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American Pacific's CEO Discusses F2Q 2012 Results - Earnings Call Transcript

Let us now discuss each of the business segments beginning with our Fine Chemicals segment. While our second quarter gross margin in this segment has improved compared to the previous quarter, we remain significantly lower than our expectations for the third and fourth quarters.

We have successfully restructured operations to streamline production in this segment, and have increased growth by means of operational excellence tool. More specifically, we have implemented solid recycling for a number of our products, which not only reduces costs, but also provide benefits to the environment.

We will see the full benefit of these improvements coupled with greater plant utilization in the third and fourth quarter. This performance improvement is a result of a major increase in throughput for a major anti-viral product. We are also pleased to announce the recent five year extension of our major central nervous system product. Despite this product now being off patent, our customer continues to retain significant market share with Ampac Fine Chemicals being the primary supplier of the active pharmaceutical ingredient.

Our development product pipeline has given rise to two new production products being introduced in fiscal 2012. One is the controlled substance product. This is the new area for us with a lot of promise. We have successfully overcome the substantial barriers to entry in the controlled substances area. We are very pleased and fortunate to have moved into this exciting area of the pharmaceutical business.

The second is the new cancer product. While we have been in oncology for a long time, this is a new type of cancer product that uses modern inhibitor type mechanism; it also has other clinical applications that are in late-stage clinical trials at this time.

Development products continue to be a significant portion of the Fine Chemicals segment sales for the second consecutive year. We continue to expect development products to represent 20% of the sales in this segment for fiscal 2012. Our pipeline continues to be strong providing the path for the future growth and stability of this business segment.

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