Good afternoon, and welcome to the conference call covering Imprimis Pharmaceuticals Financial Results and Business Update for the Second Quarter 2018. My name is Hector, and I'll be your operator for today's call. [Operator Instructions] By now you should have received a copy of the earnings press release. If you have not received a copy, please go on the Investor Relations page of the company's website at www.imprimisrx.com. Before we begin today, let me remind you that the company's remarks include forward-looking statements within the meanings of federal securities laws. The forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond Imprimis' control, including risks and uncertainties described from time to time in its SEC filings, such as the risks and uncertainties related to Imprimis' ability to make commercially available its compounded formulations and technologies, and the FDA approval of certain drug candidates in a timely manner or at all. For a list and description of those risks and uncertainties, please see the Risk Factors section of the company's most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q filed with the Securities and Exchange Commission. Imprimis results may differ materially from those projected. Imprimis disclaims any intention or obligation to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of today. Additionally, Imprimis will refer to non-GAAP financial metrics, specifically adjusted EBITDA. A reconciliation of non-GAAP measures with the most directly comparable GAAP measures is included in the company's press release available on the website. With that, I will now turn the call over to Mark Baum, Chief Executive Officer of Imprimis. Mark?

Thank you for joining us today. We have some exciting developments to discuss, including new milestones we reached, which include record quarterly revenue, gross margin and adjusted EBITDA. However, before I get to those items, let me start by giving you a quick snapshot of our company. Imprimis is a commercial stage pharmaceutical company dedicated to providing patients and physicians with innovative medicines they need at prices they can afford. Most of our drugs are either patented or patent pending. And we're fast-growing as exemplified by our ImprimisRx ophthalmology compounding business, which has seen revenues reach a compounded annual growth rate of over 230% since we launched in 2014. And we're committed to our shareholders' long-term success. In this regard, starting last year, we began executing a strategy that we named Project 15 to license and sell our drug formulation intellectual property in exchange for royalty and equity interest. And during this call, I will provide additional color on this strategy. Our core operating business is pharmaceutical compounding. You may recall from previous conference calls that we've established a $100 million annual revenue run rate target for this business in 2021. We continue to make progress towards this goal, with second quarter 2018 revenue hitting a new record of $10.4 million. This is a 51% increase compared to the second quarter of 2017 and a 17% sequential increase from the first quarter of 2018. Our ImprimisRx ophthalmology business contributed $8.3 million in gross revenues for the second quarter of 2018, and that is a 74% increase compared to the second quarter of 2017. This business has never been stronger, and we continue to add new accounts every day, partner with new organizations and grow our physical sales presence by aggressively adding new commission-only sales representatives. Park Compounding, our general compounding…

Hey, everyone. Thanks for taking the time to join our call today. As Mark highlighted, for the second quarter of 2018, we're able to build upon the financial improvements that we experienced during the first quarter. Total revenues for the second quarter were $10.4 million compared to $6.9 million a year ago, a 51% increase. Total cost of sales for the second quarter of 2018 was $4.2 million, yielding a gross profit of about $6.2 million and a gross margin of 60% compared to a gross profit of $3.6 million last year and a gross margin of 52%. Our revenue growth was driven by our ImprimisRx ophthalmology business. We also had revenue increase with Park's business. Gross margins were an improvement over prior quarters and an all-time high as we hit our target level of 60%. Operating expenses totaled just over $6.8 million, which resulted in a loss from operations of approximately $600,000 during the second quarter of 2018. Compared to the second quarter last year, we reported operating expenses of $6.6 million and an operating loss of approximately $3 million. After backing out certain expenses and income line items, we are proud to note that we showed an adjusted EBITDA of $442,000 for the second quarter of 2018, which is the first time Imprimis has recorded an adjusted earnings number that was positive. We have been trending in the right direction on this metric for 4 consecutive quarters, reducing our adjusted losses incrementally each quarter, and we are excited to have delivered on this profitability milestone. With revenue growth continuing and by keeping our fixed and operating expenses at reasonable levels, I'm optimistic we can keep growing our adjusted EBITDA figures going forward. Elaborating a bit more on Mark's earlier comment, another first for the company was our operating…

Thanks, Andrew. The first quarter of 2018 was the best quarter in our history, and I am happy to say that the second quarter is now the best quarter in our history. All parts of the business performed very well, and the result was that we reached our profitability goal. ImprimisRx, our ophthalmology business, in particular, is on a roll. And I believe that if we continue with this pace, we will be well on our way of achieving my vision for this business, which is to say that we want to be the most important pharmaceutical vendor to ophthalmologists in the United States. Additionally, over the past year, we created 3 new businesses: Eton, Surface and Melt, all of which add value to our balance sheet. And as these companies gain FDA approval for their drug candidates that we contributed, we are positioned for long-term value and potentially significant cash flow streams from royalties. As Andrew described, we believe we have a strong fundamental business. I think this quarter again demonstrates that we have our heads down, we are focused on innovation, operational execution and delivering on our commitments. But I still believe we are at the beginning of our growth cycle, and there are many improvements we intend to make to drive more value out of this business for our shareholders along the way. So thank you for joining us today. I look forward to answering any questions I can. And at this time, I'll open the call up to questions from our participants. Operator?

[Operator Instructions] Our first question comes from the line of Donald Besser with Manchester Management.

I just wanted to get a first question -- I have 2 questions. The NDA for Eton, I can't recall what that was, and I don't see a press release. What was the NDA for, the first one that they filed?

I'm not at liberty, right now, to speak for Eton with specific -- specificity on the drug that they filed. And frankly, given my comments about Eton and their commitments, it would be inappropriate for me to reveal that information even if I could.

Okay, that's fine. In the third quarter, you mentioned 2 studies, 1 for Simple Drops and another 1 for refractory eye disease. The Simple Drops sounds quite exciting and with results expected during 2018. Have they been delivered yet? Or what's the timetable on that?

That data was actually reported at the most recent ASCRS meeting, so I'd be happy to send you a copy of the study results. But I think the important result from that study was that they were able to clearly show that patients in the study that received the combination medication that were formerly on individual medications had statistically significant lower IOPs. So as I said, I'll be happy to send you an abstract of the results, but that data in that presentation took place at the most recent ASCRS meeting.

[Operator Instructions] Our next question comes from the line of John Grimley with the TJW Management Company.

Congrats on turning profitability, that's -- I know it's been a little while coming, and you guys worked hard at it, so thanks for all your hard work.

Thanks, John.

So business mix. I know you don't break out individual products, but can you just give us a sense for what's driving the business overall? How much of it is -- is Dropless still kind of a Trojan horse and Less Drops doing more business? Or anything you can give us just on color, a breakdown of the business and what the current drivers are.

Yes. And you're right, we don't break down the business in terms of individual products. In our presentations, we talk about serving physicians who are doing ocular surgery. That includes cataract surgery, LASIK, and other surgical procedures and formulations that are used in that setting. We also talk about our formulations for patients that suffer from dry eye disease. We do make a formulation that contains cyclosporine as an example, a 0.1% concentration. And then we also, as I'd recently referenced a few minutes ago, make formulations that contain ingredients for patients that suffer from glaucoma, and these are combination medications. All of these formulations are certainly compounded. They're not FDA-approved per se as a compounded drug. But what I think is really important, and what really excites me, is we have built this large surgical business that is growing. And in terms of a Trojan horse, we've created the business on the back of that line of business, the surgical business. What we found is that there's terrific overlap between physicians who do ocular surgery and those physicians who treat patients that suffer from glaucoma or have dry eye disease. So it's the same customer base, and we now have well over 3,000 of these customers. So we have a lot of customers that rely on our formulations. And I think the vision statement that I laid out is really important: we want to be the most important pharmaceutical vendor to ophthalmologists in the United States. And we do that by solving pain points in their practices day in and day out. Patients that can't put multiple bottles of medications in their eye, whether they're patients who have glaucoma or who are recovering from cataract surgery and are trying to treat inflammation and infection, we offer solutions to these…

Awesome. And then where are you guys with that growth? I know you guys, the last couple of years, had spent a decent amount of time and energy building out capacity and making sure you have the manufacturing side of the business in good shape. Roughly, what's your manufacturing capacity utilization right now? Meaning -- what I'm trying to get at is are you going to have to buy another facility or build another facility? Or can you continue to grow at the rate you're growing with your existing facilities?

Yes. Our expectation, John, is that we have enough capacity with our current facilities. And you probably saw, and Andrew mentioned, our OpEx has not materially increased. So our expenditures are kind of at a steady-state. We don't think there'll be any significant OpEx -- or CapEx rather, going forward. We will not need to build new facilities, as an example. We have plenty of capacity with what we have bought and what we own. And I should add that when I say that, I mean we have enough facilities to get to our $100 million-plus revenue run rate with what we have. So we can get there from here. So we have a lot of room, a lot of capacity to use within our facilities. And we'll -- as we continue to grow and get more and more efficient, I think that'll be reflected -- you'll see margins, hopefully, continue to trend in the right direction as well.

Have you given target margins for that $100 million revenue run rate?

I have not. What I did say about a year or so ago is that we wanted to get to the 60% level, and we're there now. I said about a year or so ago that we wanted to build a $100 million revenue run rate business, and I truly believe we're going in that direction and that we'll be able to meet that target as well, but we have not given any target margins. I do believe that if we're operating efficiently, we certainly can have margins in the 70s and possibly even a little bit higher than that while there is room to grow.

Competitive landscape, are you seeing anything new out there? I know you guys have kind of just, at this point, you've managed to disrupt the ophthalmology market, but anything else you're seeing out there?

Well, we believe we're the leading ophthalmology compounding business in the United States now in terms -- by any metric, and that's really just in the last 4 years. The value proposition that we offer to ophthalmologists has never been better, and we still have quite a bit of innovation, I think, that we're going to bring to market this year and hopefully next year as well. So in terms of what we see out there, we think we're the leader. The way that we approach the business is very different than our competitors. We're very scrappy, very innovative and very committed to our physicians' success in their practices. I meet with our customers on a regular basis. I get out there and talk to doctors, and I meet with patients that they serve. So we really understand where the pain points are in their practice. And we don't see anybody with that kind of scale out there in the marketplace that we compete with in the compounding realm. Obviously, there are much bigger ophthalmic pharmaceutical companies but, to a certain extent, we play in a different business than they do.

And you mentioned on the call that your sales force now, the people you're hiring, are 100% commissioned. Is that -- are you having trouble getting people with that format? Or...

No. I mean that has been one of the -- I think an important strategic factor for our business is, last year, we made the decision to add to our feet on the street, add to our sales team, using contract reps. And we've gone from having about 10 folks out in the street to now we have nearly 100 people. So we've got a very significant force out there. And that force, by the way, in the last quarter, has more than doubled. So we have not seen the value from the increase in those contract reps yet. These are very experienced ophthalmology sales reps, and they have our products in their bag, and we think they will be the key to our continued growth this year and in the next year.

And last question. Now that you've kind of, at least fundamentally it looks like with the numbers, you're turning the corner or you turned the corner, is there any investor events that you'll be doing or presenting at? It seems like there's always a good time -- the best time to present your story to new investors is when business is humming like it is now. Any plans on that front to kind of get the story out there a little bit more, so people are paying attention, more people are paying attention?

We will be at the Canaccord Growth Conference in Boston. Actually, we'll be presenting this Thursday. So if you're in that area, please stop by. And if you're not, the presentation will be available via webcast. And I think there's a link to that webcast on our Investor Relations section of our website. And if not, you can get in touch with John. I'll give John's phone number at the end of the call.

[Operator Instructions] Our next question comes from the line of Jeff Silver with Berson & Corrado.

Mark, let me just echo the congratulations on the fantastic progress, the great quarter and the strategic plan which has evolved in a really exciting and positive way. With respect to that, let me just ask you about Melt. What are the factors, the primary factors that are going to dictate when you enter into a raise for Melt?

Well, thanks, Jeff, for your support. Right now, we're -- we've undertaken the process to hire a senior executive for Melt. So we're sort of doing the same things with Melt that we did with Eton, that we did with Surface. We need a senior leader, and we're going through that process as we speak. So we'll find a senior leader. We're talking to banking firms that are familiar with what we did with Eton, what we did with Surface and who may want to -- may help out in that regard. So we're undertaking a similar process to the one that we did with Eton and Surface. We're evaluating that right now. We're really excited about the presentation at the American Academy of Ophthalmology, which will be in October. I think when you see the quality of the study that was undertaken, people will be impressed. But I think the specific process is one that's not that well defined other than to say there is -- there seems to be quite a bit of interest in funding the business. And we're getting very high-quality candidates at the CEO level, potential CEO level. So we're going through that right now. And I'm personally really excited about the asset. I actually think that the asset itself is just a really, really powerful asset. We've talked to a lot of physicians who have used the formulation, the compounded version makes a big difference in their practice, a tremendous market opportunity in procedural sedation, and we're really excited. I think it's one of the most valuable assets we own.

How do you weigh the tradeoff between waiting and perhaps getting a higher, significantly higher valuation against sort of going sooner and maybe giving up some of that initial upside? Or is that really a consideration at all in how you're looking at this?

Yes. Right now, the market appears to be open for the types of projects that we're working on. As a finance person, you understand. And I know that the market is not always open, but it appears to be open right now, we have really, really strong candidates for the CEO position. And so I think the combination of these types of candidates with histories of success, the market being open, coming off of Eton and Surface, and some of this data, also the quality of people that we've attracted on a consulting basis to help out with Melt, has just been terrific. So it's a very -- we think a very strong deal. We think it'll add a lot of value for Imprimis. And what I think is really interesting is, depending on how our pre-IND meeting goes for Melt, there is the potential for a -- this being a very efficient approval process. And so we have to really see what the development program ultimately looks like. But it may be the case that for a narrow indication, for example, for using the formulation for cataract surgery, that the program itself can be executed at a fairly modest price on a relative basis. And as I alluded to in my comments, it may be the case that, that program might mirror what was already accomplished by this customer of ours. So we're really excited about it. We think the ocular surface market alone is a billion-dollar market. We believe that the formulation should be eligible for pass-through status if it's approved. There's a lot of really positive things about Melt's program, what we know about it from data, people who are interested in it and the fact that we're operating in a capital market that appears to be open-minded about funding such a program.

The Project 15 strategy is just -- it's an incredible portfolio strategy when you think about it. And it's -- I think it's probably relatively unique among public companies in general. There are some similarities or similar models out there, but it's a pretty unique strategy. You alluded to the fact that there are additional -- potential additional companies. I mean are you looking at additional companies within the ophthalmology space? Or might some of these potential companies be outside of the space? Or is there -- qualitatively, can you talk a little bit about where and what kind of opportunities you see?

Yes, sure. We are, obviously, laser-focused right now on completing the work that we've begun with Melt. I think I've said enough about how excited I am about Melt and what the opportunity is there for Imprimis shareholders, both on an immediate basis and then longer term, to the extent the formulations as they develop get approved because they're based on assets that Imprimis owns. But in answer to your question, we do have a large library of drugs that we've sold, dispensed these compounded formulations. There is a lot of them, and there's a lot of anecdotal information that we have about how well they have been used in practice with human beings in a clinical setting. And without going in any other detail, I can tell you that there are more than -- I would not be surprised to see another one of these drug development companies come to market in the next 6 to 12 months.

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Mark Baum, CEO of Imprimis, for any closing remarks.

Thank you. And just to reiterate what I said earlier, we will be at the Canaccord Growth Conference in Boston this Thursday. If you're unable to attend the presentation, we'll be webcasted. And there is a link on our website on the Investor Relations tab for that webcast. If you have any other investor-related questions, please contact our Investor Relations associate, Jon Patton. His direct number, (858) 704-4587. Thank you.