Endo International PLC ENDP
Q4 2012 Earnings Call Transcript
Transcript Call Date 02/28/2013

Operator: Good day, ladies and gentlemen, and welcome to the fourth quarter 2012 Endo Health Solutions Earnings Conference Call. My name is, Dorcel, and I will be your operator for today. At this time all participants are in listen-only mode. Later, we will conduct a question-and-answer session.

I would like to turn over the conference over to your host for today, Mr. Blaine Davis, Senior Vice President of Corporate Affairs. Please proceed, sir.

Blaine Davis - VP, Corporate Affairs: Thanks, Dorcel. Good afternoon everybody and thank you for joining us. With me on this morning's call are Dave Holveck, President and CEO of Endo; Julie McHugh, Chief Operating Officer; Dr. Ivan Gergel, Chief Scientific Officer; and Alan Levin, Chief Financial Officer.

After our prepared remarks, we'll open the call to your questions. 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 subject to change, risks, and uncertainties described in today's press release and in our filings with the SEC.

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 filed with the SEC for Endo's reasons for including those non-GAAP financial measures in its earnings announcement. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is contained in our sales and earnings press release issued earlier this morning.

Now I'd like to turn the call over to Dave.

David P. Holveck - President and CEO: Thanks Blaine. I'm happy to have the opportunity to address all of you this afternoon. 2012 was a challenging year for Endo and we believe that our investors are aware of that and so we remain focused on improved execution in 2013. We preparing for leadership transition as well. Earlier this week we announced the appointment of Rajiv De Silva as the next President and CEO of Endo health solutions. I am excited to move on to my next chapter and I believe that Rajiv is as well. When he takes the lead in a few weeks I believe who will do so for an organization that I aligned to round the objectives of continuing to improve the efficiency and performance of Endo.

Now for the fourth quarter of 2012 we reported revenues of $801 million and adjusted earnings of $1.62 per share. These results reflect a number of variables affecting our business including solid growth in a Qualitest segment in steady sequential performance for Opana ER and Voltaren Gel after disruptions to the supply chain of these products earlier last year.

Our reported or GAAP financial results reflect current estimates in terms of the valuation of certain of the Company's assets including AMS as well as some of the other potential liabilities associated with the legal matters and other related contingencies. Alan will discuss in further detail the effect of those items in few minutes.

2012 exposed fragility in certain aspects of our supply chain in a time we found it typical to reestablish momentum for some of our key growth drivers. The fragility affected the performance of Opana ER and Voltaren Gel in early 2012. Voltaren Gel rebounded well and we expect strong growth for this franchise in 2013. Opana ER has stabilized and we are focused on the long-term potential for the abused deterrent formulation.

Our Qualitest business had a solid year with 12% net sales growth despite some production bumps as we expanded capacity and achieved 7% net sales growth in the fourth quarter. First quarter 2013 sales are off to a good start and we continue to expect low double-digit growth from this business as demand increases and we continue to invest in new production capacity. Qualitest has increased outputs significant in the last two years from 10 billion doses in 2010 to 14.5 billion doses in 2012.

We believe strong demand for our products will continue to provide a volume driven growth opportunity for our generics business. Across all of our business, we were focused on delivering an improved performance in 2013. In branded pharmaceuticals, we are focused on growing all of key franchises.

Foremost, we are collecting an increasing body of data and it supports our position that abuse deterrent formulations can reduce abuse and misuse of extended release opioids. We believe it is important for clear regulatory and market boundaries to be drawn between the current abuse deterrent formulations of products such as Opana ER and oxycodone and the generic versions of their discontinued formulations that do not meet the abuse deterrent formulations. And we're encouraged by the draft guidance FDA issued in early January that proposes a pathway for abuse deterred formation to (power).

Other top priorities include as I discussed within Qualitest, we're focused on improving our operating efficiencies and capitalizing on more of our volume opportunities. Our AMS and HealthTronics businesses are engaging with physicians and patients to raise the awareness of our products and services in both domestic and international markets. We're going to investment efficiently in research and development to support our generics medical devices and branded pharmaceutical business with new products that fit the commercial strengths of each of those businesses and throughout the organization we are sizing our infrastructure and prioritizing our investments in order to deliver the expectations we've set.

Now I would like to turn the call over to Julie McHugh to review our operations during the quarter. Julie?

Julie H. McHugh - COO: Thank you Dave and good afternoon. As Dave mentioned my commercial team is focused on improving performance for 2013 and supporting growth drivers for Endo. We are also committed to driving greater efficiency as we prepare for the first generic competitor for Lidoderm to launch in September.

Within branded pharmaceuticals our number one priority is the support of the long term growth opportunity for Opana ER. We will continue to advocate the regulatory support of abuse deterrent formulations. We believe that these formulations are an important part of an overall strategy in support of appropriate use. We have an additional quarter of surveillance data that indicates our abuse deterrent formulation of Opana ER is abused or misused at a rate that is 80% lower than the generic version of extended release oxymorphone that were on the market in 2012. We are encouraged that there has been solid commercial support for the abuse deterrent formulation of Opana ER. We continue to enjoy broad formulary access and pharmacies have supported changes that reflect the lack of therapeutic equivalent between the abuse deterrent formulation of Opana ER and the generics of the old formulation. The result is a performance for the brand after the launch of generics of the old formulation that is in line with our current expectation.

Voltaren Gel performed well in the fourth quarter as prescription volume grew sequentially and versus fourth quarter 2011. Comparisons will be easy in the fourth half of 2013 given the closure of the Novartis facility in Lincoln Nebraska in early 2012 and the resulting supply disruptions for this franchise. More importantly, we believe that we will grow Voltaren Gel throughout 2013 and that we have the ability to do so more profitably after revising our license and supply agreement with Novartis in Late 2012.

We have also been more aggressive in creating access for a FORTESTA Gel. Prescription volumes in the early part of 2013 are approximately double what they were during the comparable period in 2012. Most of the volume increase can be attributed to improve formulary positioning within a major commercial provider and a key government contract win. Not all of the incremental volume growth will translate to growth in net sales, but we expect strong double-digit net sales growth for FORTESTA Gel in 2013.

Net sales within our Qualitest business grew 12% for the full year of 2012 versus the prior year. fourth quarter net sales were lower than we had previously expected but we believe there will be an opportunity to recover some of that fourth quarter underperformance in 2013. Fourth quarter's underperformance was driven by our announced recall of hydrocodone products, and an end of the year maintenance shutdown that resulted in a significant build of back orders of approximately $15 million worth of potential sales. We believe that there is a good opportunity to recapture a significant portion of those back orders in 2013. Moreover, we remain confident in the ability to deliver sustained double digit year-over-year growth within the Qualitest business. We have a number of recently approved but not yet launched products that have strong sales potential. We have the opportunity to return to manufacture and sale of MSER and immediate release oxymorphone during 2013.

The range of year-over-year quarterly growth rate for Qualitest net sales from 7% in the fourth quarter of 2012 to 20% in the second quarter of 2012 largely reflects transient production interruptions as we expanded plant capacity. We expect to continue to invest in the expansion of our manufacturing capacity in 2013 and we believe we can do so with fewer supply disruptions as we will reduce some of the demand on our manufacturing footprint through selected use of outsourcing to help weak demand.

Nevertheless, it is likely in 2013 that there will be variability in the quarterly results, but we believe continuing to invest in capacity growth for Qualitest is the right exchange for some near term variability. We are confident in the full year projection of low double digit growth in net sales and we're off to a solid start in 2013.

Qualitest continued to experience strong adjusted gross margins and finished the full year 2012 in the low 40s as a percentage of net sales. We believe this reflects relatively pricing stability and keep product lines. And we haven't relied upon the continuations of these existing opportunities in developing our 2013 financial guidance and believe that Qualitest adjusted gross margins are more light weight to be in the range from the high 30s to the low 40s as a percentage of revenues.

Sales in our AMS segment declined 6% in the fourth quarter 2012 versus fourth quarter 2011. Women's health drove the decline with year-over-year 18% decrease in sales. Net sales declines in women's health were driven by year-over-year declines in procedural volumes, reflecting industry shifts following the FDA's September 2011 advisory committee meeting regarding the use of surgical mesh in pelvic organ prolapse.

We expect growth rates to improve in 2013 within women's health and as a result for all of AMS.

Full year 2012 sales for men's health increased 3% on a pro forma basis. We believe that basis is a best way to view organic growth for the business. On that basis men's health has shown growth from all major aspects of its business. We had net sales growth from both the male incontinence and erectile restoration product lines and men's health grew in both domestic and global markets.

And overall full year international sales remained strong for AMS and grew 10.7% on a pro forma basis assuming the acquisition of AMS on January 1, 2011 and using a constant currency basis.

Longer term we are focused on returning AMS to growth while driving a revised more efficient investment process to improve margins. Leadership transition and organizational changes at AMS were in key focus during the fourth quarter and the result is a team with the right capabilities organized in a way to support the goal of efficient growth. That concludes my prepared remarks now I'll turn the call over to Alan.

Alan G. Levin - EVP and CFO: Thank you, Julie. I'll focus my initial remarks on our actual results with attention to the detail of a few primarily non-cash charges that effect on a reported or GAAP financial results. I'll focus on the fourth quarter results and touch on the full year results for certain measures. For the remainder of our financial results, I will point you to the earnings press release that we distributed before today's conference call and I'll close with comments regarding our prospects for the full year 2013.

For the fourth quarter, we had total revenue of $801 million comparable to fourth quarter 2011 revenue of $803 million. For full year of 2012, we had total revenue of $3.03 billion, up 11% over the full year of 2011. As a reminder, the acquisition of AMS was completed in late June of 2011 and thus the full year reported revenues for Endo in 2011 include only six months of revenues from that segment.

On an adjusted basis, fourth quarter gross margin for the Company as a whole was 68% of net sales. That result was in line with our full year expectations. Total operating expenses for the quarter were $1.2 billion. However, on an adjusted basis, total operating expenses for the quarter were $217 million reflecting a decrease versus the prior year adjusted total operating expenses of $280 million that's driven by the impact of operating efficiencies that we've been focused on delivering since the start of 2012.

In addition, we implemented further changes to our infrastructure at the end of the third quarter but further improved operating efficiency in fourth quarter 2012. This significant reduction in expenses has reduced adjusted operating expenses as a percentage of revenues. And on an adjusted basis, total operating expenses as a percentage of revenue decreased to 27% as compared to 35% during the fourth quarter of 2011.

Our adjusted effective tax rate for the fourth quarter 2012 was 33% and for the full year was 30.6% consistent with our expected range of 30.5% to 31.5%. As anticipated, the adjusted effective tax rate in fourth quarter 2012 was higher than the full year rate as a result of higher pre-tax income which decreases the relative contribution that we enjoyed from a fixed amount of net operating losses.

Adjusted diluted earnings per share increased 16% to $1.62 from $1.40 in the fourth quarter of 2011 and for the full-year 2012 our adjusted diluted earnings per share increased 7% to $5.02 versus $4.69 for the full year of 2011 was in line with our previous guidance for the full year.

For the period, we reported a net loss of $716 million versus only $37 million in the fourth quarter of 2011. On a per-share basis that translated to a reported or GAAP loss of $6.35 in fourth quarter 2012 versus GAAP earnings of $0.30 in fourth quarter 2011. That decrease was driven by a set of one-off charges that are noted in our earnings press release that I'll describe now, first consistent with our signaling in early January. There is a material non-cash charge in the amount of $714 million for the period reflecting asset impairments. The primary driver for this charge is $640 million reduction in goodwill and other intangible assets attributable to the company's American Medical Systems business segment.

Second there is a charge in the amount of $234 million for the period reflecting accruals for certain legal contingencies. The primary driver for this charge is a tentative agreement that we believe would resolve the ongoing investigation by the government that is focused primarily on the sale, marketing and promotion of Lidoderm. As a reminder at the time of our third quarter earnings report we accrued $53 million as a minimum estimate for this matter.

The revised estimate results $141 million incremental accrual for. Results in a total estimate of $194 million for this matter.

We reported cash flow from operations of $733 million in 2012 fourth-quarter 2012 benefited meaningfully the timing related to the resolution of certain legal contingencies and some transient working capital improvements and these items totaled approximately $80 million in 2012, which would imply a more normalized level of cash flow from operations of approximatley $650 million. Repayment of debt and funding of capital expenditures remains an important use in term loans during 2012 and that raised our repayment total to approximately $650 million since the acquisition of American Medical Systems. With respect to our leverage ratio, we expect to achieve our goal of 2.54 times debt to adjusted EBITDA at the end of first quarter 2013.

Moving on to our 2013 financial guidance; we are confirming today all of the details announced in early January. In summary, we continue to expect total revenues of between $2.8 billion and $2.95 billion. On an adjusted basis, we expect our corporate gross margin, as a percentage of revenues, to be between 64% and 66% in 2013. We anticipate an adjusted effective tax rate of approximately 28.5% to 29.5%. We assume adjusted interest expense in the range of $155 million to $160 million and we expect non-controlling interest expense in the range of $50 million to $55 million.

We estimate adjusted diluted earnings per share in the range of $4.40 to $4.70 and new with improved understanding of the timing of certain GAAP charges, we are in a position to estimate reported of GAAP diluted earnings per share which we expect to be within a range of $2.22 to $2.52.

Finally, the full year P&L guidance, we based our per share estimates by assuming a weighted average number of common shares outstanding of approximately 115 million shares for the year ended December 31, 2013.

I'll close with a few thoughts regarding 2013 adjusted operating expenses that I believe will be important for modeling purposes. In first quarter 2013, we expect our adjusted operating expense to increase sequentially approximately $40 million and $50 million versus fourth quarter 2012. This increase can be attributed to two primary drivers.

First, there are normal seasonal factors such as frontloaded annual investments in marketing and promotion that we would expect would increase expenses. Second fourth quarter, 2012 had a timing benefit from expense reimbursements which offset expenses primarily incurred earlier in the year related to the Novartis supply disruption in early 2012. The timing of this reimbursement reduces actual fourth quarter 2012 operating expenses and we believe is important to consider when building a model at the start to 2013.

For the full year, we continue to expect a mid-single digit decline in adjusted operating expenses versus full year 2012 and we recently completed some adjustments to our corporate infrastructure that should position us to achieve this objective.

For additional details on our 2013 financial results and guidance please review today's earnings press release. This concludes my prepared remarks and now I'll turn the call back over to Blaine.

Blaine Davis - VP, Corporate Affairs: Thanks Alan. That concludes the prepared remarks for the call. Operator we'd like to open the call now take some questions.

Transcript Call Date 02/28/2013

Operator: Gregg Gilbert, Bank of America.

Gregg Gilbert - Bank of America Merrill Lynch: My first one is about Opana ER, what makes the company confident that the FDA will remove the non-abuse deterrent oxymorphone products in May. If you could provide the latest color you have on that.

Ivan Gergel, M.D. - EVP, R&D, and CSO: Clearly, we are pleased to say they put out a guidance and obviously we continue to work closely with them on the guidance. We think the epidemiological surveillance data that we are getting in is very supportive of what we expect these abuse deterrent formulations should do it supporting our original contention in this regard.

Gregg Gilbert - Bank of America Merrill Lynch: Ivan are you and the team focused on other abuse deterrent formulations of oxymorphone obviously generic companies are pretty quick to copy technologies especially the simpler ones, is there a program that you can speak to for other forms going forward?

David P. Holveck - President and CEO: Certainly. Obviously we believe very much in the tamper-resistant – these tamper-resistant formulation of medical abuse deterrent formulations. We believe they do provided a benefit. As I said, obviously, the epidemiological data is encouraging and, as you know, we are a Company very much focused in pain and certainly, if there's something, if there's more we can do to help in the sort of prevention of abuse certainly, certainly we'll be looking at.

Gregg Gilbert - Bank of America Merrill Lynch: My next one is for Julie on the Qualitest front. Despite in light of the recalls are you confident that the facility and facilities are in good shape from an FDA regulatory perspective and maybe you can talk about when the (AMC) were last there and what any findings were?

Julie H. McHugh - COO: Sure. Yes, we're obviously very focused on continuous improvement of our manufacturing processes including our quality systems, and we're making some dramatic improvements in the course of the two years that we've owned the Qualitest facility and we will continue to remain committed to all of those process improvements as we move forward. Our last inspection and we've got a number of different sites from – as you know manufacturing sites now focus on Qualitest. The last time we had FDA general GMP inspection was in 2011 in Huntsville and in Charlotte.

Operator: Chris Schott, JPMorgan.

Chris Schott - JPMorgan: I just had a couple questions here; first on Opana. How should we think about realized price for Opana as we go through this year? Has there been any impact at all from the generic launch on for instance you are rebating strategy anything we should think about in that front? And my second question was on mesh liability, what's you latest thinking about how we should be evaluating or how you are evaluating risk on that front and Can you maybe just give us any timing of initial cases we should be watching here?

Julie H. McHugh - COO: So, I'll take the first question and with respect to Opana and pricing and how to think about that. We do as I have mentioned earlier have very strong formulary access for Opana ER. We've been very successful with our initial interactions with payors in that. We have extended our contract terms to payors for the new formulation and we don't anticipate having to offer additional rebates at this time. In fact, many of the payors have been very cooperative and recognizing the value of these tamper-resistant formulation and in a number of major payors have chosen to block the generic – block access to the generic versions that have been recently approved. So, we remain confident as long as the FDA does in fact uphold our business petition and doesn't approved additional generic formulations that we have a growth asset on our hands for the years ahead.

Alan G. Levin - EVP and CFO: Just one more a quick comment on the pricing, so remember when you are doing year-over-year comparisons to the performance last year, because the change in the dose mix overall decreased the overall percentage the 40 mg represented. You will see again a little bit of a price differential there but we expect that to kind of normalize as we move forward from this point.

David P. Holveck - President and CEO: Let me just say a few words relative to the other question, relative to the AMS MS litigation, I think first of all we – in looking forward we see each cases as a very isolated individual element and they have to support on the facts. So, I think we again are very heavy into looking at the each one of those cases. I think the other element that is I think a step in the right direction in February of 2012 the multi-district litigation and the southern district of West Virginia has consolidated the cases and I think this gives us also some continuity because it's all under the same judge. So again our belief is that it is an element that is what I call under obviously very close management and the next, I think trial that we see is in May. So this particular point again we, we feel again the number of cases and it should be reminded that the FDA was looking at pelvic organ prolapse in most of these cases and a high percentage of these cases are in stress incontinence. So at least, these are very different clinical situations and therefore cast a very different light on the individual trials themselves.

Operator: Annabel Samimy, Stifel, Nicolaus & Company.

Annabel Samimy - Stifel, Nicolaus & Company: Just want to go back to Opana surveillance data are we going to be seeing any of this data updated in a public forum and do you have sense as to how much the FDA needs to get comfortable, before they can potentially change the label for either Opana even OxyContin since they seem to be lumping this together. Because presumably they have a lot of data for OxyContin already. So if you can give us a sense of that there'll be great?

Ivan Gergel, M.D. - EVP, R&D, and CSO: So what I will say, I think as I mentioned earlier Annabelle, we've got a couple of data points, the surveillance data, we saw initially, as you'll probably recall, when the original – the original formulation of Opana there was a significant increase in the abuse after the crush-resistant formulation of OxyContin was first introduced back in 2010. Then after the crush-resistant formulation of Opana ER was introduced in early 2012, we saw (indiscernible) the original formulation of Opana ER. The other point as Julie mentioned earlier we see a dramatic difference in the abuse rates of our current abuse resistant formulation of Opana CRF compared to the generic versions of extended release formulation. Just on the front of making a lot of these data public, as you probably know we did file a citizen's petition earlier what's contained in this data making FDA, again, aware of the collection of this surveillance data. The information that we mentioned earlier in the script is actually just an extension of more of that data coming in which largely reflects the original dataset that we established which is again reaffirming through that surveillance work that reduction of abuse continues. We're currently in the process of evaluating the best way to take that data and ensure that it is communicated appropriately in a variety of different forms, but had not made a final decision on that point. Then with regard to your question on the label, I think that the label is something that we are currently evaluating based on the guidance that was issued earlier, and we're taking into account some of the comments that FDA made in that regard.

Annabel Samimy - Stifel, Nicolaus & Company: But you still don't have a sense of how much data they need before they'd be willing to change their label to get comfortable with your abuse deterrent property?

David P. Holveck - President and CEO: I think, obviously, the more the data is coming in, it's all going in the right (indiscernible) same what we expected it would say and it's pretty consistent not just for our product but also for oxycodone. And I don't think it's a surprise there. I mean intuitively one would expect these abuse deterrent formulations to lower rates of abuse and that's what we're seeing. From our perspective, as I said, the data, it's very encouraging and it's reasonably robust.

Annabel Samimy - Stifel, Nicolaus & Company: If I can move on to AMS for a minute, I mean I guess you've now had some leadership in place for – that could maybe is that on a six months and we can understand, maybe the women's health business is stabilizing quarter-to-quarter, it seems like it's coming back to gross and then health business, so it seems to be on a sequential decline, so I'm ordering some of things that you need to do to stand that decline seems to have been stable before the acquisition?

David P. Holveck - President and CEO: I think the first point is probably the core of the answer is that the new leadership. I think that leadership with Camille coming on board in September, I think in period of time between, September and now the leadership team has been – it's been pretty much replaced. I think our organizational alignments have changed. So, I think the elements of the construct, this is a lot more efficiently organized and again I think the leadership equally gives a more accountable direction. I think the elements of the points of consistent growth going forward we are really going to be in a couple of areas, one international. The other is obviously continued innovation. Training I think the reputation that AMS has along with the medical training I think it's appropriate to see I think on all of the device especially in the implant areas. I think physician training is real element of where their reputation is strong and we are going to continue to build on that. again the other elements that I think take precedence in this sort of new world of healthcare is the wrap around value proposition and I think the relationships that we have with HealthTronics along with AMS brings a greater presence in neurology practice in the sense that you have now data you have services you have relationships just we mobile elements I think all of that creates a bigger dynamic and a more significant force in neurology sector.

Alan G. Levin - EVP and CFO: Well there may be some quarter-to-quarter variability in the men's health the year-to-date number show low single digit growth for 2012 and we expect that to be meaningful contributor and growth in 2013 to Dave's point on the international side constant currency terms men's health I am sorry all of AMS was up about 11% year-over-year and we continue to expect that the men's health business with the advent of new GM who recently started should see a good growth opportunities this year we have hot preeminent market positions in both erectile restoration as well as male incontinence.

Operator: Corey Davis, Jefferies

Corey Davis - Jefferies & Company, Inc.: I think you kind of answered this already, but maybe I'll in a different way. In your prepared remarks you referenced 80% reduced abuse. Can you elaborate more on what surveillance system that came from, how robust is that data and, I'll ask it again, how long do you think it takes the FDA to put that kind of (ABI) data in the label and does it require a label change for the FDA to make it the termination as to whether or not the old NDAs for both Opana and OxyContin were removed for safety?

Ivan Gergel, M.D. - EVP, R&D, and CSO: Cory, Ivan and I'm going to – I don't know I've got all the parts of your question, but let me talk to the first part of it which was the 80% data, that comes from the inflection – the NaviPro database that follow. It's based on a comparison of abused rates of the 100,000 prescriptions from that database and when we look at the rates for oxymorphone generics we see a rate of about 250 abuses for 100,000 prescriptions and we see a rate of about 50 prescriptions – 50 abuses per 100,000 prescriptions of the reformulated Opana ER. So that's the basis for that data and….

Corey Davis - Jefferies & Company, Inc.: Sorry, can I stop here, so that's not old Opana versus new Opana?

Ivan Gergel, M.D. - EVP, R&D, and CSO: No that is the comparison of abuse for generics. Current oxymorphone generics compared to the crush-resistant abuse deterrent Opana currently on that market.

Corey Davis - Jefferies & Company, Inc.: Is that extended release Opana generics or immediate release?

Ivan Gergel, M.D. - EVP, R&D, and CSO: These are both extended release formulations we're talking about. So that's the 80% difference.

Operator: David Buck, Buckingham Research Group.

David Buck - Buckingham Research Group: Just one quick one for AMS and then question on Opana. At the Analyst Day and I realized the guidance has been revised since then, but one of the goals was getting the operating margin improvement at AMS I think up by roughly 900 basis points. Can you talk about another with some change in management after Camille Farhat came in, but can you talk about what the current (second) is in terms of what the margin capture potential if by 2014? Then secondly, if we look at the FDA's decision, how relevant is the review of your original NDA for the tamper-resistant, because obviously the barricades is that there is a differential between your formulation and the other brand as the market, this is tamper-resistant product and what type of feedback if any, have you had in terms of what ultimately the FDA is going to be using to make the decision on risk-benefit and safety?

Alan G. Levin - EVP and CFO: David its Alan here. I'll take your first question with regard with AMS. We have made very good progress as we start 2013 and restructuring the cost base around AMS to right size it in accordance with revenue trajectory for the Company, our goal has been to get to high 20s, low 30s, operating margins by 2014 and we are substantially there. That reflects some restructuring of field force resources that was announced earlier in January of this year and some reductions in SG&A related infrastructure in the operating segment that were finalized and implemented in the latter part of 2012.

David P. Holveck - President and CEO: If I understood your second question, it pertained to sort of data in our original NDA for the tamper-resistant formulation and what sort of data FDA is looking for when they review these products and I think a lot of that information is contained in the guidance. They have various tiers and various categories, that you will probably be familiar with. Clearly we generated a considerable amount of bad data when we put together our original NDA, but I think an important piece of the requirement of the post marketing surveillance data or the epidemiological data which is I think (TF4) and I spend a good couple of times. Clearly, we are very encouraged by the data that is coming in. It's reflecting what we believed would be the effect of these agents, these reformulated abuse-deterrent agents once they became available.

David Buck - Buckingham Research Group: Just one final one I guess if the FDA does in fact rule the other way in May what's the expectation for sort of the plan B or what the (trade's) view is on these non-tamper-resistant products and is there, I guess, is there going to be an opening of the floodgates for generics I guess is the question?

David P. Holveck - President and CEO: Well, I don't think it's clear that that would be the case. Even if the CP won against us in a May timeframe, the FDA would still have to take action to approve other generic versions of the classic formulation of Opana ER. That being said, our financial guidance for the year contemplates a range of outcomes for the totality of our business and we are very encouraged by what we've seen with the results to-date from the impact formulation. It is a non-AB rated, so there is no therapeutic substitution at the pharmacy level. We believe, as Julie alluded to, that pharmacies are very much respecting that and so we've seen very limited inroads from impacts into our market share to-date and we believe that any other formulations of generic Opana ER classic that could come to market would be similarly non-AB rated.

Operator: Shibani Malhotra, RBC Capital.

Shibani Malhotra - RBC Capital: Just a question again on Opana, and this is more about, I guess, the recent impact, citizen petition where the company is claiming they have seen the actual surveillance data and it may be abuse deterrent property, Opana may not be what Endo suggesting. Can you comment on that? Because we asked the same question on their call and they were very adamant. They felt that way. Then second, how should we be thinking about the risk reward or how do you think the FDA might be thinking about the risk reward around Opana ER given some of the issues we've seen with the injectable – we've (decide) that people do inject the formulation and you know the side effects can be pretty significant on that front?

Ivan Gergel, M.D. - EVP, R&D, and CSO: We're familiar of course look. We based our data on both the NaviPro and the radar systems which are established systems which are clearly recognized by FDA as the go-to bodies if you like and our data, I went through it a bit earlier on this call, but I think it's pretty compelling data. We compare when we look at comparisons between our current formulation and generic formulations on the market, we see a different in abuse rates. We saw differences in abuse rates when we brought our product to market. We very much stand by our data. It's robust and compelling.

Shibani Malhotra - RBC Capital: Can you explain just so that we understand what they are saying. What is the issue with your data? What is that name in terms of what they are seeing you didn't do? It's not clear the CP?

David P. Holveck - President and CEO: So, we're in the process of taking a closer look at the CP and evaluating some of the comments in there. I think that the presentation of the data is something that you know we have again to Ivan's point aligned with the surveillance data bases that collect that data and present that in a form with which FDA has asked of us. So, I think that the presentation of that data that something that we've aligned with FDA on and something that they're against familiar with relative to those databases being commonly used in this type of information. So, again I think that some of the comments that were made in the CP and I think it aligns with how FDA assessed it to present the data. We stick by it based on the strength of what is showing in the reductions of abuse.

Shibani Malhotra - RBC Capital: Then just the point about the risk reward on the injection?

David P. Holveck - President and CEO: Can you go ahead and repeat that question, Shibani?

Shibani Malhotra - RBC Capital: The CDC has issued some warnings or reports of previous side effects with patients who are trying to inject and are able to inject Opana ER and the reason I ask is, during the remarks you (indiscernible) a few years ago, the FDA seemed to be obsessed with necrosis in dog tissue with some Menoxy injections and the whole purpose was on the fact that abusers ultimately will find ways of abuse. So how do you think the FDA's views have changed on that if at all using these side effects injecting Opana ER?

David P. Holveck - President and CEO: Well, so we designed the Opana crush reformulation to be crush resistant to avoid primarily the nasal route of abuse and clearly we are looking into this data, but it's in a very distinct area of the country and obviously we had discussions with FDA about that and we continue to look at the data . Again just to comment a little further, remember some of the most common forms of abuse related to the old formulation are precisely why the development pathway relative to the new formulation are crush-resistant formulation of Opana were pursued. The data that we collected in those two surveillance databases clearly show a significant reduction in abuse by those methods, which I think is some of the most important characteristics of the data that we've generated so far.

Operator: David Amsellem, Piper Jaffray

Traver Davis - Piper Jaffray: This is Traver Davis on for David Amsellem. Thanks for taking the question. I just have one. So any new thoughts regarding the approvability of Mylan's LIDODERM product, I know at the Analyst Day you guys had brought the kind of difference between your aqueous-based patch and their non-aqueous-based patch. Then also, can you just remind us of the status of the other two filers on LIDODERM, I believe, its Noven and other filer that recently submitted an application?

Alan G. Levin - EVP and CFO: It's Alan. So with regards to Mylan's application, we do continue to believe that a non-aqueous formulation could have some challenges with the FDA with respect to skin sensitization and approvability. That being said, even if Mylan's formulation were approved by the FDA, we believe that Watson, based on statements that they have continued to make would enjoy, first-of-file exclusivity and so would not be a 2013 impact with respect to the P&L. We (indiscernible) one generic on the market. We would see a 30% -- we will retain a 30% market share of the product and with the second generic coming to the market that could to a 20% market share. Noven and TCI are the two other filers that stand behind Mylan. We have sued both companies for infringement against the four remaining patents that are part of our LIDODERM patent mistake. We believe as a result of that, 30-month stays are in effect, which do not expire until tail end of '14 or the early part of '15.

Operator: Elliot Wilbur, Needham & Company.

Elliot Wilbur - Needham & Company: Just switching gears a little bit and going back to the generic business, Julie, it wasn't clear to me exactly why gross margin in the Qualitest segment is expected to decline year-over-year?

Julie H. McHugh - COO: We had some unique pricing opportunities in 2012 in a couple of key products that while we may realize some unforeseen pricing favorability in other lines of business, we are not anticipating that pricing favorability that we saw in 2012 will be entirely sustainable in 2013. So it's just conservative, I think, position for us to take recognizing that in the generics market, lines of business and the ability to compete and the market conditions change, lots of variability. So again, we are really focused more on volume expansion to drive revenue growth than pricing favorability.

Alan G. Levin - EVP and CFO: The other thing that I would add is, we are expanding capacity in the Qualitest business. We are investing to capture some of the robust demand that we see for our products. We are looking at 15% increases in capacity annually through 2015 and so as we make those investments that will have an initial impact on gross margin as well.

Elliot Wilbur - Needham & Company: Then a follow-up question for you, Alan as well, obviously current guidance reflects one potential scenario around the outcome, with respect to the tamper-resistant formulation of Opana ER, but you certainly have forecasted other potential scenarios as well and it sounds based on your commentary that given what's occurred in the marketplace today that regardless of whether or not Impax stays in the market or we see additional generics. It sounds like you guys don't really expect that significant an impact on the Opana ER franchise. I just want to make sure I sort of understood your commentary correctly earlier?

David P. Holveck - President and CEO: Well, we are very much encouraged by what we've seen so far since Impax has come to the market. We guided to about $240 million in revenue for Opana this year and I think we're tracking in line with that guidance. For generic to be on the market, we believe that they are non-AB rated. That's based on the recommendations of three distinct compendia. So the absence of (indiscernible) therapeutic substitution is a meaningful benefit and we've seen modest erosion in our market share in the short period of time that Impax has been on the market. So, worst case scenario where other generics came on to the market, we would similarly expect that they would be non-AB rated, and as a result, it would be that much more challenging to make in-roads into market share.

Operator: Michael Tong, Wells Fargo.

Michael Tong - Wells Fargo: Maybe just a follow-up quickly on Elliot's question. Different way to ask it is that given the various scenarios that you've seen, is it fair to say that you should, additional generic competition materializes in the second half of 2013 on Opana ER that your guidance is not likely to change at this juncture? Second question for Ivan; perhaps as you look at LIDODERM (indiscernible) scenario is one generic. In the case of Opana ER, the best case scenario is that is that you kind of re-achieve exclusivity position in the second half of 2013. So that's kind of manning the fort so what gets investors excited in terms of new product opportunities that you can highlight that potentially can come to market within the next two years?

Alan G. Levin - EVP and CFO: So, with respect to financial guidance for the Company, we have guided to $4.40 to $4.70 with respect to this year. So we've got a wide range on EPS and that's expected to capture a variety of circumstances with regard to the Company itself. Our assumptions on Opana is that impacts comes off the market after the first half of the year, but if that were not to happen, that's certainly not to say that we would absolutely need to adjust guidance. As I said, I think our guidance range would contemplate a range of scenarios, perhaps not all of them, but certainly a range of scenarios. What's important to note is it is not just the function of whether or not generics comes to the market, but also a function of whether or not they're able to aggressively capture market share; and what we've seen to date would indicate a modest capture of market share at best.

Ivan Gergel, M.D. - EVP, R&D, and CSO: Michael, as to your second question regarding the pipeline, I think clearly top off mind is BEMA Buprenorphine. We have two large Phase III studies ongoing, they are tracking on target, one in opioid experienced patients, one in opioid naive patients. We are hoping to file at the end of 2014 and hopefully, we might see approval in 2015. The other one is our androgen receptor antagonist which we refer as ODM-201 which we're developing (indiscernible) our finished partners Orion that is in Phase II. We have presented some data in the public forums. At this point there is a lot of interest, a lot of excitement and we should be wrapping up Phase II quite shortly and we're looking to go into Phase III towards the end of this year or early next year.

Operator: Ken Cacciatore, Cowen & Co.

Ken Cacciatore - Cowen & Co.: I just had a couple of questions, just trying to clarify, I don't know if you did the $92 million product liability is that directly related to vaginal mesh and if it is, can you give us the sense of how you arrive at that number, some of the thinking behind it, then I had a follow-up?

Alan G. Levin - EVP and CFO: The $92 million is essentially related to a mesh-related product liability. I would note that it is early days in this litigation right now with about 5,100 cases filed currently. We're encouraged that we've seen a multidistrict litigation consolidation in West Virginia, so we've got one judge that is looking at the cases that are not only before us, but for J&J and Bard as well and there's been a very little by way of either a trial activity or settlement activity. So we are in early days, but we think that $92 million reflects an appropriate minimum to put on our books given the portfolio of cases we currently have.

Ken Cacciatore - Cowen & Co.: When you make a reserve, is that a though of that's your - going to be your in total final outcome or is that just kind of how we get started and start alerting us to some of the accumulation of the actual cases?

Alan G. Levin - EVP and CFO: Well, it reflects our best thinking at this point in time, given where we are in the actual case cycle. So in many cases we do not have yet medical records or confirmed product identification in a number of cases. Cases are filed against multiple plaintiffs. So it's (indiscernible) as we learn more information, we would reevaluate our reserves accordingly, but at this point in time that reflects our best thinking based on what we know today.

Blaine Davis - VP, Corporate Affairs: Well, I just want to go ahead and wrap the call at that point. Thanks everybody for joining us this afternoon on the call. Jonathan Neely and myself will be available this evening to answer any additional questions. Thanks very much.

Operator: Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.