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Edited Transcript of EGRX earnings conference call or presentation 1-Mar-17 1:30pm GMT

Thomson Reuters StreetEvents

Q4 2016 Eagle Pharmaceuticals Inc Earnings Call

ST. ALBERT Mar 1, 2017 (Thomson StreetEvents) -- Edited Transcript of Eagle Pharmaceuticals Inc earnings conference call or presentation Wednesday, March 1, 2017 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Lisa Wilson

In-Site Communications, Inc. - IR

* Scott Tarriff

Eagle Pharmaceuticals, Inc. - CEO

* David Riggs

Eagle Pharmaceuticals, Inc. - CFO

* David Pernock

Eagle Pharmaceuticals, Inc. - President and Chief Commercial Officer

* Adrian Hepner

Eagle Pharmaceuticals, Inc. - EVP and Chief Medical Officer

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Conference Call Participants

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* David Amsellem

Piper Jaffray - Analyst

* Randall Stanicky

RBC Capital Markets - Analyst

* Andrew Galler

Mizuho Securities - Analyst

* Tim Lugo

William Blair & Company - Analyst

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Presentation

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Operator [1]

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Good morning. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Eagle Pharmaceuticals fourth-quarter and full-year 2016 earnings results conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded today, March 1, 2017.

It is now my pleasure to turn the floor over to Lisa Wilson. Ma'am, you may begin.

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Lisa Wilson, In-Site Communications, Inc. - IR [2]

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Thank you, Erica. Welcome to Eagle Pharmaceuticals fourth-quarter and full-year 2016 earnings call. This is Lisa Wilson, Investor Relations for Eagle Pharmaceuticals. With me on today's call are Scott Tarriff, Chief Executive Officer; David Pernock, President and Chief Commercial Officer; David Riggs, Chief Financial Officer; and Adrian Hepner, Executive Vice President and Chief Medical Officer.

This morning the Company issued a press release detailing financial results for the three and 12 months ended December 31, 2016. This press release and a webcast of this call can be accessed through the Investors section of the Eagle website at EagleUS.com.

Before we get started, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation, or intent regarding future events and the Company's future performance, may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Eagle Pharmaceuticals' management as of today and involve risks and uncertainties, including those noted in this morning's press release and our filings with the SEC.

Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. Eagle Pharmaceuticals specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law.

A telephone replay will be available shortly after completion of this call. You will find the dial-in information in today's press release. The archived webcast will be available for one-year on our website, EagleUS.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on March 1, 2017. Since then, Eagle may have made announcements related to the topics discussed, so please reference the Company's most recent press releases and SEC filings.

With that, I'll turn the call over to Eagle's CEO, Scott Tarriff.

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Scott Tarriff, Eagle Pharmaceuticals, Inc. - CEO [3]

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Thank you, Lisa, and good morning, everyone. In 2016, we significantly enhanced Eagle's long-term value. It was a transformative year, and I'm pleased to report that we continue to see significant momentum in our business.

Our revenue grew 186% to $189.5 million, and fully diluted EPS grew to $4.96 per share, largely due to are ready-to-dilute bendamustine product, Bendeka. Launched in January of 2016 with our commercial partner, Teva, Bendeka now commands a 92% share of the bendamustine market, exceeding our adjoined goal of 90%. We are pleased with Teva's ability to rapidly convert the market to Bendeka and expect it will continue and will contribute significantly to our financial performance for many years to come, a driver of growth in 2017.

Earlier in the year, Teva provided Bendeka guidance of $600 million to $660 million for 2017, which did not include an increase in price. While their fourth-quarter results were at the low end of the range, from what we see so far this year, we are comfortable with their range. I realize that we are only eight weeks into the quarter, but as of today, Bendeka net sales during these first eight weeks are running ahead of the first eight weeks of last quarter. Don't forget, we have a full quarter of a 25% royalty, compared to 20% last quarter.

In Q4 of last year, we received a $40 million milestone payment for the J-Code and $29 million in royalty. This quarter, we have now qualified for $25 million sales bonus, triggered by cumulative Bendeka sales reaching $500 million since its launch. To date, we have earned a total of $110 million in milestones related to Bendeka.

There is significant cash flow into Eagle from this relationship, and we'll shortly discuss how we've elected to put our growing cash position to work while we continue to focus on investing in our future. With the CMS decision to issue a unique J-Code, which went into effect in January of this year, outpatient facilities and physicians that administer Bendeka now have reimbursement coding clarity, which we believe will make it easier for patients to access the product and support further growth in market share.

This, combined with 14 issued or allowed patents protecting our Bendeka portfolio to date, 11 of which have been issue, 10 of which are Orange Book listed, and the successful outcome to a legal challenge to one of the patents, we believe the hurdle for any ANDA challenge is high. And, as we continue to file additional patents, the patent protections for the Bendeka family of products will continue to strengthen. Therefore, we expect a long life cycle for Bendeka, supported by its multiple benefits to patients and providers and protected by a growing patent portfolio, extending from 2026 through 2033.

We also made significant progress this past year to advance our pipeline. Our most significant near-term opportunity is in expanding the Ryanodex label to include indications for the treatment of exertional heat stroke and ecstasy and methamphetamine intoxication. As approved today, Ryanodex for malignant hyperthermia is a solid component of our portfolio.

Our sales force of only about 12 people continues to increase Ryanodex's share of the dantrolene market substantially. In 2016, sales increased 92% to $11.7 million compared to 2015. Physicians understand its benefits in treating malignant hyperthermia, which we believe will aid adoption of future Ryanodex indications, if approved. We are confident in the growth of the molecule, especially since we will be quadrupling our sales force from 12 reps to approximately 50 reps.

In January of this year, we completed the NDA submission for Ryanodex for EHS, and we requested priority review for this severe and elevate debilitating condition that can cause long-term, neurological impairment and organ damage for which there is no approved drug treatment currently available. If granted, as anticipated, the PDUFA date for a decision on the NDA will be July of 2017, later this year.

If Ryanodex is approved for the treatment of EHS, we could be the first to market with a potentially transformational therapy for the treatment of EHS in emergency settings that ameliorate brain damage and organ impairment. David Pernock will address our commercialization plans in more detail shortly. Remember, we believe EHS is significantly underreported and there may be approximately 75,000 cases of EHS annually in the United States.

Beyond EHS, we also made progress exploring the potential of Ryanodex to treat ecstasy and methamphetamine intoxication. Clinical studies are currently underway at the NIH. In December, we had a positive pre-IND meeting with the FDA, during which the FDA suggested broadening the indication to evaluate severe organ dysfunction and damage.

Planning and execution of a pilot clinical study is underway. We anticipate beginning the pilot study as soon as possible, followed by a pivotal study, starting in Q4 of this year. Both opportunities address debilitating conditions in sizable populations for whom no drug treatment options are available today.

We are pleased that we were able to reduce our royalty obligations for Ryanodex from 15% all the way down to 3%. This will enhance our future earnings on product.

In 2016, we also acted to identify longer-term opportunities to replicate our successful product development and commercialization strategy. We're working on an innovative formulation of fulvestrant, and are very proud of the work we are doing here. This is Eagle's first product completely developed in-house, showcasing our formulation and clinical know-how.

The currently marketed formulation requires two large IM injections to deliver the monthly recommended dose. It contains castor oil, and a warning has been added to the level concerning painful injections, sciatica, neuropathic pain, and peripheral neuropathy. The injections can last one to two minutes each.

Our unique formulation contains no castor oil and only requires one monthly injection, allowing for alternating the injection site every month. Therefore, our belief is that we can eliminate the current warning in the label by conducting the appropriate clinical trial. As a result of these improvements, we hope to achieve a unique J-Code, just like we did with Bendeka.

We filed an NDA for our ready-to-use pemetrexed formulation in December, which was just accepted for filing. It has a PDUFA target date of October 30 of this year.

Importantly, we also established a foothold in the biologics space with our acquisition of Arsia Therapeutics, renamed now, Eagle Biologics. Our plan is to partner with key biologic innovators and biosimilar companies to improve their existing pipelines into biobetters. You will hear more about our biologics strategy over the course of the year.

In addition to building our product portfolio, we are focused on optimizing our strong financial position. We acted to accelerate spend in R&D and SG&A during the fourth quarter, where it made sense, so that we would be better positioned for 2017 and 2018.

At the end of 2016, cash and cash equivalents were $52.8 million. Accounts receivable were $42.2 million. We remain debt free, and we repurchased approximately $37 million of Eagle stock. And since commencing the program authorized in July of 2016, Eagle has purchased more than 722,000 shares, totaling approximately $48 million, or over 4% of our stock.

To answer the question of what we are doing with our cash, we are accelerating our R&D where possible, and buying back our stock. If our R&D continues to perform as it has, then our stock buyback will prove to be even more positive. We plan to remain focused on shareholder return, and believe we have been very good stewards of our cash. On average, our average purchase price is slightly more than $66 per share, and we are quite pleased with our investment.

I'd like to also mention that as Eagle builds an attractive portfolio of injectable assets that address large market opportunities, we continue to strengthen our management team. I'm very pleased that David Pernock, a longtime business partner and a friend, an industry leader with exceptional commercial track record of bringing blockbuster drugs to the market, has transitioned from our Board of Directors to lead our commercial team as President and Chief Commercial Officer. David has hired team members with extensive industry experience to assist in the launch of Eagle products. With Mike Moran and Sherry Korczynski reporting to David, along with the extended team, I am very confident that Eagle will be well-positioned to commercialize our products, beginning with Ryanodex for exertional heat stroke, if approved.

As we move through the rest of the call, you will hear from David Riggs, our CFO, about our performance last quarter and during the year, including accelerating and non-recurring expenses in Q4 and expense guidance for 2017. David Pernock will then discuss the upcoming EHS launch, and Adrian Hepner will discuss our clinical activities.

Before I turn the call over to them, let me leave you with a few thoughts about this year. We believe 2017 will be another transformative year for the Company. We expect to have another strong quarter here in Q1. Bendeka royalties are running ahead of Q4, and we have earned a $25 million sales milestone this quarter. We expect to have a 50-person sales team to support EHS, if approved, and other products as they become market ready.

While our R&D focus of 2016 was on formulation development, we are now shifting our R&D efforts to a clinical focus. Our in-house formulation team will continue to deliver results with the development of pemetrexed and fulvestrant.

Adrian's team is preparing to run up to four clinical studies this year, as we continue to build our pipeline and secure our future. This includes fulvestrant, the ecstasy and meth intoxication as a third indication for Ryanodex, the lead product that we are developing in conjunction with AMRI, and potentially a fourth study that you will learn about as the year progresses.

With that, I'd like to turn the call over to David Riggs, our CFO, to update you on our fourth-quarter and full-year financial results. David?

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David Riggs, Eagle Pharmaceuticals, Inc. - CFO [4]

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Thank you, Scott. I'd like to start by pointing out that after we received the great news on the J-Code for Bendeka and we earned the $40 million milestone, we decided to accelerate spending in both R&D projects and sales and marketing activities. This spending amounted to approximately $15.6 million for the quarter and brought total operating expenses for the year up to our previously given expense guidance of $80 million to $84 million.

Now, let's go into the detail. For the fourth quarter of 2016, our revenue totaled $81.1 million, compared with $18.2 million in the fourth quarter of 2015. The revenue mix consisted of product sales, royalty revenue, and license and other income. Overall total product sales, reflecting all Eagle products, increased $6.2 million to $9.1 million during the quarter, driven by net sales of $3.9 million in Ryanodex, $1.7 million in Bendeka, and $1.5 million in docetaxel. Royalty income increased to $32 million, compared to $312,000 in Q4 2015, due to the launch of Bendeka.

License and other income during the fourth quarter of 2016 increased to $40 million, compared to $15 million in 2015, again, due to Bendeka. We received a $40 million milestone payment from Teva in Q4 of 2016, related to the unique J-Code, and $15 million in Q4 of 2015, related to receiving the approval for Bendeka from FDA. For the year, total revenue increased 186% to $189.5 million, consisting of $40.6 million in product sales, $99 million in royalty revenue, and $49.8 million in license and other fees.

On the expense front, R&D expenses for the fourth quarter of 2016 were $16.7 million, compared to $8.8 million in the fourth quarter of 2015. The $7.9 million increase is due primarily to the increase in spending on fulvestrant and other accelerated and non-recurring expenses. Keep in mind, historically our average R&D expense, excluding employee expenses, during the first three quarters of 2016 was approximately $5 million a quarter.

Approximately $12.3 million of this $16.7 million in spending during the fourth quarter was related to accelerated and one-time expenses to advance our programs. With $4.4 million in other R&D expenses during the quarter, this puts us in-line with our average quarterly R&D spend. In the fourth quarter, we elected to accelerate R&D spending on fulvestrant, a molecule we believe has significant value, recording $5.1 million in development spending. As a result, we now have much of the development costs out of the way. Our fulvestrant spending in 2017 will largely be related to running the clinical study, though registration batches associated with the product will be reflected, however, in our Q1 numbers.

In Q4, we recorded $1.5 million of non-recurring filing fee expenses related to pemetrexed. We spent $3.1 million in the fourth quarter to accelerate a project with AMRI, moving the lead product forward. Lastly, we recorded a one-time $2.3 million raw material write-off from one of our development projects. For the year, R&D expense was $30.3 million, compared with $27.9 million in 2015.

Looking ahead to 2017, we expect our yearly R&D spending to be essentially flat. The majority of our R&D spend will shift from formulation development to clinical expense, as we move the Company to a more robust and clinically-focused commercial organization. We may run as many as four clinical trials this year, as Scott mentioned.

While the nature of R&D expense in 2017 will be substantially different from that -- the $30 million we spent in 2016, we nevertheless plan to be in the range of $31 million to $35 million in 2017. This includes $3.5 million to $4 million earmarked for our biologics division. If we opt to run additional studies, clinical studies, during the year, R&D spending may increase. That will become clearer as the year progresses.

Back to our 2016 expenses, SG&A was $17.4 million in the fourth quarter of 2016, compared to $5.6 million in the prior year's quarter. G&A remained essentially flat for the quarter. Sales and marketing expenses and personnel-related expenses accounted for the bulk of the $11.8 million increase, and grew largely in accordance with our pre-launch activities for Ryanodex for EHS. Here again, we are able to utilize our growing cash position to accelerate $3.3 million in spending on Ryanodex for EHS marketing activities.

For the year, SG&A expenses increased to $52.3 million, due to overall expansion of the business. For 2017, we expect SG&A to be in the range of $65 million to $68 million, a $13 million to $16 million increase.

In 2017, as we've mentioned before, we don't expect to renew the Spectrum contract when it expires in July. The money we save will not be a complete offset but will be a substantial one against the cost of building our own sales force, as we prepare for the launch of Ryanodex for EHS. We expect that even with launch expenses, our Ryanodex franchise will have a positive P&L effect in 2017.

As you saw in our fourth-quarter results, sales of Ryanodex for malignant hyperthermia were at $3.9 million. We think this market still has room to grow, particularly as we expand our sales force from 12 to 50 people. We anticipate stocking for MH and EHS in 2017. Even with added expense for our internal sales force, we expect Ryanodex to have a positive P&L effect. And we are setting ourselves up for a very good 2018.

I'd like to point out that included in operating expenses in 2016 is approximately $10 million related to stock-based compensation expense. That's a 140% increase over the same period in 2015. We estimate that stock-based compensation expense will increase to approximately $15.5 million in 2017.

Next, let's talk about our changing tax landscape, which effected both fourth-quarter and full-year 2016. For the full-year, the Company recorded a net tax benefit of $28 million. Included in this amount is a reversal of our valuation allowance, which had been carried against the Company's net deferred asset, consisting primarily of net operating losses. Based on our current profitability and expected future profits, we believe it is likely that these tax benefits will be utilized. As I had previously said, the Company expects to be a taxpayer going forward. As a US company, we expect to record tax rates at statutory rates.

Earnings before taxes in the fourth quarter of 2016 were $28.3 million. The net tax benefit for the quarter was $29 million, which brings us to Q4 2016 net income of $57.3 million, or $3.75 per basic and $3.52 per diluted share, compared to net income of $1.2 million or $0.08 per basic and $0.07 per diluted share in Q4 of 2015.

Earnings before taxes for the year was $53.4 million, and the net tax benefit for the year was $28 million. This brings us to net income of $81.5 million or $5.24 per basic and $4.96 per diluted share, compared with net income of $2.6 million or $0.17 per basic and $0.16 per diluted share in 2015.

On August 2, 2016, the Board of Directors approved a share repurchase program of up to $75 million. As Scott has said previously, I'll add a little bit to this. We repurchased $19 million during the fourth quarter of 2016 and a total of $37 million throughout the end of 2016. We have now repurchased approximately $48 million, or over 722,000 shares of stock. We believe this reflects an effective use of our growing cash position and is in the best interest of shareholders.

We ended 2016 with $52.8 million in cash and cash equivalents, $42.2 million in receivables, with approximately $31.1 million due from Teva. Don't forget, we have the $25 million milestone payment due from Teva related to the Bendeka sales milestone.

Thank you. With that, I'll turn it over to David Pernock.

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David Pernock, Eagle Pharmaceuticals, Inc. - President and Chief Commercial Officer [5]

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Thank you, David. I'm very pleased to be on the call in my new role at Eagle as President and Chief Commercial Officer. As an Eagle Board member, I became deeply involved in the Company's pipeline and prospects, which made the decision to take this position straightforward. I'm confident in Eagles future and glad to be on board in this capacity, to ensure successful commercial launch for our next product, Ryanodex.

We are working diligently to prepare for our first sales launch product, which, if approved, will be first in class and the only drug on the market for treatment of exertional heat stroke. There is a high clinical need in the market. We believe that if approved by the FDA, our Ryanodex formulation for exertional heat stroke will fill that need.

Ineffective the treatment can lead to severe neurological complications and even death. As many as 30% of patients with exertional heat stroke experienced long-term neurological damage. With Ryanodex, once approved, we believe practitioners will be able to treat heart (sic) stroke patients from the inside out. We know that the brain heats up faster than the body and is more likely to have sustained damage from exertional heat stroke. Elevated temperature can lead to calcium dysregulation, leading to cell damage and cell death in the brain.

We believe our formulation, by modulating the ryanodine receptors in the brain, which are intracellular calcium release channels, may contribute to restoring calcium homeostasis, arresting the oxide toxicity cascade, and ameliorating brain damage. We know that external cooling methods alone are not sufficient to shut off the receptors.

Our goal is to protect patients from the long-term impact of exertional heat stroke by including Ryanodex with the current standard of care. To accomplish this, we plan to increase our internal sales force to 50. We will be targeting the top-2,500 hospitals and the military. We also plan to work with large major influencers and stakeholders to change treatment guidelines and protocols. Medical education will play a significant portion of what we do to inform the market.

Cooling, while important, is clearly not enough. More must be done. We will be launching a public relations campaign to raise awareness that a drug option is available to treat exertional heat stroke. Let me just remind you that we submitted the product to the FDA in January. We're awaiting FDA approval and are hopeful for a decision this July.

I am proud to highlight that Dr. Julian Bailes, the driving force who has shed light on the issue of concussion in the NFL, is now working with Eagle in an advisory role. His efforts formed the basis of the movie, Concussion, which described the devastating impact of brain injury suffered by football players. Many of those afflicted by EHS are young athletes, in the prime of their lives. As I said a moment ago, those that survive EHS attacks often have brain damage. Dr. Bailes is passionate about the negative impact of EHS on the brain, and we are fortunate that he will serve as a consultant to Eagle, as we work to raise public awareness of this condition.

This is an important product for Eagle, with the potential to be a significant addition to our portfolio. As David Riggs mentioned, with the Spectrum sales force deal ending mid-year, we expect our direct sales expense as we build our team to be substantially offset by that savings, with additional expenses largely attributed to our direct marketing efforts. This is an important launch for Eagle, demonstrating our ability to commercialize products without partnering, and we also plan to allocate the necessary resources to ensure it success. We believe that building our own internal commercial team of approximately 50 will give us strength in the marketplace and open new opportunities for the future.

To sum it up, there is a clear unmet medical need with life-threatening consequences. We believe we have the right product candidate to fit that need. We are building the organization for a successful launch in anticipation of approval. We believe Ryanodex as the potential to treat MH, EHS, and other hyperthermic conditions, including those induced by drugs such as ecstasy and methamphetamines. More importantly, our Ryanodex portfolio will be profitable this year.

I look forward to updating you on our progress throughout the year. With that, I'll turn the call over to Adrian, who will discuss some additional pipeline opportunities.

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Adrian Hepner, Eagle Pharmaceuticals, Inc. - EVP and Chief Medical Officer [6]

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Thank you, David. As Scott and David mentioned, we are also exploring the potential for Ryanodex in treating hyperthermia induced by ecstasy and methamphetamine intoxication, which may lead to neurological complications and brain injury. This will be a very important third indication for Ryanodex, as over 135,000 emergency room visits annually are related to ecstasy and meth use, just in the United States.

We're working toward this with the National Institute of Drug Abuse, part of the National Institute of Health, in our effort to address this growing public health problem. [Nyga] began a pre-clinical animal study during the summer of 2016. Initial data shows that animals with ecstasy induced hyperthermia treated with Ryanodex had a greater decrease in brain temperature compared to animals treated with the control only.

We are very encouraged with the results and held a pre-IND meeting with the FDA in December. During the meeting, the FDA suggested expanding the indication to add severe organ dysfunction and damage, such as renal and liver impairment in patients with MDMA and methamphetamine intoxication, which we plan to do.

It's important to keep in mind that while the ryanodine receptors play major role in the brain, these receptors are also widely found throughout the human body. We do not believe additional clinical work will be required to support the efficacy of Ryanodex for this indication. At this time, we are planning a pilot clinical study to maximize this trend and quality of our pivotal work.

We anticipate that the single, robust controlled and well-powered clinical trial may be sufficient for filing the NDA. A pilot study will start as soon as possible, with a pivotal study anticipated to begin in the fourth quarter of this year.

As Scott and as David noted, we have also balanced our work to develop an innovative population for fulvestrant for use by breast cancer patients. The currently marketed formulation requires two large intramuscular injections to deliver the monthly recommended dose, contains castor oil, and a warning has been added to the label considering painful injections, sciatica, neuropathic pain, and peripheral neuropathy. The injections can last one to two minutes each.

Our unique formulation contains no castor oil and only require one monthly injection, allowing for alternating injection site every month. Therefore, our belief is that we can eliminate the government warning in the label by conducting the appropriate clinical trial. Our innovative formulation and simplified dose regimen may offer compelling improvements for the market to convert. This product could be an important addition to the long-term value of our business.

These are just two of the programs we are balancing. We look forward to updating you on our progress throughout the year.

With that, I will turn the call back over to Scott.

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Scott Tarriff, Eagle Pharmaceuticals, Inc. - CEO [7]

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Thanks, Adrian. In my opening remarks I indicated that 2016 was an important year for Eagle. Market share grew, and Bendeka now holds a 92% share of the bendamustine market. We achieved major milestones and just met another, surpassing $500 million in cumulative Bendeka sales since launch.

We strengthened our IP with total now of 14 issued or allowed patents. We accelerated development of fulvestrant. We submitted an NDA for Ryanodex for exertional heat stroke, and initiated studies with the NIH for ecstasy and meth intoxication. We submitted an NDA for pemetrexed, which has been accepted for filing by the FDA. We entered into the most attractive drug market in the world with the formation of Eagle Biologics, and we managed our money to maximize shareholder return by accelerating spending in Q4 and repurchasing our stock.

As we look at the year ahead in 2017, we are poised to be even more significant than in 2016. Bendeka will continue to be a solid contributor to our earnings, with an additional $25 million in milestone payments from Teva, reflected in our performance this year. We anticipate an FDA decision on two NDA submissions, Ryanodex for EHS, which can be as early as July, and pemetrexed with a PDUFA date of October 30 this year.

We will be scaling our commercial organization to prepare for its first self launched commercial product if approved. We will pursue opportunities to apply the Eagle model to the growing field of biologics by improving delivery and partnering with an innovator or with those developing biosimilars. Importantly, we have additional pipeline opportunities that we will discuss as the year progresses.

I am very proud of the work our team has accomplished in creating products that improve people's lives and deliver value to our shareholders. I'm even more excited about the additional value in our pipeline that we plan to unlock in the coming months. Thank you for your support, and for joining us this morning.

Operator, please go ahead and open the line for questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

We'll take our first question from the line of David Amsellem with Piper Jaffray. Please go ahead.

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David Amsellem, Piper Jaffray - Analyst [2]

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A few questions here. First, on Ryanodex, on the clinical trial, the clinical program drug-induced hyperthermia, can you provide -- maybe it's too early to do this, but can you provide details on what the design of a controlled pivotal trial will look like?

And then, secondly, on pemetrexed, is it your expectation that you're going to get sued by Lilly? And maybe walk us through how you're thinking about that from a legal perspective?

And then, lastly, I know we ask these questions a lot, but this on the big bag, haven't asked about it in a while, but any plans their regarding the big bag on bendamustine, and is that something that may be in the cards down the road? Thanks.

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Scott Tarriff, Eagle Pharmaceuticals, Inc. - CEO [3]

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Let me take your questions if you don't mind, in reverse order. Big bag, we're thrilled with what Teva's doing. 92% share of this market exceeds our expectations. We started out slow, we were hoping for 80%, then we moved the target up to 90%, and now at 92%. Quite frankly, we think it's going to continue to grow.

They're doing everything we asked for. Great partners and the product has been building well. The feedback that we're getting from patients and physicians has been wonderful as well. I don't think there's any need in the short-term to do anything with the big bag.

I think where it plays a potential role, and we will have to see how we feel about it is, ultimately, when generics come to the market, if you want to use the big bag to keep that 30% of the share that we think we're going too lose. For heaven sakes, we have all the way until the end of 2018 to worry about that. Short answer, nothing imminent about big bag.

As it relates to pemetrexed, you've been involved, we've all been involved in these things before. You've heard me describe it previously, when you're trying to get to the market, it's interesting, isn't it, how our marketplace has evolved over time. We just have a better product. It's going to be a roller coaster of a ride to figure out how we get the product to the market, once it's approved.

We feel really strongly about moving to the review cycle with FDA over the next 10 months, and expect to have an action, a positive action at the end of October. We really can't comment on litigation or what may or may not have been, other than there's going to be a lot of activity between now and the time that we ultimately bring the product to the market. Lastly, let me ask Adrian if he can comment on the Ryanodex clinical design and size of the DIH program?

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Adrian Hepner, Eagle Pharmaceuticals, Inc. - EVP and Chief Medical Officer [4]

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Thank you, Scott. We are working with the FDA and with clinicians, experts in this field to design the best study. As we said in the call, we are planning to run a pilot study first, to really make our pivotal work as strong and as conclusive as possible. With that being said, the study will be utilizing the current standard of care, which would be standardized across every single clinical site involved in the study. All patients will receive that, as they should, of course, and others will be added in a randomized manner to the patients that belong to that treatment group.

With that being said, there are multiple factors and multiple measurements we can use to really assess organ damage. And of course, the brain disorders associated with that. It's well known that drug-induced hyperthermia, especially associated with certain types of stimulants as these two we are planning to study, produce severe kidney damage, muscle damage, liver damage.

And devastating disorders, of course, on top of the seizures, coma, confusion, and many other neurological disorders. All of these are going to be taken into an account in a holistic manner to assess how a patient progresses from the moment he is admitted into the study throughout the conclusion of the study.

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Scott Tarriff, Eagle Pharmaceuticals, Inc. - CEO [5]

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Thank you, Adrian. David, I should add one more point that I neglected in your big bag question. Also, keep in mind that we believe that in 2017 over 2016, Bendeka royalty will grow pretty significantly for us, be a pretty good growth driver. When we think about it, we now go into this year with this 92% market share, right from the beginning of the year. And so, another reason not to worry about big bag in 2017.

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David Amsellem, Piper Jaffray - Analyst [6]

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Thank you.

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Operator [7]

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We'll go next to the line of Randall Stanicky from RBC Capital Markets. Please go ahead.

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Randall Stanicky, RBC Capital Markets - Analyst [8]

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On Ryanodex for external heat stroke, for investors who are looking at this, and looking at the upcoming launch, which is going to be new and unique, it's an unmet need, it's obviously a new category. Can you walk through the selling process of the 50 reps? Who are they going to be selling to? Are these P&T committees? How should we think of the uptake here in order to set expectations appropriately? And then penetration, how quickly can that happen?

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Scott Tarriff, Eagle Pharmaceuticals, Inc. - CEO [9]

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I'll turn that over to David Pernock. Let me remind you just up front, we have basically three categories. We have the military, we have the hospitals, and we have the ambulances, all playing a part in this. I think this is best for David to go and responded.

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David Pernock, Eagle Pharmaceuticals, Inc. - President and Chief Commercial Officer [10]

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Yes, thank you, Scott. Randall, to address your question, primary focus is going to be on emergency rooms and the military for the most part, during the first core parts of the launch.

A couple of factors to keep in mind, the military is potentially a very large purchaser of our product as well, because exertional heat stroke is one of the leading causes of death and a long-term injury in the military, outside of what happens on the battlefield. We're working with the government exclusively. We're hiring -- we're the process of hiring a really high talented team there, and we have a good plan going forward.

In terms of the emergency room, we're working with emergency medicine physicians. Oftentimes, sports medicine, sports medicine physicians are involved in helping influence guidelines with emergency medicine physicians. Also neurology sometimes has a key role too. Therefore, it was important for us to bring Dr. Bailes on board.

Importantly, our reps, we'll be calling on the top-2,500 hospitals, focusing on a top down approach. We think we have a compelling need, where fortunately, that we are already on formulary, in a considerable amount of hospitals with inmates, which we think would help ease the formulary process for us. We're just adding another formulation which is relatively easy as opposed as getting a new product approved to formulary.

As far as the formulary process, for most hospitals, the required formulary process, the way I look at it from all the experience I have had launching many, many products in the industry, is that we have a very unique opportunity here, in that we have no product to displace, no company to fight against on formulary battles, because there isn't anything for exertional heat stroke. We will be the first and only product ever approved in the world for exertional heat stroke, and there's a high unmet medical need.

So, not only is there a huge emotional component to being able to help these unfortunate patients that have a heat stroke, that are otherwise healthy, we have a very unique selling proposition here. We have very, very strong clinical data, and I think that's testament to the fact that we hope to get approval by the end of July. So, we will be ready to go. We'll be working on educational programs.

We'll have programs to help build awareness of the disease state, and the long-term impact of the disease state prior to launch. We'll be having a lot of public relations efforts. Dr. Bailes will be available to the media upon launch as a branded spokesperson, and we have -- we'll be able to cover 2,500 hospitals, I think very efficiently and very effectively, with the sales force in place.

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Randall Stanicky, RBC Capital Markets - Analyst [11]

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Thank you, David. On the assumption that you are approved in July, how do we think about contribution or ramp? Obviously, I would assume that as a military sale, that could come in early, given the July time frame.

But in terms of the ramp, and in terms of sales to hospitals and other groups, is this going to be an education process such that we should, from an expectations perspective, step back, and say there's going to be a little bit of a selling process here? And think about that as a 2018 ramp? Or can you get out there quick and start penetrating early?

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Scott Tarriff, Eagle Pharmaceuticals, Inc. - CEO [12]

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Randall, that's really a very good question. I'm going to turn that over to David again, but before, let me just remind you that what we said today, that we almost had $4 million, $3.9 million of Ryanodex sales in Q1, and it's going nicely. So we're still growing the MH market very, very well.

And we go from the 12 reps to the 50 reps, so we just feel good about the ongoing growth of the product. We do believe it's a very large product, out over several years. As I said before, that's the disconnect that we see, and that's the primary motivation that we've had since August to buy back our stock.

As it relates to the second half of this year and at the first six months of launch, what we've committed to some for it was remarking that we expect that the P&L for Ryanodex will be positive this year, even with this added expense that we have in the launch year. And if we do a really, really good job, and we have a nice profitable franchise in 2017, that should set us up for really of what we think is a really, very positive 2018, 2019, 2020 and beyond with this product. And then you layer on a new indication beyond this, and so that's the way we're thinking about it. David, any other comments?

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David Pernock, Eagle Pharmaceuticals, Inc. - President and Chief Commercial Officer [13]

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Yes. To add on what Scott said, Randall, keep in mind a couple of things. This is a transformational first-in-class product. We're going to get a lot of attention very quickly from emergency room physicians, in particular.

And there's going to be a strong push on their half as advocates, and on the Company's half with our very talented sales organization to get the products on formulary, which means that we're likely to get a lot of stocking. Let's not forget the typical dose is going to be 2 milligrams per kilogram, and if every hospital stocks six or eight vials, that's a big number. So, we think people want to get ready.

They want to get ready for usage in 2018, but will benefit from a lot of stocking. We also think that the stocking of EHS will help to even accelerate the stocking for MH. Hospitals, once the product is viewed as an umbrella product for the treatment of all hypothermic conditions, hospitals want to train their staffs on how to use one product for all hypothermic conditions, including MH and EHS together. So we think one indication helps us strengthen the other.

That's the strength and the beauty of having a wide portfolio of products, too. Our sales organization is particularly adroit and skilled at hospital formulary processes. Most of the people we're hiring are from hospital sales background for major companies, and they know how to get through the formulary process.

And again, this is an atypical situation, because we're not trying to knock another competitor off. So, we're not company A is not fighting company B, it's Eagle and Eagle alone, and the only treatment is use of water. So all we have to do is get hospitals to agree to use it in conjunction with water.

We have very good safety profile with Ryanodex, too. We think this will be much easier than other traditional pharmaceutical launches. So, we're very excited about it. We're going to make it happen.

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Randall Stanicky, RBC Capital Markets - Analyst [14]

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Thanks. Thanks for the color. Thanks.

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Operator [15]

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We'll go next to the line of Irina Koffler, Mizuho Securities. Please go ahead.

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Andrew Galler, Mizuho Securities - Analyst [16]

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It's Andrew Galler on for Irina. Thinking about EHS reimbursement, if a patient is treated by an EMT in an ambulance, if they're brought to the hospital, is there an existing payment pathway in either setting, or will Eagle need to petition for a special payment?

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David Pernock, Eagle Pharmaceuticals, Inc. - President and Chief Commercial Officer [17]

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Very good question. As far as reimbursement, we've obviously studied this issue very thoroughly, and we're very happy with the results we have had from our extensive research. First of all, our initial targets are largely going to be emergency rooms and physicians. Ambulances will be somewhat of a target for those ambulance services that are affiliated with the hospital, where there's a vertical integration, and some of the very large ambulance companies.

We can be very successful with this product, getting it established with emergency rooms physicians first, militarily equally. And then basically in the following year, go to the ambulances. The reason why I say that is two-fold. One is that from a reimbursement point of view, when the product is administered in the emergency room, or in any hospital setting, we're very confident no issues with reimbursement, and likewise in the military.

The product is administered first in an ambulance and they are not affiliated with a hospital, you will need different coding for that. So, we will be working on that in 2018, as we apply for the process. We will hopefully have those in place sometime before the 2019 season. Once we have the appropriate reimbursement codes set up, which takes some time to get, that opens up the opportunity to go to a broader base of ambulance services.

We also believe that, again, since the treatment of heat stroke hasn't changed since the Roman Empire, that there's a need for a pharmacological intervention. And so, we think will be able too, hopefully, positively influence key stakeholders to influence guidelines, to suggest that the simple thing to do and the most optimal thing to do on behalf of patients is to add ryanodine to the standard of care.

With guidelines in place, reimbursement codes in place, we think that operation administration of Ryanodex will be much easier to do a little bit down the road. In the meantime, focus on hospitals and military. There's plenty of money to be made there and plenty of lives to be saved.

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Andrew Galler, Mizuho Securities - Analyst [18]

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Thank you very much.

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Operator [19]

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We'll go next to the line of Tim Lugo from William Blair. Please go ahead.

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Tim Lugo, William Blair & Company - Analyst [20]

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Thanks for all the Ryanodex color. One more, will the military be buying ahead of the summer? It seems that the buying patterns would precede the formal indication by the FDA? And maybe can you talk about this fourth study which may be initiated later this year?

I might have missed this, but is that an Ryanodex indication? If so, is that more of an acute or more of a chronic condition? And also is that included in your R&D guidance?

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Scott Tarriff, Eagle Pharmaceuticals, Inc. - CEO [21]

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In the R&D guidelines --

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Tim Lugo, William Blair & Company - Analyst [22]

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The guidance, sorry.

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David Pernock, Eagle Pharmaceuticals, Inc. - President and Chief Commercial Officer [23]

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I'll take the first part. Basically, just talking about the military. Obviously, we can't promote to the military until we have product approval. We don't expect any sales or any orders prior to getting our drug approved.

And then, largely, when we speak of the military, what I'd like to point out is that military, there's all the extended arms and tentacles in military. For example, National Guard, Coast Guard, all of these types of opportunities that emerge. So, we will be working at the appropriate times with the four forces in the military.

We'll be working with everyone in every aspect of the military agencies and groups to protect every possible person that will be exposed to heat stroke. Just as an example, National Guard oftentimes gets a call in cases to fight forest fires and things of that nature. Obviously, that's a very ripe opportunity for exertional heat stroke.

So, we will be working with the appropriate agencies at the right point in time to encourage them to stockpile, or for us to quarantine product for them, so that if 1,000 National Guardsmen are called to Wyoming in the middle of summer to fight a forest fire, we will be able to supply Ryanodex whenever they need it. So, all of these are different aspects that we have clearly thought through, and will be implementing as best we can. We are bound by the same FDA regulations when talking to the military as well as the civilian population, so we will abide by those guidelines.

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Scott Tarriff, Eagle Pharmaceuticals, Inc. - CEO [24]

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Tim, in the conversations we've had, our objective here at Eagle is to make sure that every military personnel around the globe has access to Ryanodex, if they need it. And that is our first and foremost goal of the discussions we're having. Let's see where it ultimately takes us, clearly, that's what we'd like to see. We think this drug is so very important for our military that we're doing everything we can to make sure that there is an appropriate supply available throughout the world. And then I think the clinical question, Adrian, if you don't mind taking it?

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Adrian Hepner, Eagle Pharmaceuticals, Inc. - EVP and Chief Medical Officer [25]

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Regarding the fourth study, as we are growing our pipeline and expanding our clinical capabilities, we are planning also to explore other therapeutic areas. Especially those with high unmet need where we will also be required to really address some devastating disorders. I look forward to providing more information in the near future.

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Scott Tarriff, Eagle Pharmaceuticals, Inc. - CEO [26]

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And Tim the guidance question is, I think in the range that David provided to us, we're in pretty good shape with what we have planned internally. There are other opportunities that are coming along in Adrian's area and in the formulations area. If we're fortunate enough to make movement on some of these other thoughts we have, we may need to add to the range. Right now, I think we are very careful in how we have provided guidance this morning.

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Tim Lugo, William Blair & Company - Analyst [27]

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Okay, understood. And maybe just a quick Bendeka question. I think when the initial guidance came out, it seemed like most on the Street were just assuming the competitive products that were hurting the franchise in the front line. It sounds like January and February, shipments have been strong. And, obviously, pricing wasn't taken last year. Overall, how should we expect the volume basis for bendamustine over the next three years?

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Scott Tarriff, Eagle Pharmaceuticals, Inc. - CEO [28]

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It's a little bit hard to tell. We've analyzed and we've had some outside experts analyze, and we've listened to our partners. We think the bendamustine market, generally speaking, is down a little bit, low single-digits. There's a lot of reasons why bendamustine is still the product of choice in the category. So, the only major difference is we think there's pricing balance totally out of our control, but in our models, we actually have over a three-year period of time Bendeka flat to up, not down.

When you take into account that is outside of our responsibility. But I well point out again that in our models, we see Bendeka as a growth driver. Certainly, in 2017, if you take a short-term approach to it, going into January with a 90% plus share, and seeing that we have the 25% royalty now instead of the 20%. Clearly, the opportunity for growth in 2017 is pretty meaningful, and we're just really pleased where we are this year.

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Tim Lugo, William Blair & Company - Analyst [29]

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Understood. Thanks for all of the clarity.

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Scott Tarriff, Eagle Pharmaceuticals, Inc. - CEO [30]

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Thank you, Tim. Are there any other questions?

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Operator [31]

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There are no further questions at this time. I would now like to turn the floor over to Scott Tarriff for additional or closing remarks.

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Scott Tarriff, Eagle Pharmaceuticals, Inc. - CEO [32]

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With that, I'd like to say thank you. I know it's been a busy day for everyone. Thank you for spending the time with us. Obviously, we're enthusiastic about our business going forward.

We're doing everything we can to improve shareholder value and focus. I'm sure we will be speaking quite a bit over the weeks going forward. And again, thank you.

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Operator [33]

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We'd like to thank everybody for their participation on today's conference call. Please feel free to disconnect your line at any time.