Wednesday, March 25, 2015 3:27:06 AM
Also we will see sales increases on our insulin API business due to our sales to MannKind. As you know, we have a contract with MannKind where we will supply them with insulin for their Afrezza product. And that contract has minimum purchase quantities at fixed prices. The majority of our insulin sales in the fourth quarter were to MannKind, and it should be noted that these sales in 2014 count toward their 2015 minimum. Remember that the MannKind contract, like most of our insulin contracts, are denominated in euros because nearly all of our expenses for that business are also euro-based, as are the payments that we make to Merck as part of the purchase price for that business.
We had previously estimated that we would see approximately $32 million in sales per year for MannKind, but due to the declining dollar versus the euro, the dollar value of sales has declined closer to $25 million per year. Likewise, our expenses and payment obligations to Merck have declined by the same percentage.
Additionally, costs at our AFP facility are expected to increase this year as we begin transferring the upstream inclusion by the manufacturing process from Merck to AFP. We anticipate that R&D expenses will increase both in dollar terms and as a percentage of sales. G&A expenses will increase on an annualized basis as we have a full year of these expenses associated with AFP. Additionally, we will incur expenses related to the work that we have to perform this year in order to comply with Sarbanes-Oxley Section 404.
I will now turn the call back over to Jason.
Jason Shandell - President and Director
Thanks, Bill. I'm happy to report that we had a very productive fourth quarter. Sales of the majority of our products remained strong and we continue to make good progress with the pipeline. As Bill reported, enoxaparin pricing continued to decline; however, we expect this decline to be more than offset by strong growth of our other products and our insulin sales to MannKind.
In the fourth quarter, we scaled up production at our French subsidiary AFP to meet MannKind's demand for recombinant human insulin API. I'm happy to report that we're now selling such API to MannKind, and although the value of the euro has declined since signing the agreement with MannKind, all of our costs at AFP are in euros, as well as our payment obligations to Merck. Therefore, as Bill discussed, we have a natural currency hedge in place.
Additionally, in January 2015, we entered into a supply option agreement with MannKind, pursuant to which, MannKind will have the option to purchase recombinant human insulin API in addition to the amounts specified in the July 2014 supply agreement. Under the option agreement, MannKind has the option to purchase additional insulin API in calendar years 2016 through 2019. In the event MannKind elects not to exercise its minimum annual purchase option for any year, they will pay us a capacity cancellation fee.
http://seekingalpha.com/article/3025956-amphastars-amph-management-on-q4-2014-results-earnings-call-transcript?page=2
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