Endo International plc
Q1 2017 Earnings Call Transcript

Published: 9 May 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the Endo International Plc Q1 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instruction] As a reminder, this conference is being recorded. I would now like to turn the conference over to Senior Vice President of Investor Relations and Corporate Affairs, Stephen Mock. You may begin.

[Stephen J. Mock:]

Thank you. Good morning and thank you for joining us to discuss our first quarter 2017 financial results. Joining me on today's call are Paul Campanelli, President and CEO of Endo; and Blaise Coleman, Executive Vice President and Chief Financial Officer. We have prepared a slide presentation to accompany today's webcast and that presentation, as well as other materials are posted online in the investor section at www.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 today's press release and in our U.S. and Canadian Securities filings. In addition, during the course of the 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 may be 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 today's earnings announcement. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is contained in our earnings press release issued prior to today's call unless otherwise noted therein. I would now like to turn the call over to Paul.

[Paul V. Campanelli:]

Thank you, Steve. Good morning and thank you for joining us for today's call. I hope that you've had a chance to review the company's earnings release that we issued earlier this morning. Let me now turn to our first quarter 2017 earnings presentation. Beginning on slide two, here's a brief agenda for today's call. Moving to slide three, Endo's very pleased to report a strong first quarter. This performance illustrates how our new formula for success focused on operational execution is beginning to take shape. Solid revenue growth driven by Generic Pharmaceuticals and our Branded Specialty products, coupled with cost savings from previously announced restructurings drove significant growth in our adjusted EBITDA. We are off to a solid start this year and are reaffirming full-year 2017 revenue, adjusted EBITDA and adjusted EPS guidance. Blaise will discuss our financial guidance in greater detail later in our presentation. Moving to slide four, you'll see a snapshot of our segment revenues for the first quarter. Strong growth on our U.S. Generic segment offset the expected sales decline in U.S. Branded and International Pharmaceuticals. Total company sales slightly outperformed our preliminary preannounced first quarter range as we achieved 8% year-over-year growth. Now moving to slide five. As I just mentioned, our Generics business delivered a very strong performance in the first quarter, driven by quetiapine ER and ezetimibe quetiapine ER and ezetimibe, the first to file products launched in fourth quarter 2016 as well as our Sterile Injectables portfolio. Speaking of Sterile Injectables, Vasostrict's momentum continued with first quarter sales of $99 million, up 24% versus prior year. Based on our strong first quarter performance, we now project full-year Sterile Injectables revenue growth in the mid- to high-teens percentage range. The strong performance of new launches and alterative dosages was driven primarily by the two fourth quarter product launches I just discussed in addition to continued uptake of potassium chloride powder. However, revenue for ezetimibe and quetiapine ER are meaningfully below previously communicated expectations due to lower generic conversion and net price. That said, for full-year 2017, we expect new launches and alternative dosages to grow in the low-single-digit percentage range. Our base Generics business declined approximately 32% compared to first quarter 2016 which is in line with the guidance we provided in February. The decline in the first quarter was driven in part by the annualization of 2016 competitive events as well as product discontinuations. From a price perspective, first quarter price erosion was in line with our expectations. Looking forward, we continue to expect a low 30% range decline in our 2017 base business as guided during our February 2017 earnings call. As previously communicated, our total Generic segment is expected to decline in the high-single to low-double-digit percentage range in 2017 versus 2016 due to base business sales decline, partially offset by revenue growth in Sterile Injectables and new launch in alternative dosages. As we continue to have a shift in product mix, we expect adjusted gross margin improvement versus prior year with our Generics adjusted gross margin in the high 50% range. Turning to slide six. Par launched eight new products year-to-date with four products launched in the first quarter. We made six regulatory submissions year-to-date and continue to expect approximately 20 ANDA filings in 2017. In addition to these milestones, we've had success on the patent litigation front in 2017, serving to help secure our future new product pipeline. We settled several patent cases with date-certain launches with a few disclosed on this slide. In addition, we received a favorable decision on ZORTRESS with the District Court finding the compound patent invalid. Par recently received the first ANDA approval for vigabatrin for oral solution, the generic version of SABRIL. Vigabatrin is a product with significant regulatory requirements that include a comprehensive SHARE REMS program. We look forward to launching the product in the coming months. Additionally, we're the first generic company sued for the filing of the paragraph IV on teduglutide recombinant powder for injection, the generic version of GATTEX. Par believes it is a first to file for teduglutide, which also represents Par's first ANDA filing for a polypeptide. We believe all these pipeline candidates represent first-to-file or first-to-market opportunities. As you know, Sterile Injectables is a strategic area of focus for us. Year-to-date, we have three Sterile Injectables including the February launch of ephedrine sulfate and we recently received approval for neostigmine methylsulfate injection. We're extremely excited about our Generics portfolio and how it is starting to take shape. Turning to our U.S. Branded Pharmaceuticals on slide seven, specialty products grew double digit, driven by XIAFLEX, up 12% and SUPPRELIN LA, up 11%. However, first quarter performance was more than offset by the previously communicated year-over-year impact of the loss of exclusivity for VOLTAREN Gel and FROVA in the first quarter of 2016, the third quarter 2016 divestiture of STENDRA and the continued erosion of established products including pain. The decline reflects a transitioning portfolio and shift of focus to specialty products. We now expect our Branded specialty products revenue to grow in the high-single to low-double-digits range, and continue to expect XIAFLEX to grow in the high-single to low-double-digits percent range. In terms of overall Branded revenue, we expect it to decline in the low- to mid-teens percentage range year-over-year based on the reasons discussed earlier. Adjusted gross margins for the Branded segment are expected to remain in the high 70s% range. You should take note that following the return of BELBUCA to BDSI and the decision to no longer promote our mature pain products, we have reclassified the way we report our U.S. Branded Pharmaceutical segment to focus on our specialty products. In doing so, we now include our legacy pain products with established products. For modeling purposes, specialty products include

[Blaise Coleman:]

Thank you, Paul, and good morning, everyone. First, on slide 10, you will see a snapshot of the first quarter GAAP and non-GAAP financial results. Paul covered company and segment revenues earlier, so I will not review that again. On a GAAP basis, we had a diluted loss per share of $0.74 in the quarter versus diluted loss per share from continuing operations of $0.40 in the first quarter of 2016. GAAP net loss from continuing operations in the first quarter 2017 was $165 million compared to GAAP net loss from continuing operations of $89 million during the same period in 2016. This was primarily due to the after tax impact of goodwill on intangible asset impairment charges related to Paladin and the U.S. Generic Pharmaceutical segment during the first quarter 2017 as compared to the same period last year. On an adjusted basis, first quarter results were strong. Adjusted operating income of $437 million and adjusted diluted earnings per share from continuing operations of $1.23 increased 22% and 14% versus first quarter 2016 respectively, primarily due to higher revenues, improved adjusted gross margin and lower adjusted operating expenses. Turning to slide 11, let's discuss our recent debt refinancing. On April 27, we completed our debt refinancing. As part of the refinancing, we repaid our Term Loan A due in early 2019, and Term Loan B due in 2022, by issuing a new seven-year covenant-lite Term Loan B and senior secured notes, both due in 2024. In conjunction with these transactions, the revolver maturing in early 2019 has been replaced with a new five-year revolver maturing in 2022. As a result of this refinancing, we have significantly enhanced the company's operational flexibility over the medium and long term including the extension of our debt maturity schedule. This brings us to our guidance on slide 12. We're reaffirming our 2017 full-year revenue, adjusted EBITDA and adjusted diluted earnings-per-share financial guidance. We continue to expect revenues to be approximately $3.45 billion to $3.6 billion, a low-double-digit decline versus 2016, primarily reflective of the pressures in our base Generics and Branded established products categories. Reported diluted-GAAP loss per share from continuing operations are projected to be between $0.80 and $0.50, reflecting impairment and restructuring charges. We continue to expect adjusted diluted earnings per share from continuing operations to range between $3.45 and $3.75, reflecting higher interest expense assumptions following our refinancing offset by the benefit of higher expected adjusted gross margin. More importantly, we continue to expect adjusted EBITDA from continuing operations to be between $1.5 billion and $1.58 billion, representing a significant increase in adjusted EBITDA margin year-over-year. The company's financial guidance is based on the assumptions noted on this slide. From a P&L phasing perspective, we now expect approximately 52% of our total enterprise full-year revenue and 53% of our adjusted earnings per share to be realized in the first half of the year, primarily due to the exclusivity periods of quetiapine extended release and ezetimibe. Additionally, we're currently forecasting $15 million in net cash tax receipts in 2017 with federal and state tax refunds expected to exceed global income tax payments. Lastly, in terms of projected cash flow on slide 13, we had $137 million in cash flow prior to debt payment in first quarter 2017 and continue to expect full-year 2017 cash flow prior to debt payment in the range of approximately $200 million to $280 million and estimate ending net debt to adjusted EBITDA leverage ratio to be in the high 4 times range. Now, let me turn it back over to Paul. Paul?

[Paul V. Campanelli:]

Thank you, Blaise. This was a strong first quarter for Endo. To reiterate, this performance illustrates how our new formula for success focusing on exceptional operational execution is beginning to take shape. We are committed to execute on the key priorities we set forth at the end of February. I want to thank the entire Endo organization for their commitment and contributions to the company as we strive to build a new and unified Endo. That concludes our prepared remarks. Let me now turn the call back over to Steve to manage our question-and-answer period. Steve?

[Stephen J. Mock:]

Thank you, Paul. We'd now like to open the lines to your questions. In the interest of time, if you could limit your initial questions to allow us to get in as many as possible within the hour, we would appreciate it. Operator, may we have the first question?

[Operator:]

[Operator Instruction] And your first question comes from David Amsellem with Piper Jaffray. Your line is open.

[David A. Amsellem:]

Thanks. Wanted to drill down on XIAFLEX and particularly the sales guidance on the product. So, I know in Peyronie's disease, I guess, your predecessor had cited what is ostensibly a significant market opportunity, but doesn't look like you're getting much traction there. So, maybe elaborate on what's happening there. Is it just too promotion sensitive? Is it a question of reimbursement? And then secondly, just given what looks like some challenging dynamics, why such significant investments in these label expansions, which are really for a product that is a brand that's outside of your Generics wheelhouse, why not explore a potential divestiture of the asset, try to monetize that and de-lever? I just want to get your thought process there. Thank you.

[Paul V. Campanelli:]

Okay. Well, a lot going on there. I think the answer first in the Peyronie's indication, we would tell you that we're seeing mid-teens growth. So, I'm not exactly sure what you're referring to, but we're pretty solid in Peyronie's mid-teens. In Dupuytren's contracture, we're saying that we're in low-single-digit growth. But when we look at how we invested in the marketing efforts in those two indications over the history, keep in mind that we had a much larger sales force detailing into pain. We're laser focused into XIAFLEX on these two indications. We're putting additional marketing resources behind these two indications. We actually think that they have both the ability to have some modest growth. And we'll be able to kind of elaborate a little bit more in the back half of this year, but we are putting some marketing dollars specifically direct-to-consumer funding into Dupuytren's contracture. So, more to follow, but we feel pretty good about the growth specifically in Peyronie's disease. In terms of – your question was really about our wheelhouse. We really view XIAFLEX as a core asset. We've got a very skilled and talented sales team that is laser focused on specialty. We are excited about the prospects of our Phase 3 clinical trial later in this year. And typically, these trials take 18 to 24 months, so we've got a good runway to really gear up and prepare for success in cellulite. So we view this as a core asset and we're pretty excited about it. Next question.

[Stephen J. Mock:]

Next question, please.

[Operator:]

Your next question comes from Andrew Finkelstein with Susquehanna Financial Group. Your line is open.

[Andrew Finkelstein:]

Hello. Hello. Are you there?

[Paul V. Campanelli:]

Yes, we can hear you.

[Andrew Finkelstein:]

Yeah. Thank you very much. Sorry for the delay. I was hoping you could address how launches stand relative to guidance for the year? We have a couple of recent approvals, but the timing on availability is a bit uncertain in how that plays into what guidance implies for EBITDA in the back half of the year post SEROQUEL and ZETIA because you've noted that the contribution from those has been less than expected and the guidance is unchanged. Thanks.

[Paul V. Campanelli:]

Yeah. So, it's a little hard to give a lot of visibility in terms of product specifics. What I would tell you here is that we've committed that we're going to launch at least 20 products. We feel that we're on track and we've done a great job so far in the year-to-date, where we've had recent approvals. And you can see where products like vigabatrin and neostigmine recently have been approved. The reason that it's hard to provide clarity, a lot of the products in the back half are not Paragraph IV, so we're just trying not to put ourselves at a competitive disadvantage. What I can say is that we are on track to what we've committed to, both from the number of applications that we think will be approved as well as the value that we believe that these products are going to drive for Endo. So we feel pretty good about our portfolio and our pipeline right now.

[Andrew Finkelstein:]

Great. Thanks very much.

[Stephen J. Mock:]

Next question?

[Operator:]

Your next question comes from Annabel Samimy with Stifel. Your line is open.

[Esther Hong:]

Hi. This is Esther Hong in for Annabel. Just to drill down on the previous question. So, within guidance, the launches that are certain are included in guidance or I guess I'm trying to get a better sense of what's included.

[Paul V. Campanelli:]

Okay. So, when we say certain, I want to make sure that we're not mixing apples and oranges. Typically, we will refer to date-certain on Paragraph IV. That's not what we're talking about here. We have a host of products that are not subject to Paragraph IV that we typically just don't give visibility to because we're trying not to alert our competition. What we're saying is these could be either Paragraph IIs, Paragraph IIIs and we could be one of several companies. We're just trying not to provide our competition or our trade partners advance notice. What we are saying is that when you look at what we've done year-to-date, we've executed on what we said we have. The values that we had indicated are unblind. So, we're feeling pretty good. So, apologize for the vagueness. But we just cannot put ourselves at a competitive disadvantage.

[Esther Hong:]

Okay. Understood. So, a different question. So, one of the key strategies was to move away from more commoditized products to alternative dosage forms in injectables. It seems like a lot of companies have this strategy to move through these high-barrier, high-margin products. So, how do you see the competitive landscape shifting for these types of generics? And do you think we'll find ourselves in the same commoditized environment for these products in a year or two and how do you manage this natural trend?

[Paul V. Campanelli:]

So it's a great question. I mean, typically we communicate a lot about this operational execution where we're just laser focused. This has been a historical part of what we've done at Par, now Endo. I think one of the things that I think differentiates ourselves, on the Sterile side, I think it's a very good time, and I've said this time and time again, to have a Sterile facility in U.S. soil. I believe that does give us an advantage. It's a highly compliant facility, incredibly efficient. We're investing in it from a CapEx standpoint. We're putting new technologies into that facility. So, as you look at your product opportunities, you've got to consistently expand your reach, right, in products that you pick. We just recently filed a Paragraph IV on teduglutide. As I said, that is the first time that we filed on a polypeptide. That would be an example that we – as the opportunities are moving with brand companies, with new technologies, we have to kind of be at the forefront here. And I think that's something that we have done and we've proven that out recently with the teduglutide. So, as new technologies are being launched by branded companies, it's incumbent upon us to invest in CapEx and put those technologies into our company, and I think we've done a pretty good job so far.

[Esther Hong:]

Okay. Great. Can I just squeeze in one last question? So, you've said in the past that major mesh liabilities would be paid out by 3Q 2017, but with the increasing number of claims, what comfort do you have in that timing now? Thanks.

[Paul V. Campanelli:]

Yeah. So, just in terms of mesh, just to refresh everyone, so our liability at the end of March now stands at $714 million, and there's approximately $272 million that's already funded in the qualified settlement fund. So that leaves about $442 million of the accrual to be paid the rest of 2017. So, we're still on track to pay that as we previously guided. With respect to your question on additional claims, the additional claims that we disclosed in the previous 8-K and will be in our 10-Q that we file later today, those are claims that we do not have accrued for, so they're unaccrued claims that we've disclosed.

[Esther Hong:]

Okay. Thanks.

[Stephen J. Mock:]

Thank you.

[Operator:]

Your next question comes from Liav Abraham with Citi. Your line is open.

[Unknown Speaker:]

Hi. This is Eugene on behalf of Liav. Thanks for taking my questions. Firstly, can you provide more color around updated gross margin guidance for the year? And just wanted to see if this have anything to do with the delay in the McKesson, Walmart bid cycle. And secondly, can you actually break down exact contribution from generic SEROQUEL and ZETIA for the quarter? Thank you.

[Paul V. Campanelli:]

Okay. So, Blaise will take the first one.

[Blaise Coleman:]

Yeah. So, from a gross margin standpoint, as we talked about, we did update our guidance by about 50 basis points in terms of the increase that we had from the beginning of the year. And what we're seeing really is just the underlying strength of some very key areas of our business both our Specialty Branded business and our Sterile Injectables business. We see those performing better than we anticipated. And then we also, as Paul talked about, we're going to see lower quetiapine, ezetimibe sales than we forecasted. And that combination actually has a very positive impact from a gross margin perspective and that's what's reflected in revised guidance. What was the...

[Paul V. Campanelli:]

Eugene, you had another question?

[Blaise Coleman:]

Sorry, Eugene. What was your second question?

[Unknown Speaker:]

It was the breakdown of contribution from generic SEROQUEL and ZETIA for the quarter?

[Blaise Coleman:]

Are we giving that?

[Paul V. Campanelli:]

Yeah.

[Blaise Coleman:]

Yeah. So, for first quarter, we had about $200 million in revenue for quetiapine and ezetimibe combined.

[Unknown Speaker:]

Okay. Thank you.

[Blaise Coleman:]

Okay.

[Operator:]

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

[Dana C. Flanders:]

Hi. Thanks. This is Dana Flanders on for Chris. Just my first question, you talked about the FDA removing unapproved adrenaline products by the second half of the year. Can you just help frame that potential revenue opportunity into the back half and 2018? And then, just another follow-up on the Injectables portfolio. Vasostrict, good growth into Q1, still growing. Just can you talk about what's driving that underlying growth and if you would expect that to continue over time absent competition? Thank you.

[Paul V. Campanelli:]

Yeah. So, Dana, sure, this is Paul. I'll start with the Vasostrict question. Right now, we think, as it has been for several quarters, the entire vasopressin, Vasostrict market has converted. So, any growth would be just, again, taking very modest pricing increases, as you would, with any branded type of product. So, I think we've maximized that potential opportunity there with Vasostrict. Again, it would just be normal course, very modest type of price increases there. On the ADRENALIN side, I think the way that we would characterize it is that you'd really need to look at the number of units. And what we're seeing here, I'll give you a little guidance here. On the 1 mL, there's around 6.5 million units for the 1 mL and there's around 700,000 units for the 30 mL. I think you should start looking at this as a potential benefit to Endo towards the second half of 2017, right? So, the FDA, my understanding, has communicated to the unapproved sources, both for the 1 mL and the 30 mL that they do need to vacate the market, but you won't really see that benefit until the second half. So, you can take those units. I kind of like to refer to it as kind of exclusive generic pricing, the way I would look at it, and then you could probably figure out what the value is. Right now, we're really only holding about 20% share for those current units, so that should give you enough visibility to run some math.

[Dana C. Flanders:]

Okay. Thank you.

[Paul V. Campanelli:]

Okay.

[Operator:]

Your next question comes from Greg Fraser with Deutsche Bank. Your line is open.

[Gregory D. Fraser:]

Thanks. It's Greg Fraser on for Gregg Gilbert. On cash flow, how should we think about quarterly trends for the rest of the year, if you're targeting $105 million to $185 million for the year and you just reported $168 million in the first quarter? And then, my second question is just on mesh and where it does count of potential cases stand for which you haven't accrued? And how should we think about the path forward for those cases in terms of when you could have greater visibility on liability that could lead to accruals? Thank you.

[Blaise Coleman:]

Yeah. So, Greg, your first question on cash flow. We did have $137 million in cash flow prior to debt payments in Q1. And as we project out to the $200 million to $280 million we guided to in a full year, there's really two primary drivers in terms of why the rest of the year level's going to be lower than what we had in Q1. And part of that's going to be we're going to have lower EBITDA in Q2 and beyond just due to the quetiapine and ezetimibe loss of exclusivity. So, that is a driver as we exit Q1. The other thing that I would remind you about is in terms of the changes we saw in our assets and liabilities, and specifically, in our working capital, we had a significant benefit in Q1 of 2017 related to the collection of VAR on the November and December sales for quetiapine and ezetimibe that we collected in Q1. So that's what you're seeing play through from a phasing standpoint.

[Paul V. Campanelli:]

On the mesh question, you know, Greg, I think what we're saying, we have a Master Service Agreement in place and we've talked about that. What we do know, and I think we've communicated this is that these claims are really unsubstantiated. We just don't know if they're valid or not. What we did see was an increase of around 800 cases that took us from around 9,700 to about 10,500. That's where we are right now. Again, they're unsubstantiated, they're not accrued for. And as we know more, we'll communicate more. But, right now, frankly, we just don't know. But that should give you an indication that the MSA increased by about 800 individuals.

[Stephen J. Mock:]

Next.

[Operator:]

And your next question comes from the Randall Stanicky with RBC Capital Markets. Your line is open.

[Randall S. Stanicky:]

Great. Thanks, Paul. I wanted to go back to a couple of the prior questions. Just first on ZETIA and SEROQUEL, can you just confirm that $200 million is against the additional $360 million that you had called out before? And if so, how much of that falls post 1Q? Should we assume that the contribution is minimal? And then, can you help us quantify the margin differential? I don't necessarily need the exact gross margin, but I'm just trying to understand the difference in margin, given that those products are partnered versus the remainder of the Generics business, so that we can understand the margin lift for the remainder of the year.

[Paul V. Campanelli:]

Right. So, maybe we can tag team this thing between Blaise and myself. In terms of the value for these products, both these products are going to have significant competitors, and we see that already with quetiapine. So, the value of the sales are clearly being generated in Q1, so both quetiapine and ZETIA having their fair share of competitors. We feel good about staying in both products, specifically in quetiapine. We still have reasonable share. But the pricing on that product, we've seen lower-than-anticipated pricing right out of the race here for day 181, so that's part of the challenge. And then maybe Blaise can help us.

[Blaise Coleman:]

Yeah. And just to build off of that for a second, Randall, and just to make sure we clarify for you is that the $200 million that we mentioned is Q1 sales for quetiapine and ezetimibe. And from a full-year guidance perspective, we'd previously said about $360 million for full-year quetiapine and ezetimibe sales. We're seeing that's going to be lower and were more probably in the $275 million to $280 million range from a full-year perspective. From a gross margin standpoint, Paul's talked about that those are partnered products, and we do have a significantly higher margin when we look at our Sterile Injectables business as well as our alternative dosage and new launches. So, that's what's playing to that mix.

[Randall S. Stanicky:]

Okay. And, Paul, one question that we've talked about before. Obviously, Claris One didn't come on line April 1. Where are we with that and do you have visibility into how much impact or lack of impact that you may see from that? Thanks.

[Paul V. Campanelli:]

So, most recently, we were in negotiations with them in late April, so obviously, it's top of mind. I think where this is going is that we certainly are still going through terms and conditions with Claris One. I would say that the intent for Claris One is to bring the contracts on as quickly as possible. Right now, it's a little bit business as usual. We're operating without a Claris One contract, I would say. It's probably being governed on the historical [one-stop] contract. But we also are still selling into Walmart via the Claris One personnel. So, it's a little bit of stay tuned. The contract is technically not in place; we're still negotiating it. I would venture to guess that this will be probably more of a June, July impact for Endo. And I'm sorry, Randall, what was the other question you had?

[Randall S. Stanicky:]

Well, you talked about 3% to 4% erosion built in the full year last quarter. Now, obviously, this has been delayed, but as you think about an annualized impact, is there any change to how you're thinking about that?

[Paul V. Campanelli:]

Yeah. I think, Randall, right now we feel pretty good about that 3% even though there might appear to be a bit of a delay in Claris One. There's still – we still have our fair share of ROFRs that are going on, so we feel that that 3% is pretty much a good number and I call that normal course.

[Randall S. Stanicky:]

Okay. Great. Thanks, guys.

[Paul V. Campanelli:]

I wouldn't change that. Okay.

[Randall S. Stanicky:]

Thank you.

[Paul V. Campanelli:]

Okay.

[Operator:]

Your next question comes from David Risinger with Morgan Stanley. Your line is open.

[Unknown Speaker:]

Hi there. Good morning. I'm [Zu Shin] calling on behalf of David Risinger. I just have a quick question which is, how do you see the rate of change in Generic pricing trending in 2018 relative to 2017?

[Paul V. Campanelli:]

Okay. So again, we're not going to get too deep into 2018 with guidance. What I have historically said in terms of the way I look at pricing pressures, when we see these big swings and base erosion and pressures, it's typically because, I believe, of a material change within one of these four consortiums. So absent of that, then I think – I hope that we can go back to what I'm referring to like normal course. And for normal course for Par might be low- to mid-double digits. But at this point in time, we're really not prepared to go into too much visibility in 2018.

[Unknown Speaker:]

All right. Thank you.

[Operator:]

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

[Nicole Germino:]

Hi. Good morning. This is Nicole on for Gary. Could you just quantify the contribution from ephedrine, Vasostrict and ADRENALIN? And also for XIAFLEX, how should we think about the revenue split between Dupuytren's and Peyronie's?

[Paul V. Campanelli:]

I will. So for XIAFLEX, I would tell you the split in revenue between Dupuytren's and Peyronie's, it's about 55% for Peyronie's and around 45% for Dupuytren's. And then, I'm sorry you had a couple questions on ephedrine contribution?

[Nicole Germino:]

Yes. Yep. Ephedrine, VASOSTRICT and ADRENALIN.

[Paul V. Campanelli:]

Okay. I think ephedrine, the way we're saying is it's a bit early. So, we've launched that product back about a month and a half ago. So, I think you're just going to have to be a little patient with respect to ephedrine. We know that there's three players. We're one of three. Our goal is to get a fair share of a three-player market. So, I think you got to look at the units and you've got to look at, it's Par and it's Éclat and it's Akorn and I think our goal is to get our fair share. We've worked very hard for this particular product, but it's going to take some period of time to ramp up. So, I think you could start to anticipate hopefully that we would be in that range towards the second part of 2017. ADRENALIN, what we can say, we've disclosed the sales for Q4 at the last earnings call. We can tell you for Q1 of this year, ADRENALIN, we generated around $6 million of revenue. As I indicated before, we've got only about 20% share. So, with the anticipation of the unapproved sources coming off the market, you should see a ramp up. But again, that ramp up will not take place until the second half of 2017. And I think your last question for Vasostrict, I think as I said in the introductory remarks, we generated $99 million of revenue for Q1.

[Nicole Germino:]

Okay. Great. And also, just have one quick follow-up on SG&A. It came in very late this quarter. How should we think about this trend going forward?

[Blaise Coleman:]

Yeah. So, from a OpEx perspective, it was lower than we had originally anticipated. And it was really driven by timing of spend. And we also had some one-time favorable items related to some change in estimates that came through as well, so that was impacting the quarter in a favorable way. In terms of how you should you think about it, we expect to step up spend in Q2 and that's reflected in our phasing guidance that we gave you on EPS. And as you saw, we have not changed our percent of sales guidance for the full year. So, we're still planning to get back on track. We just had a lighter Q1 spend than we anticipated.

[Nicole Germino:]

Okay. Great. Thanks so much.

[Operator:]

Your next question comes from Kevin Kedra with Gabelli. Your line is open.

[Kevin Kedra:]

Hey. Thanks for taking the questions. Wanted to know if you've had any interaction with the FDA on OPANA since the Advisory Committee and the vote there. And then secondly, wanted to ask about beyond the processes for Litha and SOMAR, how much of a priority is it to pursue alternatives or even divestitures in some of the non-core assets given that you recently refinanced your debt? Does that change your thinking at all about what to do with those assets?

[Paul V. Campanelli:]

Okay, so, I think to start out with the OPANA question, obviously we're laser-focused with the FDA. We are waiting for a eventual meeting with the FDA. We clearly are in preparation on concepts and ideas that we would like to communicate and have that conversation with the FDA. But at this point in time, it's a bit premature. That has not been established. The way I kind of characterize OPANA today, it's really business as usual, right? So, we're ongoing and there hasn't been any formal discussions or meetings with the FDA. Regarding non-core assets in Litha and SOMAR, I think really what we had said in the past is these are markets that are not where we have expertise. We are laser-focused on, for the most part, the U.S. with some contribution coming from small parts of Europe and obviously Canada. So, we're focused on regulated markets areas that we need to put our non-core assets into hands of people that understand emerging markets. So, this is not an area that is going to be core focused to Endo; just clearly focused on regulated markets. And I think that was really the big decision that these are not large EBITDA drivers. They do take up some resources and we want to put these companies into hands of people that actually can maximize their capability. So, that's really, we're focused on the U.S. and regulated markets.

[Kevin Kedra:]

Great. Paul, I was thinking more about kind of the legacy Branded business. Is that still something that you consider holding onto? Are you willing to look at alternatives for that?

[Paul V. Campanelli:]

Yep, so, as we said in JPMorgan, we will always consider optionality. That's part of normal course. If somebody were to approach us and had a material interest in these mature assets, we would listen. But I would tell you, they are big drivers of EBITDA and cash flow and they're driving a lot of value for that. So, absent of an exceptional offer, it's business as usual. So, no, we are not out there aggressively pursuing a sale of our mature brands.

[Kevin Kedra:]

Great. May I just squeeze one quick one? I'm not sure if I missed it, but did you give what the gross margin was for the Generic business this quarter?

[Paul V. Campanelli:]

It was ...

[Blaise Coleman:]

It was 56%.

[Kevin Kedra:]

Great. Thank you.

[Operator:]

Your next question comes from Tim Lugo with William Blair. Your line is open.

[Ashiq Mubarack:]

Hi. Good morning, guys. This is Ashiq Mubarack on for Tim. Just following up quickly on an earlier SG&A question. I guess your expectation for the slight increase is to be more back half weighted, or you expect that to ramp a little bit earlier. And just following up on OPANA, do you have any more granular detail on the timing of discussions on the evaluation with the FDA? And have they provided you any details on when they will complete their evaluation? Thanks.

[Paul V. Campanelli:]

So, I'll take the OPANA question quickly. I think it would be our hope and our anticipation that a conversation or a meeting could take place before the second half. So, we're hoping that it'll be shortly right? But I think, as I said, we are being a little proactive in our views on things that we had pitched at the adcom and things that we would want to follow up with the FDA with respect to OPANA. But as I said before right now, today it's business as usual on OPANA. So, I'll pass it over to Blaise.

[Blaise Coleman:]

Yeah and then on the OpEx question, we would expect to see a meaningful step up in Q2, from an OpEx standpoint. As I said, it was just some timing issues between Q1 and Q2. Again, that's reflected in the phasing guidance that we gave between first half, second half.

[Ashiq Mubarack:]

Okay. Thanks.

[Operator:]

And I'm showing no further questions. I would now like to turn the call back to President and CEO, Paul Campanelli for any further remarks.

[Paul V. Campanelli:]

Thank you very much. I just want to say that we do appreciate your continued interest and support of the company. We do look forward to providing you with updates as we move forward. Just want to thank everyone for joining us today. Have a great day. Thank you all, and good bye.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Everyone have a great day.