Enact Holdings, Inc.
Q4 2014 Earnings Call Transcript

Published: 21 Feb 2015

Lisa DeFrancesco:

Good morning everyone, my name is Lisa DeFrancesco, Vice President of Investor Relations for Actavis and I'd like to welcome you to our Fourth quarter 2014 Earnings and Business Meeting in New York City. I'd also like to extend the warm welcome to those of you joining us remotely via Webcast. During today's presentation and Q&A, management will make projections or the forward-looking statements, which are dependant up on future matters or events. I'd like to direct you to the forward-looking statements regarding our projections in our presentation as well as in our earnings release and business update press release was issued earlier this morning including our important information for shareholders. Turning now to slide, 3 the agenda. I'd like to take a moment to review today's agenda for you. First, Brent Saunders our CEO and President and Tessa Hilado, our new Chief Financial Officer will review our fourth quarter and full year 2014 business performance. Bob Stewart, our Chief Operating Officer and Future Head of our Global Generics Business and Hafrun Fridriksdottir, our Senior Vice President of Global R&D for Actavis Generics and International will provide an overview of North American Generics and International and Global Operations and our Generics pipeline. Bill Meury, our Executive Vice President of Global Brands and David Nicholson, Senior Vice President of R&D for North American Brands will provide an updated overview of our North American brands commercial business and brands pipeline. Brent will conclude the meeting with the discussion on Growth Pharma and a review of our combined company following the close of the Allergan acquisition. At the conclusion of the meeting we'll take Q&A from the audience and I'd now like to turn it over to Brent, to open up the meeting. Brent?
Brent Saunders:

Good morning everyone, thank you for joining us today for our Investor Day, where we'll spend a good portion of today focused on our R&D pipeline. It's a little different than we first had anticipated doing obviously when we first set the dates for this meeting, it was prior to our acquisition of Allergan and so that causes to change the course a bit and make the meeting slightly different than it would have been because obviously we will have a full portfolio of review. So today's meeting just to keep in perspective will be Actavis standalone, this will be an Actavis standalone financials, Actavis standalone business review and Actavis standalone R&D pipeline review. I'd also like to welcome all of our shareholders, all of the analyst, cell side analyst that are here, our members of management that have joined us as well and in particular I'd like to welcome a few selected dignitaries that have joined us from our Board our Executive Chairman, Paul Bisaro is here, I think many of you know Paul. Cathy Klema, our lead Director over here and then we've three Allergan Board members who have joined us Peter McDonnell over here, Russ Ray, and of course, very pleased to announce that also joining us is the founder of Allergan, Gavin Herbert. Gavin, thank you for joining us. So I'm going to move to the highlights for the meeting. I think you've already seen the numbers. 2014 was an exceptional year for Actavis. We saw extraordinary growth across our base business, and transformational business development including the proposed acquisition of Allergan which will create a leading company in Growth Pharma. I'd like to touch briefly on the highlights of our performance and then Tessa will come up and provide more details on the strong financial results. In Q4 we reported a 46% increase in net revenues to $4 billion. Adjusted-EBITDA increased 80% to 1.5 billion and non-GAAP earnings per share increased 23% to $3.91 per share. Our cash from operations was $812 million. In the fourth quarter our global business performance was exceptional. In North America brands quarter-over-quarter sales for our top ten products were up 6% -- were up -- and six of the top 10 were growing in double-digits. Our Namenda conversion is on track. As of February 06, we have achieved a conversion rate of approximately 43%, and if our current trends continue we should achieve our goal of approximately 65% or so conversion by July. Our North American generic and international business continues to fire on all cylinders. U.S. generic results were driven by continued strong sales of generic version of Lidoderm and Concerta, and during the fourth quarter we launched generic versions of Intuniv and Celebrex in the United States. Our international business, we launched more than 500 products during the year, and key markets like Russia and UK continue to perform as stars. For the full year of 2014 we delivered 13 billion in revenue and 99% growth in adjusted-EBITDA and 47% increase in non-GAAP EPS and cash from operations was $2.2 billion. We invested nearly $1 billion in generic and brand R&D during the year, and the results speak for themselves. The FDA approved Namzaric, our fixed-dose combination. We had a positive add comp for Avycaz and we submitted filings for Cariprazine, Saphris and Teflaro. Our generics R&D organization continued to lead the entire industry. We filed 44 ANDAs for the year, 18 in the fourth quarter alone. We have more than 220 ANDAs pending at the FDA and an industry-leading 66 first to files. Outside the United States more than 1,200 marketing authorizations are pending. Our business continues to fire on all cylinders and simultaneously we continue to pursue our strategic acquisitions to drive long-term, sustainable growth in the years ahead. We acquired Furiex and Durata, adding important products to our key therapeutic categories. We announced an option to acquire relamorelin from Rhythm Health, a potential new treatment for patients with diabetic gastroparesis. And at just the beginning of this year we announced our intention to acquire Auden Mckenzie, a crown jewel that will make us the number one generics company in the UK. And, of course, we also divested a few non-core assets as well. So of course the big news was the announcement of the proposed acquisition of Allergan. Pre-integration planning is going extremely well. We are moving rapidly to be ready to operate as one company on day one. We have announced the combined leadership team for the Company. We have defined synergies and are planning for accelerated synergy capture and are moving through the various regulatory steps to bring this transaction to close. Our shareholder vote is scheduled for March 10 and we will plan to launch our debt and equity offering soon. Clearly I think -- when I think about Q4 and the full-year numbers, they demonstrate that we have been able to maintain our business momentum while preparing to combine our two companies either later this quarter or early next. Now I would like to ask Tessa to come up and provide more detail on our fourth-quarter and full-year performance. Tessa?
Tessa Hilado:

Good morning, everyone. I am Tessa Hilado, the Chief Financial Officer. I joined two months ago, so my only request to all of you mild-mannered investors, bankers, and shareholders is to remember what your mothers told you when you were little, be kind and gentle to the new kid in the room. My son, who is a teenager, like any other smart aleck teenager, said to me one day that basically my 26 career in finance has spanned many industries. Since we were having breakfast one day and he was buttering his toast slowly with a butter knife he basically said to me, Mom, you have moved from cars to drugs to soda and chips and back to drugs again. And I looked at him and I said, son, my only correction at Actavis our CEO would say it's not drugs, it's not pharma, it's growth pharma. So moving on to more serious matters, I couldn't have joined the Actavis team at a better time. I would like to walk you through my presentation. I promise it will be brief since you have already the earnings release. One is our exceptional performance for the quarter and the year; two, drill down through the business segments that contributed to this exceptional performance; and lastly, walk us through our cash flow and say a little bit about our planned financing for the Allergan acquisition. I would like to focus your attention to the non-GAAP earnings per share of $3.91, up 23% from the prior year period. This is really largely driven by strong sales of about $4 billion, up 44%, driven by our base business. And in addition to that, if you will recall, this is the second quarter of which we have included sales for Forest. Both Bob Stewart and Bill Meury will tell you about our three business segments later on. On an adjusted EBITDA basis our adjusted EBITDA grew by about 80% and non-GAAP R&D investment increased by 76% to $321 million. We invested $117 million in our generics business, $182 million in the North American brands business, and $22 million in biosimilars. As a result of all this, cash flow from operations was up 25% to $811 million. To note, you will notice that our non-GAAP tax rate actually improved by 3.9 percentage points to 14.8% driven by two things
Brent Saunders:

Great, so on a standalone basis let me talk about our situation. As you saw, clearly 2014 was exceptional and as a standalone company we are convinced that 2015 will be another very strong year for Actavis . So today we are pleased to increase our standalone forecast for 2015. We are increasing our 2015 Actavis standalone full-year forecast for non-GAAP EPS to $16.30 to $17.30. Our previous forecast was $15.60 to $16.80 on a non-GAAP EPS basis. We expect total net revenue to be approximately $15 billion following adjustments for the Durata and Auden Mckenzie acquisitions and the respiratory Doryx and Pharmatech divestitures. We expect that our non-GAAP R&D investment will be approximately $1.1 billion and SG&A as a percent of revenues will be approximately 19% by year-end. So as we continued to deliver on our financial commitments, we also believe we have many levers for future growth. We are a highly diversified company. We have a strong commitment, as you will see in just a few moments, to R&D and driving both our generic and branded pipelines. You will see that we have a pipeline on our brand business that could have sales over $6 billion in the coming years. You will see that our leading generic R&D productivity has created many opportunities for future growth, really leading the industry, not just by a little bit, but by truly blowing our competitors away. We tend to stay very focused on our core therapeutic areas in the brand side and we continue to invest strategically in our supply chain, making sure that we can deliver high-quality medicines around the world. We also are very opportunistic in business development and perhaps this year there was just a lot of opportunity, but we also look at every deal from a strategic and financial discipline to make sure that it is accretive to growth for the long-term. And, finally, we have a management team and soon a combined management team with key executives from Allergan that are focused on execution. And I think our fourth quarter and the exceptional Allergan fourth quarter, which was reported a few weeks ago, are proof points that these management teams can continue to deliver, even while doing heavy lifting in a pre-integration period. Now let me just quickly talk about R&D before we move into the heart of today's meeting. I strongly believe that R&D is the lifeblood of our company, both on the generic and on the brand side. We have a very strong commitment to invest in our organic portfolio and to make sure that we complement our investments with external licensing and business development. We believe having that not-invented-here mentality is part of our strategic strength to making sure that we invest behind the right programs at the right time to make sure that we can solve for unmet medical need and continue to drive organic growth. We also believe that we need to make sure that we actually bring drugs to market. And that requires a certain sense of focus and discipline and making sure you take the tough decisions to kill programs that aren't going to either satisfy unmet medical need, access to reimbursement or provide access to reimbursement around the world, or formulary coverage. And, lastly, I have said this many times, particularly for the sell-side analysts here that like to run models, I know we're going to drive you crazy. We will not have a constant spend of R&D as a percentage of sales. That’s just not who we are. We're going to look at our portfolio every year and make sure that we’re spending against the projects and programs that make sense. In some years there may be more to spend and in some years there may be less, but spending it as a percentage of sales makes no sense to me. It causes companies to spend on things that don't matter to reach that level or not spent on programs that need to come through because they are afraid to go over that number. We will always take a very practical, prudent, and disciplined approach to R&D to make sure that we are driving strong organic growth, and I think you’ll see good evidence of that today from both Hafrun and David as they go through are generic and branded pipeline. So at this time, I’d like to turn the podium over to Bob Stewart, who is our Chief Operating Officer, but at close of our transaction will become the head of our Global Generics business.
Bob Stewart:

Good morning. It's great to be back here with all of you and it is exciting for me to talk, not only about operations, but also about our generics business. Our generics business is really the DNA of the company and our operations group is really the chassis of this company this company. It enables us to do all the things that we’ve been able to do and execute over the last several years. So my presentation is going to focus on our 2014 results in both our generic business as well as global operations. Then I'm going to turn the mic over to Hafrun, who will walk through a bit about our R&D programs. And then I will come back up and finish it up with 2015 outlook and some of the strategic drivers for us in the years to come. So I think when you think about our business a couple of things come to mind. The first is that we really operate our business in three different segments when I think about our generics business. The first is we've got a commercial organization that’s very diversified. We have the ability to commercialize products and OTC products, hospital segments, as well as generics and branded generics. And I'll talk through that a little bit more as I go through my slides later in the presentation. But also we've got an integrated model with our Medis business as well as our Anda Distribution business. Our Medis business allows us to participate in markets around the world that where we don't have our own commercial presence, so it allows us to get better returns on our investment, and I will talk through that a little bit in the presentation as well. And Anda is just an incredible asset that we have that only supports our generics business but also provides high touch opportunities for our branded business as well. Delivering on all of this is we’ve got a diversified portfolio, as Brent mentioned, a best-in-class R&D organization, world-class supply chain. And when you put all of that together we have an absolute powerhouse of the generics business and an industry leading company, and I couldn't be more proud to be part of that. Moving on to the way that we have this organized. And I think using the butter knife example that Tessa brought up, I think our organization has that same butter knife because we can slice through issues with the way that we’re organized. We have a complete integrated business model here from end R&D straight through to supply chain. Our commercial organization has the ability to execute in all of the important markets around the world and it's integrated with our operations group, which allows us to capitalize on market opportunities when they present themselves. So when there is a market shortage or when there is an opportunity for us to launch a product, we’ve got a boundary-less organization that has the ability to execute that. The other part of this is that the team that is in place today is the same team that has been driving success of this business over the last several years. We've got the best-in-class commercial organization, we've got a best-in-class R&D organization, and we continue to execute amazing results within our operations group. And the leadership team that has run these businesses and run these segments for us over the last several years continue to be in place to drive the success of this business in the future. 2014 was an incredible year across all of our businesses within the Generic segment. We further strengthened our U.S. generics business. It's now a $4 billion business, an incredible return from the investments that we’ve made. We’ve been disciplined in making sure that we continue to invest in the U.S. market. You’ve seen us launched just recently a hospital business segment and the performance of this organization is fantastic. They are able to get the market-share that they need and we are one of the most profitable businesses in the U.S. Our international business has performed incredibly well despite the FX headwind. Business performance in countries like Russia and the UK, despite the headwinds we have been able to grow on a constant currency basis as well as when FX is considered. We’ve shifted our focus internationally away from the unprofitable markets and more towards growth markets, and I’ll talk through that when I get into a little bit of the international strategy. We’ve had outstanding performance in R&D not only last year but the year before that, the year before that. And already we are off to a strong start in 2015. Hafrun and her team just deliver amazing results. Our Anda Distribution business had stellar results last year, both on top line as well as on bottom line, and it is the fourth-largest distributor of generic products in the U.S. But also it gives us a lot of launch capability and is an extension of our businesses, both in brand and generics. Our operations group continues to deliver. We have high customer service, high quality standards, and we continue to execute incredibly well across the globe in all of our manufacturing assets. And we also have record compliance performance as well. That’s a history that we have had now for the last five years and something we are incredibly proud of. Utilizing M&A to complement our business, we did two deals just recently with Silom Medical in Thailand last year as well as the Auden Mckenzie deal, which we announced a short while ago. That’s going to give us the ability to continue, not only growth, but it complements our organic growth that we are investing in on the R& D side. Our U.S. generics business, as I mentioned, is incredibly strong. It’s the number two in market share within the U.S. We are really benefiting from the fact that we have got an integrated supply chain with the commercial organization. We offer customer value and exclusive product offerings. Our first-to-file portfolio that Hafrun is going to walk through not only is paying dividends today, but it also makes sure that we are relevant to our customers in the future. And as our customers are globalizing, it’s important that our U.S. business remains strong because we can create win-win opportunities with our customers as that they look at expanding their businesses with global alliances as well as expanding their footprint. The breadth of our portfolio that we have is the best in class. Hafrun will talk through that, but it’s an amazing results that this group is delivering. And now we’ve entered into the hospital product business. We repatriated products back from Sagent, if you recall, and we launched that business this year and it’s already off to a great start. But the most important thing is that we have the ability to sell high customer service and high quality and that matters in this marketplace. You cannot sell a backorder; you cannot sell a stock out and we have the ability to always reliably meet our customer needs. That’s an important distinction that we have within this group. Looking at the U.S. generics, and I know that there has always been this discussion about the FDA slow down, but when you look at the launches that we’ve had both in 2013 and 2014, we are creating $1.6 billion worth of sales from the products that we launched in ‘13 and ‘14. We had some significant launches in the fourth quarter that will rollover into 2015 such as Intuniv as well as Celebrex. It’s impressive to look at those results given that there has been a slowdown within the FDA, but it shows that we are investing in the right products and we are making sure that we can get and execute these products ultimately to the market. And it demonstrates that we do have a strong return on investment from what we put into our generics business year in and year out. International, just some highlights from some of the key regions. Again, our focus here is not going to be to be in every single market with a commercial presence. We want to make sure that we are in markets where we can be the leader in those markets. And that’s our goal, to be a leader in the markets that we are going to compete. In the UK we had 12% sales growth with strong growth across all of our core business segments. We’ve entered into the OTC business with Sudocrem, a product that we acquired through Warner Chilcott. We’ve continued success driving market-leading position portfolios and the fact that we have a local manufacturing facility there allows us to be able to have a quick response to market opportunities as well as upsides. And we are able to execute because of the fact that we have that integration across the business. In Russia we had 44% sales growth on a constant currency, but a 21% sales growth despite the FX headwind. We are the fastest growing business by IMS for the retail segment and so we are going to continue to invest in Russia. It’s an important business and that’s what our focus is going to be is investing in markets that are growing, investing in portfolios that can be differentiated, and keep driving those results. Poland is another example where we had 14% sales growth, plus we also had margin improvement, which contributed up to a very significant contribution out of Poland. Those are the kind of strategies and market opportunities that we are going to capitalize on and continue to invest in. We are the 9th largest generic company, up from 14th. Our goal here again is not to just go after market share for the sake of market share. We are going after price-disciplined approaches in these markets, but we want to be competitive with good portfolios and good sales execution. I talked about the tuck-in transactions and you can expect that we are going to continue to look for these opportunities on the generic side because we are committed to investing in it and you saw us do that just recently with the Auden Mckenzie deal. Well, the Thailand expansion was more of a geographic expansion because we see opportunities in some of these markets and we will continue to look at market expansion opportunities such as that. It expanded our geographic footprint, it also leveraged the Actavis portfolio where we can take some of these assets that we had sitting on the shelf and now have a commercial opportunity to push these through. It delivered 20% growth in 2014. Conversely, on the UK side we looked at that as a very local opportunity to complement our existing business within our UK business today. It was a portfolio of products that we call the crown jewels it adds more dimension, more portfolio opportunities for that business. We are now -- when we close that deal, which will be in the early part of second quarter, we will be the number one generic company within the UK. So it gives us a robust pipeline that we will continue to try and offer value to expanding customer bases. Our international business and this may actually surprise you in terms of when you think about our business internationally, it's not just a generics business. It's an OTC business. It's a hospital business. It's a generic business and a branded generic business. So we have the ability to offer portfolios in all of these different segments across our international business as well as that we have niche mature RX brands as well that we can continue to drive value in and I will share a slide on that on what we are doing in Russia. We have a commercial model that allows us to tailor products that we are bringing through our R&D organization and tailor them to certain markets. For example, rosuvastatin is a product that we would develop for our generics business and launch it as a generic in the U.S. as well as in the UK, but that same product we would push into a branded generic market in Russia. We have over 2,000 sales reps that we have in certain markets in Eastern Europe and other markets that are out detailing products and actually developing the market as opposed to just genericizing the market. And I think that is an important aspect that people should realize about our international business, because of the diversity that it has and the breadth and depth that it has and that we tailor our approach to markets based on what we see as the market opportunities.And then complementing this is the OTC business, the hospital business as well as the niche brands and mature brands. We still see a lot of growth in this business. By IMS data, 50% of the growth in Pharma is still going to come out in the generics business. And so this is an area that we are going to continue invest in. You can see on the IMS chart around the globe on where the market opportunities are and where we see the growth rates are and we are committed to this business and we are committed to investing in this business, because we want to participate in that growth, It's part of our growth pharma story and generics actually fits that growth market story. Our OTC business and this is something that I don't think we get enough recognition about, it's a $0.5 billion business. We are not in OTCs across the world because it's different in different markets, but our business is a viable business, it's a growing business and we are continuing to invest more in it. And we will invest more in it in certain markets where again we have a breadth of portfolio and once we have established brands within that OTC business, it's easier to add additional line extensions as well as complementary products to it. And so we are having great success. You can see the trajectory here of this business in the last three years, but it's important to note that we have a $0.5 billion business here that's growing and we're going to continue to invest in it to make sure that its successful going forward. Our branded generics and particularly in Russia, where we are absolutely shaping the marketplace, this is a product valsartan where we were developing the product as a generic, launched it as a generic in the U.S. as well as in the UK and other markets, but in Russia we sell it as a brand. We've got sales reps that are out promoting in cardiology and cardiovascular segments and we are promoting this product and we are seeing great growth rates. And that's going to continue on and we will continue to invest. This is also important to note that these are products that are already off patent, so there is not a patent cliff that comes behind this. These are products that are already launched in it where the IP has already expired and we are investing and growing the market and expanding the market because of the fact that we are offering lower-priced products and growing the segment. Over the years we have been moving ourselves up the food chain in terms of the technologies and in terms of the areas that we invested and I am pleased to say that you are seeing great results in all segments of our development. We have in every one of these classes, we have not only targets, but in many cases already filed. And this is going to continue to drive value for us in the long-term, so this is not a business that's declining. This is a business that's growing and we're going to continue to invest in it. And how we are going to invest in it is along this continuum, where we are moving ourselves up into transdermals and we've already launched a number of transdermals. We are investing in inhalation products and we will talk more about that in the future. Biosimilars, we are already invested with our partner with Amgen and Dave is going to talk through our biosimilar strategy. But important to note here is that we have got programs and targets in each one of these areas, but we are doing it in a way that it doesn't cannibalize all of the other efforts that we have because in the small molecule it's still driving value for us. We see that with some of the product launches that we have had in 2013 to 2014. These are areas that we will continue to invest in, but we are going to be very careful in terms of where we place our investments and what markets that we want to invest in. Our third-party business is really a strategic weapon for us because it again allows us to get commercial value out of R&D efforts that -- for markets that we don't necessarily have a G&A structure. So this allows us to offer products to competitors and allow us to get return, not only on that R&D investment that we've made, but also continued benefit on margin from the supply agreements that we provide to customers. We have over 200 active customers today. It's 9% sales growth in 2014. We are in 130 markets and we have local -- we have small sales force in these different geographies around the world that are building the relationships with customers so that we can offer expansive portfolios to people when we don't necessarily have the commercial presence. So there's growth opportunities also in the emerging markets. It, again, maximizes our ROI from our R&D investments and it gives us also better scale in our manufacturing organization that allows us to drive our costs lower as well. So this is a profitable, growing business and it's an extension of allowing us to participate in markets that we don't necessarily want to make the full investment in. Our Anda business, again, is the fourth-largest distributer of pharmaceuticals in the U.S. We've got state-of-the-art distribution capability in a number of locations. We hit 85% of our pharmacies with next-day delivery. The way I coined Anda years ago was we want to be the primary secondary. We consciously, years ago, shifted our strategy to include the branded products as well to complement the generic portfolios and that's enabling us now to be a primary secondary. So when the wholesalers are not able to supply and we need to be able to provide product the next day, we have the ability to do that. It also gives us now the ability to put some high-touch services in connection with our brand business so this is something that we will continue to explore. Brent and I are actually going to be talking with the team later this week to look at how can we create complementary services for our brand business. It's an exciting opportunity. It also has the rapid launch capability and I will use the Pulmicort example, and it's probably the worst example to use right now because we got enjoined again last night, but when we took -- when we won the decision last week, that same day we were shipping product. And that is one of the values of Anda is that we can rapidly launch products. We can get products to store door next day and that matters when you are in a competitive generic market like we are in. Our global manufacturing network has just incredible diversity in terms of its technology as well as its scale, as well as its capability and geographic reach. We have over 12,000 employees, 40 manufacturing facilities. I always put this graph up every year and everybody teases me about the number of dots that we have on the map. And every time that we announced a number of restructurings and we close a number of facilities, we do an acquisition and we add five back in. So the net effect is that the slide doesn't really change except for the locations change a little bit. But it's just an incredible organization that has the capability to manufacture virtually every dosage form that's out there. Looking at how the Allergan piece complements this, two areas that we didn't have actual manufacturing capability in-house was on the inhalation side. We had R&D capability, but we were relying on third parties to be able to produce the products for us. Now we have the capability with Allergan once we close the transaction later. We have the ability now to leverage that manufacturing scale that they have and now bring that R&D effort in-house through our own launch capability internally. And the other area would be ophthalmology. We have the ability now to take that -- what was reliant on third parties to do for us, we now have the capability internally to launch and execute R&D strategies there. So Allergan really, truly does complement our manufacturing network very, very effectively. I want to end my remarks here on quality, because this has been an area that we have invested in considerably over the last several years and we are seeing the benefit of that. We have not had the issues that you see a lot of our competitors have in terms of warning letters, in terms of consent decrees, and things like that. We have been able to address our concerns very quickly and we also have very good inspection performance with not only the FDA, but EMA and other regulatory bodies around the world. I am pleased to say that all of our manufacturing facilities have been audited within the last two years and most of the major manufacturing facilities have been audited within the last year. And all of them are on satisfactory GMP ratings within the Agency and that is enabling us to take advantage of the commercial opportunities that exist in the marketplace, in particular around drug shortages and supply challenges. But this really starts in R&D. You heard last week, those that were at the GPhA meeting, Janet Woodcock talk about the fact that she is looking for quality by design, critical quality attributes in the actual regulatory filings. And I’m pleased to say that Hafrun is already well ahead of this. We’ve been designing our products already with that mindset, which is why we are able to successfully bring these to the market. So with that I’m going to turn it over to Hafrun to walk through the R& D piece.
Hafrun Fridriksdottir:

Good morning. Happy to be here and give you an update on the generic R& D. So it’s not only about development, it’s about the people which are doing the work. It’s about the people in all functions. We need to have the right people in portfolio to select the right product on the right time. We need to be able to design the right legal strategy around our products. We need to have the right API and then, of course, we need to develop the right formulation, analytical methods, and then, of course, we need to have the right clinical strategy. As Bob mentioned, quality is extremely important. Then manufacturing and regulatory. All those functions are equally important when we are developing a generic product. So where are we located? We are located all around the world. All-in-all we have around 1,800 people in generic R&D, 600 here in U.S. 600 in India, and then 600 in Europe. Most of our R& D sites, they are co-located with a manufacturing site and some of them are also in low-cost countries like India and other -- Romania and Italy. So, with doing that we get the most out of our R& D dollars. So what can we do? We can basically do whatever is out there. It sometimes scares my brand colleagues when I say that, but we can basically develop whatever formulation is out there. We have an extremely strong capability in solid oral dosage forms. Probably some of you don’t even know what solid oral dosage form means, but that’s all kinds of tablets and capsules. We have an extreme capability in semisolid and liquids, cream, ointment, foams, and basically in all area; in injectables, inhalations. And if we cannot do it ourselves, then we complement that with setting up contract with some partners. So basically, we are developing all kinds of formulations, not only for the generic part of the business, but we are also supporting David and his team in the brand part of the business. So if he needs someone to develop templates or capsules for him, then we are the first team which he comes to. So with doing that, of course we try to get the most out of all of the functions which we have. And then last but not least, our clinical capability, that has been a very big part of our success. All in all, we have six clinics. Five of them are in India and one is in Florida, 600 beds. And we are dosing around 25 to 30 studies per month. So last year, we did run 340 studies, or we completed 340 PK studies. And I think there is no company in the world independent from if you are looking at a branded company, generic company or the combination of both, which can brag about any number similar to that. But this has been a very big key to our success. If you look at the generic development timelines, it takes from 9 to 36 months to develop a generic formulation. Of course, it’s dependent on if you need a clinical endpoint study, if that’s part of the development or not. And of course, it’s also dependent on how complex the formulation is. But here you can see -- you see the benefit of those development programs quite quickly. So if we say you are filing something, for example, in Europe in end of 2015, in many cases you can launch that product in early 2017. Well, the regulatory timelines are quite well-defined. Of course, it’s a little bit different in U.S. even though things are changing by FDA as well, as Bob mentioned. But if we file anyhow, we can file a Para IV filing in U.S. then you always have to wait for the 30-months legal date. So the earliest we can launch product which we are filing in 2015 in U.S. is sometime in 2018. But this is just to highlight that we see the benefit of our development program quite quickly, so it’s not like that we have to wait for many, many years. So our portfolio; how is our portfolio? Are we only developing immediate-release solid oral dosage forms, or are we developing whatever is out there? As I mentioned earlier, we can of course do whatever you can think about. But if you look at our portfolio anyhow, it is quite well diversified. What we have in the market today is around 65% solid oral dosage form, meaning tablets, capsules, modified release, extended release, delayed release, whatever you have out there. But if you look at what we are developing today it's still probably close to 35% solid oral dosage form, but half of that are modified release and half of it is immediate release. And then the other forms are much, much bigger part of the pie if you look at what we have in development compared to what we have in the market today. And you can see the change from end market to what we have filed with FDA and then now in development. Of course, we believe that and we are well ahead of the curve. So we started to develop those complex formulations quite a few years ago, and that's why we are so well advanced now. So if you look at the performance last year, all in all we completed 114 new development programs and 44 ANDA files in U.S., which is quite a nice number, and I am very proud of that number. Then we completed 29 dossiers for the European market. But if you look at dossiers for the European market and if you count the countries which are in the European Union, I think its 28 now. It's always changing, of course, as you know. But if you counted per molecule per country, then those 29 dossiers will enter with around 1000 filings only in the European Union. But many of those European dossiers, we can leverage those dossiers in other countries as well, sometimes with some additional work like additional biostudy, additional [batches], whatever have you out there. But still this is the basis for many of our filings in other countries as well. Then we filed -- because Bob mentioned Russia -- we filed the 9 dossiers in Russia, and I think this is record because the year before, we probably filed 5 dossiers in Russia. Russia is one of our important international markets. If you look at our first-to-file performance, both Brent and Bob have mentioned of course how well we did last year on our confirmed first to files. But in 2012, we had 12 confirmed first to files. Thereafter, there were 9 exclusive first to files and 3 shared first to files. And we were quite damn happy with that, and we filed that. I mean, of course we were the industry leader that year, so we were very happy with that number. Last year in 2013, we had 18 confirmed first to files. And the majority of those 18 were exclusive first to files as well. And again, we were also quite happy with that number. But last year, which was a record year for us, we had 25 confirmed first to files. And I will go into that a little bit later in more details. But if you look at the list of the product listed below, those are some of the products we are first on. And the split between exclusive and shared is -- the majority is basically exclusive first to file. But if you look at the brand value for those products in 2012, those 12 products, the brand value was $2.3 billion. But those 25 which we are exclusive on -- or which we are confirmed first on, sorry -- last year the brand value of those products is $6.1 billion. So we had 33% of the number of products that were listed on that FDA Para IV Web site, but 46% of the value. So how did we do compared to our competitors? We did quite well, or we did very well, actually. So 17 exclusive first to files and 8 shared first to files. And if you take the three next companies, Mylan, Teva, and Amneal, and if we put all of them together they will be close to us. But still majority of their confirmed first to files are shared first to files, not exclusive first to files. So this is a slide which we are very proud of and Andy and his team are using this slide a lot when they go to their customers, so this is something which we are very proud of. This is a list of products which we are confirmed first on and with 30-month stay in 2015 and 2016. The 30-month stay means that this is the first possible launch date for those products. Those which are highlighted in green, the products which we were confirmed first on last year. Of course, this is not the full list. This is just some examples just to show you a few examples of the products which have already been public or are already public. So what are our priorities moving forward? It's all about people, I mean if you don't have good R&D people, then of course there is no way to win the game. So, we need to continue to retain the top talent from all the legacy organizations which we have. We have had a lot of mergers and a lot of acquisitions, as everyone knows here in this room, for the last few years and we need to make sure that we keep those important people. And we need to continue to deliver on new product filings. We cannot slow down; we have to make sure that we continue to be first in class and file, even a day or two after the brand comes out, even with two or three buyers like this. I know that that is something that is also difficult for people to understand, but that’s something which we have been doing. My team and our team has been doing extremely well and we need to make sure that we continue to keep them -- keeping them motivated and there is no disruption which we should allow there. Then we need to focus on maximizing the return on the R&D investment. So, we need to continue to focus on challenging high barrier products, high barrier formulations as I showed you earlier. And there is no shortage of product opportunities, even though the story out there even in 2010, 2012 was that the number of opportunities were going down and there is less and less of first to file opportunities out there. But that's not something which we have seen. We haven't seen any shortness. And I did see you a little bit earlier, having 25 confirmed first to file, it means that there is a lot of opportunities out there. So being more creative with product ideas, patent challenges, speed to the market, and an example of this our 505(b)(2) filings. We are working now on quite a few 505(b)(2) filings. Some of them will be filed this year; some of them were filed last year and many of them will also be filed in 2016. Those are mainly injectable products, but this is quite important for our business today to be creative with all kinds of ideas. Then, of course, last but not least, we need to make the most out of new Actavis. We need to work very closely with the branded R&D and we need to leverage their expertise whenever we can. And if there is something which they can do better than we can, then of course we seek guidance and seek help from them and of course they do the same. So if they have -- if there is something which we can do for them, then they leverage our expertise. So, we try to work together as one team, as much as possible. And with this, Bob, I'm going to give it back to you. Thank you.
Bob Stewart:

So, I think you can see in those results it's just a phenomenal team. It starts with portfolio, making sure that you pick the right products, and then you execute flawlessly. And this team has just done it year-after-year and I am incredibly proud of their results. This is what's going to drive us value in the outlying years as we monetize these first-to-file opportunities. We’ve proven that we have the ability to do this. We’ve done it for years previously and we’ll continue to do it going forward. So prioritizing our opportunities is really the message here in 2015 and beyond. It's focusing where we’re strong and making sure that we continue to move ourselves up the scale and being a leader in the markets and in the therapeutic areas that we're going to compete in. Markets with significant growth potential, that’s where we’re going to focus our efforts. And what we’re going to look at is getting out of markets that, frankly, don't look like they’re going to be markets that are going to fit our profile going forward. Businesses that offer -- our business offers potential revenue synergies. None of those are dialed into our assumptions here, but as we think about cross selling opportunities in certain markets, because of the breadth of our portfolio and the breadth of the Allergan portfolio, we’re going to find opportunities to create revenue synergies. We’re focusing on the right segments; so INN generics, where it's profitable. We are not going to focus on being an INN generic company for commodity type products. We want to make sure that we’re investing in the right products with the right technologies to build durable assets that are going to offer value for the long-term. We are building an OTC business quite nicely, as you saw in the results. We’re going to continue to make sure that we invest in that segment, as well as our branded generic franchise business as well in key markets around the world. And then select RX brands where they fit the type of portfolio that we can offer, again, leveraging that sales infrastructure that we have in many markets across the globe. And then we’re going to optimize flat or declining businesses. You’ve seen us do that with Western Europe. We are continuing to look at other markets. Where there is extreme price sensitivity and where we don't see growth opportunities, we're going to develop plans to either exit or just hold them, but be very cost conscious in terms of how we invest and make sure that we maximize the margin out of those resources. And then shift resources again from these underperforming markets into higher performing markets, and that is what we will continue to do. Our key business drivers in our plan, we have assumed competition for both lidocaine as well as Concerta. To the extent that those do not happen, would be upsides to what we have in our model. Product launches. It was interesting when we put this slide together, all of the product launches that we had in our plan we basically had approvals for and already launched. Pulmicort we did, but we will be back. But we also have risk-adjusted opportunities in there; very, very high risk-adjusted opportunities in there. And then we also have other undisclosed launches that could be upsides to our plan. Our business initiatives. We are going to close the Auden Mckenzie transaction in early second quarter. We also have launched our hospital products business unit and we are adding more portfolios into that business with all the pending applications that we have within the Agency as well as new development opportunities that we have as well. And then continue to expand our international OTC branded strategy. Again, upside opportunities here would be revenue synergies with the Allergan business that we have not quantified or dialed into the plan. Lower generic price erosion. We are hearing about the fact that there is improvement within the backlog within the Agency that has created obviously a stable pricing environment. We will see how that plays out. We are cautiously optimistic that we are going to see productivity improvement out of the Agency and we've seen that even in just recent weeks, but that is a win for us. Because of the portfolio of products that we have and the exclusives that we have, we want to see that efficiency take place. Then again, we have other Paragraph IV challenges and other undisclosed launches that are upside opportunities that we have not dialed into our plan. So in summary, I just want to make sure that everybody understands that we have got a proven team here that will continue to deliver. We have got great portfolios of products and a commercial team that has proven that they have the ability to execute. And our pipeline is going to offer long-duration and durable assets. That has been our priority in our R&D investments over the years. It is going to continue to pay dividends for us in the future and we have got a team of people that can absolutely execute on it. We are going to continue to invest in R&D organically. You see the results and the opportunities that have come in out of our pipeline and we want to make sure that we continue to feed that. Brent is committed to that; I am absolutely committed to that and we will continue to find opportunities to invest. Business development opportunities still do exist in this consolidating industry and we are going to look for those. And where they make sense, where they are strategic, where they are financially compelling, we will go and look at them aggressively and execute them. We are always adapting to a changing landscape. You will see us do that with our portfolio. You see us do that with our commercial execution and you see us do that in our business development strategies and all of our different markets. So with that, I'm going to pass it over to my counterpart, Mr. Meury, to go through the brand piece, but thanks for your attention.
Bill Meury:

Good morning, everyone. I always watch Bob's presentation very closely to make sure that none of my products are on his list. So what is the best way to think about our branded business? What are the things that will drive growth in 2015 and beyond? And what is the pipeline worth? I will cover some of those questions now and others later in the session. What we have at Actavis is a fully-integrated primary care specialty operation that's perhaps has the best new product launch capabilities in the industry. Very few companies have the depth and diversity of products and capabilities that we have. And right here are the core components of our operation. We have product line depth in seven therapeutic areas which we think gives us a strategic advantage, which I will cover shortly. Our business, from a provider perspective, is balanced between primary care and specialty. And from a payer perspective, it is balanced between commercial and Part D. In other words, we are not overly dependent on one market segment or customer. In other words, we are diverse but we are not too diverse. The fundamentals of our business are strong. Market share, growth rates, physicians' attitudes towards our products, usage patterns, formulary coverage, pricing are all, generally speaking, where we want them to be or headed in the right direction. Next we have one of the top performing sales and marketing teams in the industry and a great deal of organizational momentum right now and what do I mean by organizational momentum? I mean we have buying. The employees and commercial operations believe that they are part of something important and that they are part of building something that will last. Right now there is a great deal of energy being directed towards customers and new product launches and innovation, which is exactly what we want. We've spent a great deal of time thinking about how and why we do certain things and if we think we can do them differently, we will do that. We know that growth and essentially maintaining the status quo, generally speaking, can't coexist. Then, finally, we have a very promising late-stage pipeline that we will get into detail about shortly. What I will say is it's a perfect fit with our marketed products. In other words, we are entering categories over the next three years with novel compounds where the customers know us and we know them. And that helps us manage executional risk and it can actually speed the uptake of certain new compounds. Here is a snapshot of our product line, moving from left to right. CNS, GI, women’s healthcare our largest product lines in terms of sales and number of products. The other four are smaller, but growing and very profitable. Our aim here is to be in the top three in each one of these areas as well as to build out each product line, because there are strategic and promotional and economic advantages associated with product line depth. Strategically, for example, we can give physicians a more complete view of pharmacotherapy than other companies can and that's especially true in CNS, GI, and women's health. Promotionally, we get greater access. There isn't a psychiatrist or a gastroenterologist or an OB/GYN in the country that doesn't use at least one or two, or more likely three of our products. And economically this is a very efficient model. The incremental cost associated with introducing a second or third or fourth product is significantly less than the incremental cost of the first one. These product lines can get very profitable very quickly. Here is our performance in the fourth quarter. Brent touched on this. What you see here is that sales for each one of our top 10 products were up in the fourth quarter over the third quarter. Sales for six of the 10 increased at a double-digit rate and the growth in the fourth quarter was fueled by a healthy mix of volume and price. The biggest gainers on this list
David Nicholson:

Good morning, everyone. It's a great pleasure to be here today and to have the opportunity to discuss with you the brands R&D pipeline. What is our R&D strategy? As a standalone company, Actavis focuses energy on four key therapeutic areas
Bill Meury:

All right, morning again, from a commercial point of view, here is a way to think about our pipeline. David just reviewed nine mid- to late-stage assets in seven therapeutic areas. As I said earlier, we're entering categories with these compounds that we know very, very well. Customers know us; we know them. Next, we estimate that this product line pipeline could throw off $6 billion in sales, with four products having the potential to reach a blockbuster status. The compounds in the pipeline are novel, but not too novel; so that the probability of scientific and regulatory success is medium to high. We have a mix of products in primary care and specialty markets where there is an unmet need which in our view means the pricing and reimbursement dynamics around this pipeline in the future are positive. And then finally we have good IP, which means every strategic decision that we make around development and promotion and pricing will be made in the context of an extended exclusivity period. I'll touch on some of the key compounds right now. Eluxadoline is the flip side of Linzess
Brent Saunders:

Thanks, Bill. So really I'd like to congratulate my colleagues for providing a lot of detailed information in a fairly compact period of time. What I thought I would do is bring the meeting to conclusion just by going through a couple thoughts as we think about our combination with Allergan that's coming and then open it up to Q&A quickly. So when you look at Actavis's performance over the last few quarters, you can see the momentum in the business. We continue to maintain strong momentum in our brand business, strong momentum in our generic business, strong momentum in each of our R&D organizations and maintain a best-in-class supply chain. When you look at Allergan and their reported results for the fourth quarter, you can see that that business, under David Pyott's leadership, has also experienced great momentum. And I believe their fourth quarter was their best quarter in their company's history. So we're taking two businesses that are firing on all cylinders, and we're putting them together. And as we do that, I think we have created a great strength in creating what we hope to call Growth Pharma. You've seen this slide before, we used it when we announced the combination of Actavis and Allergan. We do believe that we have a unique opportunity in the combination of Actavis and Allergan to create a special company that's focused on high growth, that's focused on innovation, that's focused on providing high-quality, reliably-supplied, low-cost medicines to patients around the world. And we think we can do this differently and better than anybody in our industry. And as you know we have an aspiration or target to grow our top line 10% in our branded business and after you back out generics and our Anda Distribution business, where revenue is not a good incentive, an 8% growth rates. We think that that's absolutely attainable and something that will allow us to manage our Company very differently than our peer group. So when we think about Growth Pharma, we spend a lot of time thinking about what are the characteristics of Growth Pharma? We spend a lot of time thinking about our own characteristics, what made Actavis grow so quickly? What were some of the characteristics at Allergan that made Allergan such a growth company? And what are some of the data in the academic literature, whether it came from McKinsey, Harvard Business Review or BCG and alike? And look for common themes around what caused companies to drive top-line growth? And these were the five attributes that we identified. And I'll go through them very quickly. In terms of a diverse revenue franchise, when you look at the combination of Actavis and Allergan, you can see true leadership in therapeutic categories, a roughly $3 billion dermatology and aesthetic medicine portfolio, a roughly $3 billion CNS portfolio, a roughly $3 billion eye care or eye health portfolio and then billion-dollar franchises in women's health, urology and GI, cystic fibrosis and close in cardiology and then of course emerging presence in a very important area like anti-infectives. We also have good IP protection. And as you heard from our presentation today, we play both sides of the house. We understand the generic world, we understand the branded world and we use that to make sure that we are on top of our intellectual property for our brands, that we have our team, like Hafrun's organization continuously challenge us to make sure that we are thinking of all the right things that we need to do to maintain our exclusivity and intellectual property. And when you just take the average Orange Book -- this is a crude way of looking at it admittedly, but it gives you a sense for what we're up against. We have tremendous IP protection for our key franchises, well into the mid-2020s and of course some even longer than that. Some of the ones were -- for example the lowest one, women's health, while we have some OCs that will be going off patent, our most important product Lo Loestrin had a Court of Appeals approval supporting our intellectual property until 2029. So we have very long runway on one of our most important products in that category. We also have innovation. You heard about the Actavis pipeline today. You saw the published list of the Allergan pipeline. But what you can see as you line these up and we'll talk more about this after we close the transaction, but in each vertical in which we compete we have a strong pipeline of programs, some blockbuster, some lifecycle management, but overall, quite a bit of innovation to sustain that growth and to continue to drive that 10% branded top-line growth CAGR. We also are going to stay focused on our generic D&A in this new combined company. That means flat SG&A spending. You heard Bob Stewart talk about our generic DNA being the chassis from which we built this Company. And what that means is we don't have a lot of bureaucracy, we don't have a lot of committees, we don't have a lot of staff positions. We stay very focused in putting our money behind our products, behind our sales organization, and behind our R&D organization. That's where we want to invest. That's where we want to spend, not in G&A. We are committed to maintaining a leading quartile SG&A spend versus our peer group. This morning we also announced that we would be keeping the Allergan equity. It's an honor to announce that this morning, given that Gavin Herbert, the founder of Allergan, is with us today. But after 65 years of the brand standing for innovation, customer service, and excellence, we think that Allergan is an excellent name to represent the new combined Company. That doesn't mean we don't value the Actavis name. The Actavis name is very valuable to us in certain parts of the world and for certain product lines; and we will maintain that, because that's what our customers want in those areas. But overall our corporate name will be Allergan and our branded portfolio will go under the name Allergan. One point I want to make
Chris Schott:

Great, thanks. It's Chris Schott at JP Morgan. I had two questions. The first, just elaborating on those last comments on business development, can you just put a little bit more color around the priorities as we think about that $8 billion of free cash flow? When we think about the pipeline you just laid out, the launches over the next few years, the rate of change the organization experienced in 2014
Brent Saunders:

Yes, sure. On business development and the use of cash, clearly in the short term our top priority is to delever. We are absolutely committed to our investment-grade rating. We want to make sure that we act very responsibly. That doesn't take us out of the game in terms of doing tuck-in deals like the Auden Mckenzie deal that we did just recently. We are evaluating dozens of those types of deals all the time. But in terms of transformational deals, we are going to take a pause and certainly delever and allow our organization to focus on this combination for some time. I think in terms of areas of focus, they're really the areas that we are in. So it's those seven or eight therapeutic areas I just had on one of the previous slides. The idea there is to either look for complementary marketed product that can be sold through the same channel that already exists. It will be looking for pipeline opportunities, higher -- climbing the innovation curve, looking for complementary pipeline opportunities to support the therapeutic areas that we're already in. Or it will be geographic expansion or strengthening type of tuck-ins like the Auden Mckenzie deal.
Chris Schott:

Can I just ask one follow-up on that? Just when you say transformational, is there a threshold at which you’re defining that? Given how large the company now is, is a $10 billion -- is that a transformational deal for you guys at this point?
Brent Saunders:

Yes, I think transformational for me is less about dollar size; it’s more about doing something that we don’t currently do today. So moving into another therapeutic area, for instance; or a different -- perhaps -- I’m not suggesting we're going to do this, but into devices or something like that would be transformational. Certainly there are some deals purely on scale that you could argue would be transformational, even if they were complementary. But I think on all fronts we’re not going to be doing those in the short term until we have delevered. I think on biosimilars, I don’t know if Bill or David want to chime in here as well, but I have a view that investing in biosimilars today is critical to the future. It’s a longer-term bet. I think you're not really going to see the biosimilar market develop probably into the early 2020s. I think it will take some time. Ultimately, these will be big markets. The payer pressure and the cost pressures in healthcare will force these to be very robust markets. So I always analogize this to back in the Internet boom back in 1999 or before 2000. People had some really great ideas, but they just timed them wrong. And the same -- you have to be thoughtful about this with biosimilars as well. You have to make these investments; they take a while to develop; but you want to have these things launching towards the end of this decade, ‘18, ‘19, ‘20, so that you keep that momentum and can capitalize on the market when it really I think matures or develops in the early 2020s. I don’t know, Bill or David, do you have another view?
David Nicholson:

I certainly don’t have another view. Completely agree with what you’re saying, Brent. Perhaps just a couple of additional remarks biosimilars have been out in Europe for a while, and they are just starting to get into the U.S. market. First approval for a biosimilar in the U.S. very recently. The fact that we now have guidelines is going to help. But it’s also apparent that it’s turned out to be harder to develop biosimilars than many people thought a few years ago. I think we are seeing a smaller number of companies now working on biosimilars, which is going to increase the size of the opportunity for companies that do have the stamina and the technical expertise to stay in the area to really do things. But biosimilars are going to be a significant presence on the market also here in the U.S. eventually.
Mike Faerm:

Mike Faerm with Wells Fargo. My question is about potential divestitures and portfolio rationalization. We’ve seen you divest, for example, from respiratory. Not too surprising given the scale of that business relative to some of your others. So as we look at the seven or eight therapeutic areas that you laid out, should we be surprised to see potential further rationalization in some of those areas that maybe are a bit smaller in sales or number of products now? Such as cardiovascular or urology, for example.
Brent Saunders:

Yes, I think it’s unlikely. We’ll never say never. One of the things that I think we want to be evaluated as is good capital allocators. And that doesn’t just include buying good things; it also means divesting things when appropriate. I think the flip side of that is to maintaining the Growth Pharma concept. You also manage things differently. You don’t necessarily just keep things to milk them; if you’re not going to invest behind them, then you have to evaluate
Mike Faerm:

Just one follow-up on the Namenda/Aricept combination. A lot of the conversation there has been about the opportunity from Namenda. Could you talk a little bit about to the extent to which you see there being an opportunity from the generic Aricept pool and the ability to tap into that?
Brent Saunders:

Yes. Bill, you want to -- you don’t need that microphone; you’re mic.
Bill Meury:

Yes, Mike, could you repeat the question?
Mike Faerm:

Sure. A lot of the talk on the opportunity for Namenda/Aricept has been potential from converting Namenda. Could you talk about the extent that you see an opportunity from the generic Aricept Rx population?
Bill Meury:

Yes, I think I understand your question. Our market share right now with Namenda or Namenda XR trades somewhere just north of 30%. For 10 years, the combination therapy market has been pretty stable. My sense is with a fixed-dose combination, the number of patients with moderate to severe Alzheimer’s who are taking two products as opposed to one could increase. We treat that as upside right now. Our focus is on simply moving IR to XR. But it wouldn’t take much of a movement in the frequency of combination therapy to add 10% or 15% to sales in 2015 and 2016.
Ronny Gal:

Good morning. Ronny Gal, Sanford Bernstein. I had two questions. It looks like in 2016 you’ll be generating $0.35 of free cash flow for every $1 of revenue you create. That is a fabulous free cash flow yield from revenue. The question is, Allergan is already paying, I guess, a small dividend. As you compete with other big pharma companies, some of them are growing quickly; would you be thinking about increasing the dividend to compete for the same -- with dividend news as well? There seems to be just enough money there. Second, you've discussed, Bill, the issue of the Massachusetts Model and the less access you now have for the doctor and more formulary restriction. Can you discuss this a little bit further? What will happen? Has this become a more popular model around the country? I guess one of the arguments is that a broad-based U.S. company is inherently more exposed to those pressures than a company with a lot of emerging market exposure or orphan drugs. So I guess it's a two-part question. First of all, are you as profitable in markets like Massachusetts as you are in Texas? And second, is Actavis considering expanding from a U.S. broad-based primary care market focus to orphan drugs, to emerging markets, and so forth?
Brent Saunders:

You want to take that one part of the question first?
Bill Meury:

Sure. We are as profitable, for example, in New England as we are in the South. We may get there differently, but part of managing these businesses is simply managing the level of investment relative to the sales return. My sense about consolidation is that it's going to happen at a very, very slow pace. Integrated health systems are still trying to figure out how they want to run their business, much less how they are going to interact with pharmaceutical companies. Our access rates -- and we've launched perhaps more new products over the past year and will launch as many in the next year as any Company -- are still in the 80%, 85% range. It's true that some regions of the country we have more access than in others. But at the end of the day, the only way the healthcare community -- providers and payers -- find out about new products is through sales and marketing. It's going to look a little bit different, but fundamentally it will be the same. I believe a company that wants to be a serious player is going to need a primary care and a specialty component, which we'll have. We may adjust the size of it over time, or redistribute it; but I would say for the foreseeable future, no radical change in how we do our business.
Brent Saunders:

Just to answer your other two questions, in terms of focus, clearly one of the things the Allergan deal does or the combination does is give us a very strong global footprint. So I think you'll see us continue to use that as a source of potential revenue synergies. Take a market like Latin America, where Allergan enjoys in many countries a number-one position in eye care. We have lots of dossiers and products that we could bring into Latin America, but we didn't have an infrastructure. Yes, we may have to build a different sales force, but that's very different than getting a legal entity, renting an office space, putting an IT person, an HR person, a general manager and so on. So I see that as one of our biggest revenue synergy opportunities, is to really complete the globalization of the new combined Company. Then finally with respect to a dividend, I think in terms of our policy of capital allocation, right now we have been focused on investing our money in growth assets, long-duration growth assets, and I think we've done that fairly effectively. That will remain our priority after we delever. So to the extent that we can't do that or we don't see many opportunities, our Board is very thoughtful and will continue to evaluate other ways to return money to shareholders, whether that be a dividend or a share repurchase, depending on the situation. But those are clearly priorities number two and three.
Liav Abraham:

Good morning. Liav Abraham from Citi. First question on Namzaric. Can you talk a little bit about pricing and market access dynamics of this compound as you head into a rollout? And any comments you can make on net pricing versus Namenda XR would be helpful. And then second question is on biosimilars. How do you think about potentially launching at risk in this space, given that the regulatory environment is evolving probably quicker than the IP environment? Or is this up to your partner, Amgen, for those products that are being there?
Brent Saunders:

Yes, maybe I'll answer that question and then ask Bill to talk about Namzaric. I think launching at risk is probably unlikely or unnecessary, particularly for the biologics that we are going after. As I said, I think most of these have patent issues that go up to about 2018. These markets really will develop till 2019, 2020, 2021, or beyond. So I think the idea of launching at risk given the slow adoption of biosimilars probably just doesn't make a lot of sense. But each one will have to be evaluated on a case-by-case, situation-by-situation analysis.
Bill Meury:

In terms of Namzaric, we believe that there is a price/volume point that we can obtain over the next 6 to 12 months that is going to make sense for health plans and is going to be acceptable to us. These are very popular products. One of our priorities is to make sure that patients and physicians have access to them. Our view is mid- to-long-term as it relates to both XR and Namzaric. Our plan is to essentially give Aricept away, and the combination will likely be at a discount to XR; but again, not an unacceptable discount. And as I said earlier, we're in open dialog right now, and we know where we need to be and how to get there. I think I'm encouraged by what we see.
Jason Gerberry:

Hi. Jason Gerberry, Leerink Partners. First, thanks, Brent and team for the detailed presentation. Just a couple questions; first on pricing trends for specialty brands, that 10% CAGR. Maybe, Bill, if you can just talk about your operating assumptions regarding any downward pressure on gross-to-net both for base business products and for the pipeline? And then my second question, just on eluxadoline
Bill Meury:

In terms of pricing dynamics, they're largely built into our plan certainly for 2015 and beyond. What every company is experiencing right now are lower price points, and less frequent and smaller price increases. Most of our contracts, like most companies, have price protection. We have a mix of primary care and specialty products. I will tell you our customers I think in general consider us a predictable pricing company in terms of where we set our price and then the way we increase our price over time. Generally, we're at the midpoint, and our price increases are in the mid to high single-digits. And that's because most of our products have strong patents and long exclusivity periods. So it's a play for the long-term. As it relates to some of the specialty products in our pipeline, I would think about them differently than our marketed products. These are products for populations where there is a high unmet medical need. Gastroparesis is an excellent example; uterine fibroids is an excellent example. Avycaz is an example where there are no other alternatives; There are certainly no generic alternatives. And so, our price point for a chronic therapy is usually several dollars a day. Those products are of course going to be at a higher level than that. And we’re pretty conservative when it comes to building major price assumptions into our, let's call it, five-year plan, simply because the market is shifting and there is a great deal of pressure on payers to control costs. And we understand that and our pricing approach has to reflect that.
Louise Chen:

Louise Chen from Guggenheim. Thanks for taking my question. First question I had was that -- do you think that sales and earnings growth that we saw from Allergan in 2014 is sustainable? And if so, what gives you confidence that it is? The second question I had was; what keeps you interested in the generics business? You talked about 50% growth, could you provide more color behind that? Thanks.
Brent Saunders:

Yes, my view of Allergan's performance is that it is sustainable. I think where you saw a lot of the growth was in the expansion of Botox therapeutic, particularly migraine. You saw in one of the areas I know quite well, the eye health category, particularly Restasis, Lumigan, other products grow very nicely. And those are large and growing markets still. The filler launch, the Voluma, Juvederm Voluma experienced the best launch in aesthetic history because it's a great product and there is great demand. So, I think as long as we can continue to focus on driving those brands, to continue to drive innovation to support the product flow, those businesses should maintain or even experience more robust growth. Take a drug like DARPin that they have in early Phase 2. If we can get the profile we want for DARPin that may be the biggest drug in the pipeline of the combined companies in terms of sales potential. So there are lots of aspects to this very dynamic Allergan business and I think David Pyott and Doug Ingram and the management team there is just first-class. These guys have really built something very special there. And we, I think, have demonstrated a willingness to bring their very special and talented people into the combined leadership of the new company at a very high success rate and that continues to flow down as we’re building out the proposed organization in layer two and three and four and beyond. So, we’re very excited about it. And obviously, we'll know more when we close; but I have no reason to believe anything but strong performance.
Dave Risinger:

Dave Risinger from Morgan Stanley. Thank you for the details on the pipeline today. I have a few questions. First, one is regarding an opportunity on the generics side. So with respect to methylphenidate, there is a mid-May deadline for Mallinckrodt and Kudco to demonstrate bioequivalence. If they fail to do so -- and since the FDA has done the tests and seems to believe that they have or will be failing -- but if they fail to demonstrate the bioequivalence, how will Actavis respond from a commercial standpoint? And also, how can Actavis get the DEA to change over the allocation of scheduled drugs from competitors to Actavis ? That seems like a constraint, since the allocations are made annually, Bob. And then my second question is on Namenda franchise, whatever the run rate is in X dollars, let's say, in July, obviously if we put aside the twice-daily Namenda -- which will go off a cliff when the generics hit -- how should we think about the branded portion that remains in the form of the XR plus the combination? Meaning should we think about that declining in the future, because you have to give much greater rebates on the Namenda XR; and also some providers that are already giving patients multiple drugs twice a day will push volume to the twice-daily? Or should we think of that branded line that remains growing because of the combo? Just trying to understand how to think about where that remaining branded line will go over time. Thank you.
Brent Saunders:

Yes, maybe we will take the Namenda question and then I'll pass the [Audio Gap] the IR generics enter the market, the franchise will go into decline. So I think you have to -- and we model and I think you have to think about Namenda going into decline; and it's just a question of the rate of decline that it goes at. The higher the conversion rate, the better that picture is. The more we drive people to fixed-dose combination, the better that is. And as we expand the market with the DTC, the better that is. So there are some levers to be pulled in terms of slowing or retarding some of that decline, but it will never be enough to stop the decline. So I think you do have to think about it as a declining franchise. Is that fair, Bill?
Bill Meury:

That's exactly right. Just think about the rate at which it happens. If we are successful with XR and the fixed-dose combination, and we can manage price and volume, the rate will be [Audio Gap]
Brent Saunders:

Our model assumes that we will go through the conversion voluntarily, that we will reach somewhere between 60% and 70% on our own. Obviously, we have a court potential decision in March that could change that. That's now become Plan B versus the original Plan A; so that could change things quite a bit. But that's not how we're modeling it at this point. In terms of the generic, before I pass it to Bob to answer on Concerta -- I didn't answer the previous question. We love our generics business. The reason we like our generics business is because we are the best in the world at it. It is a source of growth, sustainable, long-term growth. And it also, I think, has the added advantage of being very strategic. It helps us think of our own portfolio in a sharper way. It helps us do business development in a sharper way. And the expertise in the R&D group is incredibly complementary and beneficiary to the R&D group. So there's -- we like all businesses that we are the best at, and we're the best at global generics.
Bob Stewart:

On methylphenidate, there are a number of things that we are doing. Right now today we are notifying physicians that there is an AB-rated generic out there, and it is ours; and making it clear that the other two competitors out there have been flipped to a BX rating. I personally think it's irresponsible to continue to market that product given that it was driven by adverse events and it was driven for lack of efficacy. So we're making physicians aware of that as well as practitioners. The other thing we're doing is we're working with J&J as well as with DEA to build up enough inventories in anticipation of the May 11 date. And we are making the assumption that they are not going to be able to continue to stay in the market. So we will have the inventory. We actually have the inventory now, where we can start converting the entire patient population over. DEA and FDA have really done, I think, and incredibly good job at working collaboratively to try and deal with drug shortage issues, in particular around ADHD medications. If you recall there was a couple years ago where there was shortages of Adderall in the market, shortages of Concerta in the market because of the fact that they were not responsive in terms of quota allocation. What they've now done is they've built enough aggregate quota that gives them now more flexibility to award quota as needed. And we're taking advantage of that with J&J to be able to ramp up our inventory levels to support the market.
Umer Raffat:

Thanks for taking my question. Umer Raffat from Evercore ISI. Maybe a couple of quick ones. Number one, on the 2017 $25 aspirational earnings target, is there any management compensation tied to that? Then separately on product side maybe, on eluxadoline, are we having any discussions with FDA yet on labeling? And also on relamorelin, the ongoing Phase 2b if it does confirm the vomiting effect that was seen in the last trial, would that potentially qualify for an FDA Breakthrough designation? Thank you.
Brent Saunders:

Yes. On the first question, on the $25 aspiration compensation, it's something our Comp Committee of our Board is evaluating and is possible. Management would like that, though. We will see. Our Board lead director's over there, so I'm looking at her. But I think that we'd put in a plan to tie our compensation to it. But obviously, the Comp Committee has the final say. You want to take the other two questions?
David Nicholson:

Yes. Eluxadoline, yes, we're talking to the agency about our submission, so we are in dialog with them, absolutely. And regarding relamorelin, yes, we have Fast Track designation from the FDA. Bill, you wanted to add?
Bill Meury:

There was a question asked earlier which I forgot to answer about the sales range on eluxadoline. It's basically a function of our ability to convert the over-the-counter market. And of course labeling always comes into play.
Randall Stanicky:

It's Randall Stanicky, RBC Capital Markets. Bob, one for you, bigger picture. You and I were both at GPhA last week. We talked or saw the FDA Target Action Date Initiative of 1,000 for this year on top of GDUFA timeline. So how do you think about -- given the size of your guys' ANDA portfolio, which is the biggest, how do you think about the volume opportunity for this year against what could be perhaps for the first time in a couple years some new variable in the pricing dynamic?
Bob Stewart:

Well, I think it's going to be interesting how that plays out company to company because when you look at the breadth of our portfolio, the number of exclusive first-to-files, the volume dynamic of more competitors coming in versus the exclusive first-to-files that we are going to start driving through, the net effect of that is still positive for us. So I look at it in the context that our portfolio, being as diverse as it is and how much of it is driven by first-to-files, the net effect I think is favoring us. But the FDA has made some pretty lofty promises at GPhA, and we've heard some of these promises before. We are seeing some definite improvement with the agency in terms of its acceptance rates. We filed the product on February 9 and we got an acceptance for file today, this morning. It just shows that FDA is clearly getting more efficient in how they are processing these. What they're doing in terms of the backlog, if they're going to get 1,000 applications through, I'm cautiously optimistic on that. But one of the benefits that we have this year is all -- the majority of the launches that we had planned for this year have already been approved and already are out in the market. So for us I'm looking at it as a positive for 2015.
Randall Stanicky:

The follow-up to that, Brent, on the one hand you have the brand business; on the other you have the generic business. How do you think about the middle, the 505(b)(2) opportunity, given that you've got these -- the capabilities from a delivery perspective; you've got the compound know-how. Is that something that, as you think about the next three to five years, it could be a big opportunity as you think about the hospital space, injectables, and others?
Brent Saunders:

It is. I think it's something that certainly excites me, not just in the hospital injectables where it's pretty intuitive that 505(b)(2) strategy would make a lot of sense. But I think as you think about the other therapeutic categories where we're in, where we have strong commercial capabilities, supporting those businesses also with select 505(b)(2) programs could make a lot of sense. We have a few that we are working on. Hafrun knows the one that I'm most interested in that, if it works, would be terrific. But absolutely, it's a core capability of putting a generics -- or strategic rationale for putting a generic and branded business together and operating it as one company, which no one else does.
Jami Rubin:

Right over here. Jami Rubin with Goldman Sachs. Tessa, a question for you; I promise I'll be nice.
Tessa Hilado:

I know you're nice, Jami.
Brent Saunders:

If not, I'll hit her with her butter knife.
Jami Rubin:

Last year there was obviously furor over potential tax inversion plays; and that came to a halt with the changes in the Treasury rules. Are you confident that any potential discussion about earnings stripping is now over and if not, can you quantify what the exposure would be to your tax rate should that come into play again? Not saying I'm hearing anything, but just what you're hearing. Also, just as the combined Company with Allergan, how should we think about the tax rate going forward? Is there an opportunity to bring it even lower than 15% as some of that IP is moved to Ireland?
Tessa Hilado:

Let me try to figure out all the questions. The first one was with regards to income stripping. I think the Obama announcement fairly recently has made it certain that any ruling on inversions would have to be dealt with at Congress; so we don't think that's going to happen in the foreseeable future at this point in time. With regards to the inversion and our tax structure, I think we're in compliance. We're in pretty good stead. That inversion has now been through like about two years.
Brent Saunders:

October will be two years.
Tessa Hilado:

October will be two years. So we don't feel there is any risk. So at this point it's going to be very difficult for us to quantify what that actually means. With regards to Allergan, at this point in time, they also have products that are sold in low-tax jurisdictions. So our best estimate at the moment is really the tax rate we provided to you, which is 15% post-close. Did I answer everything, Jami? Great.
Brent Saunders:

Have to get you with the knife.
Hima Inguva:

Hima Inguva from Bank of America. Thanks for all the color and taking my question. For Brent, thinking about future, looking at five, seven years out years from now, do you see Actavis as a standalone Company, especially given the high growth rates, low tax structure from inversions, IF there were to be a big pharma company that was interested in joining forces, will you be receptive to the idea?
Brent Saunders:

Yes, so I think as you think five, seven years out, we're in such a dynamic industry it's hard to predict what will happen. I do believe -- I've said this before -- this industry still has a lot of consolidation to go through. There's just too much inefficiency in the commercial capabilities of this industry, in the R& D capabilities and targeting and focus of this industry. So I think you'll see a continued consolidation over the next several years. That being said, when you look at the chart that's on this slide I think we've become, in my opinion -- and obviously I have a bias -- the most dynamic Company in the industry. So will we continue to be an acquirer, or will we -- will people look at buying us? I can't predict what others will do. But I think it would take an awful large premium to acquire a Company this special. I'd just leave it at that.
Sumant Kulkarni:

Sumant Kulkarni from Bank of America Merrill Lynch. I have three quick questions. The first one is on biosimilars. Does your agreement with Amgen at least conceptually allow for authorized biosimilars or ABs, as I think we should call them at some point? Secondly, on injectables we've seen a lot of moves in the markets including M& A activity. How specifically does Actavis plan to target that or get bigger? And finally, on Restasis, how is the Company thinking about the timing of potential generic competition, given that standalone Actavis may have been a filer there?
Brent Saunders:

Yes, maybe I'll take Restasis first. Obviously that was something that we were targeting, to try to create a generic Restasis before we did the deal. Obviously, we're not doing that anymore. And, look, I mean, the FDA changed the guidance. Our belief is that that probably knocked most of the people out that are going after it today. That's our intelligence; it's not perfect vision, but I think we believe that to be the case. But we also think there is a pathway forward for a company to do it. So our view is that Restasis has something on the order of magnitude of a four- to six-year life ahead of it. Very hard to predict exactly when. We have good intelligence, so we will keep our ear to the ground. But enough time for us to implement a lot of the plans the Allergan team had for product improvement and product extension, whether that be Restasis X or other dry eye molecules. So upon close we will be absolutely focused on making sure that the duration of the dry eye leadership at Allergan remains intact. And there are multiple levers to pull on that. To your other questions on the Amgen agreement with respect to authorized biosimilars, I actually don't know. I don't know, Paul, if you…
Paul Bisaro:

We actually do have.
Brent Saunders:

We do. Yes, we do have that in the agreement. I'm not sure that means a whole lot, in my humble opinion; I think we'll see how these things ultimately get commercialized and sold. We have some flexibility in our agreement depending on how that actually plays out. But my sense is what you'll see as biosimilars enter the market is the brands just drop the price to compete with the biosimilars. They will probably stay at a small premium for those patients and doctors who want the original drug. But the distribution channel may not look entirely different.
Corey Davis:

It's Corey Davis at Canaccord. I have two questions. The first one
Brent Saunders:

Bill, you want to take the first?
Bill Meury:

Yes, I mean, Corey, the issue raised about the field force is one that we manage every day. It requires constant calibration. I will say that if the nine products we reviewed today were in completely different categories, then we would have SG&A problem to solve. As products move through their lifecycle from year one to year two to year three, we have to have the ability to moderate our investment so that we can increase it on new products. Given the overlap between the nine and our marketed products, I think we're going to be manage our SG&A in a way that would be very different if we were entering nine completely new categories. We still operate by the principle that we should be, in share of voice, number one when we launch a product. I think we still have the capacity to do that. But if we don't, I think it's just like R& D
T essa Hilado:

I guess from an SG&A perspective, if you recall in 2014, we already ended the year at roughly 21%. So we have room in the forecast in terms of spending the money even to get up to 24%. So we think that's manageable, as Bill pointed out.
David Nicholson:

Regarding relamorelin, what I tried to do during the course of my presentation was to describe how for all of our products we aim to build a brand by ultimately going for multiple indications. I really do like to see during the course of development efficacy in a well-defined subgroup, because that's something that -- it obviously makes the whole development program much easier if you are looking at a well-defined subgroup where you get a clear indication of efficacy and safety early on.That was the point about my presentation for relamorelin. That's what really drove it; but we do seepotential for relamorelin in a broader range of the larger patient population.
David Amsellem:

David Amsellem from Piper Jaffray. Just a couple of questions. First on linaclotide, you talked about expansion opportunities, particularly the low-dose version. Is this something that could eventually become an OTC available product, similar to how the low-dose proton pump inhibitors eventually went to OTC? That's number one. Then secondly, on the OTC business, what's your appetite for growing this segment via further acquisitions? And would that contemplate acquisition activity in the US? Thanks.
Brent Saunders:

Yes, I think on the OTC business, we do like the business. It does have a really good, sustainable profile. I think the one thing you should recognize, too, in the combination of Allergan we do pick up a very nice US OTC business in the Refresh tear business, which is the market leader or among the market leaders in the OTC market. So I think we're going to continue to evaluate how do we gain strength both globally and domestically in OTC. I think you'll see us maneuver very strategically and opportunistically around OTC assets in the marketplace. Want to talk about Linzess OTC?
Bill Meury:

Yes. I mean the aim with a low dose, one, is to provide physicians with some dosing flexibility; but it's really designed to access a more mild, moderate, intermittent OTC category, which is really where the volume is. In terms of introducing an OTC version of Linzess, that is an option that we would consider if it made good economic sense, and especially if we are successful with developing a next-generation Linzess, which is the [colonic] delivery concept that David talked about.
David Nicholson:

Just to help you out, Bill, you said mild to moderate OTC. You meant mild to moderate chronic idiopathic constipation, CIC, right? Yes. Just to help you out. All these abbreviations.
Brent Saunders:

I just say butter knife.
Shibani Malhotra:

Hi, Shibani Malhotra from Sterne Agee. Quick question for David and Bill on eluxadoline. One, are you expecting a panel, given this is a new product? And then, commercially how do you expect this product to be used, given that IBS-D is multifactorial? Would you expect this to be the first line? How do you think doctors are going to differentiate between patients that have bacterial overgrowth versus not? Then second, a question for Bob. You've mentioned Advair many, many times now and you haven't given us much around timelines, etc., for when you think you could be on the market if you think you are first in the market. So if you could give us an update on that, that would be great. And if Brent could tell us which products he is excited about, that would be great as well.
Bill Meury:

Let me --
Brent Saunders:

Yes, you want to start?
Bill Meury:

Yes, I can start on the commercial question about eluxadoline, and I think Dave will take the other one. We don't really know how Xifaxan is going to be used relative to eluxadoline. What we do know is there is a real absence of treatment options. We know that the consensus, frankly, on bacterial overgrowth and the link to IBS is not completely clear, nor is there consensus on the prevalence. Xifaxan, don't get me wrong, is a very effective product. Our sense is we'll position eluxadoline, given its effect on transit, as a first-line therapy -- or I would say a firstline therapy after patients have tried OTC medications, which virtually all of them have. But again there is plenty of room for both of these products. We may find out at some point in the future that they can be used in combination alongside each other. But of course, those data don't exist right now.
David Nicholson:

And what was the first part of your eluxadoline question? Sorry.
Shibani Malhotra:

Are you expecting a panel?
Brent Saunders:

Panel?
David Nicholson:

Oh, a panel? Actually, we don't believe so, but the FDA can of course change their minds.
Brent Saunders:

So, Bob, you get to answer your Advair question.
Bob Stewart:

So on Advair, what I'll say is that we are becoming increasingly more confident in our application process. We're not going to be the company that's going to go out and do a press release when we enroll in clinical studies. If we did that, Charlie would have to triple the size of his organization, because you can see how productive Hefrun's organization is. But as I said before, that -- with Advair there's three things that have to come together. It's the device; it's passing a PK study; and ultimately performing a clinical endpoint study. The clinical endpoint is the easiest of the three and you need to have all three of those things come together before you ultimately can have an AB-rated substitutable product in the marketplace and that is what our goal is. It's not to go down the 505(b)(2) route, it's to go down the AB substitutability route. And so, all I'll say is that we're becoming increasingly more confident.
Brent Saunders:

Timeline? That's what he's confident about.
Bob Stewart:

That's why I'm confident.
Elliot Wilbur:

Elliot Wilbur from Needham & Company. I have two questions, the first is for Bob. As you think about rounding out your generic book of business, moving back into injectables and then rearming in topicals and I guess entering ophthalmics, are you confident that you have the internal capabilities or the partner relationships to become a meaningful supplier to the trade without making a strategic move in those areas? And then second question is for Tessa. Would it be possible at this point to get some sense of the level of interest expense expected in 2015 and embedded in your earnings per share guidance?
Bob Stewart:

Yes, I'll absolutely -- I'll answer the first part of your question, in terms of confidence, no question about it. I'm absolutely confident that that we've got the team in place that's ultimately going to be able to deliver value to the different segments, both in hospital as well as in other -- in topicals and the like, so no question about it. We've built up an infrastructure. We've invested in it. We've got good sales teams that are ready and have already launched these businesses. The other thing I'd say is that we are really focusing on being disciplined on the type of portfolios we're going to bring to this business as well. So we're going to differentiate ourselves on the portfolio side of things and be relevant to our customers based on what that offering's going to be versus trying to convince ourselves that we need to have the full breadth of products. So it's going to be really more opportunistic in terms of how we approach the business and really competing on more of a portfolio approach as opposed to trying to have the full breadth of portfolio, if you will.
Tessa Hilado:

So on your question given that we will be filing our S-3 in the next couple of days, we're really restricted from talking about the offering at this point in time. So, just stay tuned in the next couple of days. Obviously, given the fact that rates have moved lower since November 17, spreads have widened a little bit, so there's puts and takes there. And I talked about the two developments as well relative to the equity offer, which is better than expected earnings and cash flow both Allergan and Actavis reported for Q4 and then obviously the stock price has run up a little bit since the announcement itself. But stay tuned in the next couple of days.
Saba Hekmat:

Saba Hekmat from New York Life. A question for Tessa. Tessa, as you look at -- as you join this Company, it's much larger in size now and comparable to some of the big pharma companies out there. What's the appropriate capital structure that we should think about leverage and credit ratings for the intermediate and long term?
Tessa Hilado:

So we're basically committed to the investment-grade rating as we look at various acquisitions I mean obviously we always have a plan to delever rapidly in order to obtain that. In case in point, we were very disciplined when we announced the Allergan acquisition. From a leverage perspective, we've indicated that we believe post-close we would be down to 3.5 times and we would continue to maintain our investment-grade rating.
Lisa DeFrancesco:

Okay. That's all we have time for today. I'd like to turn it back over to Brent for maybe some closing remarks.
Brent Saunders:

Yes and so I would just like to first thank everyone who attended live here in person in New York and those listening in on the webcast, thank you for your time and attention. I hope you see our enthusiasm for our Company and our future and our combination with Allergan. And we look forward to keeping you updated as we progress both on the offering as well as the close of the combination in the coming weeks and months. Thank you.

Enact Holdings, Inc. Q4 2014 Earnings Call Transcript

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Enact Holdings, Inc.
Q4 2014 Earnings Call Transcript