Endo International plc
Q3 2015 Earnings Call Transcript

Published: 5 Nov 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to today's Endo International Third Quarter 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 follow at that time. As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Ms. Keri Mattox. Ma'am, you may begin.

[Keri P. Mattox:]

Good morning and thank you for joining us to discuss our third quarter 2015 financial results. With me on today's call are Rajiv De Silva, President and CEO of Endo; Suky Upadhyay, Chief Financial Officer; Paul Campanelli, President of Par Pharmaceuticals; and Brian Lortie, President of U.S. Branded Pharmaceuticals. We have prepared a slide presentation to accompany today's webcast, and that presentation is posted online in the investor section at www.endo.com. I would like to remind you that any forward-looking statements by management are covered under the Private Securities Litigation Reform Act of 1995 and Canadian Securities Litigation Act, 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 today 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. With that, I would now like to turn the call over to Rajiv.

[Rajiv De Silva:]

Thank you, Keri, and good morning, everyone, and thank you for joining us for today's call. I hope that you have all had a chance to review the company's earnings press release that we issued earlier this morning. Let me now turn to our third quarter earnings presentation. On Slide 2, you will see our agenda for today's call. We will start with an overview of Endo's transformation since the beginning of 2013 and how we believe we have differentiated ourselves within the specialty pharmaceutical landscape. We will then review some of our recent accomplishments, and I will follow that with the highlights of our third quarter 2015 financial results, walking through our U.S. Branded, U.S. Generics, and International businesses. We will then turn to our full-year 2015 outlook and financial guidance as well as our projected 2016 financial profile. After our prepared remarks, we look forward to taking your questions. Moving on to Slide 4. Shortly after I joined the company in early 2013, we mapped out a strategic direction that we felt best-positioned Endo for transformative growth and to achieve our goal of improving lives while creating value. We aspire to become a leading global specialty pharmaceutical company and are focused on areas where we believe we can create value. Our core businesses are U.S. Branded Pharmaceuticals, U.S. Generics, and International Pharmaceuticals. At Endo, we aim to create value through our differentiated operating model. With our nimble decentralized structure and the rational allocation of capital, we believe we are better owners of assets. Ultimately, this model is enabling us to achieve sustainable growth through organic expansion, strategic M&A, and a de-risked R&D pipeline. On Slide 5, you will see the core tenets of the Endo operating model and what we believe differentiates us from other companies in our industry. It is important to note that while we continue to see M&A as an important component of building and growing our business in the future, we have already diversified and expanded our product portfolio and R&D pipeline to support double-digit organic growth. Finally, we are a streamlined, diversified and compliant organization that operates within the rigorous controls of our industry. Moving to Slide 6, you will see the key components of Endo's strategic transformation. First, we have optimized and refocused the Endo business for sustainable growth. Our efforts have enabled us to successfully right-size our cost base and upgrade our management talent. We have divested the non-core assets of HealthTronics and AMS Men's Health to sharpen the strategic focus on pharmaceuticals and our base business. We completed bolt-on acquisitions like Boca, DAVA, and SUMAVEL DosePro that added near-term critical mass at key points in our corporate evolution. Finally, we expanded the R&D pipeline with the addition of AVEED, creating a new branded growth opportunity. Now moving beyond our base business, we have created new long-term growth platforms for Endo. The Auxilium transaction, which closed earlier this year, was an important step in rebuilding our U.S. Branded business and brought XIAFLEX, TESTOPEL, and other innovative products into our portfolio. That transaction also helped revitalize our R&D pipeline with the addition of multiple XIAFLEX programs across a range of potential therapeutic and aesthetic indications. We established our International platform to further diversify our revenue base. The acquisitions of SOMAR in Mexico, Litha in South Africa, and a portfolio of products from the Aspen Group to strategically augment that Litha business, established emerging market beachheads for us. These international businesses also facilitate further international expansion in these regions. Finally, BELBUCA, which was just approved by the FDA, firmly positions Endo for growth again in the pain market. We are covering the full breadth and depth of Endo's expertise in this area as we prepare for commercial launch early next year. In short, we are positioned for successful execution of this opportunity. We have also taken transformational steps towards leadership in the global specialty pharmaceutical arena. The transformational acquisitions we have successfully pursued – namely Paladin and, more recently, Par – have enabled us to improve our corporate structure and firmly position the company for long-term organic growth. Additionally, we have transformed our pipeline. As I mentioned a few moments ago, XIAFLEX brings a range of new programs to our R&D efforts from indications with severely underserved patient populations and few treatment options to broader aesthetic indications with significant market potential. Further, the addition of Par brings an industry-leading specialty pipeline of more than 200 projects to our U.S. Generics business. Approximately two-thirds of Par's R&D programs are in alternative dosages, and approximately half are Paragraph IV first-to-file or first-to-market opportunities. This pipeline has been consistently producing higher barrier-to-entry products with fewer competitors and higher gross margins, and we expect it to continue to do so, driving double-digit growth for Endo over the near and midterm. Next, on Slide 7, you will see how the Endo transformation has resulted in a strategic shift in our revenues in recent years. Through a mix of portfolio diversification, product lifecycle management, organic growth acceleration, and accretive M&A, the Endo of 2015 is a vastly different company than the Endo of 2012. For example, in 2012 72% of Endo's revenues were comprised of noncore businesses such as AMS and HealthTronics and now legacy-branded products like LIDODERM. In 2015, legacy-branded products are projected to be only approximately 17% of our overall revenues, and HealthTronics and most of AMS have been divested. In fact, today, no Endo product makes up more than 6% of overall revenues. We have truly diversified. We are also building out portions of our business that we believe will create value well into the future. Our U.S. Branded portfolio has expanded. We have enhanced our Generics business and have added an International business. Moving to Slide 8, you will see how this diversification and company growth has impacted our earnings per share, essentially turning the company's EPS around from the impact of the decline of legacy products and non-core businesses. Moving to Slide 9, and heading into 2016, we believe our recent milestones make Endo fundamentally stronger than ever for several reasons. We are positioned for growth, which means that we are projecting a double-digit organic growth rate over our planning horizon and are increasing our operating margins. We are also progressing our tax strategy. We have a powerful platform for future M&A. Post-Par, we have an enhanced corporate profile, scope, size, and manufacturing capabilities. Also, with robust underlying cash flow and adjusted EBITDA in 2016, we anticipate rapidly de-levering back to a 3 to 4 times net debt to EBITDA ratio by mid-2016. And we have built an expanded, diversified portfolio. As I mentioned just a few minutes ago, we have strategically grown our product portfolio and R&D pipeline across all three of our business segments. So, moving to Slide 11, we continue to make good progress in addressing the near-term strategic priorities that we believe will support our objective of becoming a leading global specialty pharmaceutical company. First, we are further enhancing our operational focus in order to help drive organic growth. In our U.S. Branded business, we secured FDA approval for BELBUCA, continued to drive growth for XIAFLEX, and supported OPANA ER, working to defend our IP estate and toward a potential label expansion. In U.S. Generics, we closed the acquisition of Par, achieving critical mass for this business. Within International, we closed the Aspen portfolio acquisitions for the Litha Group, which is now refocused on pharmaceuticals. Second, we continue to sharpen our R&D focus on near-term opportunities. On the late-stage development front for XIAFLEX, we have made good progress on our additional studies for the treatment of cellulite and adhesive capsulitis. We expect to hold confirmatory meetings with the FDA by the end of this year and will initiate these two studies shortly thereafter. Also, I'm pleased to share an exciting update regarding the earlier-stage XIAFLEX pipeline. We have opted into two new potential indications recently

[Suketu P. Upadhyay:]

Thanks, Rajiv, and good morning to those joining us for today's presentation. We are pleased with the solid performance that Endo delivered in the third quarter of 2015. Starting with Slide 30, I'll walk you through some of the financial details for the third quarter. Revenues increased 14% versus the third quarter of 2014, and year-to-date revenues have increased 28% versus the same period in 2014. For our U.S. Branded business, the acquisition of Auxilium was the primary driver of growth. Our U.S. Generics business continued to deliver strong base business growth. For International, a stronger dollar was a key contributing factor to the year-over-year quarterly performance. On an underlying basis, organic year-to-date revenue growth was approximately 4%. For clarity, underlying growth for Endo includes Auxilium results on a pro forma basis and only includes 2014 acquisitions on a same-store sales basis. And we exclude all sales and royalties related to LIDODERM for comparison purposes. For the full year 2015, we expect that our underlying growth rate will approximate our longer-term aspirations for sustainable high single-digit to low double-digit organic growth, and the recent closing of Par accelerates our growth profile. Moving to Slide 31, we continue to expand our adjusted gross margin, with 63.5% in the quarter in line with our overall full year guidance. And our adjusted operating expenses were approximately 21% of revenues, also in line with our expectations. We have been very efficient in capturing synergies from the Auxilium transaction and are well positioned to capture synergies from the Par acquisition. In addition to our positive operating performance, we have an improving adjusted effective tax rate. We posted a third quarter 2015 adjusted effective tax rate of approximately 1%, and year-to-date that rate is approximately 8.5%. As expected and guided on our recent earnings call, the quarterly tax progression will be lumpy due to technical accounting rules, the acquisition of Par, and the continued implementation of actions to optimize our overall value chain. The positive operating performance and adjusted tax rate led to third quarter adjusted income growth at a rate that was significantly faster than our revenue growth. Third quarter adjusted EPS from continuing operations of $1.02 was lower than our revenue growth rate. Remember that this was impacted by our adjusted diluted earnings share count of 211 million for the quarter, which reflects the additional shares issued as part of our Par financing and acquisition. Moving to Slide 32, I will not review the year-to-date slides in depth. We believe that they are strong results that reflect the value created by our long-term strategy. Before we talk about guidance for this year, full year 2016, I do want to take a moment to discuss the impairment charges we took in the quarter. As Rajiv mentioned earlier, we are accounting for pre-tax noncash impairment charges of approximately $240 million related to intangible assets and approximately $680 million related to associated goodwill. These impairments represent 3% of Endo's total intangibles at the third quarter and approximately 9% of total goodwill prior to these respective charges. The intangible related charges are primarily driven by the recent underperformance across STENDRA and certain TRT products in tandem with the expectation of lower future cash flows as we realign investment priorities towards higher growth assets such as XIAFLEX and BELBUCA. In addition, our continued prioritization of higher value products and development projects has led to the reduction in value, primarily across our legacy Qualitest business. The intangible asset charges related to Branded products has triggered us to test goodwill across urology, endocrinology, and oncology reporting unit within the U.S. Branded segments, ultimately leading to a provisional impairment of associated goodwill in the quarter. I should note that our normal testing cycle for goodwill generally occurs in the fourth quarter. However, the charges related to STENDRA and TRT products compelled us to accelerate our evaluation of goodwill within certain parts of the U.S. Branded segment. So while we have taken a provisional charge in the third quarter, that charge may get adjusted up or down as we complete our enterprise goodwill testing in the fourth quarter of 2015. The pre-tax, noncash intangible asset and goodwill accounting charges in the third quarter are partially offset by a related $80 million reduction in future contingent consideration. While we are disappointed with the performance of STENDRA and across certain parts of the TRT portfolio, we continue to be very excited about the long-term growth opportunities related to XIAFLEX and BELBUCA, as well as our highly diversified and specialized generics portfolio and international platforms. Most importantly, we continue to remain confident in our near-term guidance and our long-term aspirations. So, moving to Slide 34, we are reaffirming our full year 2015 financial guidance from continuing operations, which we updated around the close of the Par acquisition in September. We expect full year 2015 revenues between $3.22 billion and $3.27 billion, an adjusted gross margin of approximately 64%, and effective tax rate of 9% to 10%, adjusted diluted earnings per share from continuing operations to be in the range of $4.50 to $4.60, and reported or GAAP diluted earnings per share from continuing operations for the year to be within a range of minus $3.70 to minus $3.60. Remember, we have affirmed this guidance and maintained the upper end of our previous EPS range with six months of dilution from the Par pre-close financing activities and only three months of Par revenue for the full year 2015. Overall, I am pleased with our year-to-date performance, which continues to be characterized by solid underlying revenue growth, margin expansion and robust underlying cash flow generation. And I am excited about the opportunities that we have to continue with the transformation of Endo into a leading global specialty pharmaceutical company. Now let me turn it back to Rajiv to close out. Rajiv?

[Rajiv De Silva:]

Thank you, Suky. Moving to Slide 35. As Suky said, we are strongly positioned for growth in 2016 and today we reiterate our 2016 financial guidance of an estimated adjusted diluted earnings per share from continuing operations in the range of $5.85 to $6.15. We remain confident in our ability to deliver double-digit revenue growth, strong and rapid synergy capture, continued progression and execution of our tax strategy, and robust cash flows and rapid de-levering that enables continued execution of our M&A strategy. To summarize, on Slide 36, I want to reiterate that we feel fundamentally that Endo is more diversified and stronger financially and strategically than ever before. We are positioned for growth. We have created a powerful platform for future M&A, and we have built an expanded and diversified product portfolio and R&D pipeline. All of this against a very compelling backdrop of double-digit organic growth projected over our planning horizon. That concludes our prepared remarks. Let me now turn the call back over to Keri to manage our question-and-answer period.

[Keri P. Mattox:]

Thank you, Rajiv. We would like now 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, please?

[Operator:]

Our first question comes from the line of Louise Chen with Guggenheim.

[Louise Chen:]

Hi. Thanks for taking my questions. So first question I had here is what is driving your effective increase in 2015 guidance post the close of the Par deal? And then second question here is your double-digit growth of mid- to long-term aspiration, how much of that is determined by price versus volume? And then the last thing here is just how do you differentiate yourself from all this noise in the healthcare industry on pricing, especially pharmacy? What's the tagline here? Thanks.

[Rajiv De Silva:]

Sure. Let me answer your question on the contribution of price and volume to our double-digit growth and some comments about what's going on in the industry, and then I'll have Suky talk about our 2015 guidance that we reaffirmed today. So what's key about our business is that our business is not dependent on price as a driver of long-term growth. Now, historically, if you look at our Branded business, that's primarily been driven by volume; and as we look forward into our Branded business, it is going to be driven predominantly by new product launches and growth of products like XIAFLEX, right, so I think it is fundamentally a volume growth story in our Branded business. And then similarly for our Generics business, while historically the Qualitest business did enjoy a certain amount of price in its growth, and Qualitest itself has grown in the mid-teens organically in the last five years and two-thirds of that growth, though, came from volume and mix. Going forward, we expect the contribution of price to be much more muted, because if you look at the Par acquisition and what Par brings to us, it's all about pipeline. And as we look into 2016 onwards for our Generics business, our growth is predominantly going to be volume-based. And in our International markets, price value is never a lever, so it's all volume. So if you step back from it, I think if you look at our double-digit growth trajectory over the next three years, it is going to be predominantly about volume. And in terms of your comments about what's going on in the industry around us, certainly this has been a very choppy time for the specialty pharmaceuticals sector. But I would say in terms of the specific issues that have been debated in the marketplace, for example, the issue of pricing and the relative role pricing plays, I will explain to you why we don't really feel too worried about that because we are not going to depend on pricing going forward. We have commented previously and today about the role of intermediaries like specialty pharmacies and how we use them, where we believe we are very appropriate in our use of these intermediaries and they're really no different than other distributors that we use. So as we step back from this, certainly our industry is going through a downturn. This is not the first time this has happened to our industry. But I think the important thing for us is that we have all the tools that we need to ride through this downturn. We have just completed or consummated some acquisitions; we have a great pipeline of projects coming through on XIAFLEX; we just got BELBUCA approved. So for us, this is really about operating our business and executing. And we have a very attractive business going into 2016 and beyond, and my belief is that the fundamentals of our industry continue to be extremely strong and eventually the market will come back and the companies that have underlying organic growth potential are the ones that are going to be successful, and we count ourselves among those companies. So with that, Suky, you want to touch on 2015 guidance?

[Suketu P. Upadhyay:]

Yeah. Louise, to your question on what are the drivers on the top end of our guidance post-closing of Par, and I would say it's really coming across all elements of our P&L, which for me represents a good quality approach to how we're achieving our guidance for this year. So first, from a revenue perspective, we've had some headwinds on the legacy Endo business this year. If you think about foreign currency rates with the introduction of an additional generic LIDODERM entrant with fairly steep price decreases, as well as the underperformance of STENDRA, which we've been quite transparent about, the overall Endo legacy business continues to operate within the revenue range that we put out at the beginning of the year. And then if you think about Par, since we signed the deal to where we are today, that asset's actually performing on the top line a little bit better than what we originally expected. So overall, revenues are coming in right in line with how we thought about them. Then from a P&L perspective, the reason why we're able to offset a half-year of dilution from Par with only a quarter of a year of operating results from Par is really because gross margin is performing better than we expected. That's primarily driven by the Generics business, but if you actually look at Branded as well as the International segments, they're actually showing some modest improvement year-over-year as well on a year-to-date basis. Operating expenses are better than where we thought, and that's primarily driven by a faster uptake of the Auxilium synergies, and that's also in the backdrop of stepped-up investment against STENDRA and now stepped-up investment against BELBUCA within 2015. And last, we are very pleased with our overall tax rate. There's a number of drivers against that. One is, obviously, the Auxilium as well as the Par transaction, but our underlying fundamental planning strategies around supply chain are also yielding some very nice and better-than-expected benefits, so really, again, you're seeing that benefit across our entire P&L.

[Louise Chen:]

All right. Thanks.

[Operator:]

Thank you. Our next question comes from the line of David Amsellem with Piper Jaffray.

[David A. Amsellem:]

Thanks. Just a few questions. So I guess on the assets you wrote down, particularly the testosterone product, maybe give us your thinking on where you miscalculated when you did the Auxilium transaction and I think where you went wrong or what you thought you got wrong about those assets? That's number one, and then I guess the same question could be asked of STENDRA. And then, secondly, on BELBUCA, maybe this is early but if you can talk about how we should think about price and what are the comparators that we should look at there? That would be helpful. Thank you.

[Rajiv De Silva:]

Sure. David, let me touch on the testosterone market and STENDRA, and then I'm going to have Brian talk about BELBUCA and how we have some pricing there. So on the testosterone products, in the Auxilium transaction, there were two assets that came to us in the testosterone space. One is TESTOPEL and the other is TESTIM. So most of this downdraft has been in TESTIM, and I think there, really, the difference between where we were when we signed the Auxilium transaction and today is that there is much more significant generic competition for TESTIM, and the market continues to decline at a double-digit growth rate, which has affected not only TESTIM but also FORTESTA as well as Natesto. So I think when we step back from this, one of the things that we take great pride in our business model is being rational actors. So we certainly believe in the transactions we do and assets we support, but upon reflection, if there's anything that is not working as we think it will, we will divert resources to things that are more likely to create value, which is exactly what we're doing here. So the good news though about the testosterone market for us is that the two assets that we always thought were longer-term assets, which were AVEED and TESTOPEL, are collectively in the long-acting segment which for us is growing, and we expect it to keep growing and that's where we expect to put our investment going forward. The STENDRA story is very simple. I think we were very clear that we believe that based on what we found after we closed the transaction that this was a poorly launched product by Auxilium with a lot of miscalculations and missteps along the way. We put a lot of efforts against it to recalibrate, including additional field efforts, some targeted DTC spend, et cetera. And while we are seeing some encouraging results from those investments, really, when you put that against the opportunity that we have with BELBUCA, it really pales in comparison, which is why we've taken the opportunity to reallocate resources. So just to finish off the discussion on Auxilium, I would remind you that for us Auxilium really is about the XIAFLEX platform. And that continues to perform extremely well in the end market indications. The pipeline is richer than we thought at the very beginning, so there's actually a lot of positives about Auxilium that we are very encouraged by. And as Suky said, we've over-delivered both in terms of size as well as timing on our synergies, which has also been a big driver of success in 2015. So we are actually overall very pleased with the Auxilium transaction and we believe that the ultimate view of its success or not should be taken with respect to the longer-term expectations for that business. So Brian, maybe you can comment on BELBUCA pricing and how we're thinking about it?

[Brian Lortie:]

Sure. Happy to. Thanks, Rajiv, and thanks, David, for the question. We're obviously very excited about BELBUCA. We think we've got a very nice label and the first-pass approval was a big success for our R&D team. We like the profile of this product. We think it's going to have a very important place in the armamentarium of pain products on the market and being a product with a nice safety and efficacy profile accompanied by the Schedule III designation, we think that it's going to, as I say, fit in very, very well. I'm not going to guide too specifically on price but I think if you look at the other long-acting opioids that are in the market treating chronic pain, you can get an idea of the range that we'll be playing in. Philosophically, our goal here is to provide access for as many patients as possible and also to provide access cleanly and smoothly on managed-care formularies, and our conversations are underway behind that. But just, as we've said, we had planned on stepping up in a major way to resourcing behind BELBUCA because we think it really provides us with a very compelling growth profile going forward and, frankly, we're excited to get it on the market as soon as we can in 2016.

[David A. Amsellem:]

Okay. Thank you.

[Keri P. Mattox:]

Operator, can we go to the next question, please?

[Operator:]

Yes. Our next question comes from the line of Marc Goodman with UBS.

[Marc Goodman:]

Morning. First on XIAFLEX, I just want to make sure I understand. You said that for frozen shoulder and cellulite, you have not met with the FDA yet but you are planning to launch the studies literally in the next month. So I'm just curious. Did I hear that right? Or you have met with them? Second, in the Generics business, can you tell us how much the LIDODERM AG represented and what the gross margin was? And you started to talk about TESTOPEL a little bit but is there any way you can give us just a sense of the revenues there and maybe what the revenues were when you bought it just to give us a sense of what's happened for that product? Thanks.

[Rajiv De Silva:]

Sure. Let me answer the XIAFLEX question and TESTOPOL, and then I'll hand it over to Suky for the LIDO AG. On XIAFLEX, on both frozen shoulder and on cellulite, there has been ongoing dialogue with the FDA. However, prior to actually initiating the next Phase 2b study, our expectation is that we would want to have a confirmatory meeting with the FDA to ensure that we are fully aligned in terms of endpoints as well as patient population. So those meetings are being set up, and for cellulite has been set up, we are in the process of doing that for adhesive capsulitis and for frozen shoulder as well and we are hopeful that those will be brought by the end of this year which will allow us to immediately enter into the trial. So that's where we are in terms of timeline. In terms of TESTOPEL, if you recall, there were some changes in TESTOPEL's reimbursement that happened just in the backdrop of our acquisition. Actually it happened before our acquisition of Auxilium, so there has been some rebasing of that product going into 2015. But we've seen a very nice stabilization of it and we expect it to, along with AVEED, contribute to a growing, long-acting franchise headed into 2016 onwards. Suky, you want to just talk about the LIDO AG question briefly?

[Suketu P. Upadhyay:]

Sure. So LIDO AG, even in the backdrop of the most recent entrants on that product is still about a third of the market. It's done about $20 million to $25 million within the quarter, and gross margin of the profile of that product subsequent to the new entrant is somewhere around or maybe slightly below the division or segment gross margin average, in the mid-50s.

[Marc Goodman:]

So gross margin for the whole generic business is mid-50s this quarter?

[Suketu P. Upadhyay:]

That's right.

[Marc Goodman:]

Thanks.

[Operator:]

The next question comes from the line of Chris Schott with JPMorgan.

[Christopher Thomas Schott:]

Great. Thanks very much. Just with some of the recent stock market and fixed income moves, any changes in priorities for capital deployment? I guess, where does share repo fit versus debt pay down? Are you seeing any signs from sellers that prices might be resetting given market dynamics? And then my second question was just building on some of the earlier comments here. Are there any learnings from the Auxilium transaction that we should think about as you look at future deals in terms of either things you would or wouldn't do or the way you'd manage acquired products? I'm trying to understand that a little bit better. Thanks very much.

[Rajiv De Silva:]

Thanks, Chris. In terms of capital allocation and I think we've always been very clear in terms of where we are in our corporate cycle of rebuilding the company and repositioning it that for us, really, capital allocation was in the following order, which is towards new acquisitions and also, obviously, funding organic growth; debt paydown next, because we do believe in maintaining an attractive balance sheet; and then share repurchases, which came at the end of those priorities. I think as we sit here now, clearly from the standpoint of where we see our own shares trading, we believe we are substantially undervalued. That being said, we don't want to lose sight of the fact that our fundamental mission here is growing the company and creating long-term value. And we do continue to see some very attractive assets out there, and as you pointed out, prices have come down substantially, and with the Par transaction just closed, we will be rapidly de-levering going into 2016 and with an EBITDA base in excess of $2 billion. So we will very soon be in a position with substantial resources to pursue acquisitions, so that will be a priority. We certainly take the obligation that we have to pay down debt very seriously. That's a commitment that we made to the rating agencies as well as the shareholders. So we intend to do that going into 2016 as well. And, of course, from time to time our board will take a look at share repurchases as a strategic alternative to capital allocation. But I would say we do continue to see some very attractive opportunities to continue to build the company, which is quite encouraging. In terms of your question on Auxilium, as I explained in my previous answer, the core expectation that we had in the Auxilium transaction, which was acquiring a very long-term platform has proven to be exactly the case, certainly in terms of what we found with the XIAFLEX platform both in terms of our market indications and the pipeline continue to be at or above our expectations. Certainly the pipeline is well above. However, I think there are always learning opportunities every time we do a transaction. So when I step back from Auxilium, I would say there are two learnings that we had. One is, I think, you know, we've always said that for us to play in predominantly primary care type products is going to be difficult, and we proved that to ourselves again with STENDRA. And in particular, relaunching a primary care product in a very crowded, competitive market where there's a lot of money being spent is not something our business model is intended for, and I think that certainly informs how we might think about opportunities like STENDRA in the future. And the other thing that I think we've also been very clear in terms of some of the commentary that we made in the last couple of quarters is that we had to move to make some corrections, particularly around the reimbursement support that we had for XIAFLEX in terms of continuing the product's growth, which we probably were not fast enough. So those are the two learnings that we had. But overall, I would say that the other types of things that you worry about in integrations, which is synergy capture, keeping our compliance mindset in a transition, all of those things have gone extremely well. So net-net, if I step back from the Auxilium integration, I'm actually quite pleased with it.

[Christopher Thomas Schott:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Annabel Samimy with Stifel.

[Annabel Samimy:]

Hi. Thanks for taking my question. I guess it's similar along the lines of the prior question, but right now you've got some of the best performing assets in brands that are some of the oldest ones or potentially going away. We're excited about BELBUCA and continued opportunity for XIAFLEX, but with these assets do you feel that you're in the right areas of growth right now? And can you get to the double-digit growth with these assets? And what can we expect with regard to M&A in this, I guess, revalued marketplace? I know that you're interested in that but are you refocusing some of the areas that you're moving into? And on the Generic side, what has allowed you to take advantage of certain pricing opportunities where other competitors in the same areas have not been able to? Thanks.

[Rajiv De Silva:]

Thanks, Annabel. So in terms of your question on the Branded business and double-digit organic growth, I think what we've been clear about is that for the company as a whole, we expect to be in double digits in our planning horizon. Our Branded business is likely to be in the high single digits, where we stand now. And that's obviously before the impact of the XIAFLEX pipeline, which happens at the very end of our planning horizon. So if you look at our Branded business and think about XIAFLEX, think about BELBUCA, that is a big component of how we expect growth to be supported in the next little while. But let's not forget, we have products like SUPPRELIN LA, AVEED, which are doing quite well. TESTOPEL we are confident will swing back into growth. So we actually have a nice table of products that we expect to contribute to growth. And, you know, Voltaren Gel is a bit of a wildcard; it's a product that has performed very nicely under our watch. Our promotional agreement comes to an end in mid-2016, but we continue to have a dialog with GSK and Novartis, the joint venture, around potentially extending that, and we've been clear that that would be something that we'd be very interested in doing and we've disclosed that in prior earnings calls. And we continue to have those dialogues and we are hopeful that they will be resolved in the near term. In terms of your question on M&A, and I suspect your question was to focus on the Branded arena, one of the things that we have said consistently is that we need to build further critical mass in our Branded business. So right now what we have is essentially two legs, which is the pain business which now has a good flagship product, BELBUCA, right in the front end, OPANA ER behind and, hopefully, Voltaren Gel on an ongoing basis. And then we have a specialty products business, which is led by XIAFLEX with TESTOPEL and AVEED in the portfolio as well. But for us to really aspire to leadership in Branded, I think we do need another platform. Our views on what those platforms are, frankly, have not changed very much. I think for us it's all about the right opportunistic entry, where we think we can create value and that's certainly what we're going to be looking for as we head into 2016 and 2017. And finally, on your question on Generics, you know this is mostly a Qualitest question, so I'll take it. And maybe I'll ask Paul to comment on it in his view of Generics going forward. For us, the Qualitest portfolio has three legs. There's controlled substances; there's liquids; and then our portfolio of very small products, of which we have up to 800 products. And smaller products, a lot of the big competitors don't make any more; we're often competing with small players. The controlled-substance space has been one where there has been events that allow for price increases, like the up-scheduling of the hydrocodones. And the small products in the area where often times the supply-demand dynamics are such that there are opportunities for pricing, because many of these don't last very long and they're temporary, but net-net, they have contributed to Qualitest growth. However, we have also been clear that it was not our expectation that opportunity will continue forever, right, that there would be diminishing opportunity, which is why prior to the acquisition of Par, we signaled Qualitest to be a high single-digit grow versus a double-digit grow, so hopefully that answers your question. But maybe, Paul, you can comment a bit on your views on pricing in Generics going forward?

[Paul V. Campanelli:]

Yeah. Sure. Thanks. Again, I think, clearly, when we look at on a go-forward basis, Rajiv talked a little bit about the narcotics and maybe I kind of view that as technically challenging products. I would look at it the same way on a go-forward basis. It would be very select, so from that standpoint you're not going to see me-too products seeing price increases. I think where we see it going it's going to be driven on volume and that's really where the Par portfolio comes in in terms of new R&D products that we're looking to launch and it's really about operational execution, and getting the pipeline approved as quickly as possible. I think it's going to be a little bit more challenging across the board on price increases as you see the consortiums getting a little bit bigger. But we have to execute on the pipeline. I think that's really the story here.

[Annabel Samimy:]

Okay. Thank you.

[Operator:]

Our next question comes from the line of Liav Abraham with Citi.

[Liav Abraham:]

A couple of questions. Firstly, Paul, can you comment on how Par performed in the quarter? I'm aware that it wasn't consolidated – the results weren't consolidated, but it would be helpful to get a sense of the performance of the business and also any meaningful catalysts on the Par side that we should look out for over the next 6 to 12 months? And then secondly, on pricing, Rajiv, in the unlikely event that politicians are able to collapse Medicare rebates to Medicaid rebates, can you frame the potential top line impact to your Branded business? Thank you.

[Rajiv De Silva:]

Sure. So just, before I hand it to Paul, I just want to remind you that we only consolidated four days of results on Par, so we're not going to comment on the financials of Par in the third quarter. However, Paul can certainly comment on the qualitative aspects of how the business did in the third quarter and the highlights as well as his views going forward, but again, we're not going to provide any specific revenue or profit number specifically for Par for the remainder of 2015 either. Paul?

[Paul V. Campanelli:]

Well, I'll just be real general then, Liav. I think, to Rajiv's point, I mean, I'm real proud of where Par has landed over the last several quarters and really in the way we kind of look on a go-forward basis. Really at the end of the day, we performed as we predicted. So I think that's probably the best way of putting it at this time. Without giving any specific numbers, the team continues to execute and we delivered on what we had promised to the Endo team.

[Rajiv De Silva:]

Maybe, Paul, you want to just comment on what you think the drivers are going to be in the next 6 to 12 months?

[Paul V. Campanelli:]

Yeah. So at the end of the day, we keep on talking about this operational execution and we still have a portfolio of products that we have to work with the FDA, and we're excited about the portfolio. We certainly, in the slides that we've shown, we have a series of products that we're excited about, notably the quetiapine and the ezetimibe products that we are planning on executing and deliver as we get into 2016. And overall, we have our goals and objectives on the number of applications that we need to file and we have a very strong focus on filing products, launching products. Again, as we file we need to get them out of the FDA and we have to drive our sales. So ultimately we have our plan to continue to file in the area of 20 to 30 applications on an annualized basis, and our goal is to launch as we forecasted. So, so far very excited about the prospects of execution.

[Rajiv De Silva:]

Suky, you want to comment on the Medicare, Medicaid rebate question?

[Suketu P. Upadhyay:]

Sure. So I think the first thing to understand is important

[Rajiv De Silva:]

As a percent of revenue.

[Suketu P. Upadhyay:]

As a percent of revenue. Yeah.

[Liav Abraham:]

Thanks very much. Very helpful.

[Operator:]

Our next question comes from the line of Andrew Finkelstein with Susquehanna Financial.

[Andrew Finkelstein:]

Morning. Thanks for taking the question. I was hoping you could help us. I know you don't want to give the Par figure specifically for the quarter, but within Generics we had talked earlier in the year about some of the quarter-to-quarter dynamics within the Qualitest business. If you can give an idea of some of the moving pieces there? I think in the second quarter you had talked about a $16 million stocking benefit but also the impact of the price increase penalties and then moving into third quarter, I think the expectation was you'd get the benefit of the increases that were taken in the second quarter, so if you could talk at all about how much the net realized price was relative to your expectations and what the benefit is going forward and then any of the key products from the Qualitest business, whether that's Valcyte or the potassium product in the controlled substances portfolio. Just any idea of what's – any big changes on particular products, and then, finally, on the Par business, I think the working capital profile looked, at least as of the last quarter, a lot different for Par versus your business, so just any comments there about how that changes as their customer terms are folded into your contracts. Thanks.

[Rajiv De Silva:]

Sure. Let me start on this, and I'll have Suky answer. So we're not – for example, on things like customer contracts, we're not going to comment on it. That's something that Paul is right in the midst of. He's handling that himself personally because it's such an important topic, and we will see the outcome of that going into next year. But on your questions on Q3, the impact of price, et cetera, just to make sure that we set the facts straight, when we took our price increases in the back end of Q2, we were clear that the level of the pipeline accruals and price penalties that we're paying would mean that the real net benefit of those price increases would likely happen on the very back end of the year and more importantly for 2016, right? So in Q3 there is no benefit from those price increases. In fact, the price penalties actually continue to drag down Q3 results. As a result, our Q3 growth in Qualitest is all volume, and then really there is no price in it. And we continue, though, to be very pleased with the performance of valganciclovir, the potassium fluoride product, and the hydro-APAP. We have signaled that we expect some competition for the low-dose hydro-APAP and valgan sometime in the fourth quarter, and we continue to expect that; but certainly in terms of how they performed in Q3, we are very pleased. And we are also, from what we can tell, off to a reasonable start with the cough/cold season. The ultimate outcome of the cough/cold season will only be known in Q1 but the shipping for the cough/cold season began in Q3 and it was a reasonable outcome for that business as well. Suky, you want to comment on the Par working capital?

[Suketu P. Upadhyay:]

Sure. Just to reiterate on the Generics piece. Sequentially, even excluding Par, the Qualitest business did grow from Q2 into Q3 and that's even in the backdrop of a steeper price decline in LIDO AG than we originally anticipated, so the business, fundamentally, is still performing quite well. Regarding working capital, I think the first thing to understand is there's a little bit of noise whenever you acquire a business like this so late in the quarter and how that impacts working capital. So, first, as a part of opening balance sheet of the acquisition of Par, you're going to put the full inventory balance and the full AR and AP balances, but you've only got essentially four days of operating results as part of your denominator. So that's going to skew your working capital pretty significantly. But the way I would think about Par is that on a DSO basis, they're probably slightly better than the overall company average for Endo, which we currently see as somewhere around in the low 50s. From a DPO standpoint, Endo is probably a little bit better and where I see that is the average is somewhere in the mid-30s and then on an inventory basis both companies are relatively at the same level, which is at about 60 days.

[Andrew Finkelstein:]

Thanks very much.

[Operator:]

Our next question comes from the line of Gary Nachman with Goldman Sachs.

[Gary J. Nachman:]

Hi, good morning. Rajiv, when do you think we'll start to see even more of an inflection with XIAFLEX? How exactly have you adjusted formulary support for it? And if you're moving some of your focus from urology, could that potentially hurt uptake with Peyronie's? And then on BELBUCA, how much of that uptake will be driven by primary care, since you've said that's not a great place for you to compete? And did you actually get confirmation it's Schedule III?

[Rajiv De Silva:]

Sure. On XIAFLEX, I'm going to actually hand it over to Brian to talk about some of the things that we're doing with Peyronie's and DC for the next year, but what I would say is that in terms of an inflection point, DC is expected – I would continue to think about DC as a steady grower. Certainly at some point the MULTICORD indication will begin to kick in, we hope, in more substantial fashion, but I'm not sure that's going to create inflection other than to continue to sustain the growth trajectory. Peyronie's also, I believe, is going to continue to grow. I mean, certainly at a higher growth rate than DC. And as to whether there is a single inflection point or a sustained inflection over time is yet to be seen, because I think our biggest area that we need to create for the momentum before that is patient education and getting more patients into the funnel. We already have a very nice set of injector base, and the additional dynamic there we need to see is to really increase the number of truly active injectors. But maybe, Brian, you can talk a bit about exactly what we are planning on doing.

[Brian Lortie:]

Sure. Happy to do that. And thanks for the question, Gary. Before I do, though, let me just reinforce the difference between our specialty urology capabilities and our retail urology capabilities. So our specialty team, which is really anchored, as you know, by XIAFLEX, has a dedicated team in specialty urology, XIAFLEX, AVEED, TESTOPEL. And there will be absolutely no change to that business. We think we've got that business on the right foot now with everything from demand creation to reimbursement support, and we're very excited about what they can deliver going into 2016. So I just wanted to underscore that. And in fact, as we do reprioritize away from STENDRA, we have a customer continuity plan in place that we will execute very carefully to make sure that there is no disruption there. So I just wanted to make sure we were clear on that. As Rajiv said, on XIAFLEX, we're actually very, very happy. You've got year-on-year growth of about 20% plus. And underpinning that even after five years of launch is about 14% on Dupuytren's. And we think as we've learned more about XIAFLEX, going into 2016, there is some untapped opportunities for growth and how we think about the channels and creating and supporting demand beyond, let's say, the core launch group of injectors. And we will step into that in a big way. One of those ways is with patient engagement. And as we spoke to, we already have started the early stages of a patient engagement direct-to-patient campaign intended to make sure we're flowing patients into our prescribers while at the same time we're working to grow the prescriber base. So we like the prospects very, very much. We like what we see in terms of vials per patient in both Dupuytren's as well as Peyronie's. And frankly, we're just excited by and will continue to step into XIAFLEX going forward. You also asked about BELBUCA relative to targets, so let's be clear there. Any primary care docs that we – and frankly, this is consistent, I think, with most players in the market – any primary care docs that we target really are acting more like pain specialists than typical broad primary care specialists. So we'll allocate our selling against that. So we don't think of this as a big primary care play necessarily. And in doing so, we'll target, we think, the profile of the product will lead to some great uptake. And then your C3 question, we see this as a C3 product. That's based on the fact it's buprenorphine, which has been well established and already scheduled. So kind of uniquely, we get to take advantage of that and we'll bring the product to market accordingly.

[Gary J. Nachman:]

Okay. But did you get confirmation it's C3 yet or are you waiting to hear from the DEA on that?

[Rajiv De Silva:]

So, Gary, the way this works is that the scheduling is for the class because this is a well-established molecule that's been around, and unless the DEA takes specific action against the entire class, we don't expect action specifically on BELBUCA at this point.

[Gary J. Nachman:]

Okay. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Gregg Gilbert with Deutsche Bank.

[Gregg Gilbert:]

Yes. Hi. Just a couple of quick follow-ups on XIAFLEX. I don't think this came up yet but can you talk about the net price? It looks like the implied net price was down in the third quarter from the second quarter. So can you confirm that and talk about what's going on with that? And can you also talk about how you expect the average vial utilization to grow from the current level, whatever the current level is, as the mix of the business continues to shift by indication? Thanks.

[Rajiv De Silva:]

Again, let me have Brian talk about the vials, but XIAFLEX is not a product on which there is any substantial price movement. There's a big component of it that is just buy and bill. So that really restricts us in any case in terms of the types of price increase that we take. And also it's not a product that is broadly discounted or rebated either. I mean, there are some very, very controlled areas in which there are some volume discounts that are given but they're not substantial. So there really is no movement on XIAFLEX in pricing very much. Maybe, Brian, you want to talk about the vials?

[Brian Lortie:]

Sure. Happy to do it, Gregg. So in Peyronie's we're sitting at about 4.5 vials per patient. There's the chance for that to migrate upward a little bit but we don't build that necessarily into our expectations. It's a different story, however, for Dupuytren's because as you know we're still early in the MULTICORD rollout, and we're actually frankly pleased with the fact that it's migrated up a bit from 1 to 1.2. And we do see some potential for that to grow, obviously, to 2 vials over the next coming months or so.

[Gregg Gilbert:]

And then maybe for both of you a bigger picture question on XIAFLEX, not to look backwards too much. But can you talk about changes made in people and programs and post-acquisition. And are you confident that you have the right sort of resourcing behind it? I ask because investors are very concerned these days about acquisitive companies that sometimes have to reset the bar on products they've acquired or lower expectations after ownership. So just maybe a bigger picture question that you could address on XIAFLEX and how you're resourcing it? I know it's an important long-term driver, but can you talk about some of the specifics? Thanks.

[Rajiv De Silva:]

Sure. Let me start then and, Brian, you can add to it. We've made some changes on the XIAFLEX team. After we bought the brand, we have Blaine Davis, who runs the franchise for us. We have a new individual who runs the sales efforts on the urology side, and a very strong individual who runs the sales efforts on Dupuytren's. We've also changed over our managed care efforts and reimbursement efforts. So I would say at a senior level I am confident in the team that we have. And then maybe, Brian, you can talk about at a more specific level any observations you have.

[Brian Lortie:]

Yeah. I think I would just say exactly the same thing. Like any integration, you're going to have some turnover. What's important to recognize is that we were successful in bringing over and retaining, especially in the sales and reimbursement arena, some very experienced and talented people who knew the product very, very well, and they've continued to stay with us. And again, I'll reinforce that, especially in reimbursement, where knowing the product, knowing the customers and understanding the intricacies of access for our patients was so critical, and the vast majority of those people remain and are engaged and producing very, very well. And as Rajiv said, we made some changes at various levels, but we're very, very happy with the people that we were able to bring on. And, frankly, coming out of the disruption we've talked about already earlier in the year, we think we're on a very solid footing, and we're very happy with the growth trajectory going forward.

[Rajiv De Silva:]

And the other thing I would say, Gregg, is if you're looking at 2016, actually our resourcing behind this brand will be higher than it would ever have been under Auxilium, both in terms of sales, in terms of other support we're going to put around patient engagement, patient awareness. And more importantly, the R&D spend on this product, which is going to become much more robust heading into 2016, 2017 and beyond in a way that Auxilium could not have put resources before. So I would argue that for the core franchise that we acquired in the Auxilium transaction, the resourcing is actually going up.

[Gregg Gilbert:]

Thanks a lot.

[Operator:]

Thank you. Our next question comes from the line of David Risinger with Morgan Stanley.

[Rajiv De Silva:]

David?

[David R. Risinger:]

Thanks very much. Yes. Sorry. My apologies. So I have a couple questions. First of all, with respect to XIAFLEX, it seemed like the year-over-year growth versus what was reported in the September quarter last year was 3%. Could you just walk us through how we should think about volume growth versus inventory changes or other swings to connect the dots between some of the growth figures that you've provided in volume and the year-over-year sales growth? And then second, with respect to BELBUCA, could you just sort of paint a picture for formulary access, specifically how long it will take and what your targets are for formulary access for that launch? Thanks very much.

[Rajiv De Silva:]

Sure. Let me see if – Suky, do you want to take the XIAFLEX question?

[Suketu P. Upadhyay:]

Sure. So in the third quarter this year – I'm not sure what you're referring to sort of low single digits, David – but in the third quarter this year, XIAFLEX grew in the mid-teens. As we – Rajiv talked about prices, not a major driver either up or down for that product, especially given its buy and bill profile. Relative to your questions on inventory, because a large component of both of these indications is in fact buy and bill, you do not have large inventory positions out in the channel or do you see large inventory swings. So inventory was not a major driver of growth in the quarter.

[Rajiv De Silva:]

Yeah, if anything, inventory on XIAFLEX is a little bit lower. It's typically somewhere between a week and two weeks, and we're probably on the lower end of that spectrum, so inventory was not a driver of it either.

[David R. Risinger:]

And, I'm sorry, what was the revenue booked last year for XIAFLEX in the third quarter? Maybe I had it wrong, but I was trying to calculate off of what was booked last year in the third quarter by Auxilium.

[Rajiv De Silva:]

Suky, do ...

[Suketu P. Upadhyay:]

I think it was, you know, as I said, everything I'm talking about is sort of pro forma for Q3 versus last year.

[Rajiv De Silva:]

I'm sorry to interrupt. So one thing to keep in mind, Auxilium is to report ex-U.S. revenues of XIAFLEX together with the U.S. revenues ...

[David R. Risinger:]

Yeah.

[Rajiv De Silva:]

So just to be clear what we're talking about here are U.S. revenues.

[David R. Risinger:]

And do you know what the U.S. revenues for XIAFLEX were in the third quarter of last year?

[Rajiv De Silva:]

So that's what – that's where we're getting the 15% – mid-teens growth calculation from.

[David R. Risinger:]

Okay. Thank you.

[Brian Lortie:]

You're welcome.

[Rajiv De Silva:]

Brian, do you want to ...

[Operator:]

You have a question from...

[Rajiv De Silva:]

Brian, do you want to comment on BELBUCA?

[Brian Lortie:]

Sure. Yeah. David, you also had a question, so let me hit that quickly, on formulary access. As we commented before, we're finalizing our pricing and as I said, our goal is to make sure we have access to the majority of patients. We're beginning our engagement with payers right now. I'm not going to guide specifically to how we think that will shake out, but again, I'll point back to the profile of the product and we think it is differentiated within the space and therefore we are optimistic that we will be able to get solid formulary access going into 2016 that will enable a sharp uptake once we launch.

[David R. Risinger:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Jason Gerberry with Leerink Partners.

[Jason M. Gerberry:]

Hi. Good morning. And thanks for taking my question. Just two for me. First on XIAFLEX for cellulite. I'm just curious, the product as priced right now based on what we saw in Phase 2, isn't priced for the cash-pay cosmetic market. So just kind of curious as you think about the Phase 2b having a commercially viable formulation or dosing format, whether or not you expect to have that in place for the Phase 2b or if that's something that you have to work on subsequent to the Phase 2b? Any thoughts you can provide just in terms of what that dosing format might look like, be it prefilled syringe or something else? And then my second question, just on International pharma, can you let us know – what was the year-over-year growth of that business on a constant currency basis, and how do we think about the impact of these divestitures in 2016? Just wondering if we have more rebasing in 2016 before we get to your growth outlook for that segment. Thanks.

[Rajiv De Silva:]

Sure. Just let me quickly cover the cellulite question. I think the short answer is that this is still something that is in discussion with the FDA. I think the most important thing for us is to, with the FDA, to come to agreement on the clinical endpoint. The commercial format of the product, the formulation – whether it's a pre-filled syringe, the actual volume of it, and therefore the pricing of it is a topic that will continue to evolve. But I think the priority now is to find a clinical endpoint that is acceptable to the FDA. And then, Suky, do you want to discuss the International business briefly?

[Suketu P. Upadhyay:]

Sure. So International year-to-date has grown 19%, but again, that's partly due to the mid-year acquisition. Foreign currency has had a headwind on the business through the nine months of about $20 million in top line, and the way we would see underlying growth is somewhere around negative 10%, and that's, again, primarily driven by the transition we're taking in a number of our businesses, specifically with Litha, as we talked about a divestiture which has impacted sales in that business unit between now and when we actually close it, across vaccines, as well as our medical device distribution business. Within SOMAR we've seen the change of control of a couple of products also impact that growth rate, and the same is true within Paladin. Going into 2016, those impacts are largely behind us but we will continue to see a slight or modest step down into 2016, primarily due to the loss of the revenues from the divestiture in Litha, but I will say that while we should see a modest step down in overall revenues, those revenues were a very low margin, specifically because they were in vaccines as well as device distribution. So our overall EBITDA contribution for the business will actually increase into 2016.

[Jason M. Gerberry:]

Okay. Thank you.

[Operator:]

Our next question comes from the line of Irina Koffler with Mizuho.

[Irina Rivkind Koffler:]

Thanks for taking the question. I just wanted to revisit the reorganization for next year with the sales forces. Is there an opportunity there to gain additional cost efficiencies? That's the first question. And then the second question is, going forward, do you see the company doing these smaller deal transactions like Natesto or SUMAVEL? Or are you going to be focused on larger opportunities? Because it seems like those little things are the ones that haven't been working as well? Thanks.

[Rajiv De Silva:]

Thanks, Irina. So in terms of the changes in the business going into 2016, this is really not about cost reduction. It's really about optimizing and expanding to support the launch of BELBUCA. So we really are in growth mode in our Branded business from that standpoint. With respect to the smaller transactions, what I would say is that each of these transactions need to be viewed in the context of the circumstances under which they were done and what the facts are today, right? So SUMAVEL, for example, we did this at a time where we had a lot of excess capacity on pain field force. It is a nice tuck in, and I would say in terms of the contribution it's made, it is in line with what we would expect. Are we thrilled about this performance, and is it going to be a huge growth driver going forward? Absolutely not. But at the time we did it, it filled a very important need for us. Natesto is a novel delivery system and at a point in time when we thought that the gel market would recover quickly, it seemed to be a good opportunity, and it might still be a great product. However, what I would say is that for us to maintain a retail urology field force just to support Natesto is not viable. And it would have been viable only if STENDRA also was performing well, which is why we are taking the action we are on Natesto. So really it's not a reflection on our view on that product itself, it's really more about the viability of maintaining a field force just for that product.

[Irina Rivkind Koffler:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Randall Stanicky with RBC Capital Markets.

[Randall S. Stanicky:]

Great, thanks. Hey, Rajiv, I just want to go back to the share repurchase question. I'm looking at the stock now. It's down 7%. You've got $836 million in unrestricted cash on the balance sheet, you've not been shy about issuing equity to do deals in the past, so why not go back, buy that stock, send a message to the market right now? And then use equity to finance deals at higher prices should the stock recover? And the related question to that is given the pullback in the stock and the leverage here – you're roughly four times on a trailing basis – what is your ability to finance some larger acquisitions? And maybe specifically what type of deals should we be thinking about you guys looking at? Thanks.

[Rajiv De Silva:]

Thanks, Randall. So, look, and I'll repeat the answer I gave on the share repurchase, which is that it is within the various levers that we have. We have an active and ongoing discussion with our board in terms of how we allocate capital, so I'm not necessarily ruling out share repurchase. All I'm stating is that in a market like this we need to keep our head on straight and we have a lot of resources at hand and assets that are growing. And we also need to be mindful that we want to keep paying down our debt, right? And that there are many targets around us but it's the smaller ones that are becoming much more within range. And I think that leads to my answer to your question, which is that in the very near term we are going to continue to be focused on smaller transactions that we can do on an all-cash basis. Obviously at this level we have to be very, very prudent about how we think about using our equity. At the same time we are also open to the concept of doing larger, more transformative transactions, where it's not so much the value of equity but rather the relative valuation that might actually come into play, right? So in that sense, we continue to see opportunities. We're also going to be patient in terms of how we evaluate opportunities, but you can be certain that we have a very active ongoing dialogue with our board about how we allocate our capital.

[Randall S. Stanicky:]

Okay. Fair enough. Thanks.

[Operator:]

The next question comes from the line of Corey Davis with Canaccord.

[Corey George Davis:]

Thanks very much. I just have 32 questions, so it shouldn't take that long. The first one is on your ANDA pipeline, and what is the average time for ANDA approvals? And are you expecting or experiencing the same degree of frustration that other generic companies are? And then I have one more quick question.

[Rajiv De Silva:]

Paul?

[Paul V. Campanelli:]

Yeah, sure. So it's a hard question to answer because the majority of our portfolio are Paragraph IV. So we're tied into the 30-month stay and if you go through an appeal process, you're out four to five years. I would say when I look at the real answer to the question, are we hitting our timelines when we have our earliest entry, I would say yes. So I'm not seeing, generally speaking, a backlog on the Par portfolio. So with that, the Paragraph IV timeline allows us to catch up when we're in a situation. Now I've got – I'm not going to say that's across the board on every product, but we have a small percentage of products that get backlogged but the vast majority we hit our timelines based upon the 30-month stay.

[Corey George Davis:]

Okay. Thanks. And second question, it still wasn't clear to me. Are you guys still investing in the testosterone market? And would you find that an oral testosterone would be effective or is this market just going to keep declining forever? And regardless of whether or not you had an oral or the best testosterone ever, it's just not a market where you want to be?

[Rajiv De Silva:]

So just to be clear, Corey, so we will continue to invest in the long-acting testosterone space, which is where TESTOPEL and AVEED are. And AVEED is finally kicking in in terms of its launch trajectory, and TESTOPEL we believe is going to recover, so we do think that there is a nice runway for the long-acting testosterone. In terms of oral therapies, it is entirely possible that there will be a change in this marketplace one day when there's a viable oral therapy. The question is, will there be one and when? Maybe, Brian, you can comment on that?

[Brian Lortie:]

I mean, I really don't have anything to add. I think it comes down to product differentiation and, as Rajiv says, if there's a truly differentiated product that has an acceptable safety and efficacy profile, it has the potential to perform well. But again you have to look at the gel market, which has been declining significantly over the last couple of years, and that's led us to refocus into the area that we think gives the most compelling opportunity for growth. And we'll continue to support those products very, very strongly, both of which are in our specialty business. But as we've said, we'll be stepping up our investment overall in that business.

[Corey George Davis:]

Okay. And I was just kidding; I'll save my other 30 questions for later. Thanks.

[Brian Lortie:]

Thanks.

[Operator:]

Our next question comes from the line of Austin Nelson with Nomura Securities.

[Austin Nelson:]

Hi, guys. This is Austin, on for Shibani. Just bigger picture, the comments that you made differentiating your use of specialty pharmacies from some uses of some of your peers. We were really just wondering – we understand that your products would – are kind of traditional specialty pharmacy products, but we're wondering if in your view you see anything wrong with using them for more primary care or even specialty-type products that aren't necessarily physician-administered? And also if you think that the use of distributors really makes sense long-term, too? And then we had just one other one. On the reprioritization, is there potential to divest some of the assets that you're de-prioritizing? I mean, as you pointed out, STENDRA, it's not so – part of the issue is that primary care doesn't make sense for Endo, but could it make sense for someone who is in primary care and at least extract some value for Endo shareholders?

[Rajiv De Silva:]

Yeah. So on the question on specialty pharmacy, I really can't comment on other companies' use of specialty pharmacies. All I can say is that they are a very valuable channel for us in terms of reaching the physicians that we need to with our physician-administered products, in particular, and it's still a very important role for patients who rely on those physicians. I would also say there's a big and growing portion of our business that is buy and bill, which is largely speaking serviced by specialty distributors, who are, of course, different than specialty pharmacies. And again, we think it's a very important channel for us to be able to serve the needs of the physicians who rely on the buy and bill channel. So from that standpoint we continue to think that they're an appropriate vehicle and channel to use for our products that are more complex, have a more complicated supply chain than a full chain, for example, and are physician-administered. In terms of your question on the re-prioritization and how we think about this asset, it's important to note that on both STENDRA as well as Natesto we have partners. So you can imagine that we are in active discussions and will be in active discussions with these partners in terms of finding the appropriate promotional setting for the products. And if that means the product needs to be in someone else's hands, we are very open to that as well.

[Keri P. Mattox:]

Operator, I think we have time for maybe one more question.

[Operator:]

Our last question comes from the line of Tim Lugo with William Blair.

[Raju Y. Prasad:]

Hi. This is Raj, in for Tim. Thanks for taking the question. Just a quick one on BELBUCA. Is there a plan to apply for ADF formulation language on the label? And given OPANA ER, I assume those were in vitro studies that were done to support the sNDA? Thanks.

[Rajiv De Silva:]

Brian, I don't know if you have a perspective on that?

[Brian Lortie:]

Sure. So, yes. I mean, with OPANA ER, the agency, as I think we've spoken about before, did ask us to do some abuse liability trials, which were in vivo and in patients. On BELBUCA, in terms of ADF, we currently are not contemplating that, although we'll watch. Remember buprenorphine in its own way as a molecule is inherently less prone to abuse because of the lack of euphoria, and we see this across the existing products. And that, coupled with the dosage formulation, we think kind of gives it a differentiation based on that but we don't plan to actively promote on that. We think that the efficacy and safety profile differentiates the product very well.

[Raju Y. Prasad:]

Great. Thank you.

[Operator:]

At this time, there are no further questions. I would like to turn the call back over to Keri Mattox for closing remarks.

[Keri P. Mattox:]

Thank you, operator, and thank you all for joining us for today's call.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now all disconnect.