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Edited Transcript of ENDP earnings conference call or presentation 26-Feb-20 1:00pm GMT

Q4 2019 Endo International PLC Earnings Call

DUBLIN Mar 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Endo International PLC earnings conference call or presentation Wednesday, February 26, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Blaise Coleman

Endo International plc - President, CEO & Director

* Domenico Ciarico

Endo International plc - Executive VP of Sterile & Chief Commercial Officer of Generics

* Laure E. Park

Endo International plc - SVP of IR & Corporate Affairs

* Patrick A. Barry

Endo International plc - Executive VP & Chief Commercial Officer of US Branded Pharmaceuticals

* Paul V. Campanelli

Endo International plc - Chairman

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Conference Call Participants

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* Balaji V. Prasad

Barclays Bank PLC, Research Division - Director

* Chen Yuan Yang

Morgan Stanley, Research Division - Research Associate

* Christopher Thomas Schott

JP Morgan Chase & Co, Research Division - Senior Analyst

* David A. Amsellem

Piper Sandler & Co., Research Division - MD & Senior Research Analyst

* Eason Lee

SVB Leerink LLC, Research Division - Associate

* Gregory B. Gilbert

SunTrust Robinson Humphrey, Inc., Research Division - Analyst

* Nicholas Carl Rubino

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Rafay Sardar

BMO Capital Markets Equity Research - Associate

* Randall S. Stanicky

RBC Capital Markets, Research Division - MD of Global Equity Research & Lead Analyst

* Vikram Arun

Raymond James & Associates, Inc., Research Division - Research Associate

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Q4 2019 Endo International plc Earnings Conference call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Laure Park, Senior Vice President, Investor Relations and Corporate Affairs. Thank you. Please go ahead.

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Laure E. Park, Endo International plc - SVP of IR & Corporate Affairs [2]

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Thank you. Good morning, and thank you for joining us to discuss our fourth quarter 2019 financial results. Joining me on today's call are Paul Campanelli, Chairman, President and CEO of Endo; Blaise Coleman, Executive Vice President and CFO; Pat Barry, Executive Vice President and Chief Commercial Officer of our Branded Business; and Domenico Ciarico, Executive Vice President and Chief Commercial Officer of our Sterile and Generics Business.

We have prepared a slide presentation to accompany today's webcast, and that presentation as well as other materials are posted online in the Investors section at endo.com.

I would like to remind you that any forward-looking statements made by management are covered under the U.S. Private Securities Litigation Reform Act of 1995, and the applicable Canadian securities laws and are subject to the changes, risks and uncertainties described in today's press release and in our U.S. and Canadian securities filings.

In addition, during the course of this call, we may refer to non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in the United States and that may be different from non-GAAP financial measures used by other companies. Investors are encouraged to review Endo's current report on Form 8-K furnished with the SEC today for Endo's reasons for including these non-GAAP measures. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is contained in our earnings press release issued prior to the call, unless otherwise noted therein.

I'd like to turn the call over now to Paul.

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Paul V. Campanelli, Endo International plc - Chairman [3]

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Thanks, Laure. Good morning, and thank you for joining us for today's call. I hope you've had a chance to review the company's earnings release issued earlier this morning.

As announced last week, Blaise Coleman will succeed me as President and CEO to become a member of the Board effective March 6. I will continue in my role as Chairman of the Board. Over my 5 years working with Blaise, I've developed a great friendship and tremendous respect for his leadership and ability to drive critical strategic initiatives with

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His deep financial and enterprise-wide business acumen has been critical to our ability to execute towards our multiyear transformation strategy. I am excited to hand the reins over to Blaise. And I speak on behalf of the entire Board of Directors when I say I have the utmost confidence in his ability to lead Endo into its next phase of growth.

Blaise, please say a few words.

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Blaise Coleman, Endo International plc - President, CEO & Director [4]

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Yes. Thanks so much, Paul. I'm honored and excited to lead Endo in its next phase. We have a highly talented Endo team and a set of significant opportunities that, in combination, has the potential to create shareholder value and help us become the company we aspire to be over the long term. Thanks to you and the Board for the opportunity.

I'm also very excited Mark Bradley will succeed me as Executive Vice President and Chief Financial Officer. Mark is currently Endo's Senior Vice President, Corporate Development and Treasurer. He has spent over 25 years of broad financial and corporate development experience. You will get a chance to meet Mark in the upcoming months.

Now I'll turn it back to Paul to review our fourth quarter 2019 earnings presentation.

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Paul V. Campanelli, Endo International plc - Chairman [5]

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Thanks, Blaise. Beginning on Slide 2, here's a brief agenda for today's call.

Moving to Slide 3. I'm pleased with our 2019 progress in this multiyear transformational journey. We are seeing the positive impact of investments in our core growth areas of Sterile Injectables and Branded Specialty portfolio, including the development of CCH for cellulite.

In 2019, our Branded Specialty portfolio and Sterile Injectables segment both grew double digits. This was led by our flagship products, XIAFLEX and VASOSTRICT, which grew by 24% and 17%, respectively, for full year 2019. The U.S. FDA accepted our original BLA filing for CCH for cellulite, and we have a PDUFA date of July 6, 2020.

We've launched 14 products across the Sterile and Generics business. At the end of the fourth quarter, we launched generic Afinitor with 180 days of Hatch-Waxman exclusivity on 3 strengths. I'm proud of the products we've launched and the innovative strategies that we've deployed to bring them to market.

As a result of the debt refinancing completed in March, we successfully improved our financial flexibility by meaningfully reducing our nearest debt maturities and by amending and extending our revolving credit facility.

We received a favorable FDA decision that vasopressin cannot be used for bulk compounding by outsourcing facilities. And we won litigation against a generic manufacturer on ADRENALIN 1 milliliter.

And as it relates to the opioid litigation, we settled the Track 1 opioid cases with Cuyahoga and Summit counties. And in January of this year, we announced a settlement with the State of Oklahoma for $8.75 million. We continue to be open to identifying and executing on a constructive path forward to resolve the pending opioid litigation, but there can be no assurances that resolution will be achieved. It is important to note that, while settlement discussions remain ongoing, we are prepared to litigate if necessary. I understand that there are many questions on this topic. However, I'm sure you can appreciate, we are limiting on what we can say and we will have no further comment at this time.

Turning to Slide 4. You will see a snapshot of our segment revenues and our consolidated adjusted EBITDA for the fourth quarter. Total revenues of $765 million and adjusted EBITDA of $346 million exceeded expectations. Blaise will walk you through our financial performance later on our presentation.

Now moving to Slide 5. The Specialty Products portfolio of our Branded Pharmaceuticals segment continue with its strong performances, with fourth quarter year-over-year revenue growth of 15%. For the full year, Specialty Products portfolio revenue exceeded $500 million, with year-over-year revenue growth of 17%. This performance was driven by strong execution across all products within the Specialty Products portfolio.

Our XIAFLEX franchise had another outstanding quarter of growth. The franchise saw an acceleration in revenue growth of 27% compared to the fourth quarter of 2018 and 23% compared to the third quarter of 2019. Based on historical purchasing patterns, fourth quarter tends to be the strongest quarter for XIAFLEX.

Overall, the growth reflects continued strong underlying demand in both the Peyronie's disease and Dupuytren's contracture indications due to the investment in outstanding commercial execution behind the XIAFLEX. I am proud of the success of our disease awareness and consumer activation strategies, which have resulted in a double-digit increase in diagnosis rates for both Peyronie's disease and Dupuytren's contracture.

Based on IQVIA data, we saw the diagnosis rate increased by an impressive 29% for Peyronie's disease and by 13% for Dupuytren's contracture. Despite these increases, the diagnosis and treatment rates remain low, indicating the potential for future growth for both indications. These consumer activation and conditional awareness capabilities, along with our commercial capabilities, will be leveraged in the anticipated CCH for cellulite launch as well as other future products.

The Specialty Products portfolio fourth quarter revenue growth was offset by the year-over-year revenue decline in our Established Products portfolio. The decline was primarily due to generic competition and resulted in a 2% year-over-year decline in our total Branded Pharmaceuticals segment revenue.

Based on the continued strong underlying growth in our Specialty Products portfolio, we expect full year 2020 XIAFLEX revenues to grow approximately 20%, the Specialty Products portfolio to have revenue growth of low to mid-teens percentage and full year 2020 Branded Pharmaceutical segment revenue growth to be in the low to mid-single-digit percentage range. The 2020 guidance contemplates further erosion and competitive pressure to our Established brands.

Moving on to our CCH for cellulite product on Slide 6. 2020 will be an important year with our anticipated third quarter approval based on the July 6 PDUFA date and expected launch in the fourth quarter, if approved. In 2019, we made significant progress preparing for the long-term commercial success of CCH for cellulite by building awareness and critical relationships as well as refining our understanding of our target consumer and beginning to build our Medical Aesthetics team. In 2020, we will build on this momentum as we continue to prepare for commercialization.

From a key opinion leader and health care professional standpoint, we plan to attend approximately 25 conferences and a number of advisory boards in 2020. We will use the insight from these events to develop and refine our strategy. Early experience in physician injector training programs, the sale leadership hired in 2019 will focus on building the sales force over several ways in 2020. This enables us to be prudent with our investments while still optimizing launch readiness.

From the consumer activation standpoint, we will be implementing direct-to-consumer and HCP condition awareness campaigns. And we will continue to focus on ongoing data generation in clinical studies, including durability, dosing and injection technique.

Turning to Slide 7. Our Sterile Injectables segment continues to deliver with revenues growth of 10% in the fourth quarter of 2019 compared to the fourth quarter of 2018. This performance was driven by continued strong growth in VASOSTRICT and ADRENALIN. For the full year, Sterling Injectables segment revenues exceeded $1 billion. VASOSTRICT revenues were $147 million in the fourth quarter of 2019, a 21% increase compared to the same period in 2018. Growth in VASOSTRICT was due to price and modest volume growth. ADRENALIN revenue was $46 million in the quarter, up 10% compared to the same period in the prior year primarily driven by volumes.

Looking forward, we expect 2020 Sterile Injectables revenues to grow in the low to mid-single-digit percentage range, with VASOSTRICT revenues expected to grow by mid- to high-teens percentage range. The 2020 Sterile Injectables revenue growth range reflects the impact of anticipated competitive pressures on certain products during the year.

Turning to our Generic Pharmaceuticals segment on Slide 8. The decrease in revenues for the segment during the fourth quarter compared to the same period in 2018 primarily reflects the impact of anticipated competitive pressures on key products, which was partially offset by the benefit of certain product launches.

During the fourth quarter, we launched 5 products. On the Generic

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as we've noted before, the environment remains active and dynamic, reflecting a high level of competition, which is primarily driven by new market entrants. Keeping that in mind, we are guiding for full year 2020 Generic Pharmaceuticals revenue to decline in the mid-teens percentage range. The expected decline in the Generic Pharmaceuticals segment relates to assume competitive pressures on products, including colchicine tablets, the authorized generic of COLCRYS. Additionally, 2020 guidance assumes that the timing of new product launches are weighted more heavily towards the second half of the year.

Moving to Slide 9. Our International Pharmaceutical segment performance reflects, among other things, the impact of ongoing generic competition on our

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outside of the United States. For the full year 2020, we expect International Pharmaceutical revenues, which are primarily in Canada, to decline by the high-teens percentage range.

Turning to Slide 10. We shift focus to our diverse pipeline. We've covered much of this earlier, but I want to point to a few items. On CCH for cellulite, our PDUFA date is July 6, 2020. And if approved, we plan to launch the product in the fourth quarter of 2020. As part of our data generation plan, we have several real-world CCH studies in development focused on dosing, injection technique and responses in target patient populations as well as rollover studies on durability.

At this point, we've initiated XIAFLEX development programs for the treatment of plantar fibromatosis and adhesive capsulitis. We are currently running a Phase I label expansion PK study on plasma clearance of vasopressin in healthy volunteers, which, we believe, will further advance our clinical work and help physicians.

We plan to launch 15 to 20 products in 2020 within the Sterile Injectables, Generics and International segments and have launched 4 products year-to-date, including sucralfate oral suspension, the authorized generic of Carafate. Our Sterile Injectables pipeline is supplemented by our strategic relationships with third parties, such as Nevakar, which will potentially provide 5 differentiated 505(b)(2) hospital and care-based products. We anticipate launching the first Nevakar product in late 2020. The table on the bottom of Slide 10 shows some of our key disclosed future first-to-file or first-to-market opportunities.

Now let me turn the call over to Blaise to further discuss the company's financial results and full year 2020 financial guidance. Blaise?

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Blaise Coleman, Endo International plc - President, CEO & Director [6]

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Thank you, Paul. First, on Slide 11, you'll see a snapshot of the fourth quarter GAAP and non-GAAP financial results. Paul covered company and segment revenues earlier, so I will not review that again.

On a GAAP basis, we had a diluted loss per share from continuing operations of $0.92 in the quarter compared to a loss of $1.18 per share in the fourth quarter of 2018. GAAP loss from continuing operations in the fourth quarter of 2019 was $208 million compared to a GAAP loss from continuing operations of $265 million during the same period in 2018.

On an adjusted basis, fourth quarter adjusted income from continuing operations of $171 million was comparable to fourth quarter 2018 adjusted income from continuing operations of $175 million.

Adjusted diluted net income per share from continuing operations in fourth quarter 2019 was $0.74 compared to $0.75 in fourth quarter of 2018.

Slide 12 provides a summary of Endo's 2020 full year financial guidance. We expect 2020 total revenues in the range of $2.72 billion to $2.92 billion, adjusted EBITDA in the range of $1.22 billion to $1.32 billion and adjusted diluted net income per share in the range of $2.15 to $2.40.

There are several considerations that I will review as you think about 2020 guidance. First, the midpoint of our revenue guidance range implies a low single-digit percentage decline compared to 2019 revenue. This implied decline primarily reflects the expected decline in our Generic Pharmaceuticals segment, the Established Products portfolio of our Branded Pharmaceutical segment and our International Pharmaceuticals segment primarily driven by anticipated 2020 competitive events for several of our key products and the expected timing of our new product launches that are skewed towards the second half of 2020. This expected decline is significantly offset by the expected continued growth in our Sterile Injectables segment and our Branded Specialty Products portfolio.

Secondly, our adjusted EBITDA guidance is reflective of our commitment to invest for the long term, as we invest in our core areas of growth, with the funding of the CCH cellulite commercial launch, new investments in XIAFLEX life cycle management opportunities and an increase in our Sterile Injectables new product development spend. We believe that these strategic investments in our portfolio will generate long-term value for Endo as we move forward.

And finally, our 2020 guidance for adjusted diluted net income per share from continuing operations, adjusted EBITDA and adjusted operating expenses exclude opioid-related legal expenses. Please note that the 2019 comparable adjusted EBITDA and adjusted EPS, presented on Slide 14, also excludes opioid-related legal expenses for comparability purposes with 2020 guidance.

The company's guidance is based on the following assumptions. Full year 2020 adjusted gross margin of approximately 66% to 67%. Our adjusted gross margin assumption midpoint versus 2019 adjusted gross margin primarily reflects a shift in sales mix, including a reduction in revenues from authorized generics. We expect adjusted operating expenses to be between 25% and 25.5% of revenues. This assumption reflects our continued investments in our core areas of growth for the long term mentioned earlier. We expect adjusted interest expense of approximately $535 million to $545 million.

In terms of our adjusted effective tax rate, we expect our 2020 adjusted effective tax rate to be in the range of 13.5% to 14.5% range. Although we do not provide specific quarterly guidance, consistent with 2019, we expect the split of total enterprise revenue, adjusted EBITDA and adjusted earnings per share to be more heavily weighted towards the second half of 2020 due to our expected revenue and adjusted operating expense cadence. The higher second half 2020 revenue reflects the expected timing of 2020 new product launches as well as the impact of historical purchasing patterns in the Branded Specialty business.

In terms of adjusted operating expenses, consistent with 2019, we anticipate the first quarter to be our highest quarter of spend in 2020 mainly due to the timing of certain corporate-related expenses. We expect the first quarter of 2020 adjusted effective tax rate to be the highest quarterly rate, well above our full year estimated adjusted effective tax rate range due to jurisdictional mix.

Moving to Slide 13. This is a summary of the segment and product-specific guidance previously discussed.

Advancing to Slide 14 and wrapping up the financial discussion. For the full year 2019, we had unrestricted cash flow prior to debt payment of $358 million, which is higher than what we guided to in November. This favorability resulted from higher adjusted EBITDA and lower-than-planned capital expenditures. We ended 2019 with approximately $1.5 billion of unrestricted cash and a net debt to adjusted EBITDA leverage ratio of approximately 5.3x.

As we look forward to 2020, we expect cash flow prior to debt payment in the range of approximately $50 million to $150 million. This assumes approximately $225 million in payments into the mesh qualified settlement fund and for mesh legal expenses; approximately $60 million in estimated other settlement payments, including payments related to the previously announced LIDODERM antitrust and TRT product liability settlements; and $80 million in opioid-related legal expenses and previously announced opioid settlements.

Now let me turn it back over to Paul. Paul?

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Paul V. Campanelli, Endo International plc - Chairman [7]

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Thank you, Blaise.

Finally, moving to Slide 15 and concluding today's presentation. As with any journey, evolution is constant. Since 2016, we've executed against our strategic multiyear plan to transform Endo. Over the last 3 years, we've been laser-focused on executing our strategy to simplify our business, drive productivity improvements and leverage our culture as a differentiator, which has led to strong operating performance, despite a challenging external environment. I'm grateful to all of our team members for their commitment and hard work.

As I reflect on where we started, I am proud of the company that we've become. I'm excited for Blaise as he leads the company forward on its transformation journey. And I'm honored that in my role as Chairman of the Board, I can continue to be actively involved in Endo's future.

Let me now turn the call back over to Laure to manage our question-and-answer period. Laure?

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Laure E. Park, Endo International plc - SVP of IR & Corporate Affairs [8]

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Thank you, Paul. (Operator Instructions) Can we have the first question?

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Questions and Answers

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Operator [1]

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Your first question comes from the line of Gregg Gilbert from SunTrust.

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Gregory B. Gilbert, SunTrust Robinson Humphrey, Inc., Research Division - Analyst [2]

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And congrats to both of you guys, incoming and outgoing. Two-part question. I want to first ask about XIAFLEX development programs. I'm wondering if you can comment on some time lines associated with those programs you announced and maybe talk more generally about how aggressive you're going to explore additional indications going forward versus your behavior in the past where it's been a bit slower or less of a focus.

And then, Paul, I know you said you can't comment specifically on opioid litigation, so maybe I'll try to ask more generally. It seems that settlement talks for others that seem to have gotten traction tend to involve either the use of a ton of cash or, in the case of Purdue and Mallinckrodt, the tool of bankruptcy. So I guess my question is, do you see flexibility for companies to deal with this liability without either of those things? That's my attempt at asking it more generally.

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Paul V. Campanelli, Endo International plc - Chairman [3]

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Gregg, thank you. I'm going to actually pass it over to Blaise, and Blaise is going to quarterback this for us.

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Blaise Coleman, Endo International plc - President, CEO & Director [4]

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Sure, Gregg. Thanks for those 2 questions. So on XIAFLEX, as you noted, we came out today and talked about our incremental investment into the life cycle management of that asset. And we're really excited about both the plantar fibromatosis and adhesive capsulitis, and those are really promising opportunities to move forward. We -- what we're going to do with adhesive capsulitis, we plan to move into Phase II sometime in 2020. And then we're also going to do some proof of concept work on plantar fibromatosis, and the plan is to do that in 2022. So that's where we are from a time line standpoint.

In terms of your opioid question, Gregg, at this stage, we've been fairly clear on what our strategy is, which is to remain open to a constructive resolution and defend if needed. In terms of the tools and options that are available to people, what may be needed, what may not be needed, we're -- we know what our strategy is. We feel good about our flexibility that we have to deal with that. And so that's exactly how we're going to move forward.

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Operator [5]

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Your next question comes from the line of Randall Stanicky from RBC Capital Market.

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Randall S. Stanicky, RBC Capital Markets, Research Division - MD of Global Equity Research & Lead Analyst [6]

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Blaise, congratulations again to you both. I wanted to start on VASOSTRICT. You guys have been putting up really strong growth, 21% in the fourth quarter. Guidance for 2020 is mid- to high teens. What's driving that? How much is volume versus price? Because I thought you'd previously talked about being pretty well penetrated there. And then the follow-up to that is, I think you have a settlement conference coming up this month with Eagle trial in May. Can you walk through the time lines there and then potentially when you can get your follow-on products through FDA? And any IP associated with that?

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Blaise Coleman, Endo International plc - President, CEO & Director [7]

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Yes. Gregg, thanks for -- so Randall, thanks for those 2 questions. In terms of VASOSTRICT, when you look at the sequential growth from Q3 and Q4, it actually is driven by volume. That's not uncommon for us. We do see spikes in volume in Q4 just based on events. So that is a volume-driven increase in terms of the sequential change you're seeing.

In terms of year-over-year and our guidance for 2020, that is primarily price-driven, but there is volume growth there as well in the low single digits. What you're seeing from a price standpoint is the annualization of our price increase in 2019. We also recently took a price action in the first quarter. And also we are getting some favorable mix on our net contracting, so the mix of our contracts and just how that's impacting that price. So that's what you're seeing in terms of VASOSTRICT.

In terms of your other question on Eagle and that process, the time line is we have a mandatory mediation hearing early March. And then we have a trial scheduled in May. So that's the time line on that.

And your question on the follow-on, Paul, do you want to comment on that real quick?

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Paul V. Campanelli, Endo International plc - Chairman [8]

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Yes. Randall. It's Paul here. Just to be clear, it's actually -- it's not a new product. I think we made -- you're probably referencing the fact that we are running a clinical trial. We've announced that Phase I PK trial. That's a safety study. We've learned a lot about the product over the years of development. So if there's a way in which we can, if successfully, if we can improve the way physicians and clinicians use that -- the product -- the existing product, that's going to be the goal. So that's what's happening with the PK study. So thanks for the question.

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Operator [9]

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Your next question comes from the line of Gary Nachman of BMO Capital Markets.

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Rafay Sardar, BMO Capital Markets Equity Research - Associate [10]

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It's Rafay on for Gary. To what extent does your guidance incorporate potential competition from Amphastar for ADRENALIN? And how should we think about the rate of erosion for that product if Amphastar receives an approval sometime in the April time frame?

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Blaise Coleman, Endo International plc - President, CEO & Director [11]

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Great. Thanks for the question. Yes, so we don't normally comment on specific guidance around products. I will tell you that for 2020, we have contemplated different scenarios in terms of what we could see from a competition standpoint on the ADRENALIN 30 ml.

And then in terms of the second part of your question, Domenic, I'm not sure if you want to comment on that at all.

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Domenico Ciarico, Endo International plc - Executive VP of Sterile & Chief Commercial Officer of Generics [12]

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Yes. I mean in terms of the competitor, we understand that there's a second CRL. But from a timing standpoint, we're not sure how that's going to play out.

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Operator [13]

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Your next question comes from the line of Ami Fadia from SVB Leerink.

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Eason Lee, SVB Leerink LLC, Research Division - Associate [14]

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This is Eason on for Ami. Just on the Generics segment, maybe can you talk about how you're seeing the marketplace shaping up in 2020? Any meaningful shifts versus 2019? And then I sort of noticed that there's -- this segment will have some notable AG launches in 2019 that will annualize for 2020. And you also seem to indicate some sizable generic launches weighted in the second half of 2020. So just curious if you can level set this with sort of the mid-teens decline guidance that seems consistent with second half '19, but may imply a slight increase in erosion when looking at it on a year-over-year basis.

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Blaise Coleman, Endo International plc - President, CEO & Director [15]

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Great. Thanks for the question. And so I'll set this up and then turn it over to Domenic. So just for context, in terms of the industry and what we're seeing in the industry, we are generally seeing across the industry some stabilization in pricing. But as we've always talked about, this really is portfolio specific. And so when you look at Endo, right now, between the competitive events we had in the full year 2019 and some of the competitive events that we expect to potentially have in 2020, we are seeing some impact to our revenue year-over-year due to those competitive events.

Domenic, anything else to add to that in terms of what we're seeing?

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Domenico Ciarico, Endo International plc - Executive VP of Sterile & Chief Commercial Officer of Generics [16]

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I think that's right.

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Blaise Coleman, Endo International plc - President, CEO & Director [17]

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Yes. Great.

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Operator [18]

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Your next question is from Chris Schott from JPMorgan.

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Christopher Thomas Schott, JP Morgan Chase & Co, Research Division - Senior Analyst [19]

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Just 2 questions here. Maybe first, on XIAFLEX, I think you mentioned still low diagnosis rates. But when you think about the durability of the type of growth you're seeing here, can you maybe just update us in terms of where we stand in terms of actual diagnosis rates and XIAFLEX penetration for the 2 indications?

And then my second question was on 2020 OpEx. It seems like there's quite a bit of work being done ahead of the CCH launch. When we think about kind of OpEx beyond 2020, is this level of spend a reasonable proxy for expenses? Or should we be thinking about another step-up in spend as we go out to '21 and you're in that kind of full CCH launch mode?

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Blaise Coleman, Endo International plc - President, CEO & Director [20]

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Great. Thanks, Chris. I'm going to turn it over to Pat on the XIAFLEX question, and I'll take the second one.

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Patrick A. Barry, Endo International plc - Executive VP & Chief Commercial Officer of US Branded Pharmaceuticals [21]

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Yes. Thanks, Blaise. As you cited, the diagnosis rates for both indications are relatively low. They're in the 2% to 3% range for both indications. The treatment rates for Peyronie's are about 14%. Our actual penetration post decision to treat is approaching 60%, so it fluctuates between 57% and 58% on the Peyronie's indication.

For the Dupuytren's contracture indication, the treatment rate is a bit higher with surgery falling into the mix. It's about a 30% treatment rate. And the XIAFLEX penetration is about 25%. And so we're trying to activate both upstream, getting more patients diagnosed. And as Paul said in his comments, that's where the consumer activation strategy comes into play. And of course, we're trying to improve our overall market penetration. And so for all those reasons, we believe those are -- it's really driving the nice growth that we've seen over the last couple of years.

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Blaise Coleman, Endo International plc - President, CEO & Director [22]

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And Chris, in terms of your go-forward shaping around OpEx and what that might look like, we're not going to give any specific comments around anything beyond 2020. What I would tell you is that those decisions are always portfolio and opportunity-driven decisions, which means if the opportunities are there for us to drive top line and, ultimately, to put ourselves in a better position to grow EBITDA over time, we are going to make the investments that are required to do that, whether that be on the CCH cellulite commercial side of things or it be in the further development of some of our really important opportunities around XIAFLEX life cycle management or in Sterile Injectables business. So those will be portfolio and opportunity-driven decisions at that time in terms of what we have in front of us.

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Operator [23]

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Next question is from Annabel Samimy of Stifel.

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Nicholas Carl Rubino, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [24]

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This is Nick on for Annabel. Just 2 quick ones. So one, are you seeing benefit from the investment in Nevakar in terms of products materializing either this year or early next year? And then for CCH, we've seen some major growth across aesthetics categories recently. Could you perhaps comment on recent developments in the broad cellulite market? And how do you envision CCH positioned in the market?

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Blaise Coleman, Endo International plc - President, CEO & Director [25]

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Great. Thanks for those 2 questions. So on the Nevakar question, I'll turn that to Domenic. And then for the CCH question and the market profile, we'll let Pat take that. So go ahead, Domenic.

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Domenico Ciarico, Endo International plc - Executive VP of Sterile & Chief Commercial Officer of Generics [26]

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Yes, Nick. In terms of the Nevakar opportunity, we're really excited about what they're bringing to the table. We believe that our customers are looking for ready-to-use products, and that partnership will set us up well for that. As Paul mentioned, we have our first launch upcoming this year, and we're really excited about that.

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Patrick A. Barry, Endo International plc - Executive VP & Chief Commercial Officer of US Branded Pharmaceuticals [27]

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Yes. And getting -- thanks for your question on CCH. And as we look at the market, it's -- first of all, the Medical Aesthetic market, in general, is just a very attractive market for us. It's an all-cash market. And the way we view it with the potential to have potentially the very first injectable treatment for cellulite, that's a very disruptive opportunity into the marketplace because we know that the injectable space is very well received by our physicians, very well received by the consumers. And we're converging on an area of body contouring as well. So you see really 2 very attractive growth areas that we could potentially come in and provide the first offering.

And in terms of innovation, there's really been some challenges in terms of a lack of innovation. So we're excited about potentially having that first injectable. And we feel like, from an addressable patient population, not only can this be a gateway therapy to bring more patients into medical aesthetics offices, but there's a lot of existing women who are seeking treatment of this kind. And so we believe that it could be upwards of 6 million women who could be potentially candidates for an injectable product for CCH -- or for cellulite, excuse me.

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Operator [28]

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Next question is from Balaji Prasad of Barclays.

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Balaji V. Prasad, Barclays Bank PLC, Research Division - Director [29]

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Firstly, Blaise, congratulations. Maybe a couple of questions from me. Blaise, from you, I think when you think about the strategy for the company going ahead, is there anything that you think would want -- that you would want to change or that we can expect to see a major shift in strategy?

Secondly, specifically on Sterile Injectables, can you talk about your recent comments around GPO being a strategic channel and also more details behind the commentary of increasing qualified beta products and -- in hospital setting? And how does this dovetail into your guidance for the year?

Lastly, on the Generic side, do you have any other major launches apart from the ones that you've disclosed in the slide baked into the guidance? And gross margins in Generics in the context of the one-off launches, could we see a year or flat gross margins for this segment, specifically?

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Laure E. Park, Endo International plc - SVP of IR & Corporate Affairs [30]

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Balaji, that's one large question.

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Blaise Coleman, Endo International plc - President, CEO & Director [31]

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Yes. So we're going to do our best to tackle some of this, all right? So let's start with the strategy question. I'll take that and then Domenic's going to help out on the Sterile Injectable and a little bit around what we're doing in the channel strategy around GPOs and hospitals. And then we'll try and wrap up on some of your gross margin questions.

So just in terms of strategy, listen, at this point in time, we have a very normal cadence in the company of how often we reassess strategy, look at our capital allocation priorities. We do that on a recurring basis. There's going to be no change in terms of that cadence with me stepping into the role for Paul. So as we move forward and we make those assessments, if there's anything for us to do differently, we'll communicate that when we make those decisions. But I want to be very clear that our focus right now is about our 2020 priorities. There's nothing we could do that's more important to our future, both in the mid- to long term and some of the goals we have in front of us for 2020.

So with that, let me turn it over to Domenic to talk a little bit around our strategy going forward around the GPO and hospital channels here.

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Domenico Ciarico, Endo International plc - Executive VP of Sterile & Chief Commercial Officer of Generics [32]

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Sure. So in terms of our channel access strategy leveraging our relationships with GPOs, GPOs provide great contracting vehicle for us to get our products visible to the customer. What we really like about the health system and hospital market is that when you talk to one health system, you've talked to one health system. And they retain both formulary and buy decision. So we like that channel, particularly the way that our portfolio is shaping.

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Blaise Coleman, Endo International plc - President, CEO & Director [33]

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And then in terms of your Generic launch question, so we're not going to comment on specific products that are there. We have a couple of products there that we plan to launch in 2020 that we feel really good about. They're really attractive opportunities for us.

And then in terms of gross margin, I think there was a question on, if I have it right, around potentially flat gross margin going forward for that segment. If I have that -- do I have that right?

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Balaji V. Prasad, Barclays Bank PLC, Research Division - Director [34]

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Right.

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Blaise Coleman, Endo International plc - President, CEO & Director [35]

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Yes. Okay. Yes. So listen, again, I'm not -- we're not going to comment on anything going forward in terms of profile for that segment or any other segment in terms of gross margins. But as we've talked about, it is very much portfolio dependent. As we move forward, product mix, what we can get out of the pipeline, opposite to what we're seeing on the competitive front will be a big dictator of what our profile looks like from a gross margin standpoint.

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Operator [36]

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Next question is from David Amsellem from Piper Sandler.

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David A. Amsellem, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [37]

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So I had some questions on CCH and specifically wanted to get some additional detail on the sales infrastructure that you're putting in place. Give us some color on total number of reps that you're going to have on the ground initially and then at peak, how many doctors you're going to be targeting at least initially and then potentially at peak?

And then also regarding the launch, can you give us some window into your thinking on pricing, vis-à-vis other aesthetic injectable products? This is not like a Botox or a filler where you are coming in every few months necessarily, so it's a different kind of paradigm. So in that vein, how should we think about pricing for CCH and cellulite?

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Blaise Coleman, Endo International plc - President, CEO & Director [38]

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Yes. Thanks, David, for those questions on CCH. I'm going to turn over to Pat to talk a little bit about what we're doing in terms of us being prepared to launch this product successfully and then also your question around pricing and durability.

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Patrick A. Barry, Endo International plc - Executive VP & Chief Commercial Officer of US Branded Pharmaceuticals [39]

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Yes. Thanks, Blaise. So as Paul mentioned in his comments, we'll be hiring in 2 waves. And so all in between sales managers and sales professionals and also having the opportunity to be able to address corporate accounts and having customer support, where all in will be somewhere in the neighborhood of between 80 and 90 on the ground and supporting customer-facing activities.

In terms of pricing, we're not -- we're, obviously, not going to communicate pricing at this point. We have been pretty consistent as that we do see the opportunity, we understand an opportunity for value creation. But as an injectable within that body contouring space, I think there's a range that we're looking at. I think we've been consistent in terms of wanting to be able to price in a way that allows for wide-scale adoption from both consumers as well as physicians. And as we get closer to launch, of course, we'll be communicating specific price plan.

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Operator [40]

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Next question is from Elliot Wilbur of Raymond James.

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Vikram Arun, Raymond James & Associates, Inc., Research Division - Research Associate [41]

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This is Vikram Arun on for Elliot. I just had 2 quick ones here on financials. The first is, could you provide any expectations on EPS and EBITDA cadence over the course of the year?

And second, would it be possible to provide a rough split between R&D and SG&A within your overall OpEx guidance and maybe how those line items might trend over the course of the year?

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Blaise Coleman, Endo International plc - President, CEO & Director [42]

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Great. Thanks for those questions. So in terms of cadence, I would refer back to what we talked about in the script where we will see sort of a higher EPS and higher EBITDA in the second half of the year versus the first half of the year. We sort of articulated what the drivers of those were.

In terms of the breakout between R&D and SG&A, what I would just tell you is that our R&D this year is slightly higher than where we've been historically as a percent of sales. And then, therefore, you can kind of back into the SG&A number.

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Operator [43]

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Next question is from David Risinger of Morgan Stanley.

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Chen Yuan Yang, Morgan Stanley, Research Division - Research Associate [44]

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This is Charlie Yang for David. I just have 2 questions here. The first is, what is the outlook for new product launches in 2020 relative to 2019?

And the second question is, could you please provide update on Amphastar, the litigation developments to watch with respect to VASOSTRICT and ADRENALIN?

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Blaise Coleman, Endo International plc - President, CEO & Director [45]

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Yes. So just in terms of new product guidance, we don't provide specific new product revenue guidance. And then your second question, I think it was on VASOSTRICT which is actually Eagle. And we mentioned earlier that the time line there, the 2 things to look out for is there's a mandatory mediation hearing in March and then we have a trial scheduled in May of this year.

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Operator [46]

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(Operator Instructions)

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Laure E. Park, Endo International plc - SVP of IR & Corporate Affairs [47]

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If there's no further questions, Paul?

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Paul V. Campanelli, Endo International plc - Chairman [48]

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Thanks, Laure. So with that, maybe just a second, I got -- maybe as I move forward to my next phase of life, I just want to maybe take a step to address my team here first.

I have to just say how proud I am of Pat and Domenic. Guys, great job. Mark Bradley, congratulations. As our next CFO, he's going to do great things. Blaise is going to be just tremendous, remarkable, remarkable person. I'm so proud of this entire organization. Matt Maletta, our General Counsel, Chief Legal Officer, just great job. Laure, thank you for everything you've done for us over the last year, 1.5 years. Just for the research analysts, we are leaving this team in remarkable hands, and I'm so proud of everybody here.

So with that, I just have to say that we appreciate your continued interest and support of Endo. We look forward -- on behalf of Blaise and our entire leadership team, we look forward to providing you with updates as we move forward. Thank you, everyone, for joining us in today's call. Have a great day, everyone. Buh-bye.

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Laure E. Park, Endo International plc - SVP of IR & Corporate Affairs [49]

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Bye.

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Operator [50]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.