Download pdf - ENDO INTERNATIONAL PLC (ENDP) Earnings Report: Q1 2016 ... · Welcome to the Q1 2016 Endo International PLC earnings conference call. (Operator Instructions) As a reminder, this conference

CompanyName:EndoInternationalPLCCompanyTicker:ENDPSector:HealthCareIndustry:Drugs

EventDescription:Q12016EarningsCallMarketCapasofEventDate:6.08BPriceasofEventDate:16.17

©2014TheStreet,Inc.Al l R ightsReserved Page1of27

ENDOINTERNATIONALPLC(ENDP)EarningsReport:Q12016ConferenceCallTranscriptThefollowingENDOINTERNATIONALPLCconferencecalltookplaceonMay5,2016,04:30PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

KeriMattox;Endo;InvestorRelationsRajivDeSilva;Endo;President&CEOPaulCampanelli;Endo;President,ParPharmaceuticalSukyUpadhyay;Endo;CFO

OtherPart icipants

RandallStanicky;RBCCapitalMarkets;AnalystJasonGerberry;LeerinkPartners;AnalystDavidAmsellem;PiperJaffray&Co.;AnalystChrisSchott;JPMorgan;AnalystGregFraser;DeutscheBank;AnalystLiavAbraham;Citigroup;AnalystMarcGoodman;UBS;AnalystAnnabelSamimy;StifelNicolaus;AnalystLouiseChen;GuggenheimSecurities;AnalystAndrewFinkelstein;SusquehannaFinancialGroup;AnalystDouglasTsao;BarclaysCapital;AnalystKenCacciatore;CowenandCompany;AnalystIrinaKoffler;MizuhoSecurities;AnalystDavidRisinger;MorganStanley;AnalystDanielSanchez;RaymondJames;AnalystRohitVanjani;Oppenheimer&Co.;AnalystKevinKedra;Gabelli&Company;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheQ12016EndoInternationalPLCearningsconferencecall.

(OperatorInstructions)

Asareminder,thisconferencecallisbeingrecorded.

Iwouldnowliketoturnthecallconferenceovertoyourhost,KeriMattox,SeniorVicePresidentofInvestorRelationsandCorporateAffairs.Youmaybeginyourconference.

KeriMattox(InvestorRelations):

Goodafternoon.Thankyouforjoiningustodiscussourfirst-quarter2016financialresults.

Withmeontoday'scallareRajivDeSilva,PresidentandCEOofEndo;SukyUpadhyay,ChiefFinancial




Officer;andPaulCampanelliPresidentofParpharmaceutical.

Wehavepreparedaslidepresentationtoaccompanytoday'swebcast,andthatpresentationispostedonlineintheinvestorsectionatEndo.com.

Iwouldliketoremindyouthatanyforward-lookingstatementsmadebymanagementarecoveredunderthePrivateSecuritiesLitigationReformActof1995andCanadianSecuritiesLitigationAct,andaresubjecttothechanges,risks,anduncertaintiesdescribedintoday'spressreleaseandinourUSandCanadianSecuritiesfilings.

Inaddition,duringthecourseofthiscall,wemayrefertonon-GAAPfinancialmeasuresthatarenotpreparedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesandthatmaybedifferentfromnon-GAAPfinancialmeasuresusedbyothercompanies.

InvestorsareencouragedtoreviewEndo'searncurrentreportonForm8-KfurnishedwiththeSECtodayforEndo'sreasonsforincludingthosenon-GAAPfinancialmeasuresintoday'searningsannouncement.

Thereconciliationofnon-GAAPfinancialmeasurestothemostdirectlycomparableGAAPfinancialmeasuresiscontainedinourearningspressreleaseissuedpriortotoday'scall.

Withthat,IwouldnowliketoturnthecallovertoRajiv.

RajivDeSilva(President&CEO):

Thankyou,Keri.Goodafternoon,everyone.Thankyouforjoiningusfortoday'scall.IhopethatyouhaveallhadachancetoreviewtheCompany'searningspressreleasethatweissuedearliertoday.Letmenowturntoourfirst-quarter2016earningspresentation.

Onthenexttwoslides,youwillseeabriefagendaandanoutlineofkeythemesfortoday'scall.Tobegin,Iwillprovideasnapshotofourfirst-quarterfinancialresults,which,despitesomeheadwinds,werelargelyinlinewithourexpectations.However,theseheadwindshavecreatedsubstantialchallengestoovercomeintheremainderoftheyear.Weareprovidingrevisedfull-year2016guidancetodaytoreflectthesechallenges.

Wewillspendsomeadditionaltimediscussingthestateofourbusiness,keydriversforthisrebasing,andouractionplansmovingforward.Specifically,therearethreefactorstocalloutthatwe'lldiscussinmoredetailontoday'scall:deeper-than-expectederosioninthelegacyQualitestbusiness,delaysinFDAactionsrelatedtoour505(b)(2)products,andanearlier-than-expectedgenericentrantforVoltarenGel.

Importantly,wewillalsotalkaboutwhywebelievethatourcoregrowthdriverswillcontinuetoprovideopportunitiestoexecuteagainstourstrategicplanandallowustoreturntoorganicgrowth,improvemargins,anddeleverinthemediumterm.

Beforewebegin,IwouldliketotakethisopportunitytowelcomeourtwonewBoardmembersonbehalfofourBoardandtheCompany.WearedelightedthatDougandToddhaveacceptedourinvitationtojoin.Welookforwardtotheircontributions.

Movingtoslide6,youwillseethatQ1snapshotofreportedsegmentrevenues.Inourbrandedbusiness,wesawsolidcontinuedgrowthforXiaflex,whichperformedwelldespitetheexpectedhistoricaltrendofQ1seasonality.ThisgrowthwasoffsetinpartbyadeclineinVoltarenGelduetothatproduct'slossofexclusivityinMarchandcontinuedpressureonthepainmarket.

Inourgenericssegment,thebasebusinesserosioncontinuedintothefirstquarterandwassignificantlydeeperthanweexpectedatapproximately30%.Thiswasdrivenbycontinuedpricingandcompetitive




pressuresonourcommoditizedandpainproducts.Theerosionwaspartiallyoffsetbystrongperformancefromoursterileinjectablesportfolio,includingVasostrictandtheoverallperformanceofthelegacyParportfolio.Wewillreturntothesethemeswhenwediscussfull-yearguidance.

Theinternationalbusinessperformedasexpectedwithamodestdeclineinreportedrevenues.However,ouremergingmarketsbusinessescontinuedtoshowbothconstantexchangeraterevenuegrowthandunderlyinggrowth,aswellasmarginexpansion.

Onslide7,youwillseeourfirst-quartersegmentrevenues,aswellasreportedandunderlyinggrowth.Nextonslide8,weprovidedourfirst-quarterfinancialresults.

Movingontoslide10,let'stalkaboutthestateofourbusinessandthecontextinwhichweareviewingtheremainderof2016.TobestunderstandwhereEndoisnow,it'simportanttoalsounderstandwherewe'vebeenandwhatwe'vebuilt.

WhenIjoinedtheCompanyin2013,wechartedanewstrategiccourseandoutlinedsomeverycleargoals,asseenhereintheleftcolumn.Overthenextthreeyears,wesetouttoachievethesegoalsandpositionEndoforgrowth.ThatstrategyisstillcoretoEndoandtohowwerunourbusiness;however,whathasbecomeclearisthatthe2016specialtypharmaceuticallandscapeandmarketforcesrequireanevolutionofthatstrategy.

Solet'stalkaboutourpathforward.Ourgoalhasnotchanged;wecontinuetoaspiretobuildaleadingglobalspecialtypharmaceuticalCompany.Whathaschangedrapidlyisthelandscapeandmarketenvironmentwithinwhichweareoperating,particularlyingenerics.

Whatdoesthismeangoingforward?ItmeanswearereshapingthepathforwardforEndo.Wearerebasingexpectationsforthebusiness,andareevolvingourcurrentstrategytomeetchallengesandcapitalizeonopportunities.Ultimately,wearepositioningtheCompanyforlong-termorganicanddiversifiedgrowth,marginimprovement,anddelevering.

SoletmenowturnthecallovertoPaultodiscusskeyfactorsanddriversrelatedtogenerics.Paul?

PaulCampanelli(President,ParPharmaceutical):

Thankyou,Rajiv,andthankstoallofyouforjoiningustoday.Let'sstartwithasnapshotofourQ12016genericsrevenueonslide13.Herewepresentabridgebetweenourpro-formagenericsalesforQ12015,andQ12016underlyingandactualsales.Thevariancesbetweenthesalestotalsresultedfromagreater-than-anticipatederosioninbasebusinessofapproximately30%,drivenparticularlybythelegacyQualitestportfolio.Whileweexpectedbaseerosiontobehigherinthefirstquarterthanthefullyear,theactualerosionwasmuchdeeperacrossourpainportfolioandothercommoditizedproductsthanoriginallyanticipated.

Bycontrast,thelegacyParportfolioisperformingontrackwithinternalexpectations.Oursterileinjectablesproductportfoliocontinueditsstrongperformancewith86%growthoverQ12015.Ournewlaunchesandalternativedosageproductportfolioperformancewasstableandlargelyunchangedyearoveryear.Solet'sdiscussthefactorsthatimpactedtheseQ1resultsandthatwebelievewillshapeourfull-yeargenericsperformance.

Movingtoslide14,therearerapidlychangingmarketconditionsthathaveaffectedboththebroadergenericssectorandPar.First,wehaveseenasteepandrapidpriceerosioncausedbypairconsolidationthathasbeenmoreevenprofoundthananticipated.It'seffecthasexceededwhatmighthavebeenexpectedfromanordinarydownturnintheindustry'straditionalpricingcycle.Theimpacthasbeenparticularlyacuteinthemorecommodity-likeproductcategories,suchasourpainandcontrol




substancesportfolioandourimmediate-releasesolidoraldosageforms.

Second,coupledwiththisconsolidationandnewpayerenvironment,competitorsaretakingaggressivepricingactionstogainmarketshare.Examplesincludeboththe300and325milligramsstrengthofhydrocodoneAPAP,butalbital,morphinesulfate,andoxycodone.

Third,there'sbeenarapiderosionofthepainsegmentdrivenbythreethings:one,continuedmarketcontraction;two,increasedcompetitivecapacityandpressure;andthree,whilestilltooearlytojudgethefullimpact,webelievetherecentlyissuedCDCguidelineswillcontinuetoputpressureonanalreadysoftpainmarket.Asyoumayknow,approximately40%ofthelegacyQualitestportfoliowascomprisedofpainproducts.Sothissector-specificweaknesshashadadisproportionateeffectonourgenericsbusiness.

Fourth,there'sbeenarecentandmarkedaccelerationofFDAapprovalforgenericproducts.Whilewe'llultimatelyexpectthistoalsobenefittheParportfolioandourownpendingsubmissionsovertime,theapprovalsandlaunchesseeninlateQ1andinAprilofthisyearhaveresultedingreatercompetitivepressureforourproducts.

Fifthandfinally,delaysinexpectedFDAactionsrelatedtoour505(b)(2)productsmeansthatwehaveyettoseetheanticipatedremovalofanapprovedcompetitiveproductsfromthemarket.Correspondingly,wehaveyettoachievethemarketexclusivitythatweexpectedfortheseproducts.It'simportanttonotethatwestillexpecttheseFDAactionsbutnowonadelayedtimeline.Theremovalofrelevantunapprovedproductsmaynotoccurbeforefirsthalfof2017versusouroriginalexpectationofearly2016.

Nowthatwe'vetalkedaboutwhathashappenedinthegenericsmarket,let'salsotakeafewminutestoreviewwhensomeoftheseeventssurfaced,therebyimpactingourgenericbusiness.In2016,it'simportanttonotethattheUSgenericlandscapehascontinuedtoshiftwithsignificanteventsandupdatesasrecentlyaslateMarchandApril.Infact,itwasnotuntillateMarchthatweconfirmedthedelaysonregulatoryactionsrelatedtoour505(b)(2)productsthatIjustmentioned.

TheninAprilalone,wehaveseenatleastfivecompetitiveproductapprovalsandadditionalmarketentrants.Finally,we'vealsojustcompletedourconsortiumbidcycle,withamorenegativeoutputandanincreasedpricingpressurethanweanticipated.

Movingtoslide16,IdowanttotakeafewmomentstodiscussourongoingintegrationoftheQualitestandParbusinesses.LastfallinQ1ofthisyear,wewereconductinganintegrationoftwocomplexgenericbusinesses.WhatbecameverycleartothoseofuswhohavebeeninthegenericindustryforsometimeisthatthelegacyParoperatingmodelisbetterpositionedtoaddressthechallengesoftoday'sevolvingmarket.

Asaresult,wesetouttoshiftthelegacyQualitestportfoliostrategyfromahighvolumeapproachtothehigh-valueoperatingmodellongpracticedbylegacyPar.

Aspartoftheintegrationactivities,we'realsotransitioningthelegacyQualitestsystemsandprocessestotheParbusinessplatform.ThelegacyParsystemsoffermorereal-timeandproduct-leveldata,allowingforfasteranalysisandreactionwithinachallengingandchangingmarket.WhilemanyoftheseimprovementswerealreadyplannedatQualitest,theintegrationofourbusinesswillacceleratethebenefits.

Nextonslide17,let'stalkaboutwhatwearedoingtoaddressthesechallengesandbestpositionourgenericbusinessmovingforward,ouractionplans.First,wearecontinuingtomaximizeourkeygrowthdrivers,suchasoursterileinjectablesportfolioledbyVasostrict,andapproximately30newproductsthatweexpecttolaunchthisyear.




Next,ourplatformforlong-termorganicgrowthisourR&Dpipeline.Wearecontinuingtoadvancethesemorethan250projectspostreprioritizationandanticipatefiling20to30newsubmissionsin2016alone.Wealsoacceleratingtheimplementationofanoptimizationandrestructuringofourproductportfolioandmanufacturingfacilitynetwork.I'lltalkmoreaboutthisrestructuringshortly.

Additionally,weareacceleratingthemoveoflegacyQualitestbusinessontotheParplatform.Thisisalreadysubstantiallycomplete,asourcommercialinsightandforecastingcapabilitieshavebeenfullytransitioned.

Finally,criticaltoouractionplanisourabilitytoexecute.ThisisnotthefirstturbulentmarketenvironmentthattheParteamhassuccessfullynavigated.Ourteamisseasoned,capable,andproven.

Movingtoslide18,nowpermitmetoprovidesomeadditionaldetailontherestructuringImentionedearlier.Mostimportantly,thisrestructuringisanaccelerationofourongoingintegrationandbroaderoptimizationeffortsdesignedtoprioritizeandgrowhigh-valuedurableassets.Itisentirelyconsistentwithallourintegrationactivitiestodate.

TherestructuringwillaffectourmanufacturingsitesinCharlotteandinHuntsville,andwillresultinmorethan60productdiscontinuations.Inaddition,wearepruninglessvalue-drivenR&Dprojectssothatwecanprioritizeourinvestmentsondifferentiatedandhigh-valueproducts.

Weexpectthattherestructuringwillbecompletedbythethirdquarterof2017,andwillresultinatotalofapproximately$60millioninannualizednetrun-ratesavingsbyQ4of2017.Weexpecttoseeabout$10millionofthatgrossmarginimprovementthisyear.

Asaresult,shortly,wewillbegintheprocessofinformingemployeesaboutthesechanges.Aspartofthateffort,approximately740employeeswillbeimpactedunderaphasedtransition.ForEndo,theParmanagementteam,andformepersonally,thisisbothanextremelyanddisappointingtoourCompany.

Wevalueourpeople,andforthosewhowillbeaffected,wethankyouallforwhatyou'vecontributedtoEndo.Wewillbeprovidingresourcestohelpmanagethroughthisdifficulttransition.Andwhilechangeisnevereasy,itisnecessarytobetterpositionourgenericsdivisiontosuccessfullycompeteintheUSgenericsmarket.

Soonslide19,let'stalkaboutourfull-yearrevenueoutlookforthegenericssegment.Wehavepreviouslyexpectedamid-teensunderlyinggrowthrateforthebusiness.Giventheerosionnowforecastedacrossthesector,andparticularlyforourbasebusinessinthedelayandregulatoryactionrelatedtoour505(b)(2)products,offsetbythestronggrowthprojectedforoursterileinjectablesandnewlaunchesandalternativedosageportfolios,wenowexpectunderlyinggrowthforourgenericsbusinesstobeinthelowsingle-digitpercentagerange.

Wedoexpectthaterosionofourbasebusinesstomoderatebacktoratestypicalforthegenericindustrybeyond2016.Theerosionin2016isexpectedtobemoreacutethanhistoricaltrends,duetoourrelativepricingandsharelevelsinthepainmarketspriortotheobservedandexpectederosion.

Movingtoslide20,youwillseealookatourQ12016reportedgenericnetsalesannualizedversusourfull-year2016guidancemidpoint.Youcanseetheprojecteddeclineduetonon-basebusinesscompetitiveentriesandbaseerosion,whichweexpecttobeapproximatelyfiveyearsperquarterthroughtheendoftheyear.Ournewproductlaunchesareasignificantdriverofgrowth,asillustratedbythegreenblock,andbringyoutoourprojectedgenericnetsalesmidpointfortheyear.

Nowlet'slookatour2016launchesonslide21.Weareontracktolaunchnearly30newproductsthisyear;fourofthesearefirsttofileproductsincludingourgenericsSeroquelandgenericZetiaproducts




thatwilllaunchinthefourthquarterof2016.Another2launchproductsarealternativedosages,andanother9aresterileinjectables.Importantly,andasanillustrationofourvalue-focusedstrategyandplatform,nearlyone-thirdofourprojectedlaunchesareproductsthatwillbeexclusiveorfaceonlyonegenericcompetitor.

Finally,let'sclosethisgenericsdiscussionwithaquickreviewofourrobustR&Dpipelineonslide22.AsImentionedearlier,wehavemorethan250projectsinourreprioritizedR&Dpipeline.Weanticipatelaunchingmorethan100ofthembetween2016and2019,representingatotalcurrentmarketvalueofnearly$30billion.

Ourpipelineisrobust,diversified,andpopulatedbyhigherbarriertoentryandhigher-margingenericproducts.Webelievethatpositionsusstronglyforfuturegrowth.IamconfidentinourplatformandIbelievethatourpipelineistrulydifferentiated.Iknowthatourteamhastheexperienceandtheabilitytoaddressthesechallengesandtodeliverfuturegenericsgrowthandmarginexpansion.

Withthat,letmeturnthecallbackovertoRajivforadiscussiononourbrandedbusiness.Rajiv?


Thankyou,Paul.

LetmenowtakeafewminutestodiscussourUSbrandedbusiness.BeforeIstart,IwouldliketoacknowledgethecontributionsofBrianLortie,President,US-BrandedPharmaceuticals,whowillbeleavingustopursueotheropportunities.BrianhasbeenacriticalpartoftheeffortstorepositionourCompanyoverthelastthreeyears.WewillmisshimatEndoandwishhimwellinhisfutureendeavors.

Movingtoslide24,let'stalkaboutfactorsaffectingourUSbrandedbusiness.First,therehasbeenarecentgenericentrantforourVoltarenGelproduct.Thisgenericcameintothemarketearlierthanweexpected,andithasaffectedour2016outlookfor(inaudible).

Second,wehaveseenincreasingpressureonourbrandedpainsegment.Thisincludesadditionalcompetitiveentries,aswellasacontinuallyincreasingnumberofpublicpolicyandregulatoryactions,suchastherecentCDCguidelinesaroundopioidprescribinganduse.Additionally,therearereimbursementrestrictionsnowinplaceforLidoderm,furtherlimitingtheuseofthatbrandedproduct.

Againstthisbackdrop,wedocontinuetoseesignificantgrowthpotentialinourdifferentiatedproductBELBUCA.However,ithasprogressedataslowerpacethanweinitiallyexpected,duetopainmarketpressures.Thatsaid,wecontinuetobelieveinthefutureofthisproduct,asascheduleIIIalternativeintheopioidcategory.

Onslide25,youwillseetheopportunityforBELBUCA,thefirstandonlyBuprenorphinebuccalfilmforchronicpainmanagement,whichwelaunchedinlateFebruarythisyear.Thereareabout90milliontotalprescriptionswrittenforthetreatmentofchronicpainbelow160milligramsmorphinesulfateequivalents,orMSEs.

BELBUCAiswell-positionedtosourcepatients,bothfromshort-actingopioidsaswellasotherlong-actingopioids.Giventhesizeofboththesesegments,evenwiththerelativelysmallshareoftheavailableprescriptionbase,BELBUCAcouldbecomeaverymeaningfulproductinthiscategory.Itisalsoimportanttonotethatevenintheseearlydays,BELBUCAisnotonlycapturingswitchesfromLAOs,butalsofromSAOsandnewtherapystarts.Further,wehaveseenanincreasingnumberofrepeatprescriptionsweekoverweek.Itsdifferentiatedprofileisresonatingwellwithphysiciansandpatientsacrossthespectrum,andourearlyfeedbackonaccess,ease-of-use,efficacyandside-effectprofilehaveallbeenpositive.

Alongtheselines,let'slookatslide26totalkmoreaboutearlyprogressontheBELBUCAlaunch.There




arethreeareasthatwehavefocusedonintermsofearlylaunchtractionandfeedback.WhileIwon'ttalkthrougheachbullethere,wedidwanttoprovideacomprehensivelookatwherewearemakingprogressandwhereweseeopportunitiestofurtheraccelerateBELBUCAlaunchtraction.

Next,onslide27,let'stalkaboutXiaflex.Xiaflexcontinuesitsdouble-digitdemandgrowthprofile,andwearemakinggoodprogressingrowingthatbusiness.Weseeasignificantopportunitytoexpandbothourshareofthecurrenttreatmentmarket,aswellasthesizeoftheoverallmarketsforbothDupytren'scontractureanPyronie'sdisease.

AcrossbothoftheDCandPDindications,wehavenewinitiativesfocusedondrivinggrowth.Weareworkingtobroadenouractiveinjectorbaseandhaveimprovedtargetingtoreachthemostappropriatephysicians.

OurDTCandprintadcampaigneffortsarealsoshowingsignsofrealtraction.Forexample,visitorstotheAskabouttheCurvewebsitespendabout10timeslongeronthesitethananaveragewebsitevisit.Andabout1in10visitorsclickthroughtofindaPyronie'sdiseasespecialistintheirarea.

Wehavealsoworkedtoimproveconvenienceofphysiciansthroughourreimbursementsupportinitiativesandourproductsavingsprogram.Overall,theseeffortspositionXiaflexforstrong,continuedgrowth.Weexpectmidtohighteenspercentagegrowthin2016.

Movingtoslide28,let'stalkabouttheotherdriverforXiaflexgrowthoverthelongterm:ourrobustR&Dpipeline.WeseesignificantopportunityandsubstantialvalueforXiaflexacrossboththerapeuticandaestheticindications,andhavetalkedabouthowtheproductcouldbe$1billionfranchiseforEndobythemid-2020s.Thatopportunityisdrivenbythemorethan12potentialindicationscurrentlyintheR&Dpipelineandthemultipleadditionalprogramsandevenearlierstagesofdevelopment.

Aspartofourevolvedcorporatestrategyandinitiativestoreturntoorganicgrowth,weareacceleratingourR&DprogramsforXiaflexandplantomovefiveprogramsintotheclinicevenearlierthanpreviouslyexpectedin2016.Itisatimeofsignificantopportunityforthesegrowthdriversinourbrandedbusiness.Wehavetakenstepstobestseizethoseopportunitiesandacceleratetheirgrowth,whilealsomanagingthelegacyproductswithinourportfolio.

WiththatletmeturnthecallovertoSukytodiscussourfull-year2016financialguidance.Suky?

SukyUpadhyay(CFO):

Thankyou,Rajiv.Goodafternoon,everyone.

Inanefforttoprovideyouwithmoreclarity,weareprovidingadditionaldetailsonhowthefactorsandmarketconditionsthatPaulandRajivdiscussedwillimpactEndothroughtherestof2016.

Onslide30,wehaveprovidedanoutlineofthekeycomponentsofchangetoourrebasedrevenueguidancethatleadtoan11%reduction.Asyoucansee,thelargestdriverofthechangeisthegreater-than-expectederosioninourgenericsbasebusiness.Asareminder,wedefinebasegenericsasextendedrelease,immediaterelease,andpainandcontrolsubstanceproducts.

Aswiththebrandedbusiness,ourrest-ofyearprojectionsarebasedonbusinessandcommercialassessmentandrecenttrendanalysisataproduct-by-productlevelthatalsotakesintoaccounttheoutcomesofrecentbidcyclesandcompetitiveactions.

Approximately55%ofthedeclineisrelatedtopriceerosionand45%relatestovolumedeclines.Thisisanimportantvariable,aspricedeclinesfalltomarginat100%.Ishouldalsonoteweexpecttorealize




thevalueofdelayed505(b)(2)actionslaterin2017.

Nextonslide31,let'slookatthedriversforthechangesinourprojectedgrossmarginfor2016.Ourpreviousguidancewas63%to65%forthefullyear.Giventheimpactsofkeyeventsandmarketfactors,wenowexpectfull-yeargrossmargintobeintherangeof59%to60%.

Usingthemidpointofthepreviousandrevisedguidancerange,weexpectgrossmarginstodeclineabout17%versuspriorexpectations.Weareprojectingadisproportionatelyhighererosionongrossmarginversusrevenueduetoanumberoffactorsthatyouwillseedetailedhereinthebluecalloutbox.Importantly,wedoexpectrealizedgrossmarginforour505(b)(2)productsin2017,andweexpecttooffsetthe2016under-absorptionthroughrationalizationeffortsinto2017.

Movingtoslide32,wehaveprovidedabridgefromourpreviousEPSexpectationsforthefullyeartoourrevisedguidance.ThereductioninEPSreflecttherevenueandgrossmargindriversthatI'vejustdiscussed.We'vetakenactionstohelpoffsetthedeclinesweareprojecting.

In2016,wearereducingOpExacrossSG&A,whileremainingfocusedonprioritizedinvestmentsagainstgrowthdriversandacceleratingourbrandedR&Dprograms.Andweprojectimprovementinourtaxrate.Lastly,wearetakingactionstoimproveourgrossmarginprofilethroughtheplantrationalizationthatPaulcoveredearlier.

Onslide33,youwillseeour2016financialoutlookbybusinesssegment,includingexpected,reportedandunderlyinggrowthratesandgrossmarginsacrosstheportfolio.

ThebrandedbusinessgrowthratereflectsthelossofexclusivityofVGel.Thegenericsoutlookreflectsthedeclinesinthebasebusinessandthedelayedregulatoryactionsthatwerediscussedearlier.Andinternationalisbroadlyinlinewithpreviousexpectations.

Nextonslide34,wehaveoutlinedourfullrevised2016financialguidance.Fromacadenceperspective,wecontinuetoseerevenuesandEPSweightedtothesecondhalfoftheyear,drivenbythelaunchesfromtheParportfolioandcontinuedgrowthfromXiaflexandBELBUCA.

Wenowexpectapproximately46%ofrevenuesand39%offull-yearEPSinthefirsthalfof2016.ThisimpliesasequentialstepdowninQ2duetoanumberofdrivers,includingthefull-quarterimpactofrecentlylaunchedgenericcompetitorsthatwetalkedaboutearlieronthecall.Inaddition,weexpectaramp-upinspendinginthesecondquarterprimarilyrelatedtoouraccelerationofR&DprogramsandcommercialeffortsinUSbranded.

Wehavetalkedthroughthemovingpartsaroundrevenuesandgrossmargin.Weexpectinterestexpensetocontinuetobeabout$455million.Ourtaxratewillbelowerduetocontinuedprogressaroundplanningstrategies,andduetoalowermixofUS-sourcedincomewhilemaintainingstaticdebtbenefitsandacquiredattributes.Dependingonthenatureandtimingofpotentialdiscreteitems,thecadenceoftaxratethroughtheyearcanbelumpy.Consistentwithpriorcommentary,wedoexpectastepupinourtaxrateinouteryears.Wenowprojectthatratetobeinthehighsingledigits.

Nextonslide35,whilefirst-quartercashflowfromoperationswasnegative,itwasimpactedbyanumberofitemsthatweconsidertobenon-core.Afterconsideringtheseitems,underlyingcashflowfromoperationscontinuestobewellcorrelatedtoadjustednetincome.

Iwillalsonotethatourworkingcapitalmetricsareinlinewithourexpectations.Consistentwithpriorquarter,wehaveprovidedmoredetailsaroundworkingcapitalintheappendixofthispresentation.

Movingtoslide36,itisimportanttonotethatwecontinuetoprojectrobustcashfromoperationspriortolegal-relatedcashcalls.IwillnotethatinearlyQ2,wereceivedthefulltaxrefundthatwepointedto




earlierintheyear.Ultimately,weexpecttouseremainingcashtopaydownapproximately$250millionto$300millionindebtin2016.

Finally,onslide37,letmeprovideyouwithasnapshotofourliquidityprofile.Thisisimportantbecauseourcashpositionandliquidityratiosremainstrongandwellwithinourcovenants,asdefinedunderourdebtagreements.Wedonotforeseeanychallengeinremainingwellwithinthoselimitsin2016andbeyond.

Weexpectournetdebtleverageratiotoremaininthehigh4timesin2016,withsomefluctuationsbasedonquarterlycadence.Wecontinuetoremaincommittedtodeleveringinto3to4timesrangeovertime.

Insummary,aswerebasedouroutlookforourbusiness,whichisdrivenbythefactorsthatRajivandPaulspoketoearlier,weremaincommittedtodrivingfinancialdiscipline,includingtakingactionstoimprovegrossmargins,investingingrowthdrivers,becomingmoreefficientaroundG&A,continuingtoimproveourunderlyingtaxrate,optimizingourcostofcapital,drivingimprovementsinworkingcapital,andimprovingafter-taxcashflowsfromoperationstoserviceourliabilitiesandforinvestmentsinfuturegrowth.

Withthat,letmeturnthecallbackovertoRajiv.


Thankyou,Suky.

Nowthatwehavediscussedthemarketfactors,whatwearedoingtoaddressthem,andtheanticipatedimpactonour2016financialexpectations,let'stalkabouthowEndoispositionedfor2016andbeyond.

Onslide39,youwillseethecorporatestrategyaswelaiditoutin2013andtheactionswetooktorebuildthebusinessoverthepastthreeyears.Wehavesuccessfullychangedthestructure,thebusinesses,andthegrowthprofileofEndo.Now,giventheevolvingmarketconditions,itistimeforustocontinuetoevolveourcorporatestrategyandtransformtheCompanyforlong-term,durablegrowth.

Onslide40,letmetalkabouthowwefeelEndoispositionedforgrowth.OuraspirationtobuildaleadingglobalspecialtypharmaceuticalCompanythatimproveslivesandcreatevaluehasnotchanged.Wearemindfulthoughthatweneedtosetappropriatemedium-termgoals,reflectingcurrentmarketconditions.Thishasmeantrebasingofourfinancialguidancefor2016andaresetofourpreviousexpectationsfor2017.

However,ourgoalsareclear:returntoorganicgrowthatlevelsabovemarketaverages,improveoperatingmarginstobegreaterthan40%,anddelevertobetween3to4times.Threecoreareasoffocuswillenablethesegoals:growthinourbrandedbusinessandtheXiaflexpipeline,growthinourgenericsbusinessandpipeline,andtheongoingoptimizationofourexistingbusiness.

Movingtoslide41,therearemanykeygrowthdriversthatstronglypositionourUSbrandedbusinessforlong-termgrowth.Weknowwehavesignificantend-marketgrowthopportunitiesinbothXiaflexandBELBUCA.Wearecontinuingtostructureourteamandourbusinesstoachievethatgrowthpotential,whilealsomanagingourdiversifiedportfoliooflegacyproducts.

WearealsoacceleratingourderiskedinnovativeR&Dpipelinetoadvancethoseprogramsandthetimelinesfortheirpotentialmarketentry.Asweexecutethisyear,wewillbeachievingkeymilestonesacrossourUSbrandedbusinessandwewillkeepyouupdatedregardingourprogress.

Onslide42,let'stalkaboutthedurableportfolioandpipelinewehaveinourUSgenericsbusiness.Wearefocusedondrivinggrowththroughourdifferentiatedhigherbarrier-to-entryproductslikesterile




injectablesandourrobustpipelineofmorethan250programspostrestructuring.

Wehaveadiversifiedand,importantly,resetbasebusiness,andarobusthighlycompliantmanufacturingnetwork.In2016andbeyond,oursuccesswillbedrivenbyPaulandhisproventeamastheyexecuteontheseopportunities.

Let'ssummarizeonslide43.WehaverebasedourbusinessandbelievethisisthetimeofsignificantopportunityforEndo.Wehaveaclearplantofocusonstrategicpriorities:areturntoorganicgrowth,marginimprovement,andde-levering.

Ourkeyfuturegrowthdriverscontinuetoprovidepromisetodeliveragainstthesestrategicpriorities.Andperhapsmostimportant,Endoisaresilientanorganizationandwe'reallcommittedtoourfuture.Together,wewillexecuteonourevolvedcorporatestrategyandachieveourgoaltodeliverproductsthatimprovepatients'liveswhilecreatingvalueforourshareholders.

Thatconcludesourpreparedremarks.Letmenowturnthecallbackovertocarrytomanageourquestion-and-answerperiod.

KeriMattox(InvestorRelations):

Thankyou,Rajiv.We'dlikenowtoopenthelinestoyourquestions.Intheinterestoftime,ifyoucouldlimityourinitialquestionstoallowustogetinasmanyaspossiblewithinthehour,wewouldappreciateit.

Operator,maywehavethefirstquestionplease?

QUESTIONS&ANSWERS

Operator :

RandallStanicky,RBCCapitalMarkets.

RandallStanicky(Analyst-RBCCapitalMarkets):

RajivormaybeforPaul,canyoujusttalkabouthowmuchofthisimpactingenericsisfromnewcompetitiveentrantsversussomeoftheconsortiumscomingbackandpressingyouonprice?AndthenpartofthatthinkingisastheFDAcontinuestoapprovemoredrugs,isthereariskthatthiscontinues?Isthisjustinpainorisitmorebroadly?Thanks.


Randall,I'llhavePaulanswerthatquestion.


Ithinkit'sreallyultimately,it'samix.Whenwelookattheconsortiums,clearlywe'redisappointed.WedidhavesomelossofbusinessacrossthelegacyQualitestbusiness.Sofromthatstandpoint,itwashurtful.IwouldsaythatitwastemperedbysomesuccessesonthesterilesidefromtheParportfolio,sofromthatstandpointitwasapositiveeffect.

WhenwelookatthebalanceintermsofspecificallyinthelegacyQualitestportfolio,wehadchallengesbothinpainandreallythesolidoraldosageimmediatereleaseportfolio.Andwhatwewereseeingwasitwasacombinationofnewcompetitorscomingintothemarketthatwereestablished,aswellasjustfirsttimeplayersaswell.Soitwasacombinationofsomesmallergenericcompetitorsenteringthemarketthatultimatelypushedthepricedown.AndalotoftheseoccurrenceswerecominginthelateMarchand




Apriltimeframe.

Soinessence,itwasseveralfactorsintermsofcompetition,aswellaslossofbusiness.AndclearlyontheFDAsideintermsofnewcompetitorscominginandnewapprovalsrather,IthinkwiththeGDUFAreallystartingtohit,wearegoingtoseemoreplayersinsomeofthesecommodity-basedproducts.Butatthesametime,wehave150productsattheFDA,soyoushouldalsoassumethatwewillalsogetthepositiveimpactofthequickerapprovals.Soattheendoftheday,wewillgetourfairshareofwins.


Paul,onthat,onslide20youcallout,Ithinkit's$415millionofnewlaunchrevenuethatyou'repointingtoonthebackhalf.Howmuchofthatisdatecertainversusassumedorapprovals?


Yes.Right.Sowe'vetalkedalittlebitaboutthis,around75%isthenewlaunches.


Okay.Great,thanks,guys.


Thankyou.


Thanks,Randall.

Operator :

JasonGerberry,LeerinkPartners.

JasonGerberry(Analyst-LeerinkPartners):

Ijustwantedtofollowuponthis505(b)(2)issuethatyou'refacing.IimaginetheVasostrictwasastrongproductforyouinthequarter,basedontheIMSdata.Buthowmanyproducts--itsoundslike--it'snotthatyoudidn'tget505(b)(2)productsapproved,butthattheFDAdidn'tremovecertainunauthorizedproductfromthemarket.Sohowmanyproductsarewetalkingabout?Ifyoucanprovidealittlebitmoredetailthere,thatwouldbegreat.


Sure.SoJason,wehavetwo505(b)(2)s.They'rebothapproved,sowhenwesaythedelay,we'retalkingabout,toyourpoint,workingwiththeFDAtofollowhavetheunapprovedsourcescomeoffthemarket.Now,whatwewereseeinginthecaseofVasostrict,weweresuccessfulinatimelyfashion.Butit'sgettingharderbecausetheFDAislookingtowardsdrugshortagesandreallyhavingahighconfidencethatwe'regoingtobeabletosupplytheentiremarket.

Sointhesetwoparticularproductsthatweweretalkingabout,that'swhat[wefaced].WearepartneringwiththeFDAtoshowthatwehavetheabilityandgiveconfidencethatwecansupplytheentiremarket.Wearehopingthatwasgoingtohappeninearly2016.Ithinkthebenefitofhavingtheseunapprovedsourcesexitthemarketwillberealizedin2017.It'snotthatitwon'thappen,it'sjustreallypushinguntilnextyear.





IfIcouldsqueezeafollow-upin.JustforSuky,Iknowyou'repushingouttheleveragetargettomid-3snowbeyondlate2016.Canyoujusttalkaboutsomeofthe2017variablesoncashgenerationthatwillhelpyoudelever?IknowyouhavetheFTClawsuitnow.You'vegotmesh.Butcouldyoujustwalkusthroughsomeoftheputsandtakesthere?

SukyUpadhyay(CFO):

Yes,sure.We'renotgoingtogiveguidanceon2017atthistime.Thereareanumberofmovingpartsthathavetoplayoutthroughout2016beforewe'reinapositiontoprovidethattypeofguidance.Butgoinginto2017,wewouldexpecttocontinuetodelever.Wedoseeourselvespushingthattargetfrom3to4timesfrom2016into2017orbeyond.

Thereareanumberofmovingpartsthatwillhelpwiththat.Withoutgivingspecificguidance,someofthethingsI'vepointedtoearlierislateinthisyear,wewillbuildabout$200millionofworkingcapitalaspartoftheSeroquelandZetialaunch;thatwillberecoveredinthefirsthalfof2017,asweactuallycollectthecashonthatrevenuebookedin2016.

Aswemoveintonextyear,weexpectmeshgrosspaymentstomoderatedownslightly.Thisyearwewouldseethosemeshpaymentsasbeingsomewhere$800millionto$900million.Nextyearwewouldpredictthatwouldbesomewherearound$600million,soweshouldseeastepdowningrossmeshpaymentsintonextyear.

Andthentheotherbigdriversareoncapitalexpenditures,wedoseeastepupthisyearaspartoftheintegrationofParandQualitest.It'sprimarilyaroundtheimplementationofERPsystems;thatshouldmoderatedowninto2017.AndthenwecouldseeaslightstepupinthecontingentconsiderationlinethatI'veoutlinedherefor2016,primarilyduetothe505(b)(2)productsthatPaulhasspokento,aswellasVGel.Sothere'sacoupleofmovingpartsthatcanhelpyoushapewhere2017cashmightbe.Butagain,wedoexpectovertimetodeleverbackintothat3to4timesrange.


Great.Thanks.

Operator :

DavidAmsellem,PiperJaffray.

DavidAmsellem(Analyst-PiperJaffray&Co.):

Youmighthavementionedthis,soIapologizeifIdidmissit.ButonVasostrict,doestherebasedguidancereflectanycompetitionthisyearontheproducts?Andjustcanyoujustremindusyourlatestthoughtsonwhenyoudoexpecttoseecompetitorsonthatproduct?Thanks.


Okay.David,hi,thisisPaul.RegardingVasostrict,rightnowwearewellprotectedwithourAPIsource.Fromthatstandpointwefeelasthoughthatwearewell-positionedatleastthrough2017ontheexclusivebasis.WeareworkingverydiligentlywiththePTOinordertogetpatentstatus,whichyouwouldthenhaveourlegalteamimmediatelylistthepatenttotheOrangeBook.Thathasnothappenedyet,inprogress.Butatthispointintime,ourdefenseisreallyourAPIsource;thatshouldgetusthroughatleast2017.


Sonocompetitionintheguidancethisyear?





Nocompetitionintheguidance.


Thankyou.

Operator :

ChrisSchott,JPMorgan.

ChrisSchott (Analyst-JPMorgan):

Thefirstoneisitjustseemslikethingshavegoneverybadveryquickly,anumberoflineitemsofyourbusinessoverthelastmonthandahalforso.Whatgivesyouconfidencethisroundofcuts,captures,andaccurateviewofthebusinessgoingforward?Hastherebeenanychangeinapproachtohowconservativeornotyou'rebeingwiththeguidancethistimearound?Orjustaddressinginvestors'concernsthatthingscancontinuetodeteriorateinthebusiness,canyoujust,atahighlevel,justaddressthatquestion?

Thesecondonewastalkingaboutthegenericoutlookin2017.Justfromourperspective,whatdoyouthinkit'sgoingtotaketostabilizethelegacyQualitestbusiness?Andjusthowareyouthinkingaboutgrowthintheportfoliooverall,oncewegetthroughthisdifficult2016andstarttothinkaboutthelonger-termportfolio?


Sure,Chris,letmejuststartandI'mgoingtohavePaulcontinue.Now,intermsofthethingsthathavegonewrongthisyear,you'reright,we'vehadseveralthingsthathavenotgoneourway.Andmanyofthosethings,anactuallyallofthosethingshaveplayedoutoverthecourseofthelastfourtosixweek,sointhesecondhalfofMarch,andinearlyApril.

ButIwillpointtothethreethingsthathavehappened,sothethreematerialthingsthathavehappened.Firstoneistheearlier-than-expectedlaunchoftheVoltarenGelgeneric.Weclearlydidn'tseeitcomingasearlyasitdid;wehadforecastedtowardthevery,verybackendofthisyearatworstandbestcaseinto2017.

Nowthatbeingsaid,weknewthattherewasgoingtobeagenericforVoltarenGelatsomepoint.Right?Andinfact,thenewlyrevisedagreementwithGSKandNovartisgiveustherighttoanauthorizedgeneric,sowewillhaveatailofthatproductgoingthrough2017andbeyond.Soyes,therewasbadnews,itwasearlierthanexpected,butnotsomethingthatfundamentallyimpactsourlonger-termgrowthtrajectory.

ThesecondeventthatPaulreferredtowasthisdelayinthe505(b)(2)programs,andagain,ourexpectationwhileitisbadnewsfor2016,isthatitwill,infact,manifestitselfin2017andwill,infact,benefit2017aswellas2018,dependingonwhentheFDAactuallyacts.

SothenitcomesdowntotheQualitest-basedbusiness,right?AndI'mgoingtoletPaulpickitup,butbasically,whatwe'veseenisarealresetinQ1.Paultalkedabouttheimpactoftheconsortiums,theconfluenceofcompetitorsthatcameinforsomeofourbiggerproductslikethe325-milligramhydroAPAPproduct,whichisQualitest'slargestproductthathappenedpostmid-March.

Allofthosethingshavehappenedinawaythathasresetthatbusiness.Andthewaywehavethoughtabouttheguidanceisthatwe'veclearlytakenaviewofsaying,howdowepredictthiserosion




continuingthroughthisyear?Sowedoseecontinuederosionthroughthisyear,butbythesametoken,andPaulwillelaborateonthis,ourviewaswegointo2017,thecontinuederosioninthisbasebusinesswillmoderatetowhatyouwouldtypicallyseeinacommoditizedgenericbusiness.Andthefuturereallyisaboutthepipelineandsegmentslikethesterileinjectablessegment.

Sowiththat,letmejustturnitovertoPaul.Maybeyoucantalkabitaboutourconfidenceabouttheremainderoftheyearandthemovingpartsgoinginto2017.


Thanks,Rajiv.Chris,yourquestionreallyonstabilizationandreallywhydowethinkit'sgoingtogetbetter?Thefirstthingthatwewanttotalkaboutisthathistorically,we'vehadsuccesseswiththeQualitestportfolio,butwe'vegottocallitwhatitis.Itisamatureportfoliothatissusceptibletocompetition.Withthat,wearetransferringthestrategyfromthathigh-volumethroughputthathistoricallyhadsuccessesoneconomiesofscale,tothemoreParlegacysuccessmodelofhigh-valueproductswherewe'rehavingmoretechnicallychallengingproducts,thingsthataremoredifficulttomake.

Now,thefirstthingwehavetodo,wetalkedabouttherestructuring.Soweneedtotaketheportfolio,we'vegottoright-sizeit,we'vegottoberealsmartaboutproductselectionandwhatwe'regoingtocontinuetosellandmarket.We'remakingsomevery,verydifficultdecisionsimpactingsomeverytalentedpeopleinourCharlotteandourHuntsvillefacility.That'sbeenverydifficultforallofus.

That'sthestartingpointtofocusontherestructuringplan,anditgetsbackdowntoourcorevaluesofoperationalexecution,somethingthatwearereallydrivinghomeatPar.Rajivtalkedaboutitalready,thepipelineiswherewe'regoingtobeabletoresetourselves.Ultimately,75%ofourvaluecomingisfromtwoproducts,fourthquarterwe'vetalkedquiteabitaboutquetiapineandZetia.Notgoingtospendalotoftimethere,butwehavetoexecuteontheentireportfolio.Andatthesametime,we'vegottocontinuetorepopulatetheproductsaswelaunchthem.

Sothatcoupledwith,again,gottogetthe505(b)(2)s,andwehaveother505(b)(2)sacrosstheportfolio.It'snotjustthetwothatwereferringto,butweneedtoexecute,wehaveapathforward.Wehaveagoodstrategy.Theseareareasthataregoingtohelpusultimatelystabilizeourbase,andatthesametime,wecan'tlosefocusonourservicelevelsandourqualityandcontinuewithdiversificationinourportfolio.

ChrisSchott (Analyst-JPMorgan):

Thankyou.

Operator :

GregFraser,DeutscheBank.

GregFraser (Analyst-DeutscheBank):

It'sGregFraseronforGregGilbert.Ontheproductrationalizationefforts,doyouexpectthosetostarttohelpgrossmarginsduring2016orwillthosebenefits,willthebenefitsfromthoseeffortsberealizedmorein2017andbeyond?AndthenIJusthadaquickoneontheamendmenttothe[Stansvil]agreementwithTPGthat'smentionedinthepressrelease,canyoujustgiveusmorecoloronthatchangeandwhatyouknowaboutTPG'sintentionswithrespecttothestock?


I'lltakethefirstone,Rajiv,onthegrossmarginontherestructuring.Sothequestionongrossmarginfor




2016,willbeabout$10million.

SukyUpadhyay(CFO):

Yes.We'veoutlinedthatinthegrossmarginwaterfallthatyouseeinthepresentation,Greg,inadditionandwe'dexpectthatbenefit,netbenefittostepuptosomewhereabout$40millionto$45millionin2017,andwe'llcapturethatfullrealizationof$60millionby2018.


Andthat'sonacumulativebasis.


Greg,justtoansweryourquestionontheTPGstance.SowhenTPGfirsttookshareswhenweacquiredPar,therewasaStansvilagreementthatpreventedTPGfromincreasingtheirstakeintheCompany.Sointhisinstance,with--concurrenttoToddSisitskycomingonourBoard,ourBoardtookthedecisiontoreleaseTPD--TPGfromtheStansvilagreement,subjecttocertainlimits.Andthoseareoutlinedinthe8-KthatwefiledwithamendedStansvilagreement.Buteffectively,itallowsTPGtopurchaseuptoanother$250millionworthofshares,subjecttoacapat10%ofownership.

Operator :

LiavAbraham,Citi.

LiavAbraham(Analyst-Citigroup):

ThepricingpressurethatyoutalkedaboutseemedtopertainprimarilytotheQualitestbusiness.Paul,canyoutalkaboutthepricingdynamicsspecificallyinthelegacyParbusiness?That'smyfirstquestion.Andthensecondly,justaquickquestiononthetaxrate.Canyoujustremindustheaccountingofyourtaxrate?IsthisaGAAPtaxrateoracashtaxrate,andwhatisyourcashtaxrate?Thanksverymuch.


Liav,thisisPaul.IntermsoflegacyPar,intermsofthepricingpressure,forthemostpart,it'sflat,maybelowsingledigitsintermsofprice,butforthemostpart,it'sflat.Andagain,we'reabletodefenditbecauseforthemostpart,thatbasebusinesscomprisesquiteabitofmodifiedrelease,sustainedrelease,we'vegotinjectablesaswell.Soalittlelesscompetition.

SukyUpadhyay(CFO):

Liav,movingtothetaxquestion,soourtaxrate,adjustedtaxrateisbasedonadjustednetincomeatastatutoryrate.Andthenfromthere,wedeductthebenefitsthatwehaveforintercompanydebtforanyIPandtransferpriceplanning,aswellasforacquiredattributes.Thatultimatelyresultsinouradjustedeffectivetaxrate,whichisandhasbeensignificantlyhigherthanourcashtaxrate.Ourcashtaxratehasbeennegativeforanumberofyears,andisexpectedtobeinthelowsingledigitsinourforeseeablefuture.

LiavAbraham(Analyst-Citigroup):

Great.Thankyou.

Operator :

MarcGoodman,UBS.




MarcGoodman (Analyst-UBS):

I'mtryingtounderstandthese505(b)(2)sandhowsignificanttheycanbe.Iunderstandtheamountofrevenuethatyou'retakingoutofthisyearasguidance,becausethosetwoweredelayed.ButI'mtryingtounderstandhowbigcanthosetwoproductsbeinthefirstplace?ArethesegoingtobeproductslikeVasostrict,whichseemstobe--obviouslygoingtobreak$200millionthisyear,atleastthat'swhatitseems.Sojustgiveusasenseofthat.

Aswellastheother505(b)(2)sthatyouhave,asyousayinthepipeline,willweseeotherslaunchingin2017?Aretheycomingin2018,2019?Whendotheycomeandhowbigcantheybe?Andthenjustonequickone,whichisyoumentioned60productdiscontinuations.Whatarethesalesonthoseproductsonanannualbasisandhowmuchisthatimpactingthisyear?Thanks.


Mark,I'lltakethe505(b)(2).Now,startingwithVasostrict,we'vedisclosedwevalueofVasostrict,andit'salittlebitlargerthanyouhadindicated.It'sinexcessofaround$300million.

Now,the505(b)(2)sthatweareworkingwiththeFDA,wehavenot,forcompetitivereasons,disclosedspecificallythevalue.Iwouldsaythey'renotonthemagnitudeofVasostrict;they'rematerial,butnowherenearthemagnitudeofVasostrict.Ithinkforcompetitivereasons,Ithinkatthispoint,that'saboutasfaraswecanreallygoonthetwoproductsthatwe'reworkingwith,withtheagency.

Additionally,wehave,wedohavea505(b)(2)strategytotakeunapproveddrugs,runtherequisiteclinicaltrials,andbringthemtomarket.Andwedohaveahandfulofadditionalproductsthatareatvariousstagesacrosstheentireportfolioofeitherinjectables,orsolidoraldosageforms.Butatthispoint,we'rejustnotadvancedenoughtogointoanymoredetail.Andhopefullyinanotherquarterortwo,we'llbeabletoprovidealittlebitmorevisibility.


Marc,justtoaddtothat,thisiscertainlyoneofthecorecapabilitiesoftheParteam.Andaswelookfurtherintothefuture,wedoexpectthistobeoneofthecoredriversforthebusiness.Certainly,we'reencouragedbythesuccessthattheParteamhashadwithVasostrictsofar.Intermsoftheimpactoftheproductrationalization,Suky,doyouwanttotalkabouttherevenueimpact?

SukyUpadhyay(CFO):

Yes.Forthisyear,wewouldseethatrevenueimpactisabout$20million.Andthenonacumulativebasisinto2017,we'dseethataboutjustunder$90million,soitstepsupbyabout$70millionin2017.Andagain,ourbenefitsthatwetalkaboutfortheplantrationalizationarenetofthatrevenuereduction.Sowedostillexpecttosee$60millionmarginimprovementonafullrun-ratebasisnetofthesalesreduction.

Operator :

AnnabelSamimy,Stifel.

AnnabelSamimy(Analyst-StifelNicolaus):

Iwantedtounderstandthegrossmarginsalittlebitbetter.Itsoundsthatfromtherationalization,grossmarginscouldpossiblycomebackupin2017forward.Butareweevergoingtoseethelevelsthatwesawbeforeyouhadtakenthiscutdown?AndwhatcomponentoftheQualitestbusinessiscommoditized?Howmuchofthat60--howmuchoftheproductrationalizationispartofthatcommoditizedbusiness?




Andoncethatgetsout,howdoyouseegrossmarginsrecoveringafterthis?Thanks.

SukyUpadhyay(CFO):

Sure.Sofor--Annabel,ifImisssomethingthere,justpleaseweighbackin.Butoverall,wewouldseethegrossmargins,allelsebeingequal,improveinto2017giventherationalizationofourproducts--sorry,ourplantsthatwetalkedabout,aswellasbecauseofthereductioninthelowermarginSKUsforproductsthatwe'rerationalizing.

Otherdriverstothinkaboutinto2017,aswecontinuetogrowtheParportfolio,whichweseeasonewithproductswithamarginprofileabovetheexistinggrossmarginaverage,wecouldseeimprovementfromthatdriver.Andtheninaddition,asweseegrowthfrombrandedwithinXiaflexaswellasBELBUCA,wewouldalsoseethoseaspotentiallyexpandingmarginsinto2017.

Soagain,we'renotinapositiontoprovidefull2017orbeyondguidance,butwedoseeapathtorecoveringgrossmarginsabovewhere2016aregoingtoland.

AnnabelSamimy(Analyst-StifelNicolaus):

Everrecoveringtothelevelthattheyhadbeenat?

SukyUpadhyay(CFO):

It'stooearlytotellatthistime,Annabel.

Operator :

LouiseChen,Guggenheim.

LouiseChen (Analyst-GuggenheimSecurities):

Justtofollowuponanearlierquestiononyour2016guidance,justcuriouswhereyouthinkthereisfurtherpossibilityfordownsiderisktoyour2016guidance?Ordoyouthinkthatthisnowincorporatesthebear-casescenarioaswell?Andthen,thisisnottobeanantagonisticquestion,butpeoplehavebeenaskingusatwhatpointyouwouldconsiderstrategicoptionsforEndoifyoucan'tcreateshareholdervalueonyourown.Thanks.


Thanks,Louise.Soletmetouchonbothquestions.Look,intermsofguidance,wedonottakeareductioninourguidancelightly.ItisdisappointingfortheCompanyandpersonallydisappointingformyselfaswell.Sowehavedoneanexhaustiveassessmentoverthecourseofthelastfewweekstoensurethatweputasmuchthoughtaspossibleintohowweassesstheremainderoftheyear.AndIwouldsayourguidancerangeforthefull-yearisarealisticrange.Right?

Sonobusinessiswithoutitsrisks,andIthinkyouknowthat,butwehavetakenasubstantialdownwardrevisioninthebasebusinessingenerics.WehavecommentedonhowwearetreatingVoltarenGel.Wehavealsotakentheopportunitytoaddresssomeotherpartsofourbrandedbusinessbecauseofthecontinuedpressureinthepainmarket.We'verebasedsomeofthoseproductsaswell,sowe'vereallytakentheopportunitytotakeahardlookattheforecastinthisrebasing.

Sowedon'ttakethislightly,andit'snotsomethingthatwewanttodomorethanonce.Sothat'sofapproachthatwe'vetaken.Weareconfidentinthisguidancerange,andwehaveateamthatisgoingtoworkextremelyhardatexecutingagainstthisrange.Butasinallbusinesses,atapointthatthereisalwaysrisk.




AndthenLouise,Iwasalsojustgoingtoanswerthesecondquestionyouasked.Look,forusandourBoardofDirectors,ourgoalislonger-termshareholdervaluecreation.Socertainlythereis--thelast--what'shappenedwiththebusinessoverthecourseofthelastfewweeksandmonthsisadisappointmentandasetback.

ButIwouldpointoutthatourfuturegrowthdriversremainunscathedintermsoftheseparticulareventsthatwe'vetalkedabout.SowepointtoXiaflex,theXiaflexpipeline.WetalkedtoBELBUCA,whicheventhoughthereispotentiallyadelayintermsofthelaunchtrajectoryoftheproduct,wecontinuetobelieveinthefutureofthatproduct.

AndtheParpipeline,whichwastheprimarydriverofthatacquisitionisrobustasever;itcontinuestogrow.Thesterileinjectablesbusinessisrobustandgrowing.AndIhaveeveryconfidenceinPaulandtheteamintermsofgettingthegenericsbusinessbackontrack.

Sofromthatstandpoint,webelievethatinthehandsofourmanagementteam,withappropriaterebasingthatwe'vedonein2016,thatthereisapathtoreturningtoorganicgrowth,improvingourmargins,anddelevering,andtherefore,tocreatingshareholdervaluegoingforward.Thatbeingsaid,we'vealsobeenveryclearthatourBoardisashareholder-friendlyboard.Andifthereiseveranystrategicalternativethatpresentsitself,ourBoardwill,ofcourse,evaluateit.

Operator :

AndrewFinkelstein,Susquehanna.

AndrewFinkelstein (Analyst-SusquehannaFinancialGroup):

Couldyoutalk--I'llgiveyouacouplethingsyoucanfocuson.Butatahighlevel,asyoutalkaboutthenewstrategyandyou'vereassessedtheenvironment,Ithinkyouhighlightedwherethegrowthdriversyoucurrentlyhave.Butasyoulooklongertermattryingtoincubateadditionaldrivers,wherearetheopportunitiesinthisenvironmentandthetypesofproductsthataregoingtohavetherightriskrewardtopursue?

Andthenasyougoaboutmanagingthat,couldyoutalkalittlebitabouthowyou'rethinkingaboutbalancingcashgenerationinthenearterm,particularlywithregardtoleverageratiosversusinvestmentsyoumaywanttomakeinlonger-termopportunities?Andjustspecificallyonthat,asyoutalkaboutrationalizingsomeofthelegacyproducts,weretheseloss-makingorissomecashflowbeinggivenup?Andifso,what'sthebenefitindoingsoatthispoint?Thanks.


Thankyou,Andrew.Letmejusttakeyourthreequestions,andIwillletPaultalkedabouttheproductrationalizationquestionattheend.Sofromalong-termstandpoint,IthinkwhatwecontinuetobeveryoptimisticaboutisfollowingtheXiaflexpipeline.Sowe'vepursuedthecelluliteindication;ourphase2btrialisintheclinicandcurrentlyrecruitingpatients.Wefeelpositiveaboutthat.

Andyou'vealsoseenthatwehaveincreasedconfidenceinbeingabletomoveforward,atleastforotherindicationsintotheclinic.Andtheyfallgenerallyintotheareasofaesthetics,aswellasothertherapeuticindicationsaroundthenon-collagenase.Soit'sonecorepriorityforusiscontinuedandincreasedinvestmentinthatR&Dpipeline.

Inthepainmarket,clearlyintermsofpublicpolicyandregulatorypressuresisincreasingthemarket.Aswesaidbefore,BELBUCAhasarealprofilethatwouldreallybenefitintermsofsomeofthecurrentconcernsaroundscheduleIIopioids,sowedothinkthere'safuturethere.




Butaswelookfurtheroutintothefuture,buildingonourportfolioacrossourbrandedbusiness,wecouldseeourselvesinmultipleareasthathavesimilarcharacteristicstootherspecialtyareaswherewithasmallerfocusonmarketingfootprint,thatwecanbesuccessful.AndfollowingsomeofthetherapeuticareaswhereXiaflexisgoingtogetustoisgoingtobethebestwayforustopursuethat.

Nowleadingtoyournextquestionintermsofcashandourprioritiesforusingthecash,asSukyexplained,whenwetalkedaboutdelevering,wedoexpecttocontinuetoprioritizedelevering,anddeleveringbacktothe3to4timesisanimportantgoalforus.Now,thatisdelayedfrom2016into2017,butcontinuestobeanimportantgoalforus.

Atthesametime,investinginourR&Dpipeline,bothinXiaflexaswellasPar,aregoingtobeveryimportantprioritiesforus,whichwewillbalanceaswego.Sothosearegoingtobethemostimportantusesofcash.Andbeyondthat,obviously,oncewegetintoapositionwherewehaveexcesscashandhavetheopportunitytolookatperhapsbolt-onacquisitions,eitherforthegenericsbusinessorthebrandedbusiness,wewillcertainlylookatthoseastheycome.Ourpreferencewouldbetodosointhebrandedspace,butthatisawaysout.Wewanttomakesurethatweexecuteagainstourgrowthplananddeleverasourprimarypriorities,andwealwayskeeptheoptionofreturningcashtoshareholdersasanalternativeaswell.

Now,letmejustturnthisovertoPaul,becauseIwanthimtotalktoyouaboutsomeofthenewareasthatwemightexpandtheParpipelineintoaswellasthequestionthatyouhadonproductrationalizationandtheprofitabilityimpactofthat.


Thanks.It'sobviouslyaverybroadquestion,andIwanttostartbysayingthis--thedecisionintermsof[culling]theportfolio,asIsaid,very,verydifficultforus.ButasyoulookatlegacyPar,andaspartofnormalcourse,itreallyisanevolutionwhereyouneedtoconsistentlylookatyourportfolio.Youhavetomakesometoughdecisions.Youhavetotakeyourunprofitableproducts,orproductsthatyou'refeelingprettypainandpressureon.

Thatbeingsaidwe'rethefourthlargestgenericCompany.Weareincrediblyrelevant,wewillcontinuetoberelevantintheindustry,andIwanttomakethatstatement.Andwhenyou--ifwanttobeabletocompetewiththefourlargeconsortiums,addWalmartin,thosefivecompaniesrepresentinginexcessof90%share,youreallyneedawell-balancedportfolio.

AndwhatImeanbythatisyouneedyourfairshareofparagraph4s,youneedhard-to-make--technicallychallengingsolidoraldosageproducts.Youneedinjectableproducts,andyoudoneedcommoditiesthatareprofitable.Sothat'sgoingtobeveryimportantforusintermsoftheQualitestportfolioonago-forwardbasis.

Now,ondiscontinuationproducts,harddecisions,butbycullingtheportfolioinareasthat'sgoingtohelpus,productsthatareultimatelybeingsoldatlossesandwemakethetoughdecisions,it'sgoingtohelpusonthecashside.We'regoingtohaveareductioninouroperatingcosts.We'llhaveareductioninworkingcapital.Andwe'llalsonotneedtoinvestasmuchincertainfacilitiesfromaCapExstandpoint.Sofromthatstandpoint,generallyspeakinghighlevel,thosewouldbeareasthatwewouldhavesavingsin.

SukyUpadhyay(CFO):

AndIwanttojustcomebacktoAnnabel'squestionjustplayingoffofwhatPauljustsaidtherearoundgrossmarginoutlook,IthinkIwasansweringmaybealittlebittoonarrowlyandjustthinkingabout2017.ButgiventhegrowthdriversthatwehavethatRajivoutlinedearlier,andgiventhefocusonexecution




andefficiencythatPaulandhisteamhavearoundourmanufacturingnetwork,Ithinkwedoseeapathtogetbackintothemid60sovertime.

We'renotgoingtotimeboundthatatthispointyet.We'regoingtoletmoreof2016playout,andaswemoveinto2017,we'llhaveabetterviewintothat.ButIdothinkthegrowthdriversareatagrossmarginlevelthatarehigherthanouroverallcorporateaverage.Andagain,throughefficiencythatPaulandhisteamwilldrive,therecouldbeapathwaythereovertime.

Operator :

DouglasTsao,Barclays.

DouglasT sao (Analyst-BarclaysCapital):

Justfirst,intermsofVoltarenGel,whendoyouanticipatelaunchinganauthorizedgeneric?AndthenIhaveaquickquestiononBELBUCA.


Iwill--letmejustaddressthatonPaul'sbehalf.We'renotgoingtotalkaboutwhenwemightlaunchanauthorizedgeneric,forcompetitivereasons.Andalotofitisgoingtodependonhowthecompetitiveenvironmentevolveswithouronecompetitoronthemarket.Sofar,weareveryhappywiththestrategiesthatwehaveputaroundmitigatingerosionofourbrandedproduct.


Okay.AndthenjustintermsofBELBUCA,obviously,theinitiallaunch,thefirstfewweekshasgonealittlemoreslowly,asyouacknowledge.Justcuriousfromyourperspective,whendoyouthinkweshouldstarttoseeaninflectionpointinthescripts?Andthenjustalso,obviouslyyounotedthatverygoodcoverage--defaultcoverageexistsrightnow.Whendoyouanticipatefinalizingthatandhowarethosetalksgoing?Andthepricingthatyouexpecttoget,isthatinlinewithyourexpectations,better,orperhapsalittlebitmorechallenged,giventhedynamicsinthepainmarketrightnow?


Great,thanks,Doug.Soaswesaid,it'sstillearlydaysofBELBUCA,right?Andthelastweekforwhichwehavedata,IthinkistheweekofApril21st.Andwehadroughly650prescriptions.Andwecontinuetoseemomentum,right?

Andit'sdifficulttopredictexactlywhentheinflectionpointisgoingtobe,butwhatIcansayisthattheanecdotalfeedbackandthequalitativefeedbackfromphysicianshasbeenverypositive.Imyselfhavespenttimeinthefield.AndthefactthatthisisascheduleIIIproduct,atthispoint,allthenewpressurethereonphysicianswiththenewCDCguidelinesandeverythingelse,themessageresonates.

Butthatbeingsaid,fromtheverybeginning,wepointedtosomethingthatwouldlikelyleadtorequiringmoretimetoeducatephysicians,andthatisthetaperingandtitrationrequiredwiththisproduct.SototheextentthatyouaretryingtomoveapatientfromothertherapyontoBELBUCA,youaretotaperthatpatientdown,perourlabel,andthentitratethepatientbackup.

Andformostphysicians,whattheyaretryingtodoistofigureouttheirowngutfeelforhowthisworks.Clearly,fromapromotionalstandpoint,wehavetostandbehindwhat'sonthelabel,buteveryphysicianwillfigureoutwhatheorsheiscomfortablewith.

Iwouldalsosayanotherencouragingsignisthattherepeatprescriptionsfromthosewhoprescribeisprogressingverywell,sowehaveasmanyrepeatprescriptionsnowaswehavenewRXs.Theseareall




goodindicated.I'mgoingtohesitatetogiveyouanexacttimeframeofwhenthere'sgoingtobeinflectionpoint,butIwouldpointtothesecondhalfofthisyearintermsofwhenwewouldexpecttoseecontinuedimprovementinit.

AndDoug,I'mafraidI'veforgottenthesecondpartofyourquestion.Oh,itwasonthemanagedcare.Itisprogressingverywell.Aswehavesaidbefore,wehaveroughlyabouttwo-thirdsofcommerciallivescoveredatleastwithdefaultcoverage.Wemadeverygoodprogressintermsofconvertingthedefaultcoverageintoactualcoverage.

Manyotherplans,theyrequire--haveconfidentialityagreementsthatpreventusfromtalkingaboutthesethingsinapublicway.ButonethatwecanpointtowherewehavepermissiontotalkaboutisExpressScripts;thathasbeenaverygoodwinforus.Wearecontinuingourdiscussionswithotherplans.Andsofar,it'sgoingexactlyaswehadexpected.

Now,theonepiecethatwewouldexpecttonotgettountil2017,istheMedicarePartDcoverage.Butthatisonparwithallothersituationswhereaproductlaunchismidyear.We'vealsoimplementedaco-payprogramthatbasicallyputsourproductonparwithcompetitiveproducts.Sofromallaspects,fromaccessstandpoint,wearemakinggoodprogress.


Great.Thankyou.

Operator :

KenCacciatore,CowenandCompany.

KenCacciatore (Analyst-CowenandCompany):

Justreiteratingwhatyouallsaidthatyou'regoingtobegoingthroughsomereallypainfulanddifficultrestructuring.SoI'mstillalittlebitconfusedwhythereisn'talotofcontemplationaboutlettingyourbusinessmergewithanothertoallowforatotalrestructuring,maximizeallaspectsofthebusiness.

AndIguessthequestion,again,iswhystaystandalone?Youcouldtakeequityinapro0formacompany,realizethebenefitsofalargerentity,whilethevalueisextracted.Andforyourshareholderswantingtoknow,arethereindeedoptionsonthetable?Andwhyisn'tthisvery,veryhighonthelistofoptions?Thankyou.


Thanks,Ken.Soletmereferbacktomypreviousanswertoasimilarquestion,andI'llansweryourquestion.Endoftheday,whatismostimportantforourteamandforourBoardistoensurethatwerighttheshipoperationally,addressthechallengesthatwe'veseen,andmaketheprogressthatweknowwecanmakeasateam.Right?Thatbeingsaid,we'vealsoalwaysbeenclearthatweareshareholder-friendlymanagementteam,orashareholderfriendlyboard,andwewillalwayslookatstrategicoptionsthatpresentthemselves.

OneofthethingsthatI'vesaidinthepastisalthoughfromadebt-marketperspective,aswellaswhereourownequityistrading,wearenotinapositiontodosubstantialacquisitions.ButIhavepointedoutthatmergersarecertainlyoptionsthatwewouldconsideriftheypresentthemselves,particularlywhereeitheronarelativevaluebasisit'ssomethingthatmakessenseorweconcludethatit'sthebestinterestofourshareholders.Socertainlyweremainopentothoseoptions,butourprimaryfocusandpriorityisonoperationallyexecutingagainstourplan.




KenCacciatore (Analyst-CowenandCompany):

Thankyou.

Operator :

IrinaKoffler,Mizuho.

Ir inaKof f ler (Analyst-MizuhoSecurities):

Iwantedtogothroughthe505(b)(2)again.Itsoundslikeit'sabigpartofyourgoingforwardstrategy,andIjustwantedtounderstand,howcompetitiveisthisspace?Areyouguysgoingtogetanyadditionalplayersinthemarketbasedonyoursetbackanddelayinto2017?Andthengoingforward,wehavetorelyonyourexecutionoftheseprograms,andyetwehadadelaythisyearalready.Sowhatcanyousaytogiveusmoreconvictioninyourexecutionoftheseproducts?Thanks.


IwillletPaulanswerit.IthinkIwouldjustpointtoVasostrictasanexampleofwhyyoushouldhaveconfidencein[Paul's]abilitytoexecute.It'sbeenanextraordinarilysuccessfulproductstrategyandonewhereIdon'tthinkwe'veseenthefinalchapteryet;Paulcontinuestoworkonit.ButPaul,whydon'tyouanswertherest.


Irina,again,attheendoftheday,wehaveabroadstrategyintermsofgettingunapproveddrugsthroughtheFDAthroughthe505(b)(2)process.Historically,thesearetypicallyolderdrugswhichwehavetorunrequisiteclinicaltrialsinordertogetNDAstatus.

Whenwecanchangeaproductandwhenwecangetintellectualproperty,obviouslywe'regoingtodothataggressively.Oncertainproductswe'reabletodothat,andcertainproductsweareunabletodothat.

Inthecaseoftheproductsthatwe'rereferringtoatthispointintime,IwouldtellyouthatIdon'tbelievethatintellectualpropertyisasstrategicaswewouldlikeittobe.However,thereareotherthingsthatwewouldbeworkingtowardsatthispointintime,Iwouldnotwanttodiscloseforcompetitivereasons.Butwe'rehopefulthisisnotgoingtobeaone-yearandouttypeof505(b)(2)wherebywespendtherequisitePDUFAfees,buildupaproduct,andtheninvitecompetition.

Sowedohavestrategiesoutsideofintellectualpropertythathopefullywillgainuslongevity.Butwe'renottalkingcompoundpatentIPwhereyou'retypicallyseeingmultipleyears.That'snotwhatwe'retalkingabouthere.

Operator :

DavidRisinger,MorganStanley.

DavidRisinger (Analyst-MorganStanley):

Acouplequestions.Sowithrespecttothegenericpricingandcompetitivepressuresthathityourgenericsguidance,couldyoujusthelpusunderstandhowmuchofthatisfromtheQualitestbusinessandhowmuchishittingtheParbusiness?SoI'llmakeupanumber.Let'ssaythatthehitwas$10.Ofthe$10hit,wasittwo-thirdstoQualitestandone-thirdtoPar,orwasithalfandhalftoeach?Justtryingtounderstandthat.




Andthensecond,withrespecttoXiaflex,howshouldwethinkaboutthatproductsalessequentiallyincomingquarters?Andthenfinally,actually,andthisoneisforSuky,youhadmentionedmovingpartsin2017.Couldyoujusttalkaboutthebig,bigmovingpartsthatareuncertain?Obviously,there'ssomecertaintywithZetiaandSeroquel.Butwhatarethemovingpartsforrevenuethatareuncertainfor2017atthispoint?Thankyou.


David,letmehityourXiaflexquestionsandthenIwillgotoPaulonthepricingquestionandthemovingpartsin2017.Look,IthinkonXiaflex,wehadaverygoodfirstquarter.Wehadgrowthofabout21%whenyou'relookingattheUS.Andaswelaidoutinourpresentationandmycomments,ourexpectationforthefullyearisproductgrowthshouldbesomewhereinthemidtohighteensrange.Right?

Now,clearlyweareworkingtoacceleratetheproduct,butthatisaviewofwhereourbestcurrentthinkingis.Soifyoutakealookatthe21%andthefull-=yearatmidtohighteens,therewillbeaslightmoderationasweheadintothenextfewquarters.Butthisisstillgoingtobewellwithinthestrongdouble-digitgrowthprofilethatwepredictedfortheproduct.


David,yourquestiononthepriceandthepressure,whenwelookattheQualitestportfolio,whichhadserveduswellforsomanyyears,asIsaidbefore,itisamatureportfolio,whichissubjecttomorethannormalcompetition.Wewereverystronginpain;abigportionofourportfolioisdirectedtowardspain.It'snotquitethebarrierthatitoncewas,andasaresult,thepricingpressurethatwesawwasabout80%tiedtolegacyQualitestandabout20%tiedtolegacyPar.


Andthenletmestartonyour2017question,andI'llaskSukytojumpin.Solet'stakethefollowingviewon2017,solet'stalkaboutwhat'schangedsincewelastputinourexpectationsfor2017.

SothethreemainchangeshavebeenaresettingofexpectationsforourQualitestbasebusiness;thedelayinthe505(b)(2)program,aswetalkedaboutwhichisgoingoutof2016butwillbeimpactingpositively2017and2018,forthatmatter;andthenwetalkedaboutVGel,whichwefullyexpectedtobegenericizedasweheadedinto2017.Itjusthappenedmuchearlierthanweexpected,andwedohaveauthorizedgenericasanoptionforustousegoinginto2017.SotherealmajordownwardrevisionthereistheimpactoftheQualitestbasebusiness.

Now,thereareothermovingpartsthatwillimpactwhatourfinalguidancein2017isthough,right?WewillhavetotakeaviewonexactlyhowBELBUCAisgoingtodo.Italldependsonwheretheinflectionpointisgoingtobe.

Obviously,tailwindsbehindXiaflexwillcontinuetogrow.Wewillknowmorebythemiddleofthisyearintermsofwhat'shappeningwithOPANA.WehaveaJuly29thPDUFAdateforourADFrelabelingrequestwiththeFDA.AndwewillalsoknowmoreintermsofsomeoftheotherpipelinelaunchesandotherprogramsthatPaul'spursuingintheParbusinessandexactlywheretheywillfallin2017.Right?Sothosearesomeoftherealmovingpartswehave.

We'vealsosignaledthatweexpecttoincreaseourR&Dspend,particularlybehindtheXiaflexpipeline,andtotheextentthatPaulhasnewideasfromanR&DstandpointwewilltryveryhardtomeetanyadditionalfundingrequirementsintheParpipelineaswell.Sothosearesomeofthemovingparts.Idon'tknow,Suky,whetherthere'sanythingelsethatyouwouldpointto?

SukyUpadhyay(CFO):




Ithinktheonlyotherthingisthestronggrowthwe'vebeenseeingintheinjectablesportfolio.Wecontinuetoseethatmomentuminto2017.It'sjustunderstandingwhereourexitisin2016beforewemakethatfinalcall.

Operator :

ElliotWilbur,RaymondJames.

DanielSanchez (Analyst-RaymondJames):

ThisisDanielSanchezonforElliotWilbur.Ijustwantedtogetyourlatestthinkinginregardstotheeventualresolutiontimelineandexpected2016paymentliabilitiesasyouworktopushthemeshsettlementissuebehindyou?Andifyouthinktheworstpartsandtheclaimswiththehighestvalueareover?


Sure.Soletmejustcommentontheoverallstatusofmesh,andthenI'llletSukytalkaboutthefinancialaspect.Soaswetalkedaboutinourfourth-quartercall,wetookanewapproachtohowwe'redealingwiththetail,whichisthatwetookstepstoresolvethehigher-qualityclaims,whichiswhatledtoanincreaseinaccrualthatweannouncedinthefourth-quartercall.

Sincethen,thesituationhasnotchanged.Thereisallegedpotentialforanother8,000casesinthetailthatwedisclosed,butwewerealsoverytoquicktopointouttheexpectationisthatalargeproportionofthosecasescouldbeoflowerquality.Wedon'thaveallthefactsaroundthem.

Wealsopointtothefactthatthereisapotentialfraudulentschemethatisrunningthroughmanyofthesecases,whichweareinvestigatingcurrently.Aswepointedoutbefore,thesearetypicallythetypesofthingsyouseeatthetailendofa[massstart]situation.Wecan'tgiveyouapreciseprojectionofwhattheenddateis,butwehaveconfidencethatwe'reseeingtherealtailhere.

MaybeSuky,youcantalkaboutthecashexpectationsin2016.

SukyUpadhyay(CFO):

Sure.Attheendoffirstquarter,wewillhaveatotalproductliabilityaccrualofabout$1.9billiononthebalancesheet.You'llseethatinour10-Q,whichwillbeissuedintheverynearfuture.Ofthat$1.9billion,theamountofrestrictedcashorcashthat'salreadybeenputintoqualifiedsettlementfundswasabout$0.5billion,whichleavesaresidualof$1.4billiononagrossbasistobepaid.We'dexpectofthatremaining$1.4billion,about$750milliononagrossbasistobepaidbetween--fortherestof2016.Andthenabout$600million$650millioninto2017,ortheresidualofthat$1.3billionbalance.

Sothat'swherewestandfromacashcallbasis.Aswetalkedaboutearlier,wedidreceivethefederaltaxrefundthatwepointedtoearlierthisyear;thatcameinearlyApril.Wecontinuetolookatwaystoprovideashieldaroundfutureliabilities.


Thankyou.Andanylineofsightastothemagnitudeofpotentialfraudcasesorisitstilltooearlytotell?


It'sanactiveinvestigation,wehaveissuedsubpoenasinthecase.AndarealsoworkingwiththejudgeintheNDLcase,aswellasotherpartsofthelawenforcementinfrastructureinthecountry.Sowereallycan'tcommentmoreonit.





Thankyou.

Operator :

RohitVanjani,Oppenheimer.

Rohit Vanjani(Analyst-Oppenheimer&Co.):

Sorry,ImaybemissedsomeofthecommentaryonVoltaren,toDoug'squestions,buthowmuchdidyoureduceyourVoltarenestimatesbyorhowmuchsharedoyouanticipatethenewcompetitortaking?AndthensamethingwithFrova,areyouseeinganewcompetitorthere?Andifso,howmuchdidyoureduceestimatesby?

Andthensecondly,forthegenericsunit,couldyouhelpmeunderstandthebusinessalittlebitbetter.Doyouhavecontractsprimarilyatthebeginningoftheyearandthat'swhereyougettherenegotiationshappening?Orarethemajorityofthecontractsstaggeredthroughouttheyear,orareyouseeing[rofers]whereyouarechoosingnottoengage?Oraremostoftheproductssoldadhocoratwill,whereyourcustomercanmoveprettyfreely?


SoletmejusttalkaboutbrieflyaboutVGelandFrovo,andIwillpassitontoPaul.WithrespecttoVoltarenGel,wehavepointedto,inthematerialsfortoday'scall,therelativeimpactontherebasingofour2016guidance.Wearenotgoingtodiscussmarket'sexpectationsanymore,justotherthantosaythere'sasinglecompetitoronthemarket.Andweareeffectivelydefendingthebrandedproductatalevelthatwewouldexpecttodo.

WithrespecttoFrova,yeswedohaveanewcompetitorthatisGlenmark,andcurrentlyParhasalsolaunchedourauthorizedgeneric.Sothatisalsointhemarket.Maybeyoucanaddresstheotherquestion?


Sure,intermsoftheconsortiums,the[cycling],Ithinkyouhadthatexactlyright.Sotheyarestaggered,soeachconsortiumhasadifferenttimeframethatwebidagainst.Soit'snotlikeyoucomein,inQ1andhavetodealwith3oftheconsortiums.[Reddo]doesnotactuallyputoutbids,theirexpeditionisthattheregoingtobeguaranteedbestpricing.Sotheirstyleisalittlebitdifferentasopposedtotheone-stopprogramortheweed-[bad]programoreventheECONDISCprogram.

RegardingRovers,thatisexactlywhatitis.Soafteryougothroughtheconsortiumbidcycle,thatdoesnotmeanthatyouarestillnotexposedforRofers.Thatbeingsaid,wedefendagainstRofersandwehaveourfairshareofwins.Youhaveyourfairshareoflosses,andattheendoftheday,Ithinkonago-forwardbasis,thisisanareathatwe'refairlystrongin,intermsofatleasetoprotectourselvesfromthelegacyParstandpoint.Andweare,inessence,right-sizingtheQualitestbusinesslegacysideinordertobeabletodefendagainstRofersgo-forwardbasis.

Rohit Vanjani(Analyst-Oppenheimer&Co.):

Great.Thanks.

Operator :

KevinKedra,Gabelli.




KevinKedra(Analyst-Gabelli&Company):

Justwondering,whenyouthinkaboutthatstrategically,howmuchsensedoesitstillmaketokeepthegenericandthebrandofbusinesstogether?Arethereanythoughtsaboutmaybeseparatethosebusinesses?Andthenactually,I'lltakethatandI'llbegood.Okay.Thanks.Look,it'sastrategicquestion.OneofthethingsthatourCompanyhasbenefitedfromoverthecourseofthelastthreeyearssincemyarrival,whenwereallystartedtotransformthebusiness,isinfactthediversityofthebusiness.Right?Sothegenericsbusiness,especiallywiththeadditionofPar,despitetherebasingthatwearetaking,isahighlydiversifiedbusinesswithmultiplegrowthdrivers.Andwe'vealsotakenthestepstobuildcriticalmassinourbrandedbusiness.

ButIhavebeenalsoopenthatfromaforward-lookingstandpoint,atacertainpointintimewhenwehavecriticalmassinbothourbrandedbusiness,aswellasourgenericsbusiness,thesecanbebothtwoveryviablestandalonebusinesses.Sofromastrategicstandpoint,weremainopentothinkingaboutcreativewaysofcreatingthatshareholdervalue.ButasIpointedtoearlierinmycomments,ourprimaryfocusrightnowisoperationalexecution.WehaveafullplateinParintermsofrestructuringthatneedstobedone,progressonthepipeline,aswellasinthebrandedbusinessgrowingXiaflexandgrowingtheBELBUCAandinvestinginthepipeline.Butcertainly,wekeepallstrategicoptionsopentousaswethinkaboutthefuture.

Operator :

IwouldnowliketoturntheconferencebackovertoRajivDeSilva,CEOandPresident.


Thankyou,andIwanttothankallofyouforyourattentiontoday.Therehavebeenalotofverygoodquestions.Andwe'vetalkedalotaboutthedifferentfactorsthathaveimpactedour2016guidance,aswellasotherfinancialupdates.ButwhatIhopethatyouwilltakeawayfromthiscalltodayisthatdespitetherebasingofour2016guidance,Endoisafundamentallydifferentandstrongerbusinessthanitwasin2013.Anditisalsoamorecompellinginvestmentandgrowthstory.

In2013wehadtwoprimaryanddecliningassetsatthattimeandaveryfragmentedbaseofbusinessacrosshealthcaresolutionsdividedinpharmaceuticals.Youfast-forwardtotoday,we'verebuiltourbrandedportfolioandpipelinewiththeacquisitionofAuxiliumandparticularlyXiaflex.Wedivestednon-corebusinesses.We'veachievedscaleanddifferentiationinourgenericsportfoliowiththeadditionofPar,andfrankly,thatiswhatthefutureisgoingtobeabout.Particularly,asweseetherebasingofourlegacyQualitestbusiness.Weestablishedaninternationalstructureandfootprintforgrowthandexpansion.Wenarrowedthemeshtail,andwehavebuiltabusinessgeneratingsignificantEBITDA,evenafterthisrebasing,andfreecashflowthatweexpecttogrowgoingforward.

SonoonelikestorebaseguidancemorethanI.Butwehavenowresetourbusinesssothatwecanmoveforwardandeffectivelydrivegrowthandvalue.Andwethankyouforyourcontinuedsupport.Thankyouverymuch.

Operator :

Ladiesandgentlemen,thisconcludestoday'sconference.

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