Endo International plc
Q1 2022 Earnings Call Transcript

Published: 6 May 2022

[Operator:]

Good day and welcome to the First Quarter 2022 Endo International Plc Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the call over to Laure Park, Senior Vice President, Investor Relations and Corporate Affairs. You may begin.

[Laure Park:]

Thank you. Good morning and thank you all for joining us to discuss our first quarter 2022 financial results. Joining me on today’s call are Blaise Coleman, Endo’s President and CEO; Mark Bradley, Executive right Vice President and CFO; and Patrick Barry, our President, Global Commercial Operations. We have prepared a slide presentation to accompany today’s webcast and that presentation as well as other materials, are posted online in the Investors section at endo.com. Additionally, later this morning, a copy of our prepared comments will also be posted online in the Investors section at endo.com. I would like to remind you that any forward-looking statements made by management are covered under the U.S. Private Securities Litigation Reform Act of 1995 and the applicable Canadian securities laws and are subject to the changes, risks and uncertainties described in the press release and in our U.S. and Canadian securities filings. In addition, during the course of this call, we may refer to non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in the United States and that maybe different from non-GAAP financial measures used by other companies. Investors are encouraged to review Endo’s current report on Form 8-K furnished with the SEC for Endo’s reasons for including those non-GAAP financial measures in its earnings release and presentation. The reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are contained in our earnings press release issued yesterday unless otherwise noted therein. I would now like to turn the call over to Blaise. Blaise?

[Blaise Coleman:]

Thank you, Laure. Good morning, everyone and thank you for joining us. Turning to Slide 3, as we have previously discussed, our strategic priorities guide all that we do as we work to transform our company. Our first strategic priority to expand and enhance our portfolio is essential to fueling our company’s future growth and will be achieved through a combination of internal and external investments. This week, we announced advancements for our sterile injectables and medical aesthetics portfolios. Starting with sterile injectables, on Monday, we announced the acquisition of a portfolio of 6 product candidates from Nevakar. These products are in various stages of development with the first launch expected in 2025. Endo will control all remaining development, regulatory, manufacturing, commercialization activities for these assets. This acquisition further bolsters and expands our pipeline of differentiated ready-to-use sterile injectables. Additionally, yesterday, we announced that later this quarter, we plan to launch a new multi-cohort open-label study referred to as APHRODITE-1 focused on reducing bruising associated with the utilization of Quell. The study will test different interventions to assess their potential impact on the reduction of bruising and as part of our investment to achieve Qwo’s full potential. Our second strategic priority to reinvent how we work permeates our entire organization and everything we do. A key element of this priority is to optimize our manufacturing network, invest in new capabilities in support of our future portfolio and maximize supply chain flexibility and resiliency. Last month, the U.S. FDA completed its first inspection of our new manufacturing facility in Indore, India, resulting in no major Form 483 inspection observations. We have already received FDA approvals for several solid oral-dosed products that will be manufactured at the new site. Additionally, we continue to identify actions to simplify our ways of working across our business. We expect these actions to generate cost savings in the second half of 2022 with a portion of the savings expected to be utilized to fund certain high-priority new initiatives such as our new Qwo clinical study. Our third strategic priority, to be a force for good, embodies our commitment to create sustainable value that benefits all of our stakeholders. It also drives our environmental, social and governance strategy. Last week, we published our 2021 Corporate Responsibility Report, which serves as an annual accounting of our performance and our progress to integrate ESG into our company. I am pleased with our progress, which includes the measurement of Scope 1 and Scope 2 greenhouse gas emissions data. I want to thank all of our team members for their continued commitment to our vision and for their efforts to advance our strategic priorities. Moving to Slide 4, this is a snapshot of our segment and consolidated revenues and our adjusted EBITDA for the quarter. First quarter enterprise revenues of $652 million were better than expected due to slightly higher revenues across each of our business segments. Compared to prior year, revenues decreased by approximately 9%, primarily due to decreased revenues from our Sterile Injectables segment partially offset by increased revenues from our Generic Pharmaceuticals segment. First quarter 2022 adjusted EBITDA of $311 million was better than expected due to higher revenue, favorable product mix and lower adjusted operating expenses. Compared to prior year adjusted EBITDA decreased by approximately 15%, primarily due to lower total VASOSTRICT revenues, lower adjusted gross margin and higher adjusted operating expenses due to increased commercial investments. Turning to Slide 5, first quarter revenues from our Branded Pharmaceuticals segment were better than expected, primarily driven by higher growth in XIAFLEX and other office-administered products. Compared to prior year, segment revenues decreased by approximately 1%. This reflects a 12% decrease in our established products portfolio and a 4% increase from our specialty products portfolio. Although XIAFLEX’s performance in January and February was unfavorably impacted by ongoing medical and administrative staff shortages in physician offices and lower numbers of in-person patient office visits, we saw improving market conditions and a recovery in demand starting in March. We remain optimistic that market conditions will continue to steadily improve throughout the rest of the second quarter and the second half of the year. First quarter revenues from our Sterile Injectables segment were consistent with our expectations. Compared to prior year, segment revenues decreased by approximately 22% due to decreased VASOSTRICT revenues primarily related to generic competition as well as lower overall market demand as COVID-19 related hospitalization utilization declined. Turning to Slide 6, the vasopressin market is currently very dynamic and evolving. First, beginning late last year and continuing early into the first quarter of this year, hospital purchasing of VASOSTRICT vials continued to be elevated driven by COVID-19-related hospitalization utilization and projected future needs. This was followed by the entry of multiple generic vasopressin vial competitors, triggered by Eagle’s January launch at risk, which substantially reduced the market pricing in our VASOSTRICT vial market share. As we move through the first quarter and COVID-19-related hospital utilization began to decline, overall vasopressin market volumes also began to significantly decline. The convergence of aggressive competition and overall declining market volumes on VASOSTRICT vial demand has resulted in a current high level of VASOSTRICT vial channel inventory in terms of week on hand. Based on this, we anticipate experiencing a prolonged period of VASOSTRICT vial destocking through the remainder of the second quarter. Accordingly, we expect to see a material unfavorable impact on revenues from VASOSTRICT in the second quarter inclusive of a one-time negative destocking impact of approximately $25 million. Additionally, as we approach the end of Eagle’s 180-day exclusivity period in mid-July, we are preparing for potential additional market entrants. With regards to our VASOSTRICT ready-to-use bottle, while early in the launch, we are encouraged by the market conversion to the bottle and the positive feedback we have received from our customers, to-date. Many of our customers have noted the potential for efficiency and convenience particularly as it relates to room temperature storage of the bottle as well as the flexibility of having the bottle at the site of care. Moving to Slide 7, first quarter revenues from our Generic Pharmaceutical segment exceeded expectations due to better-than-planned varenicline revenues. Compared to prior year, first quarter segment revenues increased by 3%, mainly due to revenues from varenicline partially offset by competitive pressure on certain other generic products. I will share more about the varenicline opportunity on the next slide. Finally, international segment revenues for the first quarter were in line with expectations and essentially flat compared to prior year. Moving to our varenicline product opportunity on Slide 8, we are extremely proud of our team members’ efforts to successfully expand our capacity during the quarter, which now is fully equipped to supply the market pre-Chantix withdrawal levels. This is critical to our ability to fulfill the current unmet product demand. Based on recent IQVIA data, we have approximately 85% share of the current market for the molecule. We believe varenicline has the potential to be a significant opportunity for us this year. However, we currently have no visibility into when competition might materialize for this product. Therefore, it’s difficult to estimate the full year outlook at this time. What we can see with confidence is that we are working to fully capitalize on the opportunity. This includes investments in omnichannel marketing to create awareness of generic varenicline availability in support of increasing overall varenicline market volumes. Moving to Slide 9, maximizing XIAFLEX for long-term growth is a critical element of our strategic priority to expand and enhance our portfolio. We believe that XIAFLEX has the potential to satisfy the large unmet needs that continue to exist for non-surgical options to treat both Peyronie’s disease and Dupuytren’s contracture. We are encouraged by the strong interest by patients seeking treatment, which is fueling underlying demand across both indications as measured by consumer traffic to our website and physician locator sites. It’s is a good early indicator of patient interest and initial consumer activation. To realize the potential of these indications and drive meaningful adoption and sustainable long-term growth, we are committed to consistent investment and condition awareness and consumer activation. For Peyronie’s disease, our branded campaign is intended to motivate men to visit a specially trained urologists and to request XIAFLEX. To help assist with diagnosis, we are also developing a digital app to give men, who have a curvature, the ability to screen themselves for Peyronie’s disease and securely share that information with a urologic professional all from the privacy of their own homes. We plan to launch this app later this year. For Dupuytren’s contracture, we’re very encouraged by the consumer response from our new condition awareness campaign, featuring real patients. Are watching education unfold commercials are driving strong digital traffic from patients searching for information regarding their condition. In addition to optimizing our on-market indications, our XIAFLEX maximization plan also includes continued investment in the development of potential future new indications. The current XIAFLEX indications in clinical development include plantar fibromatosis and adhesive capsulitis. We believe these potential orthopedic-focused indications represent the opportunity to potentially bring an innovative treatment option to address a large unmet need for patients who are seeking a non-surgical approach. In addition, these potential indications represent attractive market opportunities are highly synergistic with our current orthopedic selling footprint and commercial capabilities and represent highly efficient adjacencies for our XIAFLEX franchise. From a timeline perspective, we anticipate last patient to be enrolled in the Phase 2 study for plantar fibromatosis by the end of the year. For adhesive capsulitis study, we expect final Phase 2 results early in the third quarter of this year. Turning to Slide 10. As we indicated last quarter, as a company, we are very focused on listening and learning from the medical aesthetics community and becoming a trusted and enduring partner in this space. In response to your feedback, we are committed to identifying potential solutions that prevent and/or mitigate bruising and potential subsequent skin discoloration following the use of Qwo. Accordingly, we are advancing a multi-cohort, open-label, self-controlled study referred to as APHRODITE-1 later this quarter. Taking into account real-world learnings, observations and historical clinical study findings, APHRODITE-1 will test different interventions to assess the potential impact on the reduction of bruising following the treatment with Qwo as we believe bruising is the likely precursor to the occasional incidence of skin discoloration. Additionally, the study has been created with the flexibility cohorts in order to test additional interventions over time, if desired. Next week, we will be presenting a poster on the study design at the Symposium for Cosmetic Advances and Laser Education in Nashville, Tennessee. Currently, we are estimating completion of the study in mid-2023. On the commercial side, we have adjusted our commercial resource levels and we will have a focused approach on HCP outreach, successful practice integration and our targeted consumer activation. We believe this approach continues to give us a meaningful commercial presence in the medical aesthetics space and better meets today’s needs. It also enables us to redeploy funding to the Qwo APHRODITE study. Turning to Slide 11. We continue to evolve our R&D pipeline and manufacturing capabilities to support the introduction of an increasing number of sterile products that focus on our customers’ evolving needs avenues. With the recent acquisition of the six ready-to-use development stage product candidates from Nevakar, we have approximately 40 projects in our pipeline with sterile injectable products now representing approximately 90%. Year-to-date, across our Sterile Injectables and Generics segments, we’ve launched five products and expect to launch approximately 10 new products during 2022. In addition to our organic efforts to expand and enhance our portfolio, we intend to remain active on the business development front. We continue to be focused on opportunities such as the recent Nevakar acquisition, which are in our core areas of growth and which we believe will enable us to further leverage our existing capabilities. We’ve taken and will continue to take a disciplined approach to deploying capital on business development opportunities that align with our strategy. With that, let me now turn the call over to Mark to further discuss the company’s financial results and our financial guidance. Mark?

[Mark Bradley:]

Thank you, Blaise, and good morning, everyone. On Slide 12, you will see a snapshot of our first quarter GAAP and non-GAAP financial results. On a GAAP basis, loss from continuing operations was approximately $65 million or $0.28 per share on a diluted basis in the first quarter of 2022 compared to income from continuing operations of approximately $47 million or $0.20 per share on a diluted basis in the first quarter of 2021. This decrease was primarily due to decreased revenues and increased operating expenses, primarily related to our investment in consumer marketing efforts to support XIAFLEX as well as higher litigation-related costs and asset impairment charges. On an adjusted basis, income from continuing operations was approximately $156 million or $0.66 per share on a diluted basis in the first quarter of 2022, compared to income from continuing operations of approximately $175 million or $0.73 per share on a diluted basis in the first quarter of 2021. This was primarily attributable to a decrease in revenues that was partially offset by a decrease in adjusted taxes due to lower pretax income and a lower adjusted effective tax rate. As a result of the actions intended to simplify our ways of working that Blaise mentioned earlier, we expect to realize between $55 million and $65 million of annualized pretax cash savings by the end of the second quarter of 2023. While we expect to begin realizing some of these savings in the second half of 2022, we also expect to reinvest a portion of the savings back into the business, including to fund the Qwo APHRODITE-1 study. In connection with these actions, we expect to incur between $40 million and $55 million in total pretax restructuring-related expenses which includes approximately $25 million to $35 million of cash charges. In the first quarter of 2022, we recorded a pretax charge of approximately $30 million which included approximately $20 million of cash charges. Turning to Slide 13. Consistent with our approach for the first quarter, we are only providing financial guidance for the second quarter of 2022 at this time due to continued uncertainties and certain key assumptions that are expected to impact the full year. For the second quarter of 2022, we expect total revenues to be between $500 million and $525 million, adjusted EBITDA to be between $110 million and $125 million and adjusted loss from continuing operations to be between $0.15 and $0.17 per share on a diluted basis. As we previously disclosed, beginning with the first quarter of 2022, we no longer exclude acquired in-process R&D from the non-GAAP performance measures we use in connection with our quarterly financial reporting and forward-looking guidance. This change was made in response to views expressed by the SEC and is consistent with broad adoption by others in the industry. Accordingly, our second quarter adjusted EBITDA and adjusted earnings per share guidance includes the non-recurring $35 million payment related to the previously announced Nevakar portfolio acquisition that will be expensed as acquired in-process R&D in the second quarter. However, it is important to note that our credit agreement and bond indentures continue to permit acquired in-process R&D, which includes upfront and milestone payments expensed as R&D to be added back for purposes of calculating certain leverage ratios and other metrics within those agreements. With respect to second quarter 2022 total revenues compared to the first quarter of 2022, our guidance range primarily reflects significant erosion in both VASOSTRICT vial price and underlying demand due to competition, lower overall vasopressin market volumes and the estimated onetime destocking impact of approximately $25 million. It also reflects slightly improving market conditions for XIAFLEX and the continued impact of competitive events in our Generics business. Our second quarter 2022 guidance assumes an adjusted gross margin of approximately 67%, which is lower than the first quarter of 2022 due to product mix. We further assume that second quarter 2022 adjusted operating expenses as a percentage of revenue will be approximately 46.5%. This assumption reflects our continued commitment to invest in our core areas of growth. This includes investing in both on-market and potential future new XIAFLEX indications, funding the Qwo APHRODITE-1 clinical study and investing in the development of new sterile injectable products. It also includes the non-recurring $35 million investment related to the Nevakar portfolio acquisition. We believe these strategic investments in our portfolio will generate long-term value for Endo. Relative to the second quarter, we expect operating expenses to decline in the second half of the year as a result of the cost efficiency actions intended to simplify our ways of working that we’ve previously mentioned. Finally, for the second quarter of 2022, we are assuming interest expense of approximately $143 million and an adjusted effective tax rate of approximately 1%. Please keep in mind that neither our first quarter actual results nor our second quarter guidance ranges may be indicative of future period results. As I mentioned earlier, we are not providing full year 2022 guidance as there continues to be significant near-term uncertainties associated with certain key assumptions that are expected to impact our full year adjusted results. The assumptions with the highest degree of near-term uncertainty relate to VASOSTRICT, varenicline and our specialty office administered products, particularly XIAFLEX. These key near-term uncertainties could serve as either a considerable headwind or tailwind in the second half of 2022 relative to our projected second quarter guidance ranges, depending on how actual events materialize, throughout the remainder of the year. For VASOSTRICT, the key uncertainties primarily include the level and rate of VASOSTRICT vial erosion, including the impact of future vial competition following the 180-day period of exclusivity and the level and rate of vasopressin vial conversion to the ready-to-use VASOSTRICT bottle. A potential resurgence in COVID-19-related hospitalizations also creates some uncertainty for overall vasopressin demand. For varenicline, the key uncertainties include the timing and number of future competitive entrants as well as the rate and extent of the recovery in the total varenicline market volume to pre-Chantix withdrawal levels. For our specialty office administered products, the key uncertainties relate to the ongoing medical and administrative staff shortages in physician offices and the corresponding impact on the number of in-person patient office visits. Although we have recently seen improving market conditions for our specialty office administered products, the rate and extent of the recovery will have a material impact on the performance of this portfolio of products, particularly XIAFLEX over the remainder of the year. Switching to Slide 14, this is a summary of second quarter 2022 segment revenue assumptions as well as product-specific assumptions for XIAFLEX and VASOSTRICT. Advancing to Slide 15 and wrapping up the financial discussion. Unrestricted cash flow prior to debt payments was $91 million for first quarter 2022 compared to $250 million in the prior year. This decrease was primarily due to lower adjusted EBITDA, coupled with higher opioid-related legal expenses and settlements. We ended the first quarter of 2022 with approximately $1.4 billion of unrestricted cash and a net debt-to-adjusted EBITDA ratio of approximately 4.7x. These amounts reflect the repayment of approximately $180 million of maturing debt that we made in January. We expect second quarter 2022 unrestricted cash outflow prior to debt payments to be between $280 million and $295 million. This range reflects expected payments of approximately $165 million for opioid-related legal expenses and accrued liabilities. It also includes the $35 million payment that has been made for the acquisition of the Nevakar portfolio. Let me now turn the call back over to Blaise. Blaise?

[Blaise Coleman:]

Thank you, Mark. Prior to turning the call over to Laure to manage our question-and-answer period, I want to provide a brief update regarding the opioid litigation. With respect to the opioid litigation as a whole, we continue to be focused on our primary goal of achieving a broad-based resolution of the remaining opioid claims. At the same time, we will continue to actively defend the company in court when necessary, and we will pursue individual settlements when we believe they are in the best interest of the company. Additionally, we are actively exploring other strategic alternatives both in support of achieving a broad-based resolution in the event we’re unable to achieve such resolution. As with any thorough analysis of a complex situation, the path to resolution will continue to take time and we cannot speculate on the likelihood, nature or timing of any outcome. More importantly, while we continue to address the opioid litigation, our Endo team members remain highly focused on our day-to-day business execution, advancing our strategic priorities and delivering our portfolio of life-enhancing products to our customers and the patients they serve. I want to thank each of our team members for their strong execution during the first quarter and continued commitment as we move forward in 2022 to helping us to continue to transform the company for the long-term. Let me now turn the call back over to Laure. Laure.

[Laure Park:]

Thank you, Blaise. Michelle, can we have our first question, please?

[Operator:]

Our first question comes from Chris Schott with JPMorgan. Your line is open.

[Chris Schott:]

Great. Thank you so much. Just the first one is I was trying to get a little bit more color on VASOSTRICT and how to think about the go-forward business as we look beyond 2Q, I know it’s a volatile environment. But I guess if I take the 85 to upper 80s erosion this quarter and adjust for the destock, it seems like it implies the underlying business is around $60 million in the quarter. I guess is that a reasonable run rate? And then as we look out to 3Q and beyond, should we expect further erosion of that, let’s call it, $60 million business as additional competition comes in, or is it too early to call on that? And I just had a follow-up after that.

[Blaise Coleman:]

Sure. Thanks Chris, for that question. Now, as we have stated here, we are not providing guidance beyond Q2, but in terms of the math that you just did in terms of the impact of the destocking in Q1 as we size is about $25 million. So, absent that, your math is correct. As we move forward into Q3, as we mentioned, there is the day 181 loss of exclusivity period for Eagle will happen at that time. And so it’s uncertain what that will look like in terms of additional competition. And if there is additional competition, what that will mean in terms of impact to our VASOSTRICT business?

[Chris Schott:]

Okay. And then just a kind of bigger picture question, I guess just given the step-down in revenues, just elaborate a little bit more about how you are thinking about OpEx. I know you have done a lot to optimize the P&L over the last few years. But if we are in a situation where VASOSTRICT remains depressed, do you need to think about, I guess deeper cost cuts in the business? I am just trying to get my hands around when I look at kind of the 2Q EBITDA numbers and just kind of think about the go-forward business. Just help me understand a little bit about how you are thinking about expense management?

[Blaise Coleman:]

Yes. Sure. Thanks Chris. A couple of things. One, as we think about the business longer term, clearly, our first priority is about expanding and enhancing our portfolio. So, we are going to remain committed to investing in our growth drivers going forward. Our second strategic priority is reinvent how we work. And that is all about us driving efficiencies and productivity across the business. It’s just part of our DNA. And so as we move forward, we will continue to look for opportunities to meaningfully drive efficiencies and productivity. Over the long-term, though, our path back to EBITDA growth and getting to levels that we want to be at is going to be through the portfolio. So, we are committed to making sure we are going to continue to invest behind our growth drivers appropriately.

[Chris Schott:]

Okay. Great. Thank you so much.

[Blaise Coleman:]

Thanks Chris.

[Laure Park:]

Next question please.

[Operator:]

Our next question comes from David Amsellem with Piper Sandler. Your line is open.

[David Amsellem:]

Thanks. So, I had a couple. Just first, just elaborating more on the cost structure, given that Qwo is obviously promotion-intensive and given that you are essentially trying to build the brand, can you talk about your ability to really invest in that product given the pressure on the top line and all the dynamics associated with vasopressin. I mean in other words, is that an area where you think significant further investment makes sense. Certainly, your remarks are not lost on me regarding investment growth. But how do you think about its role going forward given the realities of the business. So, that’s number one. And then number two is can you talk about the potential for asset divestitures and how that could potentially free up some capital or address the cost structure to the extent that the cash flow from VASOSTRICT – or a lot of the cash flow from VASOSTRICT is going away. How do you think about that? Thank you.

[Blaise Coleman:]

Yes. Thanks David, for those two questions. I will comment on both and then also let Patrick comment on the Qwo question. Maybe on the second one in terms of divestitures, our focus right now is driving EBITDA and EBITDA growth. And in terms of divestitures, the way we think about that and have always thought about it is, hey, does this product – does this part of our business make sense to us going forward from a strategic perspective. And that’s how we take those decisions. But right now, we are not going to be selling assets from a liquidity standpoint that’s at the expense of EBITDA because our focus again is on driving long-term EBITDA growth. In terms of Qwo, yes, as you heard in the prepared comments, we did make some adjustments to our commercial operating model given where we are with Qwo and the opportunity we have currently around that. We are absolutely investing for the long-term success of Qwo and that was why later this quarter we will be initiating the APHRODITE-1 study, which is really focused on identifying potential prevention and/or mitigation of bruising, which ultimately, we believe is the precursor to the occasional incidence of skin discoloration that’s happening in the market today. In terms of investment levels, we think the model we have in place right now with the changes we made is the right model for us and is a sustainable model as we move forward. And if and when we have success with APHRODITE, we will be in a very good position to drive the type of growth around Qwo that we believe is appropriate for that opportunity.

[Laure Park:]

Next question please.

[Operator:]

Our next question comes from Gary Nachman with BMO Capital Markets. Your line is open.

[Gary Nachman:]

Hi. Good morning. First, just a follow-up on the APHRODITE study for Qwo. So, that won’t be completed until mid next year. Do you expect physicians will be comfortable using the product really at all until you have had data if there are such concerns of bruising and discoloration? So, how do you see the use of the product over the next year, at least until you have the data? And then with the new additions to the sterile injectable pipeline from Nevakar, how big are those opportunities? And are there a lot of these types of assets out there that you are looking at? And how much flexibility do you have on the balance sheet to actually bring those types of assets in to bolster the pipeline further? Thank you.

[Blaise Coleman:]

Great. Hey. Thanks, Gary, for those questions. I will let Patrick comment on our approach currently with Qwo and I will take your second question on the sterile injectables.

[Patrick Barry:]

Yes. Blaise, thanks for the question. Yes, we definitely do believe there is a market today. What we have learned thus far in the early stages of launches is that, that Qwo works. It is effective in the right patient. That moderate cellulite patient without skin laxity, we are seeing a good result. And so importantly, though, it is what we also have learned Importantly, it is very strategic and relevant to set the proper expectation for the experience of bruising and as Blaise talked about, in a small percentage of patients, the risk of discoloration. And so it’s about expectation setting in the practice, so that the patient expectation can be set. But there is a core physicians that understand Qwo and understand the opportunity to address cellulite. And I think we have demonstrated that there is a market there based on our ability to be able to onboard 2,000 accounts. Those accounts – those are accounts that we are willing to trial Qwo. And so job one in 2022, while the APHRODITE work is being done to improve the patient experience and the account experience with Qwo. We still have this market an opportunity to move towards adoption. So, we are going to continue to focus and on those accounts that want to engage with us, that want to offer Qwo in their practice and integrate Qwo into their practice. So, we will be focused on education around patient selection, product education, setting expectations and having a very focused approach around creating noise in the marketplace from a consumer perspective, mainly through social channels and digital platforms.

[Blaise Coleman:]

Thanks Gary. And in terms of your question on the Nevakar opportunities, the different products that we acquired are in various stages of development. I am not going to comment on any specific opportunity other than to say that their ready-to-use products and their target opportunities that currently range from modest to large addressable markets. In terms of the question on future opportunities, what I would tell you is that both internally and externally, there are opportunities that we are very excited about to be able to bring the type of products we want that are really going to meet the evolving needs of our customers going forward. In terms of flexibility to invest, we obviously have financial constraints. However, between our internal capabilities and then maybe bring in opportunities that are going to probably admittedly be a little bit earlier in stage of development, we can really take those opportunities and use our capabilities to develop those and really bring value to the market through the value add we will have in terms of the products we will be able to launch in the future.

[Laure Park:]

Next question please.

[Operator:]

Our next question comes from Nathan Rich with Goldman Sachs. Your line is open.

[Nathan Rich:]

Hi. Good morning. Thanks for the question. Maybe following up on VASOSTRICT and looking at the guidance for 2Q and trying to adjust for the COVID impact and inventory destocking. I guess like looking at that, it seems to – the guidance seems to imply a more significant sales erosion. And I think what we would typically expect when seeing a couple of competitors on the market. I guess Blaise, any thoughts on why that might be the case? And then any initial progress or thoughts on the ready-to-use formulation and the uptake that might see in the market?

[Blaise Coleman:]

Sure. I am going to get Patrick if he can comment on what we are seeing in the marketplace for ready-to-use. On the first question, in terms of what we saw in the – from a decline perspective and what we are expecting in Q2, Nathan. What I would say is a couple of things and it’s in our script, we talked about the convergence of a number of events. So, we did have, obviously, the impact of competition and we have multiple generics coming to market at one time. So, we are seeing an impact on share and price. The other thing that’s happening though is overall market volumes, right. We had a pretty significant spike in market volumes, particularly in the first part of the first quarter due to elevated COVID-19-related hospitalizations and ultimately VASOSTRICT utilization. So, you have that element of where market volumes are coming down pretty significantly in our guidance from Q1 to Q2 from an overall market standpoint. The other element that we mentioned was, for us, just given where the product was early on in the first quarter in terms of the purchasing by the wholesalers, because of COVID-19, we are now also seeing a period of significant destocking. So, the convergence of all of those factors are really leading to the guidance number you see for Q2. I will let Patrick take the RTU question.

[Patrick Barry:]

Thanks. Yes. As it relates to the RTU for VASO, we are very encouraged by the level of interest and excited about the receptivity that we have seen. Obviously, in Q1, it was very early in the launch. And so the data, it’s early days. You can certainly take a look at the April IQVIA data to see how we are doing. But overall, we are very pleased by the uptake, the trends in terms of market share. We have seen positive feedback overall from the accounts that we have introduced, the VASO ready-to-use presentation. Hospitals are recognizing that ready-to-use product provides a lot of – I think a lot of benefits to them. Hospitals are under pretty extreme labor pressure. So, ready-to-use product that takes the pressure off pharmacy, particularly those who have to offer 24-hour pharmacy services takes a lot of pressure off pharmacy mixing rooms and having a ready-to-use that site of care, I think everyone is recognizing that, that’s a benefit. And just the cold chain flexibility, having that at site of care without some of the limitations around cold chain or some of the early reasons why we are seeing a lot of interest, and we are seeing conversion. So, we anticipate that we are going to continue to convert. I think we feel like the conversion opportunity is a good one for us, and we are very excited about what we are seeing early on.

[Laure Park:]

Next question, please.

[Operator:]

This concludes the question-and-answer session. I would like to turn the call over to Blaise Coleman for closing remarks.

[Blaise Coleman:]

Thank you, operator, and thank you, everyone for joining us this morning, and we look forward to providing you with updates as we move forward. And we hope everyone has a great weekend.

[Operator:]

This concludes the program. You may now disconnect. Everyone, have a great day.