larger market size due to sales to repackagers has grown the phenylephrine market to be somewhere in the range of $80 million to $90 million.

At the end of June, the company announced the appointment of Sandy Hatten as Senior Vice President of Quality and Regulatory Affairs and Greg Davis as Vice President of Business and Corporate Development. Both Sandy and Greg have had outstanding careers in the pharma industry prior to joining Flamel and we will benefit from their talent and their experience.

Sandy joins us from Mallinckrodt, where she served as Senior Vice President of Quality. She has excellent expertise and she has had a number of leadership roles in quality assurance and regulatory functions at well recognized pharma companies over the past 30 years.

Greg joins us from Patheon, a leading contract development and manufacturing company, where he was Vice President of Corporate Development. Greg also was the director of Worldwide Business Development at GSK for eight years.

Greg is an accomplished dealmaker in the pharmaceutical business. The addition of Sandy and Greg is part of a larger strategic effort to expand and broaden Flamel's senior executive team to steer and enhance the company's growth.

The company's strong profits will enable us to make a number of hires in the areas of clinical research, supply chain and finance to name a few. We look forward to announcing more senior level additions to the Flamel team in the very near future.

As planned, the company submitted a new drug application to the FDA for its third unapproved marketed drug in the second quarter. As we have discussed before, at the time of acceptance of the filing by the FDA which takes up to 74 days after filing, Flamel will make an appropriate announcement to investors.

We expect a standard 10-month PDUFA date and anticipate the initial market size of this opportunity is approximately $70 million which was similar to our initial estimate of the market for Bloxiverz at the time of the product launch. We have seen no developments in terms of the target market or NDA approvals for this unapproved drug that would lessen the relative attractiveness of this opportunity for Flamel.

The company does plan to request a period of market exclusivity on the product. However, this decision is at the full discretion of the FDA and we would not have any clarity on this matter for quite some time, following the submission of the application.

Turning to our proprietary product pipeline. The company and its consultants met with the FDA in the second quarter to receive its guidance prior to beginning our pivotal trial for once-nightly sodium oxybate, using our proprietary Micropump technology.

We're now in possession of the minutes of the meeting and are pleased with the FDA's direction. Prior to the meeting, we had proposed a clinical pathway forward for the approval of Flamel sodium oxybate and are pleased to report that the FDA generally agreed with our physicians and our proposal.

Following the meeting, we're reiterating our timeline of beginning patient screening for enrollment into our pivotal trial by year-end 2015 and are targeting filing an NDA in the first half of 2017. We will not be offering additional granularity on the design and the size of the pivotal trials at this time.

But as the studies commence, the information will be included on ClinicalTrials.gov and more information will be made available. We continue to be very excited about the potential for our sodium oxybate that will eliminate second middle of the night dose required with the current sodium oxybate therapy.

This enhanced product should dramatically improve the standard of care for narcolepsy patients. At the end of the quarter, we were pleased to announce the positive results from two pilot PK studies in healthy volunteers of FT227, an abuse-deterrent, extended release oral hydromorphone product using Flamel's proprietary Trigger Lock drug delivery platform.

In these studies, we identified a preferred formulation that is bioequivalent in terms of Cmax and AUC to the reference product Exalgo. In addition to these clinical trials, Flamel has generated substantial in-vitro data comparing the abuse deterrence properties of our formulation compared to other marketed abuse-deterrent opioid products.

The company is confident that Trigger Lock is a robust platform for opioids that will set a high standard in terms of abuse deterrence. The company intends to meet with the FDA before the end of the year to discuss the development plan for our drug and we plan to begin pivotal studies by mid-2016.

Now, let's turn to LiquiTime, Flamel's platform technology for extended-release liquids. As a reminder, LiquiTime refers to an extended release liquid suspension suitable for 12-hour to 24-hour dosing depending upon the application.

We believe LiquiTime will be very attractive to consumers in the OTC market, particularly when compared to liquids that are immediate release and typically have to be dosed every 4 hours to 6 hours. Development activities for the LiquiTime pipeline continue to progress in line with our targets and we plan to start a pivotal trial for LiquiTime ibuprofen in the second half of 2015 and for guaifenesin in the first half of 2016.

Although LiquiTime ibuprofen and LiquiTime guaifenesin can be used as monotherapies, the largest market opportunity in the OTC area exist with cough-cold products that are combinations of expectorants, decongestants, antihistamines, analgesics and cough suppressants. As has been mentioned in prior calls, the company looks to partner our LiquiTime OTC products with an experienced and proven OTC player and discussions are underway.

The global cough-cold market, for example, is estimated to exceed $6.5 billion and Flamel believes a partnership is the best way to capitalize on an existing OTC presence. Although the timing of a partnership is not fully in our control, we reiterate our goal of partnering LiquiTime technology for OTC use by the end of this year.

Additionally, it is possible that the largest market opportunity for the use of our LiquiTime technology is its application to prescription drugs, particularly for pediatrics, geriatrics and patients with dysphagia. We like the potential opportunity in the prescription market and we're keeping that here.

To-date, only just a few small companies have done work on extended release liquids and I personally view our LiquiTime technology as Flamel's most undervalued asset. Finally, our last major proprietary product uses Medusa, Flamel's hydrogel depot delivery system that is applicable to a wide range of peptides, proteins and small molecules.

We're on target to begin dosing patients in August and everything is in place with the study. We expect Phase 1 data from our first-in-man study sometime around the end of the year.

Overall and by anyone's measure, the company had an extremely successful and productive second quarter. I'm now going to turn the call over to Sian Crouzet to discuss Flamel's financials in further detail.

Sian?

Thank you, Mike and good morning. Thank you for joining us today.

Flamel reported total revenues during the second quarter of 2015 of $49.8 million compared to $4.3 million in the year ago period. A total of $19.3 million of revenues are deferred as of June 30.

Of this amount, $17.5 million related to Bloxiverz and the remaining $1.8 million related to Vazculep. As discussed in our Q1 call, the company's product revenue is recognized on a sales-through methodology.

Revenue recognition under GAAP requires the price of the product to be determinable which we feel only occurs when the product is sold through to the hospital and the charge-back can be determined. There were always issues that arise that impact the company's ability to recognize revenue.

But generally speaking, we believe investors should look at our reported revenues in each quarter as the best measure of our progress. We're pleased to reaffirm our product revenue guidance for 2015 of $170 million to $185 million which represents the combined sales of Bloxiverz and Vazculep.

Cost of goods and services sold through the second quarter of 2015 were $2.8 million compared to $507,000 in the second quarter of 2014. R&D costs in Q2 was $7.2 million, compared to $3.6 million in the prior year period, an increase of 100%.

A substantial portion of this increase is attributed to costs associated with the filing of the third UMD product with the FDA and continued investment in the company's proprietary products. SG&A costs were $5.9 million in the second quarter of 2015, an increase of 44% versus $4.1 million in the second quarter of 2014.

This increase is due to increased stock compensation expense as a result of higher share price and accelerated vesting and costs associated with hiring new personnel. We continue to amortize R&D assets associated with the development of Bloxiverz and Vazculep.

The amortization expense was $3.1 million in the second quarter of 2015. As a reminder, the bulk of this non-cash expense is due to amortization of the R&D assets for Bloxiverz and we will be amortizing these assets through the end of 2016.

Total net interest income was $312,000 in the second quarter of 2015, compared to interest income of $94,000 in the second quarter of 2014. In the second quarter of 2015, the company had foreign exchange loss of $3.6 million compared to foreign exchange gains of $0.3 million in the prior year period.

While our parent company in France uses the euro as its functional currency, it holds over $80 million in assets that are denominated in U.S. dollars which effectively depreciated relative to the euro over the second quarter.

Operating and net income includes remeasurement of the fair value of the acquisition liabilities which was an expense of $32 million for the three months ended June 30, 2015, compared to $12.6 million for the prior year period. These liabilities were incurred as part of Flamel's acquisition of Eclat Pharmaceuticals in March 2012 and are tied to commercial sales of our FDA-approved products as well as other factors described in our Form 20-F.

Changes in the fair value of the acquisition liabilities which are remeasured at each balance sheet date, are recognized in the company's reported income or loss. In addition to GAAP information, management uses non-GAAP measures internally for forecasting budgeting and measuring the company's ongoing operations.

These adjustments exclude fair value remeasurements and amortization expense directly associated with the acquisition of Eclat on an after-tax basis and other items and includes earn-out and royalty payments due associated with the acquisition liabilities and royalty agreements. Adjusted net income for the second quarter of 2015 was $13.9 million versus adjusted net loss of $5.2 million in the second quarter of 2014.

Adjusted earnings per share on a diluted basis was $0.34 in the second quarter of 2015 versus adjusted loss per share of $0.13 in the prior year period. The company's cash position as of June 30, 2015 was $116.1 million compared to $113.2 million as of March 31.

The increase in our cash position was modest due to tax payments on a sale of our intangible assets to our Irish subsidiary taxed on the sale of the contract development and manufacturing facility in Pessac to Recipharm in late 2014 and profit sharing related to these sales to workers as mandated by French law. In addition, we had a one-off timing of U.S.

tax payments for the first quarter of 2015 paid in the second quarter and gross profit sharing of royalty payments on the sales of Bloxiverz and Vazculep which we pay with a one quarter lag. Our effective tax rate for the second quarter of 2015 was 40.7% which reflects the mix of tax rate in jurisdictions where our taxable income is generated with near-term revenue streams being generated essentially in the U.S.

from Bloxiverz and Vazculep, while our R&D expenditure is essentially in Europe. This rate is lower than what was initially expected for the quarter and the company continues its efforts to lower our effective tax rate.

With that, I will now turn the call back over to Mike before taking questions.

Thank you, Sian. In summary, Flamel has taken many steps forward in the last few years generating solid financial results for the first half of 2015 and good momentum in our proprietary pipeline.

We recorded over $80 million of sales of Bloxiverz and Vazculep at attractive gross margins which is resulted in Flamel being profitable for the first time in many years. We're very excited about the performance of these two FDA-approved products to-date, reaffirming our product revenue guidance for 2015 and we anticipate these approved products will perform better than many investors may expect after 2015.

In addition, the NDA for our third UMD product has been filed with the FDA. It's important for investors to recall these UMD products as part of our strategy for growth are intended to generate the cash flow to fund development of our pipeline of proprietary products which use Flamel's patented drug delivery technologies.

In the first six months of 2015, we've demonstrated meaningful progress on our pipeline, including Micropump sodium oxybate and including LiquiTime extended release OTC products and our abuse-deterrent extended release hydromorphone product using Trigger Lock. Moreover, we're thrilled to have made key hires of experienced pharma executives to broaden our management team and you'll see more of that in the future.

We'll continue to focus on advancing our product development pipeline through a potential LiquiTime partnership, enrollment into our pivotal trial for sodium oxybate both by year-end and we look forward to announcing data from Medusa exenatide in the same time frame. Finally, Flamel's profitability and strong balance sheet give us the flexibility to invest in our current pipeline of proprietary products which is our top priority as well as to seek additional products to add to the pipeline and explore selective business development opportunities.

We appreciate your participation on today's call and we look forward to providing updates throughout the coming quarters as Flamel continues its mission of building a strong specialty pharma company with outstanding drug delivery capabilities. With that, we'll be delighted to take your questions.

Operator?

So Mike just quickly, first on sodium oxybate opportunity, it looks like Xyrem REMS patents are running into potentially some issues via the IPR mechanism. So kind of curious if those patents were to go down, how you think about that last valproate patent that they have, is that something that you need to include any of that label language in your package insert?

And is their potential to see some adjudication around that patent and then on a quack number three, just curious if you can estimate an approval date and when you get approval will we know about NCE status?

I'll take the questions you asked. First of all, relates to the patent decision associated with the REMS, Jazz's products obviously, that's news we just came to understand yesterday and we don't really know how that will ultimately turn out.

But I think, clearly, if those patents are somehow compromised or generics are allowed to enter the marketplace earlier than what the patent landscape today provides and I think there are other issues in the patent landscape as well, that's going to change a little bit the reflection and the progress of the marketplace. On the other hand, remember that we're not producing a product, we're not trying to produce a product that's what ultimately be designed to be bio-equivalent to the current therapy.

We're looking to develop one that has significant advantages and one that may at the end of the day as a result of that able to provide advantages to patients which would be, in our view, enough of a differentiator to mandate people's thinking it and ultimately paying for it. So I think there is a lot of things that will take place between now and the time we actually are ready to file our application and I think it would -- I think there are a lot of things that are going to change that landscape, at least, relates to our product between now and then.

Mike, just to summarize, is it fair to say that at this point you guys don't really want to publicly disclose your strategy around getting around that valproate patent.

And to your second product, we've not announced our expected PDUFA date yet, but obviously as we described once we get an official acceptance of the application, then we will obviously announce the PDUFA date. But you can look at it as being sometime early next -- in the first half of next year, assuming everything goes according to plan.

Okay. And will you guys know about NCE status upon, an action, an approval decision or is there something that has to happen?

Yes, that part of the discussion begins to take place later on in the application process and I want to make sure that we clearly delineate, obviously, by our asking for that exclusivity we would believe we're entitled to it. By the same token, FDA has broad discretion in these types of issues.

And so there is no assurance whatsoever that we would get it and we'll do everything we can to make our case and at this point in time, we won't know that till closer to the ultimate approval date.

Okay. And if I could just squeeze one follow-up, how you guys treat the deferred revenue in third quarter?

Thank you so much for asking the question. I think that actually we have confused people unnecessarily relative to this business about revenue recognition.

I think that the way you have to look at Flamel and our progress is to look at us as having done period for getting all of those other issues. $50 million combined between Bloxiverz and Vazculep in Q2.

Some companies recognize business when they ship it to the wholesaler. They take the deductions and call that revenue anticipating that they are going to sell that out at some price down the road.

We don't do that. We take a much more conservative approach and the $50 million that we generated in Q2 was our actual sales.

The $32 million that we generated in Q1 were our actual sales. The rest of it flows through, it's just a normal course of business, it's kind of an accounting input, if you will.

At the end of the day, we generated $45.5 million in Bloxiverz demand and $3.6 million worth of Vazculep. The important thing, I think for people to recognize, is that when you measure demand, our demand is strong, it's stable, the prescription data shows that and so far is that continues and we'll continue to have good quarters and I think we unnecessarily have made that more complex and for that we apologize.

I think you have to look at us as just having done $45.5 million worth of Bloxiverz in Q2. The only differential in Q2 was, as you know, in the first week of April, Kabi began shipping the product.

And the only aberration of the quarter with respect to Vazculep was that we did take some price on two of the vial sizes and that revenue, so that's still a little bit indefinite pricing and that will kind of come out in the wash over the next quarter.

Starting with the pipeline first, from your meeting with the FDA on the Phase 3 design, can you maybe just provide some commentary about what the FDA thought about the safety profile of the sodium oxybate formulation?

John, so as we said and as you know, we went with a game plan that we proposed to them, not only Flamel and our organization, but our consultants as well and people who are helping us in a number of different areas with the study itself. And we went in with the plan and at the end of the meeting and once we've received the official minute meetings, we found ourselves principally with respect to the clinical and safety and almost then lock -- did not lock step, but pretty close with FDA.

At this point in time, we're not prepared unfortunately and as for competitive reasons to add any more light to either safety requirements or clinical requirements. We'll do that in the appropriate time, we're just not ready to do that yet.

We're actively engaged though in getting that process started and doing everything we can to make sure that we stay on the timeline that we've projected.

If the product is potentially safer eliminating one dose being able to add color in order, did you at least have a discussion with them about an alternative distribution mechanism, if the product is materially safer than the current formulations however?

Again, I don't want to be non-responsive, but I think I'm at this point kind of unable to answer that question for you. I think you could reasonably assume that we had conversations with the FDA surrounding the entire issue of sodium oxybate and that we've gotten good guidance on all of the areas that we need to do.

We have said that our technology allows us to take and do some things that may very well at the end of the day be construed as making it safer, but I think part of that will be a decision that continues to move forward as we do the development process. So those issues were discussed, John.

And I think it's very soon to say that we were -- we felt pretty good after the meeting.

Moving to the neostigmine market, just one last question. I think you've indicated there is 5 million vials, $70 per net selling price per vial would be a $350 million market that would come out to somewhere around $87.5 million per quarter.

If you have 70% market share, should we be thinking if you hold that 70% going into the next quarter that your revenue run rate per quarter would be in the $60 million range per quarter?

I can't go into that. I am a little resistant or hesitant to provide any kind of granularity or crystal-balling.

As you know, there are a lot of things that can happen. I can tell you that our share -- and you see this from prescription data, our share today which is the only measure that we have is really pretty robust.

And I think that -- being in the neighborhood of 70% over the course of the quarter, even after the product we shipped was good. I don't know whether I expect that to continue like that, but we have no reason to believe that it will go up or down at this point.

What I can also tell you is, is over the last couple of months and I don't -- I would not describe it as a trend, the demand for the product itself has been down slightly. So there is no product that's replaced it.

I mean neostigmine as you know is the gold standard, it remains that about the only drug that's used to reverse neuromuscular block, surgeries that require neuromuscular block always feature neostigmine, nothing has replaced it, nothing takes its place. And so as a result of that, we have seen a slight decline over the last quarter.

But I don't know that I would call that a trend or anything, we'll continue to monitor it as best we can.

I just want a follow-up and I apologize, I realize perhaps things made unnecessarily confusing. But after the first quarter print, you did -- you called out that there were $32 million of deferred sales in the first quarter that are out there floating around.

Let me start figuring out of the $45 million you reported in the second quarter, is that $32 million from the first quarter all coming in? You sold $15 million or was that getting into deferred further and what does that $19 million represent and again I apologize as it is confusing, but trying to get a handle on with this $30 million.

Jim, we're the ones who probably made it confusing. Going forward, we just look at what we have done in the true demand for Bloxiverz during the course of the quarter was $45 million.

In the first quarter, it was slightly under $32 million, the total amount of our revenue was $32 million. So what we called at the time unrecognized revenue and this caused all this confusion is really kind of pipeline stuff and the pipeline can -- and as the pipeline that exist and sits at wholesalers is drawn out and we receive a charge-back for it, we add it as a sale.

We don't do that until that's done. So you really can't, as a matter of looking at our model, you can't take a percentage of the first quarter sales and unfortunately, we contribute to this and say that that'll show up in the second quarter.

As we move forward and inventory is pulled, wholesalers will continue to buy. If our sales from wholesalers go down, then our market share stays the same.

If the wholesaler sales stay the same, then our market share goes up, it's just that simple. But I think that we've unnecessarily gotten people trying to add two quarters together and it's really not that complex.

Our inventory levels today are totally normal and they continue to be pulled through by the wholesaler and we continue to get orders each week and when those orders go to hospitals, we recognize it.

Okay. Certainly, good to see the full year revenue number got reiterated.

Any price increases on Bloxiverz in the quarter and you took Vazculep, any price hikes in Bloxiverz, is that something that's even possible given kind of the large increases you've taken already?

There were no price increase is about the best I can say. It's only speculation as to what happens down the road in the marketplace, but there were no price increases during the quarter.

I mean we actually, as you know, got a competitor during the quarter.

Right. And the last question, what's the royalty -- the actual royalty payments on Bloxiverz sales, you called out on a line item that was missing on the Q and then will you have an FDA meeting on the Trigger Lock or LiquiTime coming up?

I'll answer the first part, I'll let Sian answer the second part. I mean this, I'll answer the second part.

Yes, we do expect to have a request to meet with the FDA before the end of the year on our next steps in clinical plan associated with hydromorphone. So to answer that question is, yes.

And I'll let Sian to respond to your question about Bloxiverz royalties.

I think if you look at GAAP to non-GAAP reconciliation, you'll see that $9.4 million is announced payable on the quarter revenues and $1.3 million on the royalty that total $10.6 million generated over the quarter for both the earn-out and royalty.

I want to start out with some questions, first on the pipeline. Can you talk a little bit about your strategy with respect to sodium oxybate kind of going forward?

Is it something that you'll try to license or try to keep in-house to market on your own?

First of all, I think that if I would answer your question today which I am, I would say that it's our objective to commercialize sodium oxybate ourselves. We've said all along that we're in the process of trying to build a specialty pharma company, able to control its own destiny by marketing products.

And of course, to the most part, we've talked about products that we have with license out, LiquiTime is a good example. We have no OTC capabilities and so the best use of that product for -- or the best way to maximize the value of LiquiTime is just licensing.

In the case of sodium oxybate, as you know, it's a very defined market, it's pretty finite, people who are treated for narcolepsy are for the most part treated at various sleep centers which you can reach with a relatively small sales force. So even though we've got some ways to go yet, I would suggest to you that our expectation is to market that ourselves.

You never say never about anything, but that's where we sit today.

And then in terms of LiquiTime, it seems like your difference on bifurcating that opportunity, one in OTC and then one into the branded prescription drug opportunity, could you talk a little bit about what you see as that opportunity in some of the branded space and what you see for Flamel going forward there? Can you give us some color in terms of the number of products that you're thinking about, perhaps where you're on development with some of them, just some clarity on that opportunity?

Yes. We will obviously provide descriptions and clarity once where we're advance any individual product to the point where we want to talk about.

And then you should know and it's fair to say that we have products that we've not discussed in the public. So in terms of a little bit of color, I mean the use of LiquiTime in the OTC marketplace is pretty easy to understand.

But I think there are a couple of segments of the marketplace where the use of LiquiTime may have excellent value in the long-term and we don't talk about it and nobody else much talks about. And one of them may very well be the most undervalued and addressed medical need that there is.

You look at things like pediatrics, it's clear to be able to take a product that may have to be administered by a parent on a frequent basis and be able to spread it out that will be to 12 hours or 24 hours, I mean there are lots of interesting opportunities and pediatrics is the first thing that come to mind. A second area of dose that is very underserved in our country today is geriatric patients or patients who are in a position where they have difficulty swallowing tablets, capsules, people in skilled care facilities, people who are not in skilled care facilities.

There is an enormous need if you talk to pharmacists, clinicians, if you talk to nurse providers for products that these patients can take on a more user-friendly basis. As you know, you go into skilled care facilities, some of the gyrations they go through to get patients to be able to take solid dose medicines, large tablets, even somewhat small ones is pretty enormous and candidly, that's an area that we're going to reserve for ourselves.

I think it's ideal for us, we do have some projects that are ongoing now. We have additional projects that we're having and will be having and I think it's a very potentially lucrative area down the road and at this point in time, we intend to do that ourselves.

And, with respect to -- it seems like you are very relatively confident you can get something done in terms of the OTC partnership by the end of the year. Can you give us a little color in terms of what that partnership could look like or you are envisioning?

We won't know that until we get the partnership done, signed and announced. If you're asking what would a great -- what would kind of an ideal structure for supply, I would think that -- I mean, first of all, it's a platform that we think has a lot of potential.

We obviously want some sort of a licensing fee, some milestones probably and make it like approval and launch and royalty. But also important to us is the idea that if we're successful in licensing and that's our intention is that the potential partner would have warrants or somehow be contractually obligated to continue to develop additional products.

What we don't want to happen is somebody to take a couple of products, get them developed, approved in the marketplace and then excuse the expression, but part of the technology. We want to make sure that it's realized to its maximum potential.

Frankly, I don't think that will be a problem, but it's something we would want to cover in the course of any agreement that we get.

And then with respect to Trigger Lock, is that something, I guess similar question there, is that something you plan to license?

I think, Matt, at this point, I would tell you that our plan would be to license those out for us to be able to compete in that marketplace with people like -- who do very large sales forces, probably very realistic. So it might be, it's in our view and our shareholders' best interest to license those out.

That's what we would intend to do, but we haven't talked about timing or any discussions that we may or may not have had yet.

And then just jumping back into the Bloxiverz discussion with respect to deferred revenues and now you're calling them inventory levels for I don't know if you are using those interchangeably.

Kind of.

So, it seems as though your inventory levels then dropped dramatically from $32 million to $19 million roughly from first quarter to second quarter. I guess, what's a typical and now you say that they are at kind of normal levels, what's a typical inventory level in terms of months of supply, weeks of supply for each of your products that you expect to have in the pipeline and maybe just to clear up some of the confusion associated with the deferred revenues, can you help us dig down a little, another level with respect to the revenue -- this deferred revenue as you recognized during the quarter, the deferred revenue as you incurred during the quarter and the actual revenues you generated during the quarter?

There are a couple of questions in there. And let me address the first thing you said.

We do not believe that in the first quarter the inventory levels were terribly disproportionate in the wholesale community. I remember that this was a time when the price was changing and there were a lot of variables that went on.

So while they may have been heavier than they were today, they were by no means like anything that would constitute little bit, well, that's clear. In fact, probably the reverse took place.

As it relates to going forward, if we can possibly do it, we'll never use the word deferred revenue, unrecognized revenue again. The inventory is the inventory.

Typically, I think wholesalers, generally speaking [Technical Difficulty]. And of course, that changes by the demand of any given product in the marketplace.

Ours really hasn't changed too radically, of course so. We think the inventory levels are quite modest out there actually and we'll continue to pull product through, that's the key.

So going forward, we're just going to what we sell is what we sell.

Mike, I apologize in advance, but I'm going to ask a specific question with regards to deferred revenues. When I look at these numbers, to put it simply, at the end of Q1 deferred revenue was $30.7 million for Bloxiverz.

At the end of 2Q [indiscernible] not ambiguous terms either deferred revenues on an accounting statement. So $30.2 million went away.

As far as I know, the only way deferred revenues can go away is if it's booked in that quarter, am I missing something?

No. I'm trying to understand how to best answer you.

First of all, you said, deferred revenues, we did talk to them, they did appear on the sheet.

Specifically as of June 30.

To the value of the inventory, it was sold to the wholesaler, but not yet sold to the hospital. So during the course of Q1, we generate sales effects and those sales are higher than what our recognized revenue are, because we sell that to the wholesaler at a wholesale acquisition cost.

The wholesaler then or then we contract separately with a group purchasing organization or what have you at a price that -- it's over, I mean it's a contracted product. And then when the product is sold out at the wholesaler, that product is sold out at a lower price than it was sold to the wholesaler.

Number two is, we take at the time of the sale, the cost of our admin fees and all the kind of typical gross to net deductions that we do over the course of the quarter. So I don't -- at the end, so it's not like it just disappeared or went away, it was the difference in the valuation.

Remember that in Q2, early April, our competitor in the neostigmine arena shipped product for the first time. And they picked up some business and that business was not picked up at the WAC price.

I mean clearly, they would have to -- we're the incumbent, we have the business, they come in with essentially the same product and they make an offer to a GPO, then we decide whether, as you know, whether or not we want to match the price or not and there were some of that, that was ongoing. We wouldn't discuss that specifically in terms of terms, but you know the strong for many years.

I don't know if I answered your question, but it's not like it is fared, it didn't if they were used -- there are a lot of factors that go into that. And I think it's had -- we would have been in a far better position just to simply say in Q1 that we had revenue of $32 million and that in Q2 we have said that we have revenue of just under $50 million and that's it.

I don't know if answered your question, but I tried.

Once again, ladies and gentlemen, I want to thank you very much for joining us today and we'll look forward to continuing to update you over the course of the rest of the year and particularly for our third quarter. Thank you and have a great day.