Ladies and gentlemen, thank you for standing by, and welcome to the Cornerstone Therapeutics Fourth Quarter and Full Year 2012 Results Call. [Operator Instructions] As a reminder, today's call is being recorded. With that said, I'll turn the call over to Amy Deibler of Cornerstone Therapeutics. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Cornerstone Therapeutics' conference call to discuss our fourth quarter and full year 2012 results. We're glad to have you with us. I am Amy Diebler, Senior Director of Corporate Finance and Development for Cornerstone Therapeutics. We are joined by Craig Collard, Cornerstone's Chief Executive Officer; and Alastair McEwan, Cornerstone's Chief Financial Officer. Craig will provide perspective on the quarter, as well as an outlook for 2013, and Alastair will cover the financial and operational results. Both Craig and Alastair will be available to answer your questions. Cornerstone issued a press release this morning containing financial results for the 3 and 12 months ending December 31, 2012. Before we proceed with the call, please let me remind everyone that the following discussions and responses to your questions reflect management's view only as of today, March 14, 2013. Any statements about future expectations, plans and prospects, including, without limitation, statements regarding our business strategy, future operations, financial position, anticipated regulatory approval of our products, possible therapeutic benefits, market acceptance, prospects and management's plans and objective, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results and events may differ materially from those indicated by our forward-looking statements. Additional information about the factors that could cause actual results or events to differ materially from those indicated in our forward-looking statements is included in the Safe Harbor statement in today's press release and in our filings with the Securities and Exchange Commission, including Item 1A to our Annual Report on Form 10-K to be filed later today and in our subsequent Form 10-Q and other filings with the SEC. Cornerstone disclaims any obligation to update its forward-looking statements, except as required by law. In addition, please note that Cornerstone's remarks contain supplementary non-GAAP financial measures, including non-GAAP income from operations, non-GAAP net income and non-GAAP net income per share diluted. A reconciliation of these measures to the comparable GAAP numbers is included in the press release, which is posted on our website. With that, I will now turn the call over to Craig.

Thank you, Amy, and good morning, everyone. Thanks for joining us on the call during which we plan to give an update on 2012 performance, quarterly and yearly financials and our priorities for 2013, as well answer any questions you might have. I'd like to start the call by covering some of the highlights of 2012. We stated our strategy back in June 2011 to become a more focused company in the hospital and related specialty market. I'm pleased to say this transition was completed in 2012 and the company is well positioned for future growth. Some of the highlights from 2012 were as follows. One, the approval of CRTX 067, which is our hydrocodone polistirex chlorpheniramine extended release suspension product. Two was the EKR transaction and completed integration. And last, the BETHKIS acquisition. I would like to thank all of the employees of Cornerstone for these accomplishments and give a few more details around each one. First, the approval of CRTX 067. The branded version of this product, Tussionex, was approved in 1987 and has been off-patent for over 10 years. But there have only been 2 generic approvals due to the complexity of the formulation, and we are one of those approvals. Next, we completed the EKR transaction, which has allowed us to expand our hospital footprint, as well as our product portfolio. We were able to successfully integrate the company within our plan 90 days from closing. And last, we also acquired the product BETHKIS in November of 2012. This is an inhalation solution indicated for the management of cystic fibrosis patients with pseudomonas aeruginosa. This product fits strategically with our hospital and related specialty focus. And now I'd like to give an update on our currently marketed products, starting with CUROSURF, our market-leading natural lung surfactant…

Thanks, Craig, and good morning, everyone. As Craig said, we're pleased with our top line performance as we grew our net product revenues for both the year and fourth quarter of 2012. Our net product sales grew 15% year-on-year, bringing us up to $116.1 million in 2012 over $101.3 million in 2011. For the fourth quarter of 2012, net product sales were $34.9 million versus $18.2 million, which is up 92% compared to fourth quarter of 2011. Craig has already mentioned each of our market products, and I will cover some further details on the performance. Looking first to CARDENE, and 2012 CARDENE net sales were $24.8 million. And I'd like to remind you that this is only the second full quarter that we have marketed it, as we acquired a product in the EKR transaction in June. Overall, we're very pleased with this performance. CUROSURF net product sales were $35 million, roughly unchanged from the 2011 level. However, as Craig mentioned, with the recent amendment to our agreement with Chiesi, we believe our gross and operating margins will improve going forward. We again saw excellent growth in the ZYFLO family of products. Revenues grew 75% year-over-year to $53.6 million, with part of this growth derived from its pricing being brought in line with similar specialty products. Gross margin remained flat compared to 2011 at 63%. But this is after the negative impact of approximately 4 percentage points driven by inventory step up adjustments from fair value entries recorded on acquired CARDENE inventory in the EKR transaction. We expect gross margin to increase to the mid-60s range during 2013. Looking to expenses. Our SG&A costs were roughly unchanged compared to 2011 at $46.4 million. This is, of course, including all continuing expenses from the EKR transaction. Our R&D costs increased…

While we review the highlights and financial performance of 2012, let's take a look into 2013 and what lies ahead. In addition to our marketed products, we're developing a promising pipeline and are working diligently to move these products forward to approval and commercial launch. Leveraging our commercial strength and all the know-how from growing the products already in our portfolio, we are confident in our prospects. Let's start with CRTX 067, our hydrocodone polistirex and chlorpheniramine polistirex extended-release suspension, which is a generic equivalent of Tussionex indicated for the relief of cough and upper respiratory systems associated with allergy or a cold in adults and children 6 years of age and older. The FDA approved the product at the end of second quarter 2012, and we plan to launch it through Aristos Pharmaceuticals, our generic division. While it had been our stated goal to have CRTX 067 on the market shortly after approval, the delay at FDA approval and timing for completion of scale up and validation activities precluded us for making this happen in 2012. We are pleased with the progress of the manufacturing efforts and look forward to entering the market for the upcoming 2013 cough and colds season. In the fourth quarter, we entered into an agreement with Chiesi to license a second product, BETHKIS, approved by FDA in October of 2012. It is a Tobramycin Inhalation Solution containing the inhaled aminoglycoside antibacterial tobramycin. The product is indicated for the management of cystic fibrosis patients with pseudomonas aeruginosa. We have an exclusive license for the U.S. market from Chiesi and patents that cover the product until 2022. There's currently only one approved nebulized tobramycin product on the market and it generated approximately $270 million in net revenue in 2011. And the market is expected to grow…

[Operator Instructions] We'll hear first from Matt Kaplan with Ladenburg.

I understand you can't take any questions with respect to Chiesi. But just one on that. Can you talk a little bit about timeline of the process in terms of special committee and stuff like that? And then I'll move on to the other stuff.

Yes, that's fair. Matt, the special committee, as I mentioned, has been formed and are in the process of engaging bankers. And once that happens, again, the valuation, the fairness opinion and so forth will move forward. And we anticipate that taking a bit of time. And so if you would just sort of hypothetically look at these timelines, if a, an agreement were reached with Chiesi and the special committee and an agreement agreed to, if you will, or signed, that would be some time, we would think, late April, early May. And then looking at then SEC filings and all that process, proxies and so forth, that will probably take you out another 12 weeks, we would estimate. Again, if this were to close, it would close some time in the September timeframe. So that's sort of the process as we know it today.

And then, sorry, just one more follow-up. How much, I guess, of a distraction is the Chiesi offer, the proposal been to -- on your core business? Has that impact on your core business in terms of employees?

No, actually, it's interesting, because one of the things we want to address. Really, the day that came in, we scheduled. And we're generally pretty good about this, about getting on top of these type of things. But certainly, that letter generates interest from not only outside folks like yourself, but internal. People wondering what it's all about. And so we had a call immediately with our sales force and then also did a -- called a town hall meeting internally to ask -- answer questions and that type of thing. And our whole real message to everyone and it was the fact that -- look, it's going to be business as usual. We're not sure how this is going to play out. And if it were to go and close, the good news is that what Chiesi is ultimately looking for in the U.S., as I've shown, is they want to be certainly bigger and grow in the U.S.. And so from an employee standpoint, it's -- I think it's very important to note that everyone would have their jobs and have a company they would be investing in the future for those type of things. So again, if that doesn't go that way, for us, it's business as usual. I mean, we're still looking at a number of assets that we hope to acquire and we're moving forward if this won't happen. And so if it doesn't, it'll be -- we'll keep chugging along.

Okay, fair enough. Just in terms of some of the announcements you made today. And I guess specifically, thinking about RETAVASE and the announcement associated with some of the stability issues that you've run into. I guess, can you give us a sense in terms of -- and you described this a little bit, but how this will impact the timeline for RETAVASE and its potential relaunch? And also, talk -- I know you've talked, spoken about the catheter clearance indication as well and -- how does that impact that as well?

Sure. No, so just sort of stepping back. When we did our diligence with EKR, this was something we spent quite a bit of time with. And we had good stability data at that time. We had the 3 months that we had reviewed, it looks good. And that's a pretty good indicator of the future. And we also inherited a rolling submission that EKR had been able to negotiate. We were a little skeptical of that because it was a little bit out of the norm for an sBLA like this. Anyway, that being said, it was a good thing because it's going to speed the process up a bit. And so that's sort of the data that we closed with. And then what we found, obviously back late last year, we had the stability failure at 6 months, and -- which was a bit odd. But we do believe that we're pretty close to solving what's going on. And so the problem with that and what's really caused the delay in this timeline, so we had the rolling submission going on and then we received the Complete Response Letter at the end of 2012. And that and a few things in it that we were addressing in the submission already and -- had hoped to have completed probably sometime in February. Had that stability issue not happened, we may have been a bit delayed, but we would have the product out in 2013. What's now happened with the stability is we have to, one, determine exactly what the root cause is and solve that, which, again, I think we're pretty close to. And once that's solved, then you have to go back and manufacture again and get new stability. We'll get 3 months. We can then submit to…

Can you remind us in terms of what the issue was? Was it also a stability issue when the product initially had to be removed from the market?

Yes, if I could, I've got Alan Roberts here, who heads up our Scientific Affairs Group. And he can chime in and maybe give you a bit more technical details on that.

The issue there was when EKR and PDL had the product, the manufacturing process had changed. They made a determination because they had certain amount of inventory that they had concerns as to the robustness of the manufacturing process that was being used. Therefore, the decision was made to qualify the new supplier that we continue to work on and just live off the existing inventory. So there was a [indiscernible] compliance issue they wanted to address and this is ultimately the driving force.

Okay, great. And just turning -- switching a little bit off of RETAVASE. In terms of the other core products, I guess, speak about ZYFLO a little bit and kind of the impending and what you know about the impending, I guess, patent going away and I guess at the end of this year, September. Do you know anything else about additional ANDAs or approvals or what's going on there?

No, Matt. Really, all we can say to that, we have a patent that's certainly out there that is going to expire at the end of September. Obviously, things are going very well with ZYFLO. And if we're able to get through this year, we have a copromotion agreement that will end, which will obviously throw more cash to the bottom line as well. So the longer that product goes, the more beneficial it will be for us. But in regards to -- do we know of anyone that's filed or anything like that? We don't. What I can tell you, though, is that this is a trial IR tablet with a high loading dose that's very difficult to make. It's not impossible, as I said, I think before on these calls. But it does have its challenges. And so I think that, along with the fact that, if you think about, in 2009, this product was doing about $14 million of sales, there was probably not a bit rush to generic this product. Now, with sales now approaching over $50 million, I'm sure there's a number of folks that have been working on this and there's been a few DMFs that have been filed in the last 1.5 years or so and -- but again, the things that we do know, as far is generic approval timelines are getting longer and so forth -- so I'm optimistic that we may go beyond that patent expiry. But if not, we've -- internally, we've modeled and forecast that it will happen in September and that we will launch and authorize generic as well. So we'll participate in any revenues that would be associated with that. But if we get upside and get a longer lifespan, then so be it. But again, it doesn't really have a strategic impact to the company but it certainly is a cash generator, and we'd like to see it last a few more years if possible.

Great. And turning to more of your strategic products. CARDENE, you've got near to 2 quarters under your belt with that product now. What's your sense in terms of being able to grow unit volume and/or at least mentally hold onto it and grow unit volume with that product in the future?

As I said, a few moments ago, I mean, there's 2 things that are really important to this product: Unit growth and maintain price. And we've been extremely consistent about that. We're really pleased. When you look at Q4 of this year versus last year, we're up. We're up in units and price is basically flat. So then you also take into consideration -- think about the 2 companies. You had EKR, who was in the process and had actually had some disarray there for a while. Just going through that can be difficult. Then you're integrating 2 sales forces that we did and completed the acquisition and so forth. There was a lot of disruption, I think so. To look at our first full quarter, the fact that we're up over last year, I think, says a lot about not only the integration that we were able to accomplish, but also the fact that the company and the product is performing very well. So we couldn't be more pleased with this product at this point.

Great. And I guess, kind of -- as you're taking a look at the end of last year and the beginning of this year, what are you seeing in terms of orders from your distributors and for your products? Were there, I guess, orders late last year to circumvent perhaps price increases in 2013? Or what are you seeing in terms of what occurred late last quarter and really, this year in terms of the -- lots of inventory in the pipeline or what's your sense?

No, I mean, we typically don't ever have a lot of inventory in the in the pipeline. But we typically get fairly big orders at the end of the year, especially in CUROSURF, I think, with holidays and so forth to get a bit of that. It's a life-saving medication. I think hospitals will make sure they have enough to the holidays and that type of thing. But what I can say is that, that typically leads into January and so forth, and we feel very comfortable. Things are really -- again, we've said all along that we went through this whole transformation and kind of transition, if you will, to where we are and this -- this footprint in the hospital and a very well-positioned company. And quite honestly, things from a sales and positioning and sort of where we're going from here could not be better. We're probably as strong as we've ever been.

Great. And 1 or 2 more questions and I'll jump back into the queue. But if CUROSURF -- it looks like you've been able to really consistently build market share with that product in a contracting market. What's your sense in terms of that market kind of going forward? Has it kind of plateaued in its reduction or is it going to continue to -- the size of the surfactant market continued to decline going forward?

No, it's interesting because we've -- since we've acquired the product, we've had really decline every year. But it's -- having the Chiesi relationship is very helpful here because they went through a similar thing in Europe and again has seen a bit of a flattening. So we're beginning to see that now as well. You're seeing less invasive therapy and these protocols had been set up. And from what we understand, most of the teaching institutions and so forth have already gone to these different protocols with less innovation and so forth. So I think that there's only about 40% of hospitals out there, and majority of these being smaller, that are not -- that haven't adapted to this new system. And so we see it -- that it will flatten at some point and we're seeing less decline already. But the other thing that's interesting about this market is, as we've said, before, there's not been a lot of pricing at all. And this is a life-saving medication. And we felt adamant that these are products that could be certainly priced much differently. And what we're noticing with CUROSURF and the beauty of the product is, even when you look at CUROSURF accounts that we've had for a number of years, you'll notice an efficiency with CUROSURF that typically, the more they use the product, they end up using a bit less over time just because of getting away with one dose and so forth. So we think there may be some pharmacoeconomic work that we can do there that may help our argument as far as taking price and doing this type of thing in the future. So again, I think the market will ultimately flatten. Obviously, there's going to be another competitor on the market soon, which again, I think will create some noise in the market which I think is good. But CUROSURF is a great product and the market leader, so we think that's going to continue.

Great. And one last question. In terms of business development and continuing to build your pipeline through acquisition, what's -- can you give us a sense -- I know it's hard to predict timing, but give us a sense in terms of what your goals are for this year in terms of the number of transactions and potentially timing of these transactions.

Well, we've -- we're always pretty active on that front. Actually, Josh Franklin, who's our head of BDs in Europe right now, Bio Europe, so we're always trying to serve a few things and find products. I think you will find that we will get something done in the next -- by the next quarter, I think. It's only a matter of time. We're constantly looking at new things. And the beauty that we have now is that we've always said internally that we'd like to have Cornerstone's story to be able to put on a one-page piece of paper or so, the elevator pitch that you would really understand the company. And I think we're at a point now where if you and I were riding on an elevator, I could tell you about the company in a couple of minutes. And what's good about that is that is that's beginning to resonate throughout. So when you think of Cornerstone, people know we're in the hospital and related specialty markets. And so any products worldwide, we are typically getting calls or getting looks on those type of products. So that's been very helpful. I mean, people really understand our story now and I think it's really helped us.

[Operator Instructions] You will hear next from Tim Lynch with Stonepine Capital.

Just some more follow-up questions for RETAVASE. I just -- I still wasn't sure, is the CRL related to the stability issues there? Is it related to the same issue that the product was withdrawn from the market in the first place?

Tim, this is Craig. I'm going to turn that over to Alan again because he has been intimately involved in that. He can give you a full update on it.

They're 2 separate and distinct issues. If you would like to give me more detail on your question, I'll be happy to address it, if I can.

Yes, that'd be great. So the stability issue is that new issue that was not seen in the prior withdraw has to do with the process you're running?

Correct. Well, I would say, until we find a root cause, I'll have to say it's designatable to the process itself. The material that was manufactured some time ago by PDL, EKR that was in distribution until 2009 was very good and remains acceptable. So we know that there is some difference that's occurring and we're trying to nail that down now.

Okay. And just refresh my memory, the CRL that you received in December, has that been disclosed before or is this the first time you guys are disclosing that?

This is the first time. It was not disclosed when we received it in December.

Okay. And then, otherwise, you guys are just kicking on all cylinders. The way I see it, you're doing about $140 million in annualized revenue and almost $1 a share in cash flow generation. It's hard to see it through all of the accounting write-offs. But obviously, a very valuable business. I just want to reiterate. I know you guys can't comment. But then, I think the current offer from Chiesi on the table is drastically too low. And I really encourage the special committee to be interactive with shareholders and take their opinions in, in regards to what they find an offer to be acceptable at what level. So far, the silence has been deafening from the special committee in response to our letters stating our opinions. And I think that's important part of the process to actually tap shareholders' views whom they represent. So I would just encourage them to do that in this process. But otherwise, I think you guys are -- great quarter and congratulations.

Well, Tim, thanks, and thanks for the comments. And again, I think the special committee is certainly aware of the things you're saying. And give us some time, and I think they'll hopefully do what they're supposed to do, so...

We'll take our next question from Jason Aryeh with Jalaa Equities.

A couple of things. You've just picked up on that last point. When we look at the Chiesi offer, and I know this is not a question, so you don't have to answer anything, Craig, but when you look at the fact that they purchased 1.44 million shares of Cornerstone back in March of 2012, actually, the agreement was consummated April 3, 2012, at $6.25, so very close to their current offer. And since then, you guys have done the EKR transaction, which I think was clearly a value added. The BETHKIS and license agreement, you've renegotiated the CUROSURF license agreement and you have gotten approval on CRTX 067. And when we look at the difference between what they are offering today versus where they bought those 1.44 million shares a year ago, the difference is depending on the range, $0.15 to $0.45 a share or $4 million to $12 million. It's quite frankly baffling. And when you look at a multiple of sales, the company could trade, if you were -- if the takeout was at $15 a share, 1-5, which is more than double their offer, you would still be just over 3x sales, not including any of the pipeline assets. It seems very bizarre to sell a company like this at essentially just over 1x or 1.5x sales when the market for companies like this and products like you have is generally 3x to 5x sales. So I just want to echo Mr. Lynch's thoughts here in that we hope that the special committee takes its duty to shareholders very seriously and does the right thing. And I'm sure that if Chiesi does not want to go forward with the transaction at a fair price that there will be many other companies that would.

Jason, we appreciate the comments and we would love to take you on our next roadshow, so we appreciate the thoughts there.

And at this time, I show there are no further questions. I'd like to turn the call back over to our speakers for any closing or final remarks.

I'd like to thank everyone for being on the call today and we look forward to speaking to everyone soon. Thank you.

This does conclude today's conference. We thank you for your participation. You may now disconnect.