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Endo International (ENDP) Earnings Report: Q3 2015 ... · Austin Nelson; Nomura Securities; Analyst...
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Company Name: Endo International PLC Company Ticker: ENDP Sector: Health Care Industry: Drugs Event Description: Q3 2015 Earnings Call Market Cap as of Event Date: 12.76B Price as of Event Date: 51.7 © 2014 TheStreet, Inc. All Rights Reserved Page 1 of 29 Endo International (ENDP) Earnings Report: Q3 2015 Conference Call Transcript The following Endo International conference call took place on November 5, 2015, 08:30 AM ET. This is a transcript of that earnings call: Company Participants Keri Mattox; Endo International; Investor Relations Rajiv De Silva; Endo International; President, CEO Suky Upadhyay; Endo International; CFO Brian Lortie; Endo Pharmaceuticals; US Branded Pharmaceuticals Paul Campanelli; Endo International; Par Pharmaceuticals Other Participants Louise Chen; Guggenheim; Analyst David Amsellem; Piper Jaffray; Analyst Marc Goodman; UBS; Analyst Chris Schott; JPMorgan; Analyst Annabel Samimy; Stifel Nicolaus; Analyst Liav Abraham; Citigroup; Analyst Andrew Finkelstein; Susquehanna; Analyst Gary Nachman; Goldman Sachs; Analyst Gregg Gilbert; Deutsche Bank; Analyst David Risinger; Morgan Stanley; Analyst Jason Gerberry; Leerink Partners; Analyst Irina Koffler; Mizuho; Analyst Randall Stanicky; RBC; Analyst Corey Davis; Canaccord Genuity; Analyst Austin Nelson; Nomura Securities; Analyst Raj Persad; William Blair; Analyst MANAGEMENT DISCUSSION SECTION Operator : Welcome to today's Endo International third-quarter earnings conference call. (Operator instructions) As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Ms. Keri Mattox. Ma'am, you may begin. Keri Mattox (Investor Relations): Good morning and thank you for joining us to discuss our third-quarter 2015 financial results. With me on today's call are Rajiv De Silva, President and CEO of Endo ; Suky Upadhyay, Chief Financial Officer; Paul Campanelli, President of Par Pharmaceuticals; and Brian Lortie, President of US Branded Pharmaceuticals.
Transcript of Endo International (ENDP) Earnings Report: Q3 2015 ... · Austin Nelson; Nomura Securities; Analyst...
CompanyName:EndoInternationalPLCCompanyTicker:ENDPSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.76BPriceasofEventDate:51.7
©2014TheStreet,Inc.Al l R ightsReserved Page1of29
EndoInternational(ENDP)EarningsReport:Q32015ConferenceCallTranscriptThefollowingEndoInternationalconferencecalltookplaceonNovember5,2015,08:30AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
KeriMattox;EndoInternational;InvestorRelationsRajivDeSilva;EndoInternational;President,CEOSukyUpadhyay;EndoInternational;CFOBrianLortie;EndoPharmaceuticals;USBrandedPharmaceuticalsPaulCampanelli;EndoInternational;ParPharmaceuticals
OtherPart icipants
LouiseChen;Guggenheim;AnalystDavidAmsellem;PiperJaffray;AnalystMarcGoodman;UBS;AnalystChrisSchott;JPMorgan;AnalystAnnabelSamimy;StifelNicolaus;AnalystLiavAbraham;Citigroup;AnalystAndrewFinkelstein;Susquehanna;AnalystGaryNachman;GoldmanSachs;AnalystGreggGilbert;DeutscheBank;AnalystDavidRisinger;MorganStanley;AnalystJasonGerberry;LeerinkPartners;AnalystIrinaKoffler;Mizuho;AnalystRandallStanicky;RBC;AnalystCoreyDavis;CanaccordGenuity;AnalystAustinNelson;NomuraSecurities;AnalystRajPersad;WilliamBlair;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
Welcometotoday'sEndoInternationalthird-quarterearningsconferencecall.
(Operatorinstructions)
Asareminder,thisconferenceisbeingrecorded.
Iwouldliketointroduceyourhostfortoday'sconference,Ms.KeriMattox.Ma'am,youmaybegin.
KeriMattox(InvestorRelations):
Goodmorningandthankyouforjoiningustodiscussourthird-quarter2015financialresults.Withmeontoday'scallareRajivDeSilva,PresidentandCEOofEndo;SukyUpadhyay,ChiefFinancialOfficer;PaulCampanelli,PresidentofParPharmaceuticals;andBrianLortie,PresidentofUSBrandedPharmaceuticals.
CompanyName:EndoInternationalPLCCompanyTicker:ENDPSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.76BPriceasofEventDate:51.7
©2014TheStreet,Inc.Al l R ightsReserved Page2of29
Wehavepreparedaslidepresentationtoaccompanytoday'swebcast,andthatpresentationispostedonlineintheinvestorsectionatwww.Endo.com.
Iwouldliketoremindyouthatanyforward-lookingstatementsbyManagementarecoveredunderthePrivateSecuritiesLitigationReformActof1995,andCanadianSecuritiesLitigationActandaresubjecttothechanges,risksanduncertaintiesdescribedintoday'spressrelease,andinourUSandCanadianSecuritiesfilings.Inaddition,duringthecourseofthiscall,wemayrefertonon-GAAPfinancialmeasuresthatarenotpreparedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStates,andthatmaybedifferentfromnon-GAAPfinancialmeasuresusedbyothercompanies.
InvestorsareencouragedtoreviewEndo'scurrentreportonForm8-K,furnishedwiththeSECtodayforEndo'sreasonsforincludingthosenon-GAAPfinancialmeasuresintoday'searningsannouncement.Thereconciliationofnon-GAAPfinancialmeasurestothemostdirectly-comparableGAAPfinancialmeasuresiscontainedinourearningspressreleaseissuedpriortotoday'scall.
Withthat,IwouldnowliketoturnthecallovertoRajiv.
RajivDeSilva(President,CEO):
ThankyouKeri,andgoodmorningeveryone,andthankyouforjoiningusontoday'scall.IhopethatyouhaveallhadachancetoreviewtheCompany'searningspressreleasethatweissuedearlierthismorning.Letmenowturntoourthird-quarterearningspresentation.
Onslide2,youwillseeouragendafortoday'scall.WewillstartwithanoverviewofEndo'stransformationsincethebeginningof2013,andhowwebelievewehavedifferentiatedourselveswithinthespecialtypharmaceuticallandscape.Wewillthenreviewsomeofourrecentaccomplishments,andIwillfollowthatwiththehighlightsofourthird-quarter2015financialresults,walkingthroughourUSbranded,USgenericsandinternationalbusinesses.
Wewillthenturntoourfull-year2015outlookandfinancialguidance,aswellasourprojected2016financialprofile.Afterourpreparedremarks,welookforwardtotakingyourquestions.
Movingontoslide4,shortlyafterIjoinedtheCompanyinearly2013,wemappedoutastrategicdirectionthatwefeltbestpositionedEndofortransformativegrowth,andtoachieveourgoalofimprovingliveswhilecreatingvalue.Weaspiredtobecomealeadingglobalspecialtypharmaceuticalcompany,andarefocusedonareaswherewebelievewecancreatevalue.OurcorebusinessesareUSbrandedpharmaceuticals,USgenerics,andinternationalpharmaceuticals.
AtEndo,weaimtocreatevaluethroughourdifferentiatedoperatingmodel,withournimbledecentralizedstructureandarationalallocationofcapital,webelievewearebetterownersofassets.Ultimatelythismodelisenablingustoachievesustainablegrowththroughorganicexpansion,strategicM&A,andaderiskedR&Dpipeline.
Onslide5,youwillseethecoretenetsoftheEndooperatingmodel,andwhatwebelievedifferentiatesusfromothercompaniesinourindustry.IsimportanttonotethatwhilewecontinuetoseeM&Aasanimportantcomponentofbuildingandgrowingourbusinessisinthefuture,wehavealreadydiversifiedandexpandedourproductportfolioandR&Dpipelinetosupportdouble-digitorganicgrowth.Finally,weareastreamlined,diversifiedandcompliantorganizationthatoperateswithintherigorouscontrolsofourindustry.
Movingtoslide6,youwillseethekeycomponentsofEndo'sstrategictransformation.First,wehaveoptimizedandrefocusedtheEndobusinessforsustainablegrowth.Oureffortshaveenabledustosuccessfullyrightsizeourcostbaseandupgradeourmanagementtalent.Wehavedivestedthenon-
CompanyName:EndoInternationalPLCCompanyTicker:ENDPSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.76BPriceasofEventDate:51.7
©2014TheStreet,Inc.Al l R ightsReserved Page3of29
coreassetsofHealthtronicsandAMSmen'shealthtosharpenthestrategicfocusonpharmaceuticalsinourbasebusiness.
Wecompletedbolt-onacquisitionslikeBoca,Dava,andSumavelDosePro,thataddednear-termcriticalmassatkeypointsinourcorporateevolution.Finally,weexpandedtheR&DpipelinewiththeadditionofAVEED,creatinganewbrandedgrowthopportunity.
Nowlivingbeyondourbasebusiness,wehavecreatednewlong-termgrowthplatformsforEndo.TheAuxiliumtransactionwhichclosedearlierthisyearwasanimportantstepinrebuildingourUSbrandedbusiness,andbroughtXIAFLEX,TESTOPELandotherinnovativeproductsintoourportfolio.ThattransactionalsohelpedrevitalizeourR&DpipelinewithadditionalmultipleXIAFLEXprogramsacrossarangeofpotentialtherapeuticandaestheticindications.
Weestablishedourinternationalplatformtofurtherdiversifyourrevenuebase.TheacquisitionsofSomarinMexico,LithainSouthAfrica,andaportfolioofproductsfromAspenstrategicallyaugmentthatLithabusiness,establishemergingmarketbeachheadsforus.Theseinternationalbusinessesalsofacilitatefurtherinternationalexpansionintheseregions.
Finally,BELBUCA,whichwasjustapprovedbytheFDAformallypositionsEndoforgrowthagaininthepainmarket.WearetappingthefullbreadthanddepthofEndo'sexpertiseinthisarea,asweprepareforcommerciallaunchearlynextyear.Inshort,wearepositionedforsuccessfulexecutionofthisopportunity.
Wehavealsotakentransformationalstepstowardsleadershipintheglobalspecialtypharmaceuticalarena.Thetransformationalacquisitionswehavesuccessfullypursued,namelyPaladinandmorerecentlyPar,haveenabledustoimproveourcorporatestructureandfirmlypositiontheCompanyforlong-termorganicgrowth.
Additionally,wehavetransformedourpipeline.AsImentionedafewmomentsago,XIAFLEXbringsarangeofnewprogramstoourR&Defforts,fromindicationswithseriallyunderservedpatientpopulationsandfewtreatmentoptionstobroaderaestheticindicationswithsignificantmarketpotential.
Further,theadditionofParbringsanindustry-leadingspecialtypipelineofmorethan200projectstoourUSgenericsbusiness.Approximatelytwo-thirdsofPar'sR&DprogramsareinalternativedosagesandapproximatelyareParagraphIVfirst-to-fileorfirst-to-marketopportunities.Thispipelinehasbeenconsistentlyproducinghigherbarriertoentryproductswithfewercompetitorsandhighergrossmargins,andweexpectittocontinuetodoso,drivingdouble-digitgrowthforEndooverthenearandmidterm.
Next,onslide7youwillseehowtheEndotransformationhasresultedinastrategicshiftinourrevenuesinrecentyears.Throughamixofportfoliodiversification,productlifecyclemanagement,organicgrowthaccelerationandaccretiveM&A,theEndoof2015isavastlydifferentCompanythantheEndoof2012.
Forexample,in2012,72%ofEndo'srevenueswerecomprisedofnon-corebusinessessuchasAMSandHealthtronics,andnowlegacybrandedproductslikeLidoderm.In2015,legacybrandedproductsareprojectedtobeonlyapproximately17%ofouroverallrevenues,andHealthtronicsandmostofAMShavebeendivested.Infacttoday,noEndoproductmakesupmorethan6%ofoverallrevenues.Wehavetrulydiversified.
Wearealsobuildingoutportionsofourbusinessthatwebelievewillcreatevaluewellintothefuture.OurUSbrandedportfoliohasexpanded.Wehaveinenhancedourgenericsbusinessandhaveaddedaninternationalbusiness.
CompanyName:EndoInternationalPLCCompanyTicker:ENDPSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.76BPriceasofEventDate:51.7
©2014TheStreet,Inc.Al l R ightsReserved Page4of29
Movingtoslide8,youwillseehowthisdiversificationandCompanygrowthhasimpactedourearningspershare,essentiallyturningtheCompany'sEPSaroundfromtheimpactofthedeclineoflegacyproductsandnon-corebusinesses.
Movingtoslide9andheadinginto2016,webelieveourrecentmilestonesmakeEndofundamentallystrongerthanever,forseveralreasons.Wearepositionedforgrowth,whichmeansthatweareprojectingintoadouble-digitorganicgrowthrateoverourplanninghorizonandareincreasingouroperatingmargins.Wearealsoprogressingourtaxstrategy.
WehaveapowerfulplatformforfutureM&A.Thusfarwehaveanenhancedcorporateprofile,scope,size,andmanufacturingcapabilities.Also,withrobustunderlyingcashflowandadjustedEBITDAin2016,weanticipaterapidlydeleveringbacktoa3to4timesnetdebttoEBITDAratiobymid-2016.
And,wehavebuiltanexpandeddiversifiedportfolio.AsImentionedjustafewminutesago,wehavestrategicallygrownourproductportfolioandR&Dpipelineacrossallthreeofourbusinesssegments.
So,movingtoslide11,wecontinuetomakegoodprogressinaddressingthenear-termstrategicprioritiesthatwebelievewillsupportourobjectiveofbecomingaleadingglobalspecialtypharmaceuticalcompany.First,wearefurtherenhancingouroperationalfocusinordertohelpdriveorganicgrowth.
InourUSbrandedbusinesswe'vesecuredFDAapprovalforBELBUCA,continuedtodrivegrowthforXIAFLEXandsupportedOPANAER,workingtodefendourIPestateandtowardapotentiallabelexpansion.InUSgenericsweclosedacquisitionofPar,achievingcriticalmassforthisbusiness.Withininternational,weclosedtheAspenportfolioacquisitionforLithagrowth,whichisnowrefocusedonpharmaceuticals.
Second,wecontinuetosharpenourR&Dfocusonnear-termopportunities.Onthelate-stagedevelopmentfrontforXIAFLEX,wehavemadegoodprogressonouradditionalstudiesforthetreatmentofcelluliteandadhesivecapsulitis.WeexpecttoholdconfirmatorymeetingswiththeFDAbytheendofthisyear,andwillinitiatethesetwostudiesshortlythereafter.
Also,I'mpleasedtoshareanexcitingupdateregardingtheearlier-stageXIAFLEXpipeline.Wehaveoptedintotwonewpotentialindicationsrecently,lateralhipfatandplantarfibromatosis.Iwilltalkmoreoftheseindetailinafewminutes.
Third,we'refocusedondeployingcapitaltoaccretivevalue-creatingopportunitiessuchasParandAspenportfolioacquisitionsthatIhavealreadymentioned.
Fourth,weremainfocusedondeliveringstrongandsustainablefinancialperformance.Wehaveasolidthirdquarterandaremaintainingourguidanceforfull-year2015revenuesandadjusteddilutedearningspersharefromcontinuingoperations.Wearealsoaffirmingour2016guidanceforadjusteddilutedearningspershare.
Movingontoslide13,youwillseethatwearereporting$746millioninrevenuesforthethirdquarter,up14%versustheprioryear,and$1.02inadjusteddilutedearningspersharefromcontinuingoperations.Sukywillprovidemoredetailsaboutourthirdquarterresultsinjustafewminutes.
Next,IwouldliketodiscusstherevitalizationofourUSbrandedpharmaceuticalsbusinessinmoredetail.Onslide15,youwillseeourtotalgrowthyeartodateis25%,andthat,whilemutedbythird-quarterunderperformanceversusexpectationsinsomeareasoftheportfoliosuchasSTENDRA,wecontinuetoseeunderlyingsalesgrowthfortheninemonthsendedSeptember30,2015comparedtothesameperiodin2014.ThisunderlyinggrowthrateincludesAuxiliumresultsonaproformabasis,andincludesonly
CompanyName:EndoInternationalPLCCompanyTicker:ENDPSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.76BPriceasofEventDate:51.7
©2014TheStreet,Inc.Al l R ightsReserved Page5of29
same-storesalesforother2014acquisitions.
Forcomparisonpurposes,weexcludethesalesofLidodermandroyaltiesreceivedfromActavisforitsgenericlidocainepatchfromthiscalculation.Oneofourexpectedkeylong-termgrowthdrivers,XIAFLEX,continuestoperforminlinewithourexpectations.Iwillprovideamorein-depthreviewofXIAFLEXshortly.
WecontinueourcomprehensiveeffortstoperfecttheOPANAERfranchise,includingthepromotionanddevelopmentoftheproduct,aswellasthevigorousassertionofitsintellectualproperty.ThepositiverulingintheParagraphIVpatentinfringementtrialheldearlierthisyearintheSouthernDistrictofNewYorkstrengthensourIPportfolio,andshouldremoveoneofthegenericcompetitorsfromthemarket.Wealsohaveongoinglitigationbeinginitiatedinlate2014intheDistrictofDelaware,withrespecttonewly-issuedpatentscoveringtheproducts.
Inparallel,andfollowingourdiscussionswiththeFDAearlierthisyear,weexpecttosubmitasupplementrequestforlabelingthatwouldpotentiallyaddabusedeterrentformulationclaims.Weexpecttofilethatrequestinlate2015orearly2016.
Webelieveourbrandedpricingstrategiesarerationalandappropriate,andthatvolumecontinuestobetheprimarydriverofourgrowthinourUSbrandedbusiness.Whilethereisarangeof[back]priceincreasesacrossourportfolioannually,weestimatethatoureffectiveannualpriceincreasesareapproximately5%forthisbusinessafterdiscountsandrebates.
Movingon,asyouallknow,therehavebeenmanyquestionsabouttheindustry'suseofspecialtypharmaciesrecently.Letmereiteratethatweutilizespecialtypharmaciesforourcomplexspecialtyandphysician-administeredproducts,andthatspecialtypharmaciesaccountforonlyapproximately3%oftotalEndorevenues.Additionally,andimportantly,Endodoesnothaveanyownershipinterestinconsolidatedfinancialresults,orhaveanyaffiliationswithanyspecialdepartments.
Thespecialtypharmaciesweutilizeareindependent,orarepartofotherindependentcompanies.WerecognizerevenueswhenEndoshipstoaspecialtypharmacyandittakestitleoftheproduct,justaswewouldwithanyotherdistributor.Withthat,let'smoveontotalkaboutsomeofthedevelopmentinitiativesinUSbrandedandtheUSbrandedsegmentthatwefeelpositionusstronglyforfuturegrowth.
Movingtoslide16,weareextremelypleasedabouttherecentFDAapprovalofBELBUCA,thefirstandonlybuprenorphinebuccalpatchforchronicpain.Withmorethan100millionadultsintheUSsufferingfromchronicpainandmorethan130millionopiateprescriptionseachyear,thisisasizable$13billionmarket.
WebelievethatBELBUCAprovidesanewanddifferentiatedscheduleIIIproductforthesepatients,onethatcombinesprovenefficacyandestablishedsafetyprofileofbuprenorphinewithanoveldeliverysystemthataddsconvenienceandflexibility.
Withsevenapproveddosagestrengths,BELBUCAgivesphysicianstheabilitytoindividualizetitrationandtreatment.Weareplanningforanearly2016launchofBELBUCA,andwillexpandourpainfieldforceandinfrastructuretosupportourcommercialefforts.Wearecurrentlybuildingourproductinventorytosupportthatcommerciallaunch.
Movingtoslide17,duringtherecentapprovalofBELBUCAandourlaunchplans,weareundertakingaportfoliooptimizationacrossourbrandedbusiness.ResourceswillbereallocatedtosupportkeygrowthdriverslikeXIAFLEX,BELBUCAandothershighlightedhereinthegreenbox,andasaresult,weexpecttode-prioritizeselectproductsshownhereingrey.
CompanyName:EndoInternationalPLCCompanyTicker:ENDPSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.76BPriceasofEventDate:51.7
©2014TheStreet,Inc.Al l R ightsReserved Page6of29
Onslide18,letmeprovidemoredetail.First,wewillincreaseoursupportofourprimarygrowthdriverproducts.AsIjustmentioned,forBELBUCA,wewillmorethandoublethepainfieldforcethisyear,inpreparationforanearly2016launch.ForXIAFLEX,wearerollingoutapatientengagementcampaigntobuildawarenessandwearecontinuingoureffortstoincreaseouractiveinjectorbase.
ForTRT,wearefocusingoureffortsonourportfolioofdifferentiatedlong-lastingproducts,AVEEDandTESTOPEL.WeseetheseproductsasagrowthopportunitywithintheTRTmarket,andforEndo.AndwearealsocontinuingouractivesupportforothergrowthdriverssuchasSUPPRELINLAandVoltarenGel.
Wedoexpectthatotherproductsinourportfoliowillbedeprioritized.First,STENDRA.WhileourrelaunchhasstabilizedSTENDRAinacrowdedandnoisyEDmarket,ithasnotyieldedtheinflectionpoint,noracceleratedthegrowththatwewerelookingtowards.
Second,theoralTRTmarketcontinuestodeclineatarateofnearly10%overthelast12months,andtopicalgelproductslikeTestimandFortestahavegonegenericandbecomecommoditized.Earlyinitslaunch,eventhenoveldeliveryofNATESTOhasyettogainsignificanttractionwithinthelegacygelspace.Theaccountingimpactoftheunderperformanceofthesede-prioritizedproductsandthestrategicreprioritizationisanimpairmentchargetakeninQ3,andSukywilltalkmoreaboutthisindetailinafewminutes.
Movingtoslide19,let'stalkabouthowoneofourkeygrowthdrivers,XIAFLEXperformedinthethirdquarter.WhiletherewassomeseasonalityinQ3,XIAFLEXperformedinlinewithourinternalexpectations.Growthanddemanddriversremainstrongwithapproximately13,900vialsofXIAFLEXshippedduringthethirdquarterof2015.
Thatisanincreaseof21%,comparedtothesameperiodlastyear.MostoftheirgrowthisattributabletothelaunchinPeyronie'sdiseasewhichaccountedforapproximately7,500demandvials,anincreaseof33%overthethirdquarterof2014.
Wenowhavemorethan2,300physicianscertifiedand11,600PDpatientshavebeentreatedwithXIAFLEXtodate.AkeymetricthatwebelieveillustratesthestrongutilizationtrendsofXIAFLEX,isaveragevialsperpatient,whichiscurrentlyatabout4.5vials.
DemandgrowthinDupuytren'scontracturewasattractiveduringthequarteraswell,andincreased14%overthethirdquarterof2014toapproximately6,400demandvialsinthird-quarter2015.Thiscontinuedgrowthisespeciallyencouraging,giventhatXIAFLEXforDCwaslaunchedfiveyearsago.
WehavealsohighlightedouraveragenumberofXIAFLEXvialsforDCpatients,whichiscurrentlyatabout1.2vials.ThesupportsearlyindicationsofsolidinductionforMULTICORDusefollowingthatlabelexpansionlatelastyear.Finally,tosupportandgrowXIAFLEXdemandinQ4andbeyond,weareworkingtoexpandthecurrentactiveinjectorbase,andarelaunchingatargetedDTCcampaignaimedatbuildingbroaderpatientawarenessofthediseaseandtheavailabletreatmentoptions.
Onslide20,youcanseethestrongyeartodategrowthinbothPeyronie'sdiseaseandDupuytren'scontracture.WearepleasedbyXIAFLEXperformancethisyear,andareencouragedaswemoveintothefourthquarterandbeyond.Next,weremaincommittedtogrowingourUSbrandedbusinessorganically,andexpandingR&Dpipelineiskeytothoseefforts.
Onslide21,youwillseeabroadoverviewofourR&DprojectsincludingseveralnewXIAFLEXprogramsinbothdiseaseorinjuryrelatedconditionsaswellasaestheticindications.WeareadvancingaPhase2programinDupuytren'sNodulestopotentiallyfurtherexpandourtreatmentcapabilitiesinthatindication,andalongwithourpartnerBioSpecifics,wearemovingforwardwithseveralexcitingadditionalearly-stageopportunities.
CompanyName:EndoInternationalPLCCompanyTicker:ENDPSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.76BPriceasofEventDate:51.7
©2014TheStreet,Inc.Al l R ightsReserved Page7of29
Infact,wehavejustformallyoptedintotwonewindications,lateralhipfatandplantarfibromatosis,whichisabenignbutpainfulnodulethatgrowsinthebottomofthefootandcanrequiresurgeryforremoval.
Now,let'stalkaboutthetransformationofourgenericsbusiness.Movingtoslide23,USgenericscontinuedtodeliverimpressiveresultsinthethirdquarter,withsalesof$368million.Thatcontributestoyear-to-datetotalgrowthof32%versustheprioryear.
Ouryear-to-date2015resultsprimarilybenefitedfromorganicgrowth,includingnewproductlaunchesandanumberofvaluecreatingacquisitions.Whilegrowthfromthestrategicinitiativeswasattractive,moreimpressiveistherobust24%yeartodateunderlyinggrowthrateinourUSgenericsbusiness.Underlyinggrowth,whichexcludesParwasdrivenbyvolume,andessentiallynowthatwehaveclosedacquisitionofPar,weareconfidentthatwecandeliverdouble-digitrevenuegrowthforthisbusinessforthefullyear.
Ourviewonthepricingenvironmentwithingenericsremainsconsistent.Webelievethatcommodityproductsfacepressure,whilespecialtyproductspresentsomestrategicpricingopportunities,dependingonmarketconditions.GiventhefocusofourUSgenericsbusinessandourongoingportfolioandpipelineoptimizationprocess,whichwillcontinuetoprioritizedifferentiatedproducts,webelievethisbusinesscancontinuetooutperformthebroadermarket.
Organicgrowthdriversareimportantforeachofourbusinesses,andingenerics,weexpecttolaunchfivetosevennewgenericproductsinQ4,andremainontracktofile25ANDAsin2015.Movingontoslide24,itisimportanttonotethatourUSgenericsbusinesscontinuestobeanextremelyattractiveandeffectivegrowthdriverforEndo,withtheacquisitionofPar,completedinthethirdquarter.WebelievethatwehavecreatedsignificantvalueandhaveachievedcriticalmassinourUSgenericsbusinessunit.
Movingtoslide25,theadditionofPar'sgenericspipelinetoEndoprovidescompellingopportunitiesinboththenearandlongterm.In2016and2017,weexpectapproximately50totallauncheswith$16billionofcurrentmarketvalue,accordingtoIMSSalesData.Ofthoselaunches,weexpect8tobefirsttofileopportunities,with$8billionofbrandedmarketvalue.
In2018and2019,weexpectapproximately70totallauncheswith$13billionofmarketvalue,ofwhichweexpect12tobefirsttofileopportunitieswith$4billionofbrandedmarketvalue.Thatrepresentsacollectivepotentialofapproximately120launches,withmorethan$29billionofcurrentmarketvalue,andisanindustryleadingsetofnear-termgrowthdrivers.Andwehaveopportunitiestoincreasethecontributionsonthepipeline,particularlyinthe2018and2019timeframe.
Par'stotalpipelineincludeslaunchesthrough2019aswellasproductscurrentlyassumedtolaunchafter2019.Thepipelineincludes47productsthatmakecouldpotentiallybefirsttofileorfirsttomarket,andrepresentsatotalopportunityof$42billioninmarketvalue.
Onslide26,youwillseetheanticipatedproductlaunchinformationfor2015to2019thatwehavepreviouslysharedwithyou.Webelievethiscascadeoffirsttofileanddifferentiatedproductlaunchessupportourgrowthprojectionsmovingforward.Next,let'stalkbrieflyaboutbuildingourinternationalplatform.Movingtoslide28,while2015remainsatransitionyear,ourinternationalpharmaceuticalbusinessisperformingwell,andmeetingourexpectations.
ThebasePaladinbusinessdeliveredasolidperformance,supportedbytherecentlaunchesofIclusigandMonurol.Somar,ourMexicanbusiness,isdeliveringresultsinlinewithexpectations,andwecontinuetosharpenourfocusoncorepharmaceuticalsfortheLithagroupinSouthAfrica.WehavecompletedtheacquisitionofadiverseproductportfoliofromAspen,andourpreviouslyannounceddivestitureofLitha'sdevice,vaccine,andadditionalnon-coreproductlinesisexpectedtoclosebyearly
CompanyName:EndoInternationalPLCCompanyTicker:ENDPSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.76BPriceasofEventDate:51.7
©2014TheStreet,Inc.Al l R ightsReserved Page8of29
2016,subjecttoregulatoryapprovals.
Finally,ourinternationalstrategicportfoliooptimizationcontinues.Thisprocessshouldhelpuscompletethetransitionforthesebusinessesanddelivertheunderlyingdouble-digitorganicgrowththatweaspiretointheseattractiveemergingmarkets.
Sowiththat,letmeturnthecallovertoSukytoprovidesomemoredetailsofourfinancialperformanceforthequarter.Suky?
SukyUpadhyay(CFO):
Thanks,Rajiv,andgoodmorningtothosejoiningusfortoday'spresentation.WearepleasedwiththesolidperformancethatEndodeliveredinthethirdquarterof2015.Startingwithslide30,Iwillwalkyouthroughsomeofthefinancialdetailsforthethirdquarter.
Revenuesincreased14%versusthethirdquarterof2014,andyear-to-daterevenueshaveincreased28%,versusthesameperiodin2014.ForourUSbrandedbusiness,theacquisitionofAuxiliumwastheprimarygrowth--driverofgrowth.OurUSgenericsbusinesscontinuedtodeliverstrongbasebusinessgrowth.
Forinternational,astrongerdollarwasakeycontributingfactortotheyear-over-yearquarterlyperformance.Onanunderlyingbasis,organicyear-to-daterevenuegrowthwasapproximately4%.Forclarity,underlyinggrowthforEndoincludesAuxiliumresultsonaproformabasis,andonlyincludes2014acquisitionsonasame-storesalesbasisandweexcludeallsalesandroyaltiesrelatedtoLidodermforcomparisonpurposes.
Forfull-year2015,weexpectourunderlyinggrowthratewillapproximateourlonger-termaspirationsforsustainablehighsingle-digittolowdouble-digitorganicgrowth.AndthereasonclosingofParacceleratesourgrowthprofile.
Movingtoslide31,wecontinuetoexpandouradjustedgrossmarginwith63.5%inthequarter,inlinewithouroverallfull-yearguidance.Andouradjustedoperatingexpenseswereapproximately21%ofrevenues,alsoinlinewithourexpectations.WehavebeenveryefficientincapturingsynergiesfromtheAuxiliumtransaction,andarewellpositionedtocapturedsynergiesfromtheParacquisition.
Inadditiontoourpositiveoperatingperformance,wehaveanimprovingadjustedeffectivetaxrate.Wepostedathird-quarter2015adjustedeffectivetaxrateofapproximately1%,andyear-to-datethatrateisapproximately8.5%.Asexpectedandguidedonourrecentearningscall,thequarterlytaxprogressionwillbelumpyduetotechnicalaccountingrules,theacquisitionofPar,andthecontinuedimplementationofactionstooptimizeouroverallvaluechain.
Thepositiveoperatingperformanceandadjustedtaxrateledtothird-quarteradjustedincomegrowthataratethatwassignificantlyfasterthanourrevenuegrowth.Third-quarteradjustedEPSfromcontinuingoperationsof$1.02waslowerthanourrevenuegrowthrate.Rememberthatthiswasimpactedbyouradjusteddilutedearningssharecountof211millionforthequarter,whichreflectstheadditionalsharesissuedaspartofourParfinancingandacquisition.
Movingtoslide32,Iwillnotreviewtheyear-to-dateslidesindepth.Webelievethattheyarestrongresultsthatreflectthevaluecreatedbyourlong-termstrategy.Beforewetalkaboutguidanceforthisyearandfull-year2016,Idowanttotakeamomenttodiscusstheimpairmentchargeswetookinthequarter.
AsRajivmentionedearlier,weareaccountingforpre-taxnon-cashimpairmentchargesofapproximately$240millionrelatedtointangibleassetsandapproximately$680millionrelatedtoassociatedgoodwill.
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Theseimpairmentsrepresent3%ofEndo'stotalintangiblesatthethirdquarterandapproximately9%oftotalgoodwillpriortotheserespectivecharges.
Theintangible-relatedchargesareprimarilydrivenbytherecentunderperformanceacrossSTENDRAandcertainTRTproducts,intandemwiththeexpectationoflowerfuturecashflowsaswerealignourinvestmentprioritiestowardhigher-growthassetssuchasXIAFLEXandBELBUCA.Inaddition,ourcontinuedprioritizationofhigher-valueproductsanddevelopmentprojectshasledtothereductionofvalue,primarilyacrossourlegacyQualitestbusiness.
Theintangibleassetchargesrelatedtobrandedproductshastriggeredtotestgoodwillacrossurology,endocrinology,andoncologyreportingunitswithintheUSbrandedsegment,ultimatelyleadingtoaprovisionalimpairmentofassociatedgoodwillinthequarter.
Ishouldnotethatournormaltestingcycleforgoodwillgenerallyoccursinthefourthquarter;howeverthechargesrelatedtoSTENDRAandTRTproductscompelledustoaccelerateourevaluationofgoodwillwithincertainpartsoftheUSbrandedsegment.Sowhilewehavetakenaprovisionalchargeinthethirdquarter,thatchargemaygetadjustedupordownaswecompleteourenterprisegoodwilltestinginthefourthquarterof2015.
Thepre-taxnon-cashintangibleassetandgoodwillaccountingchargesinthethirdquarterarepartiallyoffsetbyarelated$80millionreductioninfuturecontingentconsiderations.Whilewe'redisappointedwiththeperformanceofSTENDRAandacrosscertainpartsoftheTRTportfolio,wecontinuetobeveryexcitedaboutthelong-termgrowthopportunitiesrelatedtoXIAFLEXandBELBUCA,aswellasourhighlydiversifiedandspecializedgenericsportfolioandinternationalplatforms.Mostimportantly,wecontinuetoremainconfidentinournear-termguidanceandourlong-termaspirations.
Somovingtoslide34,wearereaffirmingourfull-year2015financialguidancefromcontinuingoperations,whichweupdatedaroundthecloseoftheParacquisitioninSeptember.
Weexpectfull-year2015revenuesbetween$3.22billionand$3.27billion,anadjustedgrossmarginofapproximately64%,aneffectivetaxrateof9%to10%,adjusteddilutedearningspersharefromcontinuingoperationstobeintherangeof$4.50to$4.60,andreportedorGAAPdilutedearningspersharefromcontinuingoperationsfortheyeartobewithinarangeofminus$3.70tominus$3.60.
Remember,wehaveaffirmedthisguidanceandmaintainedtheupperendofourpreviousEPSrange,withsixmonthsofdilutionfromtheParpre-closefinancingactivities,andonlythreemonthsofParrevenueforthefull-year2015.
Overall,Iampleasedwithouryear-to-dateperformance,whichcontinuestobecharacterizedbysolidunderlyingrevenuegrowth,marginexpansion,androbustunderlyingcashflowgeneration.AndIamexcitedabouttheopportunitiesthatwehavetocontinuewiththetransformationofEndointoaleadingglobalspecialtypharmaceuticalcompany.
Now,letmeturnitbackovertoRajivtocloseout.Rajiv?
RajivDeSilva(President,CEO):
Thankyou,Suky.Movingtoslide35,asSukysaid,wearestronglypositionedforgrowthin2016,andtoday,wereiteratethe2016financialguidanceofanestimatedadjusteddilutedearningspersharefromcontinuingoperationsintherangeof$5.85to$6.15.Weremainconfidentinourabilitytodeliverdouble-digitrevenuegrowth,strongandrapidsynergycapture,continuedprogressionandexecutionofourtaxstrategy,androbustcashflowsfromrapiddeleveringthenenablescontinuedexecutionofourM&Astrategy.
CompanyName:EndoInternationalPLCCompanyTicker:ENDPSector:HealthCareIndustry:Drugs
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Tosummarizeonslide36,IwanttoreiteratethatwefeelfundamentallythatEndoismorediversifiedandstrongerfinanciallyandstrategicallythaneverbefore.Wearepositionedforgrowth,wehavecreatedapowerfulplatformforfutureM&A,andwehavebuiltanexpandedanddiversifiedproductportfolioandR&Dpipeline.Allofthisitagainsttheverycompellingbackdropofdouble-digitorganicgrowthprojectedoverourplanninghorizon.
Thatconcludesourpreparedremarks.LetmenowturnthecallbackovertoKeritomanageourquestion-and-answerperiod.
QUESTIONS&ANSWERS
KeriMattox(InvestorRelations):
Thankyou,Rajiv.Wewouldlikenowopenthelinestoyourquestions.Intheinterestoftime,ifyoucouldlimityourinitialquestionstoallowustogetinasmanyaspossiblewithinthehour,wewouldappreciateit.
Operator,maywehavethefirstquestion,please?
Operator :
(Operatorinstructions)
LouiseChen,GuggenheimSecurities.
LouiseChen (Analyst-Guggenheim):
Hi,thanksfortakingmyquestions.ThefirstquestionIhadhereiswhatisdrivingyoureffectiveincreasein2015guidancepostthecloseofthePardeal?Andthesecondquestionhereisyourdouble-digitgrowthofmid-tolong-termaspiration--howmuchofthatisfrompriceversusvolume?Andthenthelastthinghereis,howdoyoudifferentiateyourselffromallofthisnoiseinthehealthcareindustryonpricing,especiallypharmacy--what'sthetaglinehere?Thanks.
RajivDeSilva(President,CEO):
Sure.Letmeansweryourquestiononthecontributionofpriceandvolumetoourdouble-digitgrowth,andthensomecommentsaboutwhat'sgoingonintheindustry,andthenIwillhaveSukytalkaboutour2015guidancethatwereaffirmedtoday.
Sowhat'skeyaboutourbusinessisthatourbusinessisnotdependentonpriceasadriverforlong-termgrowth.Historically,ifyoulookatourbrandedbusiness,that'sprimarilybeingdrivenbyvolume,andaswelookforwardintoourbrandedbusiness,itisgoingtobedrivenpredominantlybynewproductlaunchesandgrowthofproductslikeXIAFLEX;right?
SoIthinkitisfundamentallyavolumegrowthstoryinourbrandedbusiness,andsimilarlyforourgenericbusiness,whilehistoricallytheQualitestbusinessdidenjoyacertainamountofpriceinitsgrowth,andQualitestitselfhasgrowninthemidteensorganicallyinthelastfiveyearsandtwo-thirdsofthatgrowthcamefromvolumeandmix.
Movingforward,weexpectthecontributionofpricetobemuchmoremuted,becauseifyoulookattheParacquisition,whatParbringstous,it'sallaboutpipeline.Andaswelookinto2016,onwardforourgenericsbusiness,ourgrowthisprivatedominantlygoingtobevolume-basedandtheinternationalmarketspricevalueisneverlevel,soit'sallvolume.Soifyoustepbackfromit,Ithinkifyoulookatdouble-digitgrowthtrajectoryoverthenextfewyears,itisgoingtobepredominantlyaboutvolume.
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Andintermsofyourcommentsaboutwhat'sgoingonintheindustryaroundus,certainly,hasbeenaverychoppytimeforthespecialtypharmaceuticalssector.ButIwouldsay,intermsofthespecificissuesthathavebeendebatedinthemarketplace,forexampletheissueofpricingandtherelativerolepricingplays,Iwillexplaintoyouwhywereallydon'tfeeltooworriedaboutthat,becausewehavenotbeendependentonpricingmovingforward.Wehavecommentedpreviouslyandtodayabouttheroleofintermediarieslikespecialtypharmaciesandhowweusethem,wherewebelieveweareveryappropriateinouruseoftheseintermediariesandtheyarereallyarenodifferentthanotherdistributorsthatweuse.
Soaswestepbackfromthis,certainlyourindustryisgoingthroughadownturn,andthisisnotthefirsttimethisishappenedtoourindustry.
Butasanimportantthingforus,isthatwehaveallthetoolsthatweneedtoridethroughthisdownturn.Wejustcompletedatransformationalacquisition,wehaveagreatpipelineofprojectscomingthroughinXIAFLEX,wejustgotBELBUCAapproved.Soforthisisreallyaboutoperatingourbusinessandexecuting.Wehaveveryattractivebusinessgoinginto2016andbeyond,andmybeliefisthatthefundamentalsofourindustrycontinuetobeextremelystrong,andeventuallythemarketwillcomebackandthecompaniesthathaveunderlyingorganicgrowthpotentialaretheonesthataregoingtobesuccessful,andwecountourselvesamongthosecompanies.Sowiththat,Suky,youwanttotouchonthe2015guidance?
SukyUpadhyay(CFO):
YessoLouise,toyourquestiononwhatarethedriversonthetopendofourguidancepostclosingofPar,andIwouldsayit'sreallycomingacrossallelementsofourP&L,whichformerepresentagoodqualityapproachtohowweareachievingourguidanceforthisyear.
Sofirst,fromarevenueperspective,wehavehadheadwindsonthelegacyEndobusinessthisyear.IfyouthinkaboutforeigncurrencyrateswiththeintroductionofanadditionalgenericLidodermentrantwithfairlysteeppriceincreases,aswellastheunderperformanceofSTENDRA,whichwehavebeenquitetransparentabout,theoverallEndolegacybusinesscontinuestooperatewithintherevenuerangethatweputoutatthebeginningoftheyear.
AndthenifyouthinkaboutPar,sincewesignedthedealtowherewearetoday,thatassetisactuallyperformingonthetoplinealittlebitbetterthanwhereweoriginallyexpected.Sooverallrevenuesarecomingin,rightinlinewithhowwethoughtaboutthem.
ThenfromaP&Lperspective,thereasonwhyweareabletooffsetahalf-yearofdilutionfromParwithonlyaquarteroftheyearofoperatingresultsfromParisreallybecausegrossmarginisperformingbetterthanweexpected.It'sprimarilydrivenbythegenericsbusiness,butifyouactuallylookatbrandedaswellastheinternationalsegments,theyareactuallyshowingsomemodestimprovement,yearoveryearaswell,onayear-to-datebasis.
Operatingexpensesarebetterthanwherewethought,andthat'sprimarilydrivenbyafasteruptakeoftheAuxiliumsynergies,andthat'salsointhebackdropofsteppedupinvestmentagainstSTENDRA,andnowsteppedupinvestmentagainstBELBUCAwithin2015.
Andlast,weareverypleasedwithouroveralltaxrate.There'sanumberofdriversagainstthat.OneisobviouslytheAuxiliumaswellasthePartransaction,butourunderlyingfundamentalplanningstrategiesaroundsupplychainarealsoyieldingsomeveryniceandbetterthanexpectedbenefits.Soreally,again,youareseeingthatbenefitacrossourentireP&L.
LouiseChen (Analyst-Guggenheim):
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Allright,thanks.
Operator :
DavidAmsellem,PiperJaffray.
DavidAmsellem(Analyst-PiperJaffray):
Justafewquestions.Iguessontheassetsyouwrotedown,particularlythetestosteroneproduct,maybegiveusyourthinkingonwhereyoumiscalculated,whenyoudidtheAuxiliumtransaction,andwhereyouwentwrongorwhatyouthoughtyougotwrongaboutthoseassets.That'snumberone.AndthenIguessthesamequestioncouldbeaskedofSTENDRA.
Andthensecondly,onBELBUCA,maybethisisearlybutifyoucan,talkabouthowweshouldthinkaboutpriceandwhatothercomparatorsthatweshouldlookatthere,thatwouldbehelpful.Thankyou.
RajivDeSilva(President,CEO):
Sure.David,letmetouchonthetestosteronemarketandSTENDRAandthenIwillhaveBriantalkaboutBELBUCAandhowweseepricingthere.Soonthetestosteroneproducts,intheAuxiliumtransaction,thereweretwoassetsthatcametousinthetestosteronespace.OneisTESTOPELandtheotherisTESTIM.SomorethanthisdowndrafthasbeeninTESTIM.AndIthinkthere,reallythedifferencebetweenwherewewerewhenwesignedtheAuxiliumtransactionandtodayisthatthereismuchmoresignificantgenericcompetitionforTESTIM,andthemarketcontinuestodeclineatadouble-digitgrowthrate,whichhasaffectednotonlyTESTIMbutalsoFORTESTAaswellasNATESTO.
Sowhenwestepbackfromthis,oneofthethingsthatwetakegreatprideinourbusinessmodelisbeingrationalactors.Sowecertainlybelieveinthetransactionswedoandtheassetswesupport,butuponreflection,ifthere'sanythingthatisnotworkingaswethinkitwill,wewilldivertresourcesandthingsthataremorelikelytocreatevalue,whichisexactlywhatwe'redoinghere.
Sothegoodnewsthough,aboutthetestosteronemarketforus,isthatthetwoassetsthatwealwaysthoughtwerelonger-termassetswhichwereAVEEDandTESTOPELarecollectivelyinthelongactingsegment,whichforusisgrowing,andweexpectittokeepgrowing,andthat'swhereweexpecttoputourinvestmentgoingforward.
TheSTENDRAstoryisverysimple,right?Ithinkwewereveryclearthatwebelievethatbasedonwhatwefoundoutafterweclosedthetransaction,thatthiswasafullylaunchedproductbyAuxiliumwithalotofmiscalculationandmisstepsalongtheway.
Weputalotofeffortsagainstittorecoverit,includingadditionalfieldefforts,sometargetedDTCspend,etcetera.Andwhileweareseeingsomeencouragingresultsfromthoseinvestments,reallywhenyouputthatagainsttheopportunitythatwehavewithBELBUCAitreallypalesincomparison,whichiswhywehavetakentheopportunitytoreallocateresources.
SojusttofinishoffthediscussiononAuxilium,IwouldremindyouthatforusAuxiliumreallyisabouttheXIAFLEXplatform,andthatcontinuestoperformextremelywell,andendmarketindicationsthepipelineisricherthanwethoughtattheverybeginning,sothere'sactuallyalotofpositivesaboutAuxiliumthatweareveryencouragedby.AndasSukysaid,wehaveoverdeliveredbothintermsofsizeaswellastimingonoursynergies,whichhasalsobeenabigdriverofsuccessin2015.
SoweareactuallyoverallverypleasedwiththeAuxiliumtransactionandwebelievethattheultimatereaderforsuccessonus,shouldbetakenwithrespecttothelonger-termexpectationsforthatbusiness.SoBrian,maybeyoucancommentonBELBUCApricing,andhowwearethinkingaboutit?
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BrianLort ie (USBrandedPharmaceuticals):
Sure,happyto.Thanks,Rajiv,andthanks,David,forthequestion.We'reobviouslyveryexcitedaboutBELBUCA.Wethinkwe'vegotaverynicelabelandafirstpassapprovalwasabigsuccessforourR&Dteam.Weliketheprofileofthisproduct,wethinkit'sgoingtohaveaveryimportantplaceinthearmamentariumofpainproductsonthemarket,andbeingaproductwithanicesafetyandefficacyprofileaccompaniedbytheScheduleIIIdesignation,wethinkthatitisgoingto,asIsay,fitinvery,verywell.
Iamnotgoingtoguidetoospecificallyonprice,butIthinkifyoulookedattheotherlong-actingopioidsthatareinthemarkettreatingchronicpain,youcangetanideaoftherangethatwewillbeplayingin.Philosophically,ourgoalhereistoprovideaccessforasmanypatientsaspossible,andalsotoprovideaccesscleanlyandsmoothlyonmanaged-careformularies,andourconversationsareunderwaybehindthat.Butjust,aswe'vesaid,weplanonsteppingupinamajorwaytoresourcingbehindBELBUCAbecausewethinkitreallyprovidesuswithaverycompellinggrowthprofilegoingforward,andfrankly,weareexcitedtogetitonthemarketassoonaswecanin2016.
DavidAmsellem(Analyst-PiperJaffray):
Thankyou.
Operator :
MarcGoodman,UBS
MarcGoodman (Analyst-UBS):
GoodmorningfirstonXIAFLEX,IwanttomakesureIunderstand,yousaidthatforfrozenshoulderandcellulite,youhavenotmetwiththeFDAyet,butyouareplanningtolaunchthestudiesliterallyinthenextmonth?SoI'mjustcurious,didIhearthatright,oryouhavemetwiththem?Second,inthegenericsbusiness,canyoutellushowmuchtheLidodermAGrepresented,andwhatthegrossmarginwas?
AndyoustartedtotalkaboutTESTOPELalittlebit,butisthereanywayyoucangiveusasenseoftherevenuesthere,andmaybewhattherevenueswerewhenyouboughtit,justtogiveusasenseofwhathappenedforthatproduct?Thanks.
RajivDeSilva(President,CEO):
Sure.LetmeanswertheXIAFLEXquestion,andTESTOPELandthenIwillhanditovertoSukyfortheLidoAG.OnXIAFLEX,onbothfrozenshoulderandoncellulite,therehasbeenongoingdialoguewiththeFDA.However,priortoactuallyinitiatingthenextPhase2Bstudy,ourexpectationisthatwewouldwanttohaveacomplementarymeetingwiththeFDAtoensurethatwearefullyalignedinendpointsaswellpatientpopulations.
Sothosemeetingsarebeingsetupandforcellulitehasbeensetup.We'reintheprocessofdoingthatforadhesivecapsulitis/frozenshoulderaswell.Andwearehopefulthatthosewillbeboughtbytheendoftheyear,whichwillthenallowustoimmediatelyenterintothetrial.Sothatiswhereweareonthetimeline.
IntermsofTESTOPEL,ifyourecall,therewassomechangesinTESTOPELreimbursementthathappened,justinthebackdropofouracquisition,andactuallyhappenedbeforeouracquisitionofAuxilium,sotherehasbeensomerebasingofthatproductgoinginto2015.Butwe'veseenaverynicestabilizationofit,andweexpectit,toalongwithAVEED,tocontributetoagrowing,long-actingfranchiseheadinginto2016onwards.Suky,doyouwanttotalkabouttheLidodermAGquestionbriefly?
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SukyUpadhyay(CFO):
Sure,soLidoAGeveninthebackdropofthemostrecententrantonthatproductisstillaboutathirdofthemarket.It'sdoneabout$20millionto$25millionwithinthequarterandgrossmarginoftheprofileofthatproduct,subsequenttothenewentrantissomewherearoundormaybeslightlybelowthedivisionorsegmentgrossmarginaverageinthemid-50s.
MarcGoodman (Analyst-UBS):
Sogrossmarginforthewholegenericbusinessismid-50sthisquarter?
SukyUpadhyay(CFO):
That'sright.
MarcGoodman (Analyst-UBS):
Thanks.
Operator :
ChrisSchott,JPMorgan.
ChrisSchott (Analyst-JPMorgan):
Justwithsomeoftherecentstockmarketandfixedincomemoves,anychangesinprioritiesforcapitaldeployment?Iguesswheredoessharerepofitversusdebtpaydown?Areyouseeinganysignsfromsellersthatpricemightberesettinggivenmarketdynamics?
Andthenmysecondquestion,whichisbuildingonsomeoftheearliercommentsarethereanylearningsfromtheAuxiliumtransactionthatweshouldthinkabout,asyoulookatfuturedealsintermsofeitherthingsyouwouldorwouldn'tdo,orthewayyoumanagedacquiredproducts?I'mtryingtounderstandthatalittlebitbetter.Thanksverymuch.
RajivDeSilva(President,CEO):
Thanks,Chris.Intermsofcapitalallocation,andIthinkwehavealwaysbeenveryclearintermsofwhereweareinourprofitcycle,ofrebuildingthecompanyandrepositioningit.Forus,reallycapitalallocationwasinthefollowingorder,whichwastowardsnewacquisitions,andalsoobviouslyfundingorganicgrowth.Debtpaydownnext,becausewedobelieveinmaintainingaveryattractivebalancesheet,andthensharerepurchaseswhichcameattheendofthosepriorities.
Ithinkaswesitherenow,clearlyfromthestandpointofwhereweseeourownsharestrading,webelievewearesubstantiallyundervalued.Thatbeingsaid,wedon'twanttolosesightofthefactthatourfundamentalmissionhereisgrowingtheCompanyandcreatinglong-termvalue.Andwedocontinuetoseesomeveryattractiveassetsoutthere,andasyoupointedout,priceshavecomedownsubstantially.
Andwiththepart-runsectiondisclosed,wewillberapidlydeleveringgoinginto2016andwithmaybethatbaseinexcessof$2billion.Sowewillverysoonbeinapositionwithsubstantialresourcestopursueacquisitions,sothatwillbeourpriority.
Wecertainlytaketheobligationthatwehavetopaydowndebtveryseriously.That'sthecommitmentthatwemadetotheratingagenciesaswellastheshareholders,soweintendtodothatgoinginto2016,aswell.Andofcoursefromtimetotime,ourBoardwilltakealookatsharerepurchasesasastrategicalternativetocapitalallocations.ButIwouldsaywedocontinuetoseesomeveryattractive
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opportunities,tocontinuetobuildtheCompany,whichisquiteencouraging.
IntermsofyourquestiononAuxilium,asIexplainedinmypreviousanswer,thecoreexpectationthatwehadintheAuxiliumtransaction,whichwasacquiringaverylong-termplatform,hasproventobeexactlythecase,right?AndcertainlyintermsofwhatwehavefoundwiththeXIAFLEXplatformbothintermsofon-marketindicationsandthepipeline,continuetobeatoraboveourexpectations.Certainlyinthepipelineaswell.
However,Ithinktherearealwayslearningopportunities,everytimewedoatransaction,sowhenIstepbackfromAuxilium,Iwouldsaythereweretwolearningsthatwehad.Oneis,Ithinkwehavealwayssaidthatforustoplayinpredominantlyprimarycaretypeproductsisgoingtobedifficult,andweprovedthattoourselvesagainwithSTENDRA.
And,particularlyrelaunchingaprimarycareproductinaverycrowdedcompetitiveenvironment,wherethere'salotofmoneybeingspent,andit'snotsomethingourbusinessmodelisintendedfor,sothatcertainlyinformshowwemightthinkaboutopportunitieslikeSTENDRAinthefuture.
AndtheotherthingthatIthinkthatwe'vealsobeenveryclear,intermsofsomeofthecommentarythatwe'vemadeinthelastcoupleofquarters,isthatwedidnot--wehadtomovetomakesomecorrections,particularlyaroundthereimbursementsupportthatwehadforXIAFLEXintermsofcontinuingtheproduct'sgrowth,whichweprobablywerenotfastenough,right?
Sothoseofthetwolearningsthatwehave,butoverall,Iwouldsaythattheothertypesofthingsthatyouworryaboutinintegrations,whichissynergycapture,keepingourcompliancemindsetinatransition,allofthosethingshavegoneextremelywell.Sonet-net,ifIstepbackfromtheAuxiliumintegration,Iamactuallyquitepleasedwithit.
DavidAmsellem(Analyst-PiperJaffray):
Thankyou.
Operator :
AnnabelSamimy,StifelNicolaus.
AnnabelSamimy(Analyst-StifelNicolaus):
Thanksfortakingmyquestion,Iguessit'ssimilaralongthelinesofthepriorquestion.Butrightnow--you'vegotsomeofthebestperformingassetsandbrandsthataresomeoftheoldestones,orpotentiallygoingaway.
WeareexcitedtohaveBELBUCAandcontinuedopportunityforXIAFLEX,butwiththeseassets,youdoyoufeelthatyouareintherightareasofgrowthrightnow,andcanyougettothedoubledigitgrowthwiththeseassets?
AndwhatcanweexpectwithregardtoM&Ainthisrevaluedmarketplace?Iknowyouareinterestedinthatbutareyourefocusingonsomeoftheareasthatyou'removinginto?Andonthegenericside,whathasallowedyoutotakeadvantageofcertainpricingopportunitieswhereothercompetitorsinthesameareashavenotbeenableto?Thanks.
RajivDeSilva(President,CEO):
Thanks,Annabel.Sointermsofyourquestiononthebrandedbusinessanddouble-digitorganicgrowth,Ithinkwhatwe'vebeenclearaboutisthatfortheCompanyasawhole,weexpecttobeindoubledigitsinourplanninghorizon.Ourbrandedbusinessislikelytobeinthehighsingledigits,wherewestand
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now,andthat'sobviouslybeforetheimpactoftheXIAFLEXpipeline,whichhappensattheveryendofourplanninghorizon.
SoifyoulookatourbrandedbusinessandthinkaboutXIAFLEX,thinkaboutBELBUCA,thatisabigcomponentofhowweexpectgrowthtobesupportedinthenextlittlewhile,butlet'snotforget,wehaveproductslikeSUPPRELINLA,AVEED,whicharedoingquitewell.TESTOPEL,weareconfidentwillswingbackintogrowth,soweactuallyhaveanicestableofproductsthatweexpecttocontributetogrowth.AndVoltarenGelisarealwildcard,it'saproductthathasgrownverynicelyunderourwatch.
Ourpromotionalagreementcomestoanendinmid-2016butwecontinuetohaveadialoguewithGSKandNovartis,it'sajointventure,aroundpotentiallyextendingthat.Andwe'vebeenclearthatwouldbesomethingthatwewouldbeveryinterestedindoing.We'vedisclosedthatinpriorearningscalls,andwecontinuetohavethisdialogue,andwe'rehopefulthattheywillberesolvedinthenearterm.
IntermsofyourquestiononM&A,andIsuspectyourquestionwasmostlyfocusedinthebrandedarena,oneofthethingsthatwehavesaidconsistentlyisthatweneedtobuildfurthercriticalmassinourbrandedbusiness,sorightnow,whatwehaveareessentiallytwolegs,whichisthepainbusiness,whichnowhasaflagshipproductbuiltinthefront-end,OPANAERbehind,andthenhopefullyVoltarenGelonanongoingbasis.Andthenwehavethespecialtyproductsbusiness,whichisledbyXIAFLEX,withTESTOPELandAVEEDintheportfolioaswell.
Butforustoreallyaspiretoleadershipinbranded,Idothinkweneedanotherplatform.Ourviewsonwhatthoseplatformsarefranklyhavenotchangedverymuch.Ithinkforus,it'sallabouttherightopportunisticentry,wherewethinkwecancreatevalue,andthat'scertainlywhatwe'regoingtobelookingforasweheadinto2016and2017.
Andfinally,onyourquestionongenerics,thisismostlyaQualitestquestion,soIwilltakeit,andmaybeI'llaskPaultocommentonhisviewofgenericsgoingforward.Forus,theQualitestportfoliohadthreelegs,right?There'spain,there'scontrolledsubstances,there'sliquids,andthenourportfolioofverysmallproducts,ofwhichwehaveupto800products,right?Andalotofthesmallerproductsthatalotofthebigcompetitorsdon'tmakeanymoreareoftencompetingwithsmallplayers.
Thecontrolledsubstancespacehasbeenonewherethere'sbeeneventsthatallowforpriceincreases,liketheoxycodonesorthehydrocodones,andthesmallproductsareanareawhereoftentimesthesupply-demanddynamicsaresuchthatthereareopportunitiesforpricing,becausemanyofthesedon'tlastverylong,andtheyaretemporary,butnet-nettheycontributetoQualitestgrowth.However,wearealsobeingclearthatitwasnotourexpectationthatopportunitycontinueforever.
Right?Therewillbediminishingopportunity,whichiswhypriortotheacquisitionofParwesignaledforQualitesttobehighsingledigitgrowthversusthedoubledigitgrowth.Sohopefullythatanswersyourquestion.MaybePaul,youcancommentabitonyourviewsonpricingandgenericsgoingforward?
PaulCampanelli(ParPharmaceuticals):
Yes.Ithinkclearlywhenyoulookat,onago-forwardbasis,Rajivtalkedalittlebitaboutthenarcotics,Iviewthatistechnicallychallengingproducts.Iwouldlookatitthesamewayonago-forwardbasis,tobeveryselect.Sofromthatstandpoint,you'renotgoingtoseeme-tooproductsseeingpriceincreases.
Ithinkwhereweseeitgoing,isit'sgoingtobedrivenonvolume,andthat'sreallywheretheParportfoliocomesin,intermsofnewR&Dproductsthatwearelookingtolaunch,andit'sreallyaboutoperationalexecutionandgettingthepipelineapprovedasquicklyaspossible.Ithinkit'sgoingtobealittlebitmorechallengingacrosstheboardonpriceincreases,asyoucanseetheconsortium'sgettingalittlebitbigger.Butwehavetoexecuteonthepipeline.Ithinkthat'sreallythestoryhere.
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AnnabelSamimy(Analyst-StifelNicolaus):
Okay.Thankyou.
Operator :
LiavAbraham,Citigroup
LiavAbraham(Analyst-Citigroup):
Acoupleofquestions.Firstly,Paul,canyoucommentonhowParperformedinthequarter?I'mawarethattheresultsweren'tconsolidated,,butitwouldbehelpfultogetasenseoftheperformanceofthebusinessandalsoanymeaningfulcalculusontheParsidethatweshouldlookoutfor,overthenext6to12months?
Andthensecondlyonpricing,Rajiv,intheunlikelyeventthatpoliticiansareabletocollapseMedicarerebatestoMedicaidrebates,canyouframethepotentialtoplineimpacttoyourbrandedbusiness?Thankyou.
RajivDeSilva(President,CEO):
Sure.SoIwilljust,beforeIhandittoPaul,IjustwanttoremindyouthatweonlyconsolidatedfourdaysofresultsofParwearenotgoingtocommentonthefinancialsofParinthethirdquarter;howeverPaulcancertainlycommentonthequalitativeaspectsofhowthebusinessdidinthethirdquarterandthehighlights.Aswellashisviewsgoingforward,butagain,wearenotgoingtoprovideanyspecificrevenueorprofitnumbersspecificallyforParfortheremainderof2015,either.Paul?
PaulCampanelli(ParPharmaceuticals):
Iwilljustbereallygeneral.IthinktoRajiv'spoint,IamreallyproudofwhereParhaslandedoverthelastseveralquarters,andreallythewaywelookonago-forwardbasis,toreallyattheendoftheday,wehaveperformedaspredicted,right?SoIthinkthat'sprobablythebestwayofputtingitatthistime.Withoutgivinganyspecificnumbers,theteamcontinuestoexecute.WedeliveredonwhatwehadpromisedtotheEndoteam.
RajivDeSilva(President,CEO):
Paul,doyouwanttocommentonwhatthedriversaregoingtobeinthenext6to12months?
PaulCampanelli(ParPharmaceuticals):
Soattheendofthedaywekeepontalkingaboutthisoperationalexecution,andwestillhaveaportfolioofproductsthatwehavetoworkwiththeFDA,andweareexcitedabouttheportfolio.Wecertainly,intheslidesthatwe'veshown,wehaveaseriesofproductsthatweareexcitedabout,notablythequetiapineandezetimibeproductsthatweareplanningonexecutinganddeliveringaswegetinto2016.
Andoverall,wehaveourgoalsandobjectivesonthenumberofapplicationsthatweneedtofile,andwehaveaverystrongfocusonfilingproducts,launchingproducts.Againaswefile,weneedtogetthemoutoftheFDA,andwehavetodriveoursales.Soultimately,wehaveourplantocontinuetofileintheareaof20to30applicationsonanannualizedbasis,andourgoalistolaunchthose,asweforecasted.Sofar,veryexcitedabouttheprospectsofexecution.
RajivDeSilva(President,CEO):
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Perfect.Suky,doyouwanttocovertheMedicareMedicaidrebatequestion?
SukyUpadhyay(CFO):
SureIthinkthefirstthingtounderstandisitisimportant,itisaverydiversifiedportfolioevenwithinourbrandedbusiness,wherenooneproductaccountsformorethan6%ofrevenues.IfyouhavetothinkaboutMedicaremovingtoMedicaid-likerebatesordiscounts,thewaywe'vetrainedthatin,isthataCompanylevel,theimpactwouldbeinthelowsingledigits.
RajivDeSilva(President,CEO):
Asapercentofrevenue.
SukyUpadhyay(CFO):
Asapercentageofrevenue.Yes.
LiavAbraham(Analyst-Citigroup):
Thanksverymuch.That'sveryhelpful.
Operator :
AndrewFinkelstein,SusquehannaFinancial.
AndrewFinkelstein (Analyst-Susquehanna):
Iwashopingyoucouldhelpus--Iknowyoudon'twanttogivetheParfigurespecificallyforthequarter,butwithingenerics,wehadtalkedearlierintheyearaboutsomeofthequarter-to-quarterdynamicswithintheQualitestbusiness.Ifyougiveanideaofsomeofthemovingpiecesthere?Ithinkinthesecondquarteryouhadtalkedabouta$16millionstockingbenefit,butalsotheimpactofthepriceincreasepenalties.Andthenmovingintothirdquarter,Ithinktheexpectationwas--youwouldgetthebenefitoftheincreasesthatwearetakinginthesecondquarter.
Soifyoucouldtalkatallabouthowmuchthenetrealizedpricewasrelativetoyourexpectations,andwhatthebenefitisgoingforward,andanyofthekeyproductsfromtheQualitestbusiness,orthatbowelsideorthepotassiumproductinthecontrolledsubstancesportfolio.Anyideaofwhat--anybigchangesonparticularproducts?
AndthenfinallyontheParbusiness,Ithinktheworkingcapitalprofilelooked,atleastasofthelastquarter,alotdifferentforParversusyourbusiness.Sojustanycommentsthereabouthowthatchangesastheircustomertermsarefoldedintoyourcontracts?Thanks.
RajivDeSilva(President,CEO):
Sureandletmestartonthis,andthenIwillhaveSukyanswer.Sowe'renot,forexampleonthingslikeconstantcontracts,we'renotgoingtocommentonit.That'ssomethingthatPaulisrightinthemidstof.He'shandlingthathimselfpersonallybecauseit'ssuchanimportanttopic.Andwewillseetheoutcomeofthatgoingintonextyear.
Butonyourquestionsontheimpactofprice,etcetera,justtomakesurethatwesetthefactsstraight,whenwetookourpriceincreasesonthebackendofQ2,wewereclearthatthelevelofthepipelineaccrualsandpricepenaltiesthatwewerepayingwouldmeanthattherealnetbenefitofthosepriceincreaseswouldlikelyhappenintheverybackendoftheyear,andmoreimportantly,for2016,right?
SoinQ3thereisnobenefitfromthispriceincrease,infactthepricepenaltiesactuallycontinuedtodrag
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downQ3results.Asaresult,ourQ3growthinQualitestisallvolume,andreallythere'snopriceinit.
Wecontinuetobeverypleasedwiththeperformanceofcycleurea,thepotentialforthatproduct,andtheHydraPak,andwehavesignaledthatweexpectsomecompetitionforthelow-doseHydraPakandValgansometimeinthefourthquarter,andwecontinuetoexpectthat.
ButcertainlyintermsofhowtheyperformedinQ3,wewereverypleasedandwearealsosomewhat,wecantell,offtoareasonablestarttothecough-coldseason.Theultimateresultofcough-coldseasonwillonlybeknowninQ1,buttheshippingforthecough-coldseasonbeganinQ3anditwasareasonableoutcomeforthatbusiness,aswell.Suky,doyouwanttotalkabouttheworkingcapital?
SukyUpadhyay(CFO):
Sure.Justtoreiterateonthegenericspiece,sequentiallyevenexcludingPar,theQualitestbusinessdidgrowfromQ2intoQ3,andthat'sevenwiththebackdropofasteeperpricedeclineinLidoAGthanweoriginallyanticipated,sothebusinessfundamentallyisstillperformingquitewell.Regardingworkingcapital,Ithinkthefirstthingtounderstandisthere'salittlebitofnoisewheneveryouacquireabusinesslikethissolateinthequarterandhowthatimpactsworkingcapital.
Sofirst,asapartofopeningbalancesheetoftheacquisitionofPar,youaregoingtoputthefullinventorybalanceandthefullARandAPbalances,butyou'veonlygotpotentiallyfourdaysofoperatingresultsaspartofyourdenominator,sothat'sgoingtoskewyourworkingcapitalprettysignificantly.ButthewayIwouldthinkaboutParisthatonaDSObasis,theyareprobablyslightlybetterthantheoverallCompanyaverageforEndowhichwecurrentlyseeassomewherearoundthemidtolow50s.FromaDPOstandpoint,Endoisprobablyalittlebetter,andwhereIseethatistheaverageofsomewhereinthemid-30sandthenonaninventorybasis,bothcompaniesarerelativelyatthesamelevel,whichisatabout60days.
AndrewFinkelstein (Analyst-Susquehanna):
Thanksverymuch.
Operator :
GaryNachman,GoldmanSachs.
GaryNachman (Analyst-GoldmanSachs):
Rajiv,whendoyouthinkwewillstarttoseeevenmoreofaninflectionwithXIAFLEX?Howexactlyhaveyouadjustedformularysupportforit,andifyouareremovingsomeofyourfocusfromurology,couldthatpotentiallyhurtuptakewithPeyronie's?AndthenonBELBUCA,howmuchofthatuptakewillbedrivenbyprimarycare,sinceyousaidthat'snotagreatplaceforyoutocompete?Anddidyouactuallygetconfirmationit'sScheduleIII?
RajivDeSilva(President,CEO):
Sure.OnXIAFLEX,I'mgoingtoactuallyhanditovertoBriantotalkaboutsomeofthesomeofthethingsthatwe'redoingvis-a-visPeyronie'sandDCforthenextyear,butwhatIwouldsayisthatintermsofainflectionpoint,DCisexpected--IwouldcontinuetothinkaboutDCasasteadygrower.CertainlyatsomepointtheMULTICORDindicationwillbegintokickin,wehope,inmoresubstantialfashion,butI'mnotsurethat'sgoingtocreateinflectionotherthantocontinuetostayonthegrowthtrajectory.
Peyronie's,alsoIbelieveit'sgoingtocontinuetogrow,andcertainlyatahighergrowthratethanDC.Astowhetherthereisasingleinflectionpointorasustainedinflectionovertimeisyettobeseen,becauseI
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thinkourbiggestareathatweneedtocreatefurthermomentumforthatispatienteducationandgettingmorepatientsintothefunnel.
Wealreadyhaveaprettynicesetofinjectorbase,andtheadditionaldynamicthereweneedtoseeistoreallyincreasethenumberoftrulyactiveinjectors.SomaybeBrian,youcantalkalittlebitabouttheseactionsthatwe'replanningondoing.
BrianLort ie (USBrandedPharmaceuticals):
Sure.Happytodothat,andthanksforthequestion,Gary.BeforeIdothough,letmejustreinforcethedifferencebetweenourspecialtyurologycapabilitiesandourretailurologycapabilities.
Soourspecialtyteam,whichisreallyanchored,asyouknow,byXIAFLEX,hasadedicatedteaminspecialtyurology.XIAFLEX,AVEED,TESTOPEL,andtherewillbeabsolutelynochangetothatbusiness,wethinkwe'vegotthatbusinessontherightfootnowwitheverythingfromdemandcreationtoreimbursementsupport,andwe'reveryexcitedaboutwhattheycandelivergoinginto2016.
SoIjustwantedtounderscorethat,andinfactaswedoreprioritizeawayfromSTENDRA,wehaveacustomercontinuityplaninplacethatwewillexecuteverycarefullytomakesurethatthereisnodisruptionthere.Sojustwantedtomakesurewewereclearonthat.
AsRajivsaid,onXIAFLEX,weareactuallyveryhappy.You'vegotyear-on-yeargrowthofabout20%plus,andunderpinningthat,evenafterfiveyearsoflaunchisabout14%onDupuytren's.Andwethinkaswe'velearnedmoreaboutXIAFLEX,goinginto2016,therearesomeuntappedopportunitiesforgrowthinhowwethinkaboutthechannelsandcreatingandsupportingdemandbeyond,let'ssay,thecorelaunchgroupofinjectors,andwewillstepintothatinabigway.
Oneofthosewaysiswithpatientengagement,andaswespoketoo,wealreadyhavestartedtheearlystagesofapatientengagementdirecttopatientcampaign,intendedtomakesureweareflowingpatientsintoourprescribers,whileatthesametime,weareworkingtogrowtheprescriberbase,soweliketheprospectsvery,verymuch.
WelikewhatweseeintermsofvialsperpatientinbothDupuytren'saswellasPeyronie's,andfranklywearejustexcitedby,andwillcontinuetostepintoXIAFLEXgoingforward.
YoualsoaskedaboutBELBUCArelativetotargets,solet'sbeclearthere.Anyprimarycaredocsthatwe,andfranklythisisconsistent,Ithinkwithmostplayersinthemarket,anyprimarycaredocthatwetargetreallyareactingmorelikepainspecialiststhantypicalbroadprimarycarespecialists.
Sowewillallocateoursellingagainstthat,sowedon'tthinkaboutthisasabigprimarycareplaynecessarily.Andindoingso,wewilltargetwhatwethinktheprofileoftheproductwillleadtosomegreatuptake.AndthenyourC3question,weseethisisaC3product,andthat'sbasedonthefactthatit'sbuprenorphrinewhichhasbeenwellestablishedandalreadyscheduled,souniquelywegettotakeadvantageofthat,andwewillbringtheproducttomarketaccordingly.
GaryNachman (Analyst-GoldmanSachs):
Okay.Didyougetconfirmationit'sC3yet,oryou'rewaitingtohearfromtheDAonthat?
RajivDeSilva(President,CEO):
SoGary,thewaythisworksisthattheschedulingisfortheclass,becausethisisawell-establishedmoleculethat'sbeenaround.AndunlesstheDAtakesspecificactionagainsttheentireclass,wedon'texpectactionspecificallyonBELBUCAatthispoint.
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GaryNachman (Analyst-GoldmanSachs):
Okay.Thankyou.
Operator :
GreggGilbert,DeutscheBank.
GreggGilbert (Analyst-DeutscheBank):
Yesjustacouplefollow-upsonXIAFLEX.Idon'tthinkthiscameupyet,butcanyoutalkaboutthenetprice--itlooksliketheimpliednetpricewasdowninthethirdquarterfromthesecondquarter,socanyouconfirmthatandtalkaboutwhat'sgoingonwiththat?
Andcanyoualsotalkabouthowyouexpecttheaveragevialutilizationtogrowfromthecurrentlevel,whateverthecurrentlevelisasthemixofthebusinesscontinuestoshiftbyindication?Thanks.
RajivDeSilva(President,CEO):
AgainletmehaveBriantalkaboutthevialissues,butXIAFLEXisnotaproductinwhichthereisanysubstantialpricemovement.There'sabigcomponent,operatorsjustbuyandbill,sothatreallyrestrictsusinanycaseintermsofthetypesofpriceincreasesthatwetake,andalso,it'snotaproductthatisbroadlydiscountedorrebated,either.
Therearesomevery,verycontrolledareasinwhichtheresomevolumediscountsthataregiven,buttheyarenotsubstantial,sotherereallyisnomovementonXIAFLEXandpricingverymuch.MaybeBrian,doyouwanttotalkaboutthevials?
BrianLort ie (USBrandedPharmaceuticals):
Sure.Happytodoit.GregsoinPeyronie's,we'resittingatabout4.5vialsperpatient.There'sthechanceforthattomigrateupwardalittlebit,butwedon'tbuildthatnecessarilyintoourexpectations.It'sadifferentstory,however,forDupuytren's,becauseasyouknow,wearestillearlyintheMULTICORDrolloutandwearefranklypleasedwiththefactthatit'smigratedabitupfrom1to1.2,andwedoseesomepotentialforthattogrowobviouslyto2vialsoverthenextcomingmonthsorso.
GreggGilbert (Analyst-DeutscheBank):
Andthenmaybeforbothyou,abiggerquestiononXIAFLEX,nottolookbackwardstoomuch,butcanyoutalkaboutchangesmadeinpeopleandprograms,andpost-acquisition,andareyouconfidentthatyouhavetherightsortofresourcingbehindit?
Iaskbecauseinvestorsareveryconcernedthesedaysaboutacquisitivecompaniesthatsometimeshavetoresetthebaronproductsthey'veacquired,orlowerexpectationsafterownership.SomaybeabiggerpicturequestiononXIAFLEXandhowyouareresourcingit.Iknowit'sanimportantlong-termbutcanyoutalkaboutsomeofthespecifics?Thanks.
RajivDeSilva(President,CEO):
Sure,letmestart,andBriancanaddtoit.We'vemadesomechangesontheXIAFLEXteamafterweboughtthebrand.WehaveGlenDavis,whorunsthefranchiseforus.Wehaveanewindividualwhorunsthesaleseffortsontheurologyside,andaverystrongindividualwhorunsthesaleseffortsonDupuytren's.Wealsochangedoverourmanagedcareeffortsandreimbursementefforts.Iwouldsayataseniorlevel,Iamconfidentintheteamthatwehave,andmaybeBrian,youcantalkaboutatamorespecificlevel,anyobservationsyouhave?
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BrianLort ie (USBrandedPharmaceuticals):
YesIthinkIwouldjustsayexactlythesamething,likeanyintegration,you'regoingtohavesometurnover.What'simportanttorecognizeisthatweweresuccessfulinbringingoverandretaining,especiallyinthesalesandreimbursementarena,someveryexperiencedandtalentedpeoplewhoknewtheproductvery,verywellandthey'vecontinuedtostaywithus.AndagainIwillreinforcethat,especiallyinreimbursement,whereknowingtheproduct,knowingthecustomers,andunderstandingtheintricaciesofaccessforourpatientswassocritical.
Andthevastmajorityofthosepeopleremain,andareengagedinandproducingvery,verywell.AndasRajivsaid,we'vemadechangesatvariouslevels,butwe'reveryhappywiththepeoplethatweareabletobringon,andfranklycomingoutofthedisruptionwe'vetalkedaboutalreadyearlierintheyear,wethinkweareonaverysolidfooting,andwe'reveryhappywiththegrowthtrajectorygoingforward.
RajivDeSilva(President,CEO):
AndallIwouldsayGregg,isthatyoucanlookatinto2016,actuallyourresourcingbehindthisbrand,willbehigherthanithaseverbeenunderAuxilium,bothintermsofsalesandintermsofothersupportwe'regoingtoputaroundpatientengagement,patientawareness.
Andmoreimportantly,theR&Dspendonthisproduct,whichis--it'sgoingtobecomemuchmorerobustheadedinto2016,2017andbeyond,inawaythatAuxiliumcouldnothavedone,soIwouldarguethatforthecorefranchisethatweacquiredintheAuxiliumtransaction,theresourcingisactuallygoingup.
GreggGilbert (Analyst-DeutscheBank):
Thanksalot.
Operator :
DavidRisinger,MorganStanley.
DavidRisinger (Analyst-MorganStanley):
Thanksverymuch.Yessorrymyapologies.Ihaveacouplequestions.Firstofall,withrespecttoXIAFLEX,itseemedliketheyear-over-yeargrowthversuswhatwasreportedintheSeptemberquarterlastyearwas3%.Couldyoujustwalkusthroughhowweshouldthinkaboutvolumegrowthversus--Idon'tknow,inventorychanges,orotherswingstoconnectthedotsbetweensomeofthegrowthfiguresthatyou'veprovidedinvolumeandtheyear-over-yearsalesgrowth?
Andthensecond,withrespecttoBELBUCA,couldyoujustpaintapictureforformularyaccess,specificallyhowlongitwilltake,andwhatyourtargetsareformularyaccessforthatlaunch?Thanksverymuch.
RajivDeSilva(President,CEO):
Sure.Suky,doyouwanttotaketheXIAFLEXquestion?
SukyUpadhyay(CFO):
Sure,sointhethirdquarterthisyear,I'mnotsurewhatyou'rereferringto,lowsingledigitsDavid,butinthethirdquarterthisyear,XIAFLEXgrewinthemidteens.AsRajivtalkedabout,priceisnotamajordrivereitherupordownforthatproduct,especiallygivenitsbuyandbuildprofile.
Relativetoyourquestionsoninventory,becausealargecomponentofbothoftheseindicationsisinfact
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buyandbill,youdonothavelargeinventorypositionsoutofthechannelordoyouseelargeinventoryswings.Soinventorywasnotamajordriverforgrowthinthequarter.
RajivDeSilva(President,CEO):
Ifanything,inventoriesonXIAFLEXwerealittlelower.It'stypicallysomewherebetweenaweekandtwoweeks,andwewereprobablywereatthelowendofthatspectrum.Soinventorywasnotadriverofiteither.
DavidRisinger (Analyst-MorganStanley):
I'msorry.WhatwastherevenuebookedlastyearforXIAFLEXinthethirdquarter?MaybeIhaditwrong,butIwastryingtocalculateoffofwhatwasbookedlastyearinthethirdquarterbyAuxilium.
RajivDeSilva(President,CEO):
Sukydo--?
SukyUpadhyay(CFO):
Ithinkitwas--asIsaid,everythingIamtalkingaboutisproformaforQ3versuslastyear.
RajivDeSilva(President,CEO):
I'msorryinterrupt,butonethingtokeepinmind--Auxiliumistoreportex-USrevenuesofXIAFLEXtogetherwiththeUSrevenues.Sotobeclearwhatwe'retalkingabouthere,areUSrevenues.
DavidRisinger (Analyst-MorganStanley):
AnddoyouknowwhattheUSrevenuesforXIAFLEXwereinthethirdquarteroflastyear?
RajivDeSilva(President,CEO):
Sothat'swherewearegettingthemidteensgrowthcalculationfrom.
DavidRisinger (Analyst-MorganStanley):
Okay.Thankyou.
RajivDeSilva(President,CEO):
Brian--doyouwanttocovertheBELBUCA?
BrianLort ie (USBrandedPharmaceuticals):
SureDavid,youalsohadaquestion,soletmehitthatquicklyonformularyaccess.Aswecommentedbefore,wearefinalizingourpricing,andasIsaid,ourgoalistomakesurewehaveaccesstomajorityofpatients.We'rebeginningourengagementwithpayersrightnow.I'mnotgoingtoguidespecificallytohowwethinkthatwillshakeout,butagainIwillpointbacktotheprofileoftheproduct,andwethinkit'sdifferentiatedwithinthespace,andthereforeweareoptimisticthatwewillbeabletogetsolidformularyaccessgoinginto2016,thatwillenableasharpuptakeoncewelaunch.
DavidRisinger (Analyst-MorganStanley):
Thankyou.
Operator :
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JasonGerberry,LeerinkPartners
JasonGerberry(Analyst-LeerinkPartners):
Goodmorningandthankfortakingmyquestions.Justtwoforme.FirstofonXIAFLEXforcellulite,justcurious,theproductthatispricedrightnowbasedonwhatwesawinPhase2isn'tpricedforthecashpaycosmeticmarket,sojustcuriousasyouthinkaboutthePhase2B,havingacommerciallyviableformulationordosingformat,whetherornotyouexpecttohavethatinplaceforthePhase2B,orifthat'ssomethingyouhavetoworkonsubsequenttothePhase2B?Anythoughtsyoucouldprovideusintermsofwhatthatdosingformatmightbelooklike,beitpre-filledsyringeorsomethingelse?
Andthenmysecondquestion,justoninternationalpharmacanyouletusknow,whatwastheyear-over-yeargrowthofthatbusinessonaconstantcurrencybasis,andhowdowethinkabouttheimpactonthesedivestituresin2016?Justwonderingifwehavemorerebasingin2016beforewegettoyourgrowthoutlookforthatsegment?Thanks.
RajivDeSilva(President,CEO):
Sure.Letmequicklycoverthecellulitequestion.ShortansweristhisisstillsomethingthatisindiscussionwiththeFDA.IthinkthemostimportantthingforusistowiththeFDAtocometoagreementontheclinicalendpoint.Thecommercialformatoftheproduct,theformulation,withitspre-filledsyringe,theactualvolumeandthereforethepricingisatopicthatwillcontinuetoevolve.ButIthinktheprioritynowistofindtheclinicalendpointthatisacceptabletotheFDA.AndthenSuky,doyouwanttocovertheinternationalbusinessbriefly?
SukyUpadhyay(CFO):
Sure,internationalyeartodatehasgrown19%,butagainthat'spartlyduetothemidyearacquisitions.Foreigncurrencyhashadaheadwindonthebusinessthroughtheninemonthsofabout$20millionintopline.Andthewaywewouldseeunderlyinggrowthissomewherearoundnegative10%andthat'sagainprimarilydrivenbythetransitionwearetakinginanumberofourbusinesses.
SpecificallywithLitha,aswetalkedaboutatdivestiturewhichhasimpactedsalesinthatbusinessunitbetweennowandwhenweactuallycloseit,acrossvaccines,aswellasourmedicaldevicedistributionbusiness.
WithinSomarwehaveseenthechangeofcontrolinacoupleofproductsalsoimpactedthatgrowthrate,andthesameistruewithinPaladin.Goinginto2016,thoseimpactsarelargelybehindus,butwewillcontinuetoseeaslightormodeststepdownin2016primarilyduetothelossoftherevenuesfromthedivestitureinLitha,butIwillsaythatwhileweshouldseeamodeststepdowninoverallrevenues,thoserevenueswereaverylowmargin,specificallybecausetheywereinvaccines,aswellasdevicedistribution,soouroverallEBITDAcontributionforthebusinesswillactuallyincreaseinto2016.
JasonGerberry(Analyst-LeerinkPartners):
Okay.Thankyou.
Operator :
IrinaKoffler,Mizuho.
Ir inaKof f ler (Analyst-Mizuho):
Thanksfortakingthequestion.Ijustwantedtorevisitthereorganizationfornextyearwiththesalesforces.Isthereanopportunitytheretogainanadditionalcostefficiencies?That'sthefirstquestion,and
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thenthesecondquestionis,goingforward,doyouseethecompanydoingthesesmallerdealtransactionslikeNATESTOorSumavel,orareyougoingtobefocusedonlargeropportunities,becauseitseemslikethoselittlethingsaretheonesthathaven'tbeenworkingaswell.Thanks.
RajivDeSilva(President,CEO):
Sointermsofthechangesinthebusinessgoinginto2016,thisisreallynotoutaboutcostreduction.It'sreallyaboutoptimizingandexpandingtosupportthelaunchofBELBUCA,sowereallyareingrowthmodeinourbrandedbusinessfromthatstandpoint.Withrespecttothesmallertransactions,whatIwouldsayisthateachofthesetransactionsneedtobeviewedinthecontextofthecircumstancesunderwhichtheyweredone,andwhatthefactsaretoday.
Soforexample,weseeatthetimewherewehavealotofexcesscapacityinourpainsalesforce,it'sanicetuckin,andIwouldsayintermsthecontributionthat'smade,itisinlinewithwhatwewouldexpect.Arewethrilledaboutthisperformanceandisitgoingtobeahugegrowthdrivergoingforward?Absolutelynot,butatthetimewedidit,itfilledaveryimportantneedforus.
NATESTOisanoveldeliverysystemandatapointintimewhenwethoughtthatthegelmarketwouldcoverquickly.Itseemedtobeagoodopportunity,anditmightstillbeagreatproduct.HoweverwhatIwouldsayisthatforustomaintainaretailurologyfieldforcejusttosupportNATESTOisnotviable.
ItwouldhavebeenviableonlyifSTENDRAalsowasperformingwell,whichiswhywearetakingactiononNATESTO,soreallyit'snotareflectiononourviewonthatproductitself.It'sreallymoreabouttheviabilityofmaintainingafieldforcejustforthatproduct.
Ir inaKof f ler (Analyst-Mizuho):
Thankyou.
Operator :
RandallStanicky,RBCCapitalMarkets.
RandallStanicky(Analyst-RBC):
Thankyou.Ijustwanttogobacktothesharerepurchasequestion.I'vebeenlookingatthestocknow,it'sdown7%.You'vegot$836millioninunrestrictedcashonthebalancesheet.Youhavenotbeenshyaboutissuingequitytododealsinthepast.
Sowhynotgoback--buybackstock,sendamessagetothemarketrightnow,andthenuseequitytofinancedealsathigherpricesshouldthestockrecover?Andtherelatedquestiontothatis,giventhepullbackonthestockandtheleveragehere,you'reroughly4timesonatrailingbasis,whatisyourabilitytofinancesomelargeracquisitions?Andmaybespecifically,whattypeofdealsshouldwebethinkingaboutyoulookingat?Thanks.
RajivDeSilva(President,CEO):
Thanks,Randall.SoIwillrepeattheanswerIgaveonthesharerepurchase,whichisthatitiswithinthevariouslevelsthatwehave.WehaveanactiveandongoingdiscussionwithourBoardintermsofhowweallocatecapital,soI'mnotnecessarilyrulingoutsharerepurchase,allI'mstatingisthatinamarketlikethis,weneedtokeepourheadonstraight,andwehavealotofresourcesathandandassetsthataregrowing.
Andwealsoneedtobemindfulthatwewanttokeeppayingdownondebt.Right?Andthattherearemanytargetsaroundus,butit'sthesmalleronesthatarebecomingmuchmorewithinrange,andIthink
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thatleadstomyanswertoyourquestion,whichisthatintheverynearterm,wearegoingtocontinuetobefocusedonsmallertransactionsthatwecandoonanall-cashbasis.Obviouslyatthislevel,we'vebeenveryprudentabouthowwethinkaboutusingourequity.
Atthesametime,wearealsoopentotheconceptofdoinglarger,moretransformativetransactionswhereitisnotsomuchthevalueoftheequity,butrathertherelativevaluationthatmightactuallycomeintoplay,right?Soit'sinthatsense--wecontinuetoseeopportunities.We'realsogoingtobepatientintermsofhowweevaluateopportunities,butyoucanbecertainthatweareveryactiveongoingdialoguewithourBoardabouthowweallocateourcapital.
RandallStanicky(Analyst-RBC):
Okay.Fairenough.Thanks.
Operator :
CoreyDavis,CanaccordGenuity.
CoreyDavis (Analyst-CanaccordGenuity):
Thanksverymuch.Ijusthave32questions,soitshouldn'ttakethatlong.Thefirstoneis,onyourANDApipeline,whatistheaveragetimeforANDAapprovals,andareyouexpectingorexperiencingthesamedegreeoffrustrationthatothergenericcompaniesare?AndIhaveonemorequickquestion.
RajivDeSilva(President,CEO):
Paul?
PaulCampanelli(ParPharmaceuticals):
Sure.It'sahardquestiontoanswerbecausethemajorityofourportfolioareParagraphIV,sowe'retiedintothe30monthstay,andifyougotoanappealprocess,you'reout4to5years.IwouldsaywhenIlookattherealanswertothequestionarewegettingourtimelines,whenwehaveourearliestentry,Iwouldsayyes.SoI'mnotseeing,generallyspeaking,abacklogontheParportfolio.
Sowiththat,theParagraphIVtimelineiswhatallowsustocatchupwhenweareinasituation.I'vegot--I'mnotgoingtosaythat'sacrosstheboardoneveryproduct,butwehaveasmallpercentageofproductstogetbacklog,butthevastmajority,wehitourtimelinesbasedupona30monthstay.
CoreyDavis (Analyst-CanaccordGenuity):
Okay.Thanks.Andsecondquestion,itstillwasn'tcleartome--areyoustillinvestinginthetestosteronemarket?Andwouldyoufindthatanoraltestosteronewouldbeeffective,oristhismarketjustgoingtokeepdecliningforever,regardlessofwhetherornotyouhadanoralorthebesttestosteroneever,it'sjustnotamarketwhereyouwanttobe?
RajivDeSilva(President,CEO):
SojusttobeclearCorey,wewillcontinuetoinvestinthelong-actingtestosteronespacewhichisTESTOPELandAVEED.AndAVEEDisfinallykickingin,intermsofitslaunchtrajectory,andTESTOPEL,webelieveisgoingtorecover.Sowedothinkthatthereisanicerunwayforthelong-actingtestosterones.Intermsoforaltherapies,it'sentirelypossiblethattherewouldbeachangeinthismarketplaceoneday,whenthere'saviableoraltherapy.Thequestionis,willtherebeoneandwhen?Maybe,Brian,youcancommentonthat?
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BrianLort ie (USBrandedPharmaceuticals):
Ireallydon'thaveanythingtoadd.IthinkitcomesdowntoproductdifferentiationandasRajivsays,ifthere'satrulydifferentiatedproductthathasanacceptablesafetyandefficacyprofile,ithasthepotentialtoperformwell,butagain,youhavetolookatthegelmarket,whichhasbeendecliningsignificantlyoverthelastcoupleofyearsandthat'sledustorefocusintotheareathatwethinkgivesthemostcompellingopportunityforgrowth,andwewillcontinuetosupportthoseproductsverystrongly,bothofwhichareinourspecialtybusiness.Andaswe'vesaid,wewillbesteppingupourinvestmentoverallinthatbusiness.
CoreyDavis (Analyst-CanaccordGenuity):
Okay.Iwasjustkidding.Iwillsavemyother30questionsforlater.Thanks.
Operator :
AustinNelson,NomuraSecurities.
AustinNelson (Analyst-NomuraSecurities):
Higuys,thisisAustinonforShibani.Justbiggerpicture,thecommentsyoumadedifferentiatingyouruseofspecialtypharmaciesfromsomeofyourpeers.Wewerereallyjustwondering,weunderstandthatyourproductsaretraditionalspecialtypharmacyproductsbutwearewonderingifinyourviewyouseeanythingwrongwithusingthemformoreprimarycare,orevenspecialtytypeproductsthataren'tnecessarilyphysician-administered?
Andalsoifyouthinkthattheuseofdistributorsreallymakessenselong-termtoo.Andthenwehadjustoneotherone.Onthere-prioritization,istherepotentialtodivestsomeoftheassetsthatyoude-prioritizing?Asyoupointedout,STENDRA--partoftheissueisthatprimarycaredoesn'tmakesenseforEndo,butcoulditmakesenseforsomeonewhoisinprimarycaretoatleastattractsomevalueforEndoshareholders?
RajivDeSilva(President,CEO):
Yessoonthequestiononspecialtypharmacy,Ireallycan'tcommentonothercompanies'useofspecialtypharmacy.AllIcansayistheyareaveryvaluablechannelforus,intermsofreachingthephysiciansthatweneedtowithourphysician-administeredproductsinparticular,andit'saveryimportantroleforpatientswhorelyonthosephysicians.
Iwouldalsosaythere'sabigandgrowingportionofourbusinessthatisbuyandbill,whichislargelyspeaking,aservicebyspecialtydistributors,whoareofcoursedifferentthanspecialtypharmacies.Andagain,wethinkit'saveryimportantchannelforustobeabletoservetheneedsofthephysicianswhorelyonthebuyandbillchannel.
Sofromthatstandpointwecontinuetothinkthatthey'reanappropriatevehicleforourproductsthattheyaremorecomplex,haveamorecomplicatedsupplychain,andarephysicianadministered.Intermsofyourquestiononthereprioritizationandhowwethinkaboutthoseassets,it'simportanttoknowonbothSTENDRAaswellasNATESTO,wearepartners,soyoucanimaginethatweareinactivediscussionsandwillbeinactivediscussionswiththosepartners,intermsoffindingtheappropriatepromotionalsettingfortheproducts,andifthatmeanstheproductneedstobeinsomeoneelse'shands,weareveryopentothat,aswell.
KeriMattox(InvestorRelations):
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Operator,Ithinkwehavetimeformaybeonemorequestion.
Operator :
TimLugo,WilliamBlair
RajPersad (Analyst-WilliamBlair):
ThisisRajinforTim.Thanksfortakingthequestion.JustaquickoneonBELBUCA,isthereaplantoapplyforADFformulationlanguageonthelabel?AndgiventheOPANAER,IassumethosewereinvitrositesthatweredonetosupporttheSNDA?Thanks.
RajivDeSilva(President,CEO):
Brian,doyouhaveperspectiveonthat?
BrianLort ie (USBrandedPharmaceuticals):
Sure.Soyes,ImeanwithOPANAER,theagency,asIthinkwe'vespokenaboutbefore,didaskustodosomeabuseliabilitytrials,whichwereinvivoandinpatients.OnBELBUCAintermsofADF,wecurrentlyarenotcontemplatingthat,althoughwewillwatch--rememberbuprenorphineinitsownasamoleculeisinherentlylesspronetoabusebecauseofthelackofeuphoria,andweseethisacrosstheexistingproducts.
Andthat,coupledwiththedosageformulation,wethinkgivesitadifferentiationbasedonthat,butwedon'tplanttoactivelypromoteonthat.Wethinkthattheefficacyandsafetyprofiledifferentiatestheproductverywell.
RajPersad (Analyst-WilliamBlair):
Greatthankyou.
Operator :
Atthistime,therearenofurtherquestions.IwouldliketoturnthecallbackovertoKeriMattoxforclosingremarks.
KeriMattox(InvestorRelations):
Thankyou,operator,andthankyouallforjoiningusfortoday'scall.
Operator :
Ladiesandgentlemen,thankyouforyourparticipationintoday'sconference.
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