Endo International PLC (ENDP) 2006 Q2 法說會逐字稿

Good morning, my name is Tamara and I will be your conference operator today. At this time I would like to welcome everyone to the Endo Pharmaceuticals quarter two conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (OPERATOR INSTRUCTIONS). Thank you. Mr. Newbould, you may begin your conference.

Thank you. Good morning and welcome to the Endo Pharmaceuticals 2006 second-quarter teleconference. This call is being recorded. With us on the call this morning are Peter Lankau, President and Chief Executive Officer and Jeff Black, Chief Financial Officer. Before we begin, I would like to remind you that during the course of this call, Peter or Jeff may make forward-looking statements concerning such topics as future results, product performance, anticipated timing of FDA approval of certain of the Company's drugs, and possible timing of the commercial launch of certain of the Company's products, as well as other non-historical facts that reflect Endo's current perspective on existing trends and information. By their nature, these forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results to be materially different from any future results expressed or implied by these forward-looking statements. Listeners should not rely on any forward-looking statement. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors that may effect Endo's future results include but are not limited to the those factors discussed under the heading "forward-looking statements" in Endo's SEC filings and under the heading "risk factors" in Endo's 2005 annual report on Form 10-K and Endo's registration statement on Form S3, filed with the SEC on March 21st, 2006. We urge you to review these factors. In addition, during the course of this call, Peter or Jeff 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 earnings press release issued earlier today for Endo's reasons for including these non-GAAP financial measures and its earnings announcements and to see the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures. Now, I would like to turn the call over to Peter Lankau.

Thank you, Bill, and good morning, everyone, and welcome to our call. Earlier today, we released our financial results for the second quarter and first-half of 2006, and I am pleased to report another solid performance.

Net sales for the second quarter grew to $228 million from $196.4 million in the second quarter of 2005. Net income increased to $57.6 million compared with $49 million in the second quarter of 2005. Diluted earnings per share for the three months ended June 30th, 2006, which included $0.01 of stock compensation expense, were $0.43 compared with $0.37 in 2005.

The quarterly results were driven once again by strong growth in net sales of our Lidoderm patch, which were $140.8 million versus $100.5 million in the year-ago second quarter. The growth is a reflection of continued strong prescription demand for Lidoderm. We now believe we are on track to achieve the high end of our previously stated guidance of 530 to $540 million in net sales of this product in 2006.

The growth in net sales of Lidoderm was offset somewhat by the expected decline in net sales of our generic Oxycodone extended released tablets, which were $15.3 million in the second quarter of 2006 versus $29.2 million in the comparable period of 2005.

The highlight of the second quarter of course was the FDA's approval of Opana ER in Opana, the immediate release version. Currently, we are in the final stages of product packaging and conducting our final quality control assessments and we expect to make Opana commercially available before the end of this month. The approval of Opana represents a major milestone in our continuing development as a premier specialty pharmaceutical company. As a new entrant in the $3 billion market for long-acting strong opioids, Opana ER represents a significant market opportunity for us.

As excited as we are about the upcoming launch of Opana, however, a number of recent and near-term milestones underscore the depth of our development pipeline and we believe position us well for future growth opportunities. On June 19th, we launched Synera, our new topical local anesthetic patch marketed by our hospital sales force. We are excited by the possibilities for this product, which our partner, Zars, is currently studying in new clinical trials for pediatric immunization, a large and attractive market.

Yesterday, we filed the supplemental new drug application for Frova for the short-term prevention of menstrual migraine and we expect a normal 10-month FDA review for this additional indication. An estimated 12 million women in the United States are affected by menstrual migraine. So if approved, we believe Frova with its unique dozing regimen of six days per month will be the only triptan indicated in the U.S. for the prevention of menstrual migraine.

In late June, we began enrollment in two Phase III clinical trials for our topical ketoprofen patch. One trial is to evaluate the patch for efficacy and safety in the treatment of pain associated with tendonitis or bursitis of the shoulder, elbow or knee. The second trial is to study its efficacy and safety in the treatment of pain associated with ankle sprain or strain. We expect to file the NDA for this product in the first-half of 2008.

Enrollment continues in the Phase III trials for Rapinyl, our fast dissolving sublingual fentanyl tablet intended for the treatment of breakthrough cancer pain, which we previously indicated we expect to file its NDA in the second half of 2007.

And finally, we continue to pursue business expansion opportunities in areas complementary to pain, such as neurology, peri-operative care and supportive care oncology.

So now, I would like to turn the call over to Jeff, who will provide you with a more detailed discussion of our quarterly and year-to-date financial results.

Thanks, Peter. To summarize our second-quarter performance, net income rose to 57.6 million for the three months ended June 30, 2006 on net sales of $228 million compared with net income of $49 million on net sales of 196.4 million in the second quarter of 2005. Year-to-date net income of $78.2 million in 2006 on net sales of $433.1 million compared with $62.9 million on net sales of $334.1 million in the comparable 2005 period. And as detailed in the supplemental financial information in today's press release, adjusted net income for the six months ended June 30th, 2006 was $116.8 million compared with $75.3 million in the same period of 2005.

Diluted earnings per share for the three months ended June 30th, 2006 were $0.43 compared with $0.37 in 2005. Diluted earnings per share for the most recent quarter include 1 penny of stock compensation expense related to the adoption of SFAS 123(R).

Diluted earnings per share for the six months ended June 30, 2006 were $0.58 compared with $0.47 in 2005. As detailed in the supplemental financial information in today's press release, adjusted diluted earnings per share for the six months ended June 30th, 2006 were $0.87 compared with $0.57 in the same period of 2005.

Net sales of Lidoderm were $140.8 million versus $100.5 million for the second quarter of 2005. Prescription growth for Lidoderm was up 20% and dispense unit growth increased 24% in the second quarter of 2006 versus the comparable 2005 period. We estimate that prescription demand for Lidoderm in the second quarter 2006 was approximately $138 million.

For the first quarter of 2006, net sales of Lidoderm were $265.9 million compared with $164.6 million in the same period a year ago. Prescription growth for Lidoderm was up 23% and dispense unit growth was up 26% for the first half of 2006 from the comparable 2005 period. Based on the data from Walters Kluwer Health, the run rate on Lidoderm sales is now approximately $560 million. Given the continuous strength of the underlying prescription demand for Lidoderm, we now estimate that net sales for Lidoderm will be in the high end of our guidance of approximately 530 to 540 million in 2006. As we had previously mentioned, we expect to enter into additional inventory management agreements with our customers over the balance of 2006, which may prompt customers to carry less than historically normal levels of inventory of Lidoderm.

Net sales of Percocet were $22.1 million for the three months ended June 30, 2006 versus $24.8 million in the same period in 2005. We estimate that prescription demand for Percocet in the second quarter of 2006 was approximately $26 million; net sales of Percocet were 49.6 million for the first half of 2006 compared to 52.2 million in the same period in 2005.

Net sales of Frova were $13 million for the three months ended June 30th, 2006 versus $8.7 million in the same period in 2005. We believe prescription demand for Frova in the second quarter of 2006 was approximately $10 million. Net sales of Frova were $20 million for the first half of 2006 compared with 14.8 million in the same period in 2005.

Although Endo began commercial shipments of the Synera to our customers during the second quarter of 2006, we have determined that it was not appropriate to recognize net sales of these shipments at this time under accounting principles generally accepted in the United States. Depending on end-user demand of Synera going forward, these shipments, which are reported as deferred revenue of approximately $1.1 million, may be recorded as net sales in future periods.

Net sales of Oxycodone extended release were $15.3 million and $24.3 million for the three months and six months ended June 30th, 2006, respectively. In June 2005, we began commercial sale of all four strengths of our extended release of Oxycodone, the generic equivalent of OxyContin. Net sales of extended release Oxycodone were $29.2 million for the second quarter 2005.

Gross profit for the second quarter of 2006 was $177.6 million versus 154.1 million in the year-ago second quarter and was 333.9 million for the first half of 2006 compared with 262.3 million in the same period a year ago. Gross profit margins were approximately 78% for the quarter and 77% for the six months of 2006 versus approximately 78.5% in the same periods of 2005.

Selling, general and administrative expenses the second quarter 2006 were $64.3 million versus $55.8 million in the same period of 2005. For the six months, SG&A expenses were $164.4 million compared with 109.2 million in 2005. The increase in 2006 is due primarily to the launch and prelaunch expenses associated with Synera and Opana as well as recruiting expenses related to the expansion of our sales force along with additional investment in marketing and promotional support for our new product launches.

Following the FDA approval in late June of Opana and Opana ER, we immediately began launch activities and incurred several million dollars in the second quarter of launch related expenses. Those launch related expenses are included in our full-year guidance. The year-to-date increase also includes compensation expense and the related employer payroll taxes of approximately $41.3 million, which will be funded entirely by Endo Pharma LLC and are related to the onetime bonuses Endo Pharma LLC awarded to certain of our executives, as well as the recording of stock-based compensation expense of approximately $4.8 million as a result of the adoption of SFAS 123(R) on January 1st, 2006.

Research and development expenses for the quarter are $19.8 million versus $17.5 million in the same period of 2005. Excluding upfront and milestone payments to our partners, research and development for the first six months of 2005 totaled $34.5 million compared to 28.4 million for the first half of 2005. We expect to continue our investment in our R&D pipeline to provide an added opportunity for future success.

We generated cash flow from operating activities of $201.1 million for the first six months of 2006. Our cash and cash equivalents were 612.7 million as of June 30th, 2006. We feel our strong financial position with good cash flow and no debt affords us the opportunity to pursue acquisitions and other strategic alliances and licenses, which would, we believe, further accelerate our growth as a premier specialty pharmaceutical company.

As you know, I will soon be retiring from Endo. So before I turn the call back over to Peter, I would like to take this opportunity to make a few brief farewell remarks. First and foremost, I would like to thank everyone for their friendship, trust and support through the years. During my time as CFO, I have made many good friendships that I will always value and I will continue in the future. It has been a fun experience and I believe that Endo will continue its successful journey.

At the same time, I leave with a great sense of accomplishment, knowing that we have built a strong team of highly capable and experienced professionals both within the financial function and across the organization. I also take comfort in knowing that Endo is in good hands with the leadership team in place. Thank you again and I hope our paths cross at sometime in the future. Now Peter and I would be happy to take your questions.

(OPERATOR INSTRUCTIONS). Ian Sanderson, Cowen & Co.

First, Jeff, on the tax rate, and you may have alluded to it a little bit on the call, was a bit higher than anticipated and I'm just wondering where we should look for that going forward? A similar question on the R&D spending trends, should we anticipate that ramping up towards or from this level in the second half of the year? And actually, last would be, on the IMA agreements that you referenced for Lidoderm, should we anticipate or were there any additional IMA agreements signed in the quarter that will take effect in the second half of the year or should we anticipate any additional agreements in the second half?

Regarding the IMA agreements, we do believe we are close to signing an additional inventory management agreement with one of our large customers. We did not sign any additional ones in the second quarter of this year, however. From the R&D standpoint, we continue to invest obviously in R&D for the future success of the Company. We did begin the trials of Rapinyl somewhat recently as well as initiated the ketoprofen clinical trials as well. So the Company will continue to invest in R&D at a probably increasing rate to the extent we've got things in the pipeline. And as these things advance into Phase III, it obviously becomes more expensive to do that.

From the tax rate standpoint, we still expect the tax rates for the full year to be similar to what it has been historically, which is sort of in the 38% range, 37, 38% range. And there were some permanent items in the first half of this year that were reflected in the quarter. Permanent items meaning nondeductible items related to the LLC payments to certain executives will not be tax-deductible to the Company so it affects the overall effective rate of the Company but again, we expect it to sort of come in line to the 37 to 38% that we've historically reported.

Thank you.

David Buck, Buckingham Research.

First one is on Opana. Can you give some sense of what you expect the reimbursement outlook to be for the first quarter of launch, give some sense of how long you'd expect it to take in terms of selling cycle. And can you give us some sense of what the overall launch costs or investment you might be making this year that is included in your guidance? I'm just trying to get a sense of when you may make your first payments to Penwest, what sort of timing might be there. Thanks.

David, let me answer the question on the reimbursement. We expect that within a very short period of time that a good portion of managed care plans that we are targeting will place Opana on the formulary for reimbursement immediately. Probably close to 50% of the patient lives that we're targeting will be available to us and at a price that will be determined somewhat later on, as utilization and obviously our clinical evaluation occur.

There are a number of other managed care organizations that will require a clinical review and that can take anywhere from three to six months on average. However, some may not occur for sometime, given their cycle of reviewing certain drug categories, which they sometimes do.

So we expect the reimbursement scheme to be primarily a third tier copay to start. We may have to contract for some managed care plans to get access to patients by contracting at Tier 2 levels, although that will certainly not be the majority, it will be a minority. And then we expect that over the course of the balance of this year, that the full effect of our managed care strategy will have been deployed and will be where we will expect to be from that point thereon. Jeff, do you want to answer the --

As it relates to launch costs, we try to give some sense of that in the announcement of the FDA approval of Opana and did lower our guidance for 2006 related to what those costs would be and try to give a range of both earnings impact as well as sales.

You have to back into the cost by itself. But we do intend to treat this as potentially a very major brand. We're entering into a significant opportunity for us that we have been obviously waiting for for sometime and we're going to treat it as one of our most important products, arguably our most important product. So we will spend a lot of money on it here in the future but haven't really given a sense.

As far as reimbursement from Penwest, from the prelaunch activities, that amount -- the timing of that amount is in their discretion as to when they want to pay it. And to date, we are not aware that they are going to pay it back to us. And in the future, obviously, since we expect to lose money in 2006 from the launch of this product, as was stated in our guidance, we wouldn't expect to make any sort of payment to them in '06 and for now, we have not provided 2007 guidance.

Just to clarify, so there wasn't any acceleration versus the current guidance in the second quarter? You mentioned some launch costs that did occur in the second quarter.

There were costs, yes, that were incurred. Several million dollars was incurred in the second quarter for the launch itself of Opana. We pulled the trigger on June 22nd on doing the launch activities. A lot of those were in process during the first and second quarter and it was pretty easy to start the launch activities there for, I shouldn't say it's easy but it's easy for us to spend money on the launch activities.

Gregg Gilbert, Merrill Lynch.

Thanks I have a couple. Jeff I'm sure you'll be happy to answer about [Hiamaze] one last time here. I'm wondering if you could provide any more color around the expected impact. I assume baked into your guidance of 540 now is the expected impact. I want to confirm that though. And can you tell us how many weeks are out there on average and what an ideal target could be? I think this is a pretty important issue for investors to understand.

Sure. We built it into our original guidance of 530 to 540 that we would enter into at least one additional IMA during the course of 2006. So that has been in our guidance and is in our guidance. Typically, our products have about four to six weeks of inventory out there any one point in time and that matters product by product, brand versus generic, etc. The IMAs have been for all the branded products. We would expect some decrease in level. We don't think it will have -- the inventory levels are not high out there, so we don't expect it to have a very significant impact and we are obviously cognizant of the potential impact of what could occur if two or three of our major customers don't order for a month or so. So within those discussions, we have talked about what the target level both from our standpoint and the customer's standpoint, need to be and the range of that. And at least historically, it's been [both] a little bit less than what's out there today but we don't know whether customers want to hold a week or four weeks or six weeks until we get to those actual agreements.

So it is theoretically possible that you'd have to back off your guidance if you sign more than one IMA for a lower than expected target range of product out there?

Our guidance is what we believe is going to occur based on our discussions with several of our customers that are in place and our expected timing of signing IMAs. We don't expect currently to be adjusting our guidance downward for any additional IMAs. Our expectations are built into there in the 530 to 540 and now at the high end of that range.

David Windley, Jefferies & Co.

It's Dave Windley, Jefferies. I wanted to follow up on Lidoderm. Could you -- obviously as you have been, you're still continuing to see strong growth and I know you have said in the past that a substantial amount of the scripts today are off label. Could you update on that. And also maybe give some insight into what uses you think are generating the most growth for Lidoderm today?

The prescription growth as we mentioned continues to be very robust, given the length of time that this product has been on the market. With continued expansion of our sales force, both in early 2005 as well as now here in the mid of 2006 and therefore expanding our coverage of physicians, we would expect that Lidoderm will continue to have good growth going forward, particularly as we bring the Lidoderm message to physicians who perhaps haven't been exposed to it as intimately as they may now be.

We have indicated that the use of Lidoderm for non PHN, its approved indication, is better than half of the uses and we haven't provided any further update to that. And yet, we certainly believe that of those uses, low back pain use or osteoarthritis use are becoming and continue to be the majority of that.

We have now some additional clinical trials studies being conducted in carpal tunnel syndrome, as an example, that we expect that will have some indication for us as to how the drug is characterized in that condition. And we certainly expect to continue to study Lidoderm in various uses to further characterize its utility, both alone and in combination with other therapies. Because as we have indicated in the past, the majority of Lidoderm use is actually used in combination with oral medications. So the combination of an oral and a topical agent seems to be playing out quite well in the marketplace.

Please limit to one question. (OPERATOR INSTRUCTIONS). Victor Lau, Wachovia Securities.

Thanks for taking the question. Can you comment on the level of spend for SG&A in the second half of the year and how much of the sales force expansion was included in this quarter if any? Thanks.

Sure. As you know, we don't provide quarterly guidance or half-year guidance but we have given both top-line and bottom-line guidance for the full year. We expect SG&A to continue to increase over the course of the second half, however, with the expansion that you mentioned as well as other marketing and educational activities as it relates to the launches of Opana ER and Opana as well as Synera this period. We do expect increases in those levels but just haven't quantified the amount.

Gary Nachman, Leerink Swann.

A couple of questions. First, gross margins were stronger than I expected in the quarter. Is that because of the generics business and is that sustainable going forward? What is a good gross margin that we should be using for the full year and I'm assuming it's going to go up with Opana sales once those kick in? And then if you could just give us the status on the OxyContin litigation, that would be great.

Sure. As far as the gross margins, they were improved from the first quarter and somewhat consistent with last year. It's always a mix of products that obviously impact that. There has been some benefit as well. And about a third of the use of Lidoderm historically has been in Medicaid. And with the shift to Medicare Part D, there was a slight benefit to us during the quarter for Lidoderm and whether that trend continues or not, we don't know at this time.

As far as Opana and its margin, it is a branded product. It is a reasonably high margin product as well for the Company. And as far as what our margin is expected to be for the full year, we haven't provided that kind of detail.

And the only update that we can provide on the Oxycodone extended release litigation proceedings is that we have concluded filing written briefs before the judge. It is now in the District Court's hands as to when or if they will schedule oral arguments and there is no timetable for us to know how we will proceed or what the ultimate timeframe will be.

Lei Huang, Lehman Brothers.

Two questions. Number one, can you just address any price increases you may have taken either 2Q or the last couple of weeks on your key products? And second question is on generic OxyContin, sales obviously increased quarter over quarter but the volume of the product as well as market share declined quarter over quarter. So I'm just wondering what has changed to drive that sales increase? Thanks.

Sure, as far as it relates to the first quarter, second quarter OxyContin, I think that's your question, we did have with the loss of exclusivity, semi exclusivity at the end of last year, with the customers shifting out, there was probably too much inventory out there that we had stated at the end of 2005 and that drawdown occurred during the course of 2006. So what occurred in the second quarter 2006 was more reflective of what the demand for the product was.

As far as price increases during the quarter, we did take a price increase of about 9% on Percocet in April, early April, and then recently in early July, took a 7% price increase on Lidoderm.

Debbie Knobleman, Piper.

Debbie Knobleman Two questions. Number one, can you give us any kind of parameters on what kind of inventory show we should assume for Opana, either in dollar value or even just weeks, months, et cetera? And then the second question is kind of longer-term. As you look at future products or acquisitions, do you think that you'll stay committed to pain or do you think you would consider branching out to other therapeutic categories? Thanks.

Sure, as far as the inventory fill on Opana, this is an opiate scheduled drug. We're going to not put so much out there that it's -- cause us any sort of concern from anybody, so we will launch with a reasonable amount. We did provide our full-year guidance for the launch of the product. So we would expect certainly in the third quarter that a lot of it will be inventory fill and it won't match the underlying demand of the product due to the promotional activities, which we will be beginning in the coming months and eventually sort of what we put out there and what the demand is will be closer to match.

In terms of future direction for the business, clearly, we will continue to be anchored in pain management. Our pipeline currently has several additional products that are going to be focused primarily in pain. However, we are beginning to branch into what we will call complementary therapeutic areas and particularly neurology and supportive care oncology are two that we think are very appropriate for us that fit within our existing footprint. And we have had some experience in those categories in the past. So we will continue to be very focused on the specialists driven market opportunities. Obviously, we will go to primary care physicians where we need to because of where the prescriptions are generally written but the specialists will continue to be our focus as a business. And pain and near pain will continue to help us to diversify over the course of time but still remaining true to those complementary areas.

Scott Henry, Oppenheimer.

One of the things we look at is we look at the total RX and then look at your demand and calculate a kind of revenue per script. And it tends to move up as the price increases go in and as scripts get longer. For Q2, I noticed it dipped down a little bit and I'm wondering if that's an anomaly or if there is any reason why revenue per script would be going down slightly in Q2?

Are you referencing for Lidoderm specifically or --

I'm sorry, for Lidoderm specifically, yes.

I think one of the dynamics that exists within the Lidoderm marketplace of course is the number of patches per prescription do fluctuate and it depends on the payor mix and whether there may or may not be any limitations to how many prescriptions or how many patches per month that are either imposed by the physician as a trial for the product or by a payor. So I think what you're probably seeing is perhaps somewhat of an anomaly, not necessarily indicative of any changes in the market condition for the product. I think our price has been relatively stable. In the managed markets arena, we have not taken significant discounts. We have been rather diligent in ensuring that we are able to have access to patients without going to significant levels of discount to acquire that access. And we have not seen any significant shift at all in usage patterns as well. So, I could only comment that our approach is to continue to be very diligent on both the demand side by expanding our coverage of physicians and therefore perhaps as new physicians come on board they may not be as robust in their prescribing of numbers of patches per prescription as others would be.

Corey Davis, Natexis.

First, Jeff, I'd like to say congrats on your retirement. I'm sure you're not going to miss answering all of our pesky questions. Second, I know you've gone through it several times on this call and the last one, but can you just clarify any differences between how you recoup the Opana losses from Penwest with respect to the certification period and the period from this point forward? And does Penwest have two different opt-in options for each of those two periods?

The amounts are treated different prior to approval and post approval in terms of how we recoup them to the extent they are not paid back by Penwest, which, again, the timing is in their decision tree. The stuff prior to certification is recouped by us if they don't pay it back as a pro rata reduction of the royalty they are otherwise due from the net profit from Opana ER. So that is a sort of pro rata reduction based on historically the relative levels of spending by the two parties. On a go-forward basis, the losses, however, are recouped from the profits on a dollar-for-dollar basis from the profits of the profit.

One more quick one. The Opana now shows up in the orange book and it lists it with having the standard three years of exclusivity but there's no patents in there. I'm assuming that it's just a matter of time and that you will have patents in there very shortly?

Yes, that's true. There will be three patents that will be listed in the orange book. We understand that the FDA typically does take a certain period of time upwards of two months to list those. We have been given assurance that that will occur.

Ken Trbovich, RBC Capital Markets.

Good morning I appreciate your taking the question. I guess just very quickly I was hoping you could address this issue the FDA raised yesterday regarding serotonin syndrome and the interaction between triptans and SSRIs. Could you give us a sense for whether or not that should cause us to rethink the timeline for the SNDA for Frova now?

Honestly, Ken, I'm not familiar with the issue that you have raised but I can tell you that with regards to the safety of triptans in general I think they have proven to be quite a safe medication in general and certainly Frova is no different.

With this supplemental NDA and really accounting for an impulsing dose regimen, if you will, which is six days per month -- so you are in essence six days on and 24 days of -- we would not anticipate any significant long-term effects but clearly we haven't studied this as we've indicated with the serotonin reuptake inhibitors or other drugs of similar nature to make that determination. But we do believe that given the clinical trial results that we have highlighted and that we will report on more fully later on this year or early next, that the safety of Frova has been reaffirmed.

Andrew Swanson, Citigroup.

I was just wondering if they are any regulatory, specifically DEA hurdles in place that need to be cleared before the Opana launch or if it's really just the launch preparations on your part. Thanks.

Yes, Andrew, there are no other hurdles in place. We have already acquired the DEA quota for the oxymorphone molecule. We have obviously received full clearance for the launch of the product into the commercial marketplace. We are in the process of doing a routine review of launch materials with [D.D. Mack] that is a voluntary effort on our part to get any feedback that might anticipate areas of claims that we would want to make. But that's not a rate limiter per se. We are simply going through the final stages of ensuring that we have adequate quantities to meet the needs of customers that we have already solicited orders from and are prepared to launch the product as we indicated before the end of this month, which would mean within the next eight or nine days and finalizing our last QC release records.

Dimi Ntantoulis, UBS.

Peter, can you just comment generally on the in-licensing and acquisition market and the environment there? Are you seeing a greater scarcity of high quality products and can you talk about the pricing a little bit there that you are seeing? Should we expect additional in-licensing agreements from Endo through the balance of the year? And then if you can comment on progress on a new CFO.

Sure. The licensing market of course is certainly one that continues to have a fair amount of competition in it. The good news for Endo is that as a leader in pain management, we are usually at the top of most lists, either because we have pursued an opportunity or because an opportunity has found its way to us within the pain and near pain space. There are certainly a lot of drugs that are currently in development within these categories. I think on average we probably review 20 to 30 different projects per quarter. I think last year, we had over 100, 120 projects that we reviewed to acquire two or three. We will continue to be very active in the in-licensing and acquisition strategy because that quite frankly is part of our core competency as a business and continues to build out our pipeline for continued sustainability going forward.

With regards to pricing, I think, clearly, as competition in any of these categories seeks later stage products, later stage products generally cost more. And so Endo has continued to look at all phases of development as opportunities. We have got examples of earlier stage products in our pipeline, which (indiscernible) pay more modestly and we've got examples in the later stages where we pay more robustly based on either the competitive marketplace or the likelihood of commercial success.

So I think the market is a continuing and dynamic one. We will expect to continue to be active in this regard. I can't give you a prediction on whether or not we will land more products in the balance of this year or not but I can tell you that you will clearly see more products coming into the Endo portfolio over time.

And with regards to the search for the CFO, we have had both internal and external candidates being reviewed over the last several weeks. We expect that we will have a search concluded sometime here in the third quarter and with prospects for a replacement, we will expect without discontinuation of effect. We clearly have a significant and very talented financial team here at Endo that has been backing up Jeff for some time now. So, we certainly will expect that he will be missed but business will move on clearly in his stead.

John Stevenson, Summer Street Research.

Just a couple of quick ones. Frova, looking back at the Company's estimate of what the prescription demand has been over the last couple of quarters, in Q4 of last year, you estimated it was about $11 million. For the past two couple of quarters, you estimated it at about 10 million in terms of end market demand. Tracking the scripts, Q4 at about 71 million scripts and Q1, 2, had 71 million scripts, but then you took a price increase as well. So I'm kind of just curious, what's accounting for the fact that your estimate of revenues has been coming down while the script demand has been flat to slightly up and then you also had a price increase.

Yes, there's obviously a lot of dynamics in the pricing other than just price increases, including contracting with managed care organizations and other payors. So the pricing itself does fluctuate from time to time as we make our estimates as far as what we believe the appropriate accrual rates should be on the products. So that could impact it, obviously along with the demand of the product, the size of the scripts, the number of tablets per script and things of that nature.

In terms of the generic side, when you look out over the next year or so, do you see any significant near-term opportunities for the generic pain products?

Well I think in the generic pain space, there are products that are currently being promoted that have not yet seen generic entries. So, I think that there could very well be additional products in that space. Endo has always been very opportunistic in the generic field. We do not at all purport ourselves to be a broad-based generic player. Very focused on high margin opportunities with small numbers of competitors, both for pain product opportunities as well as non pain product opportunities that we potentially would pursue. But here again, they will be selective in nature and would allow us to maintain a strong position within a particular market and therefore high margins.

Larry Neibor, Baird.

Could you give us some idea of the potential unit dose market for Synera, when Zars intends to file a supplement for pediatric immunization? And how quickly you expect hospital formularies to list this product?

Yes, the product right now is sold in packages of 10. Each patch is individually packaged in a separate envelope. So almost by definition, it is a unit dose. Upon opening each envelope, the heating element begins to heat up and allow for a rapid absorption of lidocaine and petrocaine into the skin to anesthetize it.

In regards to Zars's conduct of the follow-on studies, we have not provided any guidance at this stage. With regards to pediatric immunization filings, those studies are just now getting underway and once we have a definitive Phase III program in place that we can point towards a likely filing date, we would provide guidance at that time.

And the position on hospital formularies?

On the hospital formularies side, of course, we began shipments just in the latter part of June. Formularies typically take the summer off. June, July, August are often not very good months for formulary meetings. We have had product that has, however, been purchased on a trial basis so we are getting access to hospitals as we speak but we would expect that the full round of formulary reviews will take place in the latter part of the third quarter and into the fourth quarter.

Angela Larson, SIG

On Opana sales force, you had previously guided to adding 200 reps. I wanted to get an update on the status of that rep gain. On ketoprofen, on those studies, are those versus placebo or another active comparator? And then most importantly, Jeff, I wish you the best and I hope you have a lot of fun.

Thank you, Angela. On the sales force, we had indicated that we had added 200, approximately 220, additional sales representatives to bring our total contingent up to about 590. Those representatives were given offer letters on June 23rd. We have had as of the last count I saw on July 7th, we had 97% acceptance. I'm sure between now and at time of launch meeting, we'll have the remaining territories filled as well, so in full year, to go out in the mid-August timeframe and begin physician promotion in earnest.

The existing 390 representatives, as I indicated earlier, have been soliciting distribution orders from pharmacy and hospitals. Their active participation in physician promotion will occur once that distribution has taken place.

On ketoprofen patch, the two studies are both placebo-controlled. There are no active comparators in them. So we will have studies that will comply with FDA requirements for pivotal studies. We do plan at some point to evaluate additional either Phase IIIb or Phase IV studies that will help to support ketoprofen patch in the market. And those specific activities have not yet been determined but we will certainly be looking to continue to support the product in the marketplace.

Gregg Gilbert, Merrill Lynch.

Quick two follow-ups. Just the timing of the 10-Q filing, a factor in the timing of the CFO hire? And Peter, can you also characterize for us the confidence the Company has in the OxyContin case and the philosophy on settlements, either specifically here or in general? Thanks.

Sure, as was mentioned in the press release regarding my retirement, I will be retiring in August in part due to the second-quarter filing, which is due in the early part of August. So I will be here through that period.

And we certainly will, as expeditiously as possible, complete the evaluation of candidates for the CFO role and as I indicated earlier, we expect that that will be done prior to the conclusion of the third quarter.

With regards to our confidence in the OxyContin case, clearly we believe as we have indicated in the past that our original finding of inequitable conduct at the lower court would be once again found in the second remand. We remain confident that that will be the case.

We don't certainly purport that we know what to expect in the appeal, that we would therefore see at least we would expect to see that is always a different situation but we certainly remain confident that at this stage, there is an attitude that we believe we will once again be found to have these patents declared unenforceable. So, that is our position at this point.

Clearly, on any issues with regards to settlement, we are always looking to ensure that we have got the best foot forward for the business. We would not discount that at all. However, I think given the fact that we are in the process of moving forward, if that occurs, we will face that bridge when we come to it.

David Windley, Jefferies & Co.

She'll get it right eventually. The questions I have on follow-up are just all kind of sales force related, Peter. I will try to rattle through a couple real quick and let you answer. The data that you referenced in my earlier question, I'm wondering, strategy on additional indications on Lidoderm, are you looking for actual label or is your intent more to supply the sales force with data that they can then go out and drop with docs or reference with docs.

In hospital sales force, switching gears, DepoDur is still out there but not gaining much traction. I'm wondering your thoughts there and also your thoughts on in addition to Synera, other hospital related products that would possibly -- are you still looking and how close might you be to dropping additional products to lever the hospital sales force? Thanks.

With regards to Lidoderm and the clinical data that we have been generating and will continue to generate. Certainly, we are interested in continuing the lifecycle of Lidoderm in any way that we can. The data that we have been generating over time has been very useful to continue to articulate for physicians the clinical characteristics of the product. Should we be fortunate enough to find an avenue to pass regulatory muster for an additional indication, that would certainly be very appropriate for us. However, we explore many different options and at this stage, we have not indicated that we have certainly anything imminent or that there was a particular direction that we will sort of bet the ranch on.

So the effect of this is that the additional data sets that we collect and disseminate will be done primarily through continuing medical education programs, publications, posters, conferences, etc. And if published in a peer review journal, could be distributed only under a restricted materials category.

In the hospital arena, certainly we believe DepoDur continues to have the promise of a change in the paradigm for pain post-operatively. It clearly has not had the traction that we had originally anticipated due to a whole host of reasons, not the least of which of course is the time element for both review, inclusion of new protocols and education of staff. It is an ongoing process of valuating the continued viability of DepoDur for our hospital sales team but now that we have both Synera and Opana in both the extended release, immediate release and shortly the IV formulation, we continue to have a very robust product line for our hospital sales team to continue to maintain its presence within the institutional environment. And at the same time, we continue to look at opportunities to expand that footprint within the hospital with other products that could be appropriate for us to license or acquire. So that will continue to be an area of continued opportunity for Endo as it goes forward in time.

Gary Nachman, Leerink Swann.

Thanks for taking the follow-up. Peter, just a few questions on the pipeline. Could you elaborate a little bit more on the ketoprofen studies? How big are they, how long will they take to run and when could we see data on that? I just want to confirm that you said a filing in the first half of '08. That does seem pretty far out.

And then, Rapinyl data, what's the earliest we could see that?

And then finally, can you just talk about your thought process for Frova for menstrual migraine and how you plan on promoting that education? Thanks.

Sure, relative to ketoprofen, as we indicated, the two studies have just initiated in the last few weeks. These are relatively short term duration studies. They probably average between 10 and 14 days of therapy per patient. Patient recruitment of course is always a limiting factor. And particularly with acute injuries like this, very often some of these patients may self resolve before they are able to be enrolled in studies. So, we have given ourselves what we believe to be an appropriate time line for these studies to be completed. Data study [resorts] to be compiled and an SNDA to be filed. So data on these studies we would not anticipate for some time yet, obviously, and as the program progresses, we will provide further guidance on when we would expect to see data disseminated.

On Rampinyl, first -- the data that we are now collecting in the breakthrough cancer pain studies, if you back up from our estimate of first half '07 or second half of '07 filing, that would mean sometime in the first half of '07, that data could potentially be available for dissemination, either through congresses or posters and abstracts if not full publication. So that's certainly our intent -- to try to get that data available to or potential prescribing audience as rapidly as possible, but more likely as close to potential utilization as we can.

With regards to Frova for menstrual migraine, this is clearly a significant opportunity for this brand. Menstrual migraine is first and foremost very prevalent. Over 12 million women a year are documented to suffer from menstrual migraines. It is often undertreated, however. And the opportunity for Frova to really create a market in menstrual migraine is one that we have actually already begun. We are now really focusing the message around Frova because of its long half-life and its low recurrence rate, that it's actually very suitable for these long duration migraines that occur during menstruation. So our message to physicians today has certainly centered around the treatment aspect of patients who are suffering from menstrual migraine as a very appropriate patient population. And that's all in preparation for what we believe would be eventually the prophylaxis indication. So clearly the opportunity to prevent a migraine from occurring in the first place, particularly when it's so predictable or to significantly reduce the duration or severity of the migraine, is really where we believe the opportunity for this indication will enable Frova to flourish.

In the meantime, we're maintaining our steady activity surrounding the drug, particularly as I mentioned for the treatment of menstrual migraine, for patients who have already had the pain episodes initiated and the use of Frova for those patients who particularly might have that episode over multiple days.

We think this is a great opportunity. Now that we have got the filing completed, we will continue to work with the FDA over the coming 10 months or so to ensure that we have an appropriate review process and we will be executing a fair amount of pre-marketing activity, both in terms of advisory boards, in terms of market conditioning if you will to help generate awareness of the condition of menstrual migraine and the opportunities that we currently have and expect to have down the line. So we are very excited about this as a new paradigm for patients who suffer migraine headaches.

That concludes the Q&A session. I will now turn the call over to Peter Lankau for closing remarks.

Thank you very much, everyone. I appreciate the opportunity to spend some time with you here today on the call. We certainly look forward to keeping you apprised of our progress as we move forward. And I would also like to publicly thank Jeff Black for his tenure with Endo, enabling this Company to achieve what it has today and being a very strong contributor and having left a legacy that we can now continue to pick up on as we go forward. So thank you, Jeff. And thank you, everybody.

That concludes today's conference call. You may now disconnect.