Endo International plc
Q4 2017 Earnings Call Transcript

Published: 27 Feb 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q4 2017 Endo International PLS (sic) [Plc] (00

[Stephen J. Mock:]

Thank you, Aeilla. Good morning, and thank you for joining us to discuss our fourth quarter and full-year 2017 financial results as well as our 2018 outlook. Joining me on today's call are Paul Campanelli, President and Chief Executive Officer of Endo; Blaise Coleman, Executive Vice President and Chief Financial Officer; and Patrick Barry, Executive Vice President and Chief Commercial Officer U.S. Branded Pharmaceuticals. 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 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 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 had a chance to review the company's earnings release that we issued earlier this morning. Beginning on slide 2, here's a brief agenda for today's call. Moving to slide 3. I plan to provide only a brief recap of our fourth quarter and full year 2017 performance and instead focus the majority of my comments on our strategic priorities and what Endo plans to achieve as we continue to execute against our multiyear plan. In his remarks, Blaise will offer some additional insight on our fourth quarter and full year 2017 results and will also provide our 2018 financial guidance. Once again, Endo is pleased to report a solid quarterly operating performance. The company reported full year 2017 revenue in line with our most recent revenue guidance range and exceeded the upper end of our adjusted EBITDA and adjusted EPS respective guidance ranges. And consistent with our past few quarters, the fourth quarter benefited from strong growth in our Sterile Injectables and Branded Specialty portfolios. Moving to slide 4, you will see a snapshot of our segment revenues for the fourth quarter. As was expected, our U.S. Generic Pharmaceuticals business faced a challenging comparison with the prior year, when in the fourth quarter 2016, we launched two very significant first-to-file products, ezetimibe tablets, the generic version of ZETIA, and quetiapine extended-release tablets, the generic equivalent of SEROQUEL XR. U.S. Branded Pharmaceuticals' overall performance was impacted by continued generic competition for established products and our CT (04

[Blaise Coleman:]

Thank you, Paul, and good morning, everyone. First, on slide 13 you'll see a snapshot of the fourth 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 diluted loss per share from continuing operations of $1.22 in the quarter versus diluted loss per share from continuing operations of $14.96 in the fourth quarter of 2016. GAAP net loss from continuing operations in fourth quarter 2017 decreased to $272 million, compared to GAAP net loss from continuing operations of $3.3 billion during the same period in 2016. This decrease included the impact of lower asset impairment charges and intangible asset amortization in fourth quarter 2017. The company recorded an aggregate increase of approximately $200 million to its legal reserves in the fourth quarter 2017 related to the LIDODERM antitrust matters and the testosterone, or TRT, related product liability matters after determining that a loss is probable and reasonably estimable. The LIDODERM reserve includes an estimated loss for, among other matters, a settlement in principal of all remaining claims filed against the company in the multi-district litigation pending in the U.S. District Court for the Northern District of California. This settlement is subject to court approval, and if approved, will be paid out between 2018 and 2020. The TRT related reserve includes an estimated loss for, among other matters, all product liability cases filed in the multi-district litigation pending in the U.S. District Court for the Northern District of Illinois and in other courts. On an adjusted basis, fourth quarter adjusted net income from continuing operations of $174 million and adjusted diluted earnings per share from continuing operations of $0.77 exceeded the upper end of our implied fourth quarter financial guidance range provided in November and reflects the significantly improved adjusted gross margin and lower adjusted operating expenses versus prior year. The more than 500 basis point improvement in adjusted gross margin in the fourth quarter versus prior year was primarily driven by cost savings initiatives and a favorable business mix. The favorable business mix reflects greater sales of higher gross margin products, such as Sterile Injectables and Branded Specialty products, and reduced sales of lower gross margin products, such as the partner products, ezetimibe and quetiapine extended release, and discontinued generic products. The lower adjusted operating expenses were primarily due to lower sales and marketing costs that resulted from the restructuring of our commercial pain business. Earlier, Paul discussed certain strategic priorities that we identified a year ago. One of those priorities is to drive margin expansion through operational execution and continuous improvement. In addition to a meaningfully improved adjusted gross margin for the fourth quarter and full year 2017, our adjusted EBITDA margin improved by almost 360 basis points in 2017 to just over 45%. This improvement reflects the cumulative benefit of many of the initiatives we have undertaken that Paul described earlier. In addition to these strategic actions, earlier in 2017 we successfully refinanced our secure debt to provide the company with additional operating flexibility. Additionally, last August we announced an important milestone at Endo, reaching settlement agreements to resolve virtually all known U.S. mesh product liability claims. Turning to slide 14. Before I provide 2018 guidance, I want to take a moment to address the change we have made in the way we report our segments. As of December 31, 2017, the three reportable business segments in which the company operates were U.S. Generic Pharmaceuticals, U.S. Branded Pharmaceuticals, and International Pharmaceuticals. During the first quarter of 2018, we changed our reporting – our segment reporting to reflect the manner in which we now manage our business, including resource allocation and performance assessment. Our Sterile Injectables product portfolio, which was part of our U.S. Generic Pharmaceuticals segment as of December 31, 2017, will be presented as a new segment named U.S. Branded Sterile Injectables. Additionally, our current U.S. Branded Pharmaceuticals segment will be renamed U.S. Branded Specialty and Established Pharmaceuticals. Subsequent to this change, we will have four reportable business segments, U.S. Generic Pharmaceuticals, U.S. Branded Specialty and Established Pharmaceuticals, U.S. Branded Sterile Injectables, and International Pharmaceuticals. This new presentation of our business segments is aligned with how Endo now evaluates businesses. In addition, it serves the purpose of separating sterile products that are generally longer duration assets from those in our U.S. Generic Pharmaceuticals segment. Under the new reporting presentation, newly launched products will go into their respective segments. For example, newly launched Sterile Injectable products will be included in the U.S. Branded Sterile Injectables segment, instead of being classified in the previous new launches and alternative dosages category. On slide 15, you will see highlights of our full year 2018 financial guidance. We expect total revenues to be between $2.6 billion and $2.8 billion. This decline versus 2017 results primarily from the annualization of 2017 events, anticipated competition for several of our U.S. generic products, and continued underlying pressures on our U.S. Generic Pharmaceuticals segment. I'll provide more color on the revenue moving pieces on the next slide. We expect adjusted diluted earnings per share from continuing operations to be between $2.15 and $2.55. And expect adjusted EBITDA from continuing operations to be between $1.2 billion and $1.3 billion, which represents continued improvement in adjusted EBITDA margin year over year, a key priority for Endo. The company's financial guidance is based on the following assumptions, adjusted gross margin of approximately 67% to 68%, adjusted operating expenses as a percentage of revenues to be approximately 25.5% to 26.5%, adjusted interest expense of approximately $530 million to $540 million, adjusted effective tax rate of approximately 11% to 12%, and adjusted diluted earnings per share from continuing operations assumes full year adjusted diluted shares outstanding of approximately 226 million shares. Although we're not going to give specific quarterly guidance, we expect total enterprise revenue and adjusted gross margin levels to be fairly balanced on a quarterly basis over the course of the year. However, we expect adjusted operating expenses to be significantly higher in the first half of the year and more heavily weighted to the first quarter, due primarily to the timing of certain legal spend. Prior to moving to next slide, let me spend a moment providing an update with regards to the implications of the recently passed U.S. tax reform. While the new stricter interest limitations and anti-base erosion provisions of the act will have an unfavorable impact, given our capital structure and global operations, in the midterm, we expect to maintain a relatively modest level of cash tax due the amount of favorable tax attributes, such as net operating loss carryforwards arising from product liability matters that we expect to be able to utilize over this period. From an adjusted effective tax rate perspective, we expect to maintain a low teens rate in the midterm, assuming a static jurisdictional mix of pre-tax adjusted earnings. Now let's take a look at slide 16, which will provide some additional insight into our 2018 revenue guidance. Our fourth quarter 2017 was a substantially clean or de-noised quarter, as most 2017 events that impacted revenues occurred in the first nine months of the year. This slide presents a reconciliation that explains the difference between our annualized fourth quarter 2017 revenue and the midpoint of our 2018 revenue guidance range. As you can see, the major impact is being felt in our U.S. Generic Pharmaceuticals segment, where we could encounter new generic entrants in 2018 that could have a significant impact on a number of key products with no or limited competition. Just as we provide limited visibility into our pipeline for competitive reasons, we also have limited visibility into our competitors' pipelines for the same reason. Our guidance is based on certain competitive assumptions. For the full year 2018, we expect U.S. Generic Pharmaceuticals revenue to decline in the mid to high 30s percent range versus prior year. This decline includes the impact from the ezetimibe and quetiapine extended-release loss of exclusivity, product discontinuations, and competitive assumptions. U.S. Branded Specialty and Established Pharmaceuticals revenue is expected to decline in the low teens versus prior year, primarily due to continued pressure on the Established Products portfolio, which includes the stopping of shipments of OPANA ER in the third quarter 2017. These established product driven declines are expected to be partially offset by the expected low to mid-teens percentage growth for XIAFLEX revenue. U.S. Branded Sterile Injectables revenue is expected to grow in the low double digit percentage range versus prior year. And lastly, our International [Pharmaceuticals] segment revenue is expected to decline in the high 40s percentage range, primarily due to previously announced divestitures. Advancing to slide 17. In terms of cash flow, we had $474 million in cash flow prior to debt payment in 2017, which is higher than we guided to in November. This favorability resulted primarily from higher cash provided from changes in working capital, higher adjusted EBITDA, and slightly lower net mesh payments due to timing. We ended 2017 with $987 million of unrestricted cash. And at year end, our net debt-to-adjusted-EBITDA leverage ratio was 4.6 times. As we look towards 2018, we expect a use of cash prior to debt payment in the range of approximately $225 million to $125 million. This assumes approximately $400 million of payments into the mesh qualified settlement fund; $140 million in non-mesh legal payments, including an estimate for the portion of the expected LIDODERM anti-trust litigation payment and the expected TRT product liability settlement payments in 2018; $120 million in capital expenditures; and approximately $520 million in interest payments. We have not assumed any optional debt repayments in our 2018 financial guidance. We will evaluate our capital allocation decisions, including optional debt repayment, as we progress through the year and gain more clarity on a number of key uncertainties. We'll update our plan as appropriate through the course of the year. Now let me turn it back over to Paul. Paul?

[Paul V. Campanelli:]

Thank you, Blaise. 2017 was an extremely ambitious year for the Endo team, and we anticipate no let-up in 2018. While much of our effort in 2017 was directed at reshaping and rightsizing our organization, our work in 2018 will focus on further building our portfolio and capabilities for the future. In closing, I just want to say how excited I am about 2018. Years from now when we look back, we will view 2018 as a pivotal year in Endo's development, marked by the CCH Phase 3 studies in cellulite, which we expect to facilitate our entry into a new and promising market. The many initiatives and extensive efforts we've outlined this morning all share one underlying purpose, to ultimately create value for our investors. I remain confident that if we continue to execute against the key priorities that we have identified, Endo will enjoy a successful future. And we will reward those investors who have placed their trust in us. 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:]

Our first question is from Marc Goodman with UBS. Your line is now open.

[Marc Goodman:]

Yes. Good morning. I guess one thing is, can you just clarify on the discontinued products what the revenues were on those? And then really my question, Paul, is if you could just give us a flavor for just the lay of the land in generics over the past several months? I think we're all just curious to hear your thoughts on, has Red Oak gotten any tougher? Have there been any new rebids that have come in that have been surprising or new from any of these three consortiums? Obviously the big four went to the big three not that long ago. I think we're all still trying to figure out the impact from that. So maybe just a kind of big picture thoughts on those. Thanks.

[Paul V. Campanelli:]

Yeah. So I'll try, Marc. I'll take that first question and maybe we can pass the first question back over to Blaise on discontinued product. I think, Marc, at this point in time we need to be real cautious. There certainly seems to be a more stable market environment. But it's very early in 2018. So I think we always started the conversation by saying as long as there's movement within consortiums, there's always the challenges of further requests coming back on the portfolio. We saw that towards the end of 2017 with what I kind of refer to as the equalization of the portfolio with Econdisc moving into WBAD. So that's behind us. I would say that's built into our guidance. But we just need to be a little cautious at this point in time, Marc. It's still very, very early in the year. Blaise?

[Blaise Coleman:]

Yeah. And, Marc – oh.

[Marc Goodman:]

I was just going to ask, Paul, on that last comment you made about Econdisc moving into WBAD at the end of the year, was that a significant change? Can you just give us a sense of how that was relative to some of the others?

[Paul V. Campanelli:]

At this point in time, I would say, as I mention, it was really a harmonization and equalization of the existing two portfolios. That's where it started. That's where it ended. But we've got to be very cautious, Marc. It's early.

[Blaise Coleman:]

Yeah. So, Marc, in terms of your question on the impact from product discontinuations, in Q4 of 2017, it was worth about $20 million. And on a full year basis, it was between $80 million to $85 million.

[Stephen J. Mock:]

Okay. Aeilla, may we have the next question?

[Operator:]

Our next question is from Randall Stanicky with RBC Capital Markets. Your line is now open.

[Randall S. Stanicky:]

Great. Hey, Paul, thanks for the question. As we think about the industry and the pruning that seems like it's been fairly broad based over the last year – you've certainly done your fair share. Teva had a very big announcement as we all know earlier this year. Has there been enough? And then do we need to think about ongoing pruning for efficiencies as kind of a cost of doing business? In other words, a component of price erosion going forward? And then, Blaise, if you could just provide the amount of R&D you're expecting to spend on XIAFLEX that's built into the number this year, that would be helpful.

[Paul V. Campanelli:]

Yeah. So, Randall, on the pruning side, obviously we had a significant culling of the portfolio in 2016 and 2017. I think one of the ways that we had looked at it is that we need to build our portfolio out for the consortium environment on the retail sector. And I think that's something that we had talked about the last earnings call. I think we've done a very good job of that. On a go-forward basis, I think you're always going to see, at least at the Par side of our business, you're going to always see a handful of rightsizing and culling of the portfolio as normal course. Hopefully, our new product introductions obviously would offset that. But I think that's just a wave of the future, at least for Par, that you're going to see products that are culled. Our facilities are rightsized to handle the volumes that we are projecting from a launch standpoint. And I think I would call it normal course. So with that I'll pass it to...

[Blaise Coleman:]

Yeah. And, Randall, we expect to spend about $50 million in 2018 for the development of cellulite and CCH.

[Randall S. Stanicky:]

And total cost for the program?

[Blaise Coleman:]

Yeah. Randall, we're only going to provide what we're spending this year in 2019 (45

[Randall S. Stanicky:]

Okay. Thanks, guys.

[Paul V. Campanelli:]

Thank you.

[Blaise Coleman:]

You're welcome.

[Operator:]

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

[Chris Schott:]

Great. Thanks very much. Just two here. Maybe first just building on this kind of generic dynamics. When we get past this generic portfolio optimization, just interested in your perspective in your ability to grow your generic portfolio over time. I guess do we see – should we think about 2017 as representing a bottom for the generic business as we kind of balance this more focused portfolio and pipeline relative to some of these ongoing industry challenges that are still out there? My second question was just on the testosterone and LIDODERM legal reserve. Can you just give us a little more perspective here on how much clarity you have around these issues at this point? I know with mesh, your ultimate exposure ended up being much higher than your initial reserves. So maybe just walk through a little bit of any differences or similarities in that situation relative to what we should think about with these more recent reserves. Thank you.

[Paul V. Campanelli:]

So, Chris, maybe on the generic side, I mean, the way we're looking at it is – and we've said this for the past year – that we look at this company's growth as a – it's a multiyear approach, right? So we had to cull many products within the portfolio. The return to growth, it's going to take a multiyear process. While we have about 100 products at the FDA – and we have, as I indicated, some attractive products that we indicated are going to start to provide contribution in and around the 2020 timeframe. But we are going to be looking a little bit out to the future as we indicated when we indicated products that are material to us, such as like CIPRODEX and DEXILANT and MITIGARE. These are all products that are hard to make. They're technically challenging. But it will take a multiyear process.

[Blaise Coleman:]

Yeah. And then, Chris, in terms of your question on the reserves. When we think about the LIDODERM matter, as we said, we have a settlement in principle for all the remaining claims filed against us that currently are part of the MDL in the Northern District of California. And once – if that's approved and that's finalized, that matter would be final. In terms of TRT, again we had a memorandum of understanding in principle with the parties involved. And we are very optimistic that we'll be able to achieve and get to final agreement on that settlement. In terms of the matter being final, there's always the possibility that future claims could be filed. We've contemplated that in our reserve. But again, as you know, that's an estimate and is subject to what happens in the future.

[Chris Schott:]

Thank you.

[Operator:]

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

[Liav Abraham:]

Good morning. Firstly, on the gross margin for 2018, can you provide some color on the drivers for the gross margin improvement? And it certainly came in above our expectations. And then secondly, just thinking longer term about your cellulite program, how are you thinking about marketing and commercializing this product? It seems, Paul, from your comment that you are – your base case is to market this on your own. Or are you still open to partnering? Just interested in your thoughts on that. Thank you.

[Paul V. Campanelli:]

So, I'll – maybe the first question. Blaise can have the gross margin.

[Blaise Coleman:]

Sure. Yeah. So just in terms of gross margin, I mean we've been very clear about what our focus is in terms of driving profitability across the portfolio. You're seeing that play through in our guidance, so we feel good about the progress we've made on those initiatives. What you're seeing is two things. You're seeing the benefit of the cost initiatives. And again you're seeing the benefit of our product portfolio and the mix thereof, where we continuing to invest in the Specialty Branded area, where we expect to grow, as well as Sterile Injectables. And you see lower revenue as a percentage of our total revenue in areas like our Generics Pharmaceutical business and in the International business.

[Paul V. Campanelli:]

And on the cellulite question, I mean in this position here, I always have to start by answering it that we would always consider optionality. And I think you would hear that from any CEO in this type of position. That just comes with that responsibility. That said, today we're here with Pat Barry, our Executive Vice President in charge of our Branded Division. We are preparing for success. We're bringing in talent. We're recruiting talent. We're building out our plan. We plan to become an aesthetics company. I don't think I can be any clearer than that.

[Liav Abraham:]

Great. Thank you.

[Operator:]

Our next question is from Irina Koffler with Mizuho. Your line is now open.

[Irina Rivkind Koffler:]

Hi. Thank you for taking the questions. I have two on XIAFLEX actually. One, can you help us remember if you've been able to decouple the aesthetic formulation of the drug from the J code of the therapeutic product? And then the second one is, how is this product going to be differentiated from other offerings in cellulite, like the Cellfina, which also cuts these bands in the tissue? Thank you.

[Paul V. Campanelli:]

Yeah. So I'll start by just simply saying on the pricing side, that's a regulatory question that we'll be dealing with in the future. But I'm going to pass the call over to Pat. And Pat can add some color on both questions.

[Patrick Barry:]

Yeah. Sure. Thank you, Paul. As Paul mentioned, it's really a regulatory question. We're not going to comment specifically on that. But what I can tell you that we're very confident in our regulatory submission strategy. And we certainly look forward to discussions with the FDA at the appropriate point in time. In terms of innovation, frankly this is an opportunity to bring new innovation. If you look at the current market today, there's really not a non-invasive injectable product that meets this large unmet need. And so the market's really ripe for a product, an injectable product specifically that addresses that primary underlying cause of cellulite. And so as the understanding amongst our KOLs and the research clearly shows that the fibrous septae is the primary cause of cellulite, to date, as Paul said in his – on the call earlier, there's not an approved FDA product that addresses that. So we're jumping into a great space. The injectable space, in particular, is a $3.5 billion market. And it's growing. And the market is ready for a new innovator and new innovation. So clearly this is going to be something new to the marketplace. And we're jumping into a large patient population where there's a high unmet need.

[Paul V. Campanelli:]

Thank you.

[Irina Rivkind Koffler:]

Thank you.

[Operator:]

Our next question is from Gregg Gilbert with Deutsche Bank. Your line is now open.

[Gregg Gilbert:]

Yes. I have a couple. First, maybe a housekeeping question, but I'm confused about the branded injectables segment decision that you made. Should we assume that all injectables are in that segment, whether they're generic or not? Does it say anything about whether your injectables pipeline is more branded versus generic, à la, more Vasostricts versus more traditional generics? That's the first one. The second one is, Paul, in this challenging and then consolidating environment, clearly your eye is on the ball in executing at Endo. But where are you and the board on considering larger transactions potentially that could enhance your capital structure and achieve some other goals in this environment? Thanks.

[Paul V. Campanelli:]

So, Gregg, I would start by in terms of – again when we look at optionality, it's something that we have – since I've been the CEO in September of 2016, we have taken long and hard looks at different ways that we can shape the company. We also always have to remind folks that we've had a series of liabilities and complexities to the company. So with that comes things like mesh and opioids that we're dealing with. That complicates certain ways that we can look at the company. So while we're out there and exploring optionality, these are things that can impact the way others look at us and how we look at alternatives. Regarding the injectable question, I would just simply start out by saying when you look at the portfolio that comes out of our Rochester facility, the majority of those products in effect are 505(b)(2)s or NDAs, products like Vasostrict, like Adrenalin, Aplisol. These are all products that are branded products. I don't know maybe, Blaise, if you want to add some color to that?

[Blaise Coleman:]

No. And the only thing, Gregg, just to maybe add on there, is that when we think about how we're managing those businesses through that legacy Sterile Injectables business, which is now going to be its own reporting segment, we are managing that for growth. Where the Generics Pharmaceutical segment, we're managing for profitability.

[Gregg Gilbert:]

But all injectables are in there, whether they're generic or brand, right?

[Blaise Coleman:]

Correct.

[Gregg Gilbert:]

Okay. And one last follow-up on Vasostrict. Paul, your comments and the company's behavior relative to the FDA litigation suggest that you're confident that there will not be compounded product available. Can you expound on that? And agree or disagree with that comment? This is a case where you know more than the external world knows about that situation. Thanks.

[Paul V. Campanelli:]

Yeah. And, Gregg, again as a reminder, I mean the FDA requests the temporary stay. I mean that was really – that's based on public statements by the FDA and in discussions between both parties' counsels. I'm optimistic. But the stay is temporary, and it's going to be in place until March of 2018. And I think that's – it's kind of wait and see. And that's probably where I am right now.

[Gregg Gilbert:]

Thanks.

[Operator:]

Our next question is from Ami Fadia with Leerink Partners. Your line is now open.

[Ami Fadia:]

Hi. Good morning. I have two questions. Firstly on the U.S. Generics business. Could you give us some more details around your guidance for the mid to high 30% decline? And what you've assumed in therefore either new product launches or product discontinuations? And then with respect to the outstanding legal cases, aside from the $200 million reserve that you're taking for the LIDODERM and testosterone litigations, what additional cases do you expect? Or have you provided for anything on top of the cases that have already filed? Thank you.

[Paul V. Campanelli:]

Okay.

[Blaise Coleman:]

Yeah.

[Paul V. Campanelli:]

Go ahead, Blaise.

[Blaise Coleman:]

Yeah. So starting with your first question on the generics decline that we spoke about, the high-30s percentage range. Again you're seeing a number of things there. One would be the loss of exclusivity on ezetimibe and quetiapine, which is a significant piece. We have the product discontinuations that are part of the restructuring initiatives. But we also had the metoprolol AG contract that was terminated, which you're seeing impact our outlook for 2018. The other piece is that you have the annualization of 2017 competitive events. And also our guidance does contemplate new competitive assumptions through 2018 that are impacting as well. Now in terms of the reserve question, as I mentioned earlier, we did – for the TRT matter there is the potential for future claims to be filed. And in our reserve, we did contemplate an estimate for what those future claims could be.

[Ami Fadia:]

Thank you.

[Stephen J. Mock:]

Any more questions?

[Operator:]

Our next question is from David Amsellem with Piper Jaffray. Your line is now open.

[David A. Amsellem:]

Thanks. Just wanted to follow up with you about some of the date certain launches in 2020 or later. I know that some of them are confidential. But can you give us a sense of how many of these are going to be at market formation, any potential shared exclusivity? And also are any of these situations where you could see limited competition for an extended period? AMITIZA is one that jumps out to me, because it doesn't appear to be a crowded filing. But I just want to get a better sense of how impactful these could be and their relative attractiveness longer term? Thanks.

[Paul V. Campanelli:]

Yeah. So, David, I would say the products that we talked about really are not subject to NCE Paragraph IV exclusivity, so whereby you would expect shared exclusivity. So the ones that we mentioned, DEXILANTs, and the AMITIZAs, the CIPRODEXs, and there's multiple on KUVANs. There's two products there. Those are products that we are either sole first to file or we believe will be first to market. Now having said that, there's nothing stopping the innovator companies from putting in an authorized generic. I think that's something that you always have to – that you have to at least think a little bit about. But we're pretty excited about the portfolio. It's a differentiating portfolio. They're hard to make products. And we do believe that there is limited competition. And some of these products, while they may be blockbuster in nature, some of them are even smaller and nichier products. And sometimes with that, we can get ourselves even into a longer de facto exclusivity. I'm not saying that that's going to happen. But historically, when you look at the pipeline that Par has pursued, we can sometimes get even more than the standard 180-day exclusivity. So we feel pretty good about the pipeline that we disclosed here today. Thank you.

[Stephen J. Mock:]

Aeilla, this will be the last question, please.

[Operator:]

And our last question is from David Risinger with Morgan Stanley. Your line is now open.

[David R. Risinger:]

Yes. Thanks very much. So I just wanted to ask about the testosterone settlement. So you described it as reflecting what's reasonable and estimable. Could you just remind us the number of cases, the dollar amount for those cases? And I believe that you mentioned that you're also assuming future cases that haven't been filed. So I'm just trying to get my head around...

[Paul V. Campanelli:]

Yeah.

[David R. Risinger:]

...what the $200 million total reflects for testosterone? And the numbers that you're looking at? So we can better understand what you have booked as final for the testosterone litigation.

[Paul V. Campanelli:]

Yeah.

[David R. Risinger:]

Thank you.

[Paul V. Campanelli:]

Yeah. So, David, yeah. So, the total cases are about the 1,300 cases, right? In the settlement – the accrual, rather (01

[Blaise Coleman:]

Yeah. David, we're not going to break out the charge we took between the two matters at this time. But as I said, we did contemplate in the reserve for TRT an estimate for future claims that are not filed today.

[David R. Risinger:]

And may I just ask why not break out the two? I don't understand. I haven't seen that before.

[Blaise Coleman:]

Yeah. We're in an active matter right now that's still ongoing, and it's in our best interest not to do that.

[David R. Risinger:]

Okay. Thank you.

[Paul V. Campanelli:]

Thank you, David.

[Operator:]

And I would now like to turn the call back over to Paul Campanelli for any further remarks.

[Paul V. Campanelli:]

Thank you. Before we conclude, I just want to thank our dedicated employees for their hard work and commitment to our company. I note that I attended Endo's national sales meeting last week. And the energy among our branded and generic talented sales professionals was incredibly remarkable. I could not have been more excited. I'd also like to thank our investors for their patience and continued support. We appreciate your continued interest in the company. And we look forward to providing you with updates. Thank you for joining us this morning.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. You may now disconnect. Everyone, have a great day.