Endo International PLC (ENDP) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2009 Endo Pharmaceutical earnings conference call. My name is Lacy. I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session toward the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Blaine Davis, Vice President, Corporate Affairs. Please proceed.

Thanks, Lacy. Good morning, everyone, and thank you for joining us. With me on today's call are Dave Holveck, President and CEO of Endo, Alan Levin, Executive Vice President and Chief Financial Officer, and Nancy Wysenski , our Chief Operating Officer. After our prepared remarks we'll open the call to your questions which Ivan Gergel, Executive Vice President of R&D has joined us for the Q&A session.

I will remind you that any forward-looking statements by management are covered under the Private Securities Litigation Reform Act of 1995 and subject to change. Risks and uncertainties described in today's press release and in our filings with the SEC. In addition, during the course of this call we may refer to non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in the United States and that may be different from non-GAAP financial measures used by other companies. Investors are encouraged to review Endo's current report on Form 8-K filed with the SEC for Endo's reasons for including those non-GAAP financial measures in its earnings announcements. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is contained in our sales and earnings press release issued earlier this morning. Now, I will turn the call over

Thanks, Blaine. I'm pleased to report that Endo had a very strong second quarter and a great first half with record revenue earnings. In addition, we effectively managed our expense base during the quarter which drove impressive bottom line performance. Our pain products, Lidoderm, Opana, and Voltaren Gel sold well during the quarter, while our generic and new oncology and endocrinology products also showed good growth. In a few minutes, Nancy will review the market factors behind our performance. But suffice to say that we believe we're progressing toward our goal of diversifying revenues and product portfolio and are very pleased with the results for the second quarter and the first half of 2009.

Our sales momentum makes this an exciting time for Endo as we prepare to launch a new, long-acting, injectable testosterone product which should fill an important gap in testosterone replacement therapy and launch VALSTAR for bladder cancer. Endo's commitment to urology and oncology is reflected in our recent agreement with Bioniche Life Science to develop Urocidin, a late-stage bladder cancer drug that expands our urology portfolio with a very promising product candidate. It should be a strong compliment to VALSTAR. We'll continue to look for opportunities to expand and diversify our pipeline with our late-stage products.

Our plan to enhance our R&D organization has also led to a number of new research collaborations and licensing agreements. During the past seven months, we've begun new drug discovery and development programs in pain management with Grunenthal and Harvard University and in cancer with Urogene. In June, we also added a new three-year agreement with Jubilant Biosys to develop and discover cancer drugs. Endo will be supporting this venture by providing research funding to discover pre-clinical candidates for joint clinical development.

We're also pursuing outlicensing agreements to expand our business, and last month we and Pennwest licensed Opana ER for to Valiant Pharmaceuticals for commercial sale in Canada, Australia, and New Zealand. I'm pleased with our progress in business development this year and look forward to signing additional agreements before year-end that will expand our product pipeline in our therapeutic areas. Our goal is to diversify our product lines, generate sustainable revenue growth, and leverage our expertise in specialty pharmaceuticals and drug delivery.

We are currently focused on the evaluation of late-stage assets, and in particular, on market products to enhance our revenue growth. I believe this approach will allow us to pursue new opportunities in pain, urology, oncology, and endocrinology. This is a strategy I outlined last year, and it is the plan that we are now executing successfully. Now, I'd like to turn the call over to Nancy to discuss the performance of our key products during the quarter. Nancy?

Thank you, Dave. I'd like to begin with a few comments about our key products. Although prescription trends have moderated for Lidoderm over the past three quarters, we had a solid second quarter. A number of new marketing programs were launched, and a variety of market factors affected product performance. We recently launched new medical education programs for Lidoderm, and in September, we'll celebrate the 10th anniversary of Lidoderm's approval. We continue to expect solid performance from Lidoderm.

Opana also performed well during the quarter, and we haven't faced generic competition with Opana [IR], though this could happen at any time. Voltaren Gel had a very strong quarter as the number of tubes per prescription grew to 2.4. This is an early reflection of the launch of the three- and five-tube packs in the second quarter. We've also established the "go ahead and rub it in" marketing program that includes discount cards to make Voltaren Gel prescriptions less costly for consumers with prescription drug co-pays. We believe we're established a stronger position in the osteoarthritis market with Voltaren and look forward to continued sales growth for this product.

The products we acquired from Indevus also performed well in the second quarter and contributed to our top line growth. In particular, SUPPRELIN LA, a treatment for central precocious puberty, performed above our expectations. A reimplantation rate for SUPPRELIN LA of nearly 100% for patients who are continuing therapy is driving the strong performance of this product. As we reported in today's press release, Endo recently launched a website which contains in-depth information about this condition for both parents and other healthcare providers.

And finally, our generics business continued to do well. Generic sales in the first half benefited from dislocations in market supply for certain pain products. These market dislocations have now largely resolved themselves. We continue to invest in this part of our business and have eight ANDA filings under FDA review. We hope to begin generating revenue from these products in 2010. We're also pursuing opportunities to use our hydron technology as a platform for delivering our specialty generic products in the future.

Turning to our two planned launches, VALSTAR, which has been off the market since 2002, has been approved by the FDA for the treatment of BCG refractory bladder cancer. We believe VALSTAR will be a very successful product in this indication based upon its clinical history, the high unmet need for treatment in this area, and its proven efficacy. We're also making the necessary investments in marketing and promotions as we support its planned relaunch. Our physician targets will be urologists, whom we'll reach by leveraging the infrastructure we acquired from Indevus in January. Unfortunately, we've experienced an issue with our third-party manufacturer that will likely delay the launch of VALSTAR. We're working closely with them to resolve the issue as soon as possible. And we're hopeful this matter will be brought to resolution quickly, and that we will relaunch VALSTAR later this year for patients suffering from BCG refractory bladder cancer.

The second product launch will be our long-acting, injectable testosterone, formerly known as NEBIDO. The FDA has asked us to find a different brand name for this drug, so we have dropped the NEBIDO name and will announce a new brand name prior to launch. We have a September 2nd PDUFA date for FDA action. To date, we have had productive discussions with the FDA, and we'll continue to work closely with the agency as we more closely approach the PDUFA date.

The US market for testosterone products is close to $900 million today and growing at more than 20% annually. We believe Endo has an important new product to offer patients with hypogonadism, also known as Low T, which is a common but underrecognized and certainly undertreated condition that affects almost 14 million men in the United States above the age of 45. Fewer than 10% of these men with low testosterone are currently being treated with testosterone replacement therapy.

As a result of recent efficiency measures, we're pursuing all of our launch preparation within the current 2009 budget. We don't plan to hire more sales reps or significantly increase our total commercial spend in order to launch these drugs successfully. Rather, we will reallocate promotional dollars this year to fully support the new products.

In summary, we had a really solid first half. Our products are selling well, and we're working hard to implement effective new marketing programs, invest wisely behind new and growing products, and leverage the diverse skillsets of our commercial teams as our portfolio expands. That concludes my prepared remarks, and now I will turn the call back over to Dave.

Thank you, Nancy. I'd like to introduce our new Chief Financial Officer, Al Levin, to review our financial results. Alan joined Endo last month after a long and successful career at Pfizer, and I'm very pleased to welcome him to Endo. I can tell you that he has hit the ground running, and in just two months, has gained a solid understanding of our recent financial performance and our current financial position. Alan, we're glad to have you with us. And now I will turn the call over to you.

Thanks, Dave. I appreciate your welcome, and I'm very glad to be here. I believe Endo has some great products and exciting growth opportunities today and going forward. Our diversification strategy is the right course for expanding our business, and we have a talented team to achieve our long-term goals. I'm excited to be part of the Endo team.

Now let me discuss our financial results in greater detail. For the second quarter of 2009, we had total revenue of $373 million, up 22% over the second quarter of 2008. Total operating expenses were $213 million. However, on an adjusted basis, selling, general, and administrative expenses were $130 million, and R&D expenses were $27.5 million. Second quarter adjusted net income was $86 million, up 18% over $73 million during the second quarter of 2008. Our reported diluted earnings per share declined to $0.26 versus $0.46 in Q2 of 2008. On an adjusted basis, however, adjusted diluted EPS rose 24% to $0.73 versus $0.59 in the second quarter of 2008.

Year-to-date for 2009, we had total revenue of $708 million, up 19% over the same period in 2008. Total operating expenses were $388 million. However, on an adjusted basis, selling, general, and administrative expenses were $250 million, and R&D expenses were $46.5 million. Year-to-date adjusted net income was $165 million, up 17% over the same period of 2008. Reported diluted earnings per share declined to $0.59 versus $0.90 in the first half of 2008. Adjusted diluted EPS rose 29% to $1.41 versus $1.09 in the first half of 2008.

For the full year, we're tracking well relative to our financial guidance of total 2009 revenues between $1.39 billion and $1.44 billion. Nancy has already discussed our revenue performance and outlook with you. Suffice it to the say that we expect a solid performance from our product portfolio during the second half of this year.

On the expense side, we expect somewhat higher operating expenses in the second half of the year compared to the first half, primarily due to a full six months of commercial investment behind the urology and endocrinology products associated with our recent Indevus acquisition, coupled with additional R&D investments that we're making in pipeline development programs for both branded and generic products. We remain focused on managing our expense base efficiently while continuing to invest in the growth drivers of our business.

We are confirming our previous guidance for adjusted diluted earnings per share of between $2.59 and $2.67. However, given the strong performance of our commercial products and our effective expense constraint during the first half of the year, we now expect our adjusted diluted earnings per share to be at the high end of our guidance range. Reported or GAAP diluted earnings per share is now expected to fall within a range of $1.26 to $1.34, a reduction from previous guidance of $1.73 to $1.81.

This change is driven primarily by two items. The first is the recognition of milestone payments associated with our recent deal with Bioniche Life Sciences and is reflective of the acceleration in business development activity for the Company. The second item is driven by the increased probability of success for our long acting testosterone injectable and octreotide development programs. Purchase accounting and fair market value accounting under GAAP require that these changes in probability be reflected as current P&L charges in order to revise the recorded value of Indevus' contingent liabilities on our balance sheet. Today's press release highlighted the associated $25.9 million charge that we took in the second quarter.

Let me reiterate that I am excited to have joined Endo at a time of such great opportunity, and I look forward to working with our team and with all of you as we continue to build our business. That concludes my prepared remarks. Now I'll turn the call over to Blaine.

Thanks, Alan. This concludes our prepared remarks. I'd like to turn the call back to the operator and begin the Q&A session.

(Operator Instructions) Our first question will come from the line of Annabel Samimy with Thomas Weisel. Please proceed. Your line is open.

Hello?

We got you.

Thanks. Have a few questions, actually. First of all, you mentioned on NEBIDO, the promotional effort -- there is going to be some real reallocation of promotional effort. Can you tell us where you're reallocating that from? And what kind of impact that might have on some of the other products?

Sure, Annabel, this is Nancy. That's a great question. In fact, as we have really done a lot of analyses in order to support our efficiency measures, we feel that we now have a very good handle, particularly for Voltaren Gel, since is it's been on the market for slightly more than a year where our efforts can be most productive. That also led to the decrease in the size of our contract sales organization earlier in this quarter. And in addition, as the Frova market begins to look at multiple generic entries, there is less and less competitive promotion there. So we've been able to benefit by really reallocating promotion that in the past might have gone toward those products. And in addition, let me remind you that we picked up more than 100 very qualified sales professionals during our acquisition of Indevus. And, in fact, we have retained every single one of those sales professionals. We're certain between the efforts that the legacy Indevus salesforce will put forward and that additional support that I just described that we can provide through our [Pharma One] or general practice salesforce that the product will be well supported and quite successful.

Great, thanks. Just on Voltaren. As you mentioned, it's doing pretty well. You mentioned the tubes were 2.4. Was there any kind of inventory issue? Any kind of stocking of the three- to five-tube prescription or not?

Well, one unique thing that did happen during this quarter was, following the launch of the three- and five-packs in the March-April time frame, we were able to demonstrate enough use of the product that we recognized $10 million in revenue. Obviously, when you are pulling in new packs and depleting the individual packs, you are going to have some shifts in inventory. That has pretty much stabilized now, although we may be a little bit toward the high end on revenue. Regarding the launch of Voltaren Gel, in addition to the fact that we picked up 10% on the number of tubes per Rx, I'd also like to mention that our new prescriptions and the prescriptions being generated from the specialists are coming in at even a higher tube per Rx. So we are very confident in the momentum that product has developed which continues to drive the strong results from our base business in pain.

Great, and one more question, if I may. The cash flow, in light of the pending NEBIDO approval, I think you need to make an additional contingent payment upon approval. Can you just talk about the cash flow situation with regard to that as well as the $105 million in royalty that you have related to Sanctura. And what you may be doing with respect to that?

Yes. With respect to cash flow, you are correct that depending on the outcome of the PDUFA action for our injectable testosterone, a payment of up to $175 million could become doable. We have very strong cash flow. We have approximately $800 million of cash on our balance sheet, and we expect that we'll be able to handily make that payment, which has already been escrowed. As we continue to look out over the remainder of the year, I think the Company has very strong cash generating capability, and we'll be looking to redeploy that to diversify our top line through a variety of business development opportunities going forward. The Sanctura royalty notes that you referenced are part of our capital structure. Those notes could be called, although the call premium for them prior to November of 2010 is fairly significant, and may not make economic sense to do that. However, we continue to look at efficiencies in our capital structure as part and parcel of how we look at our cash balances.

Great. Thank you.

Thanks, Annabelle. Next question.

And our next question will come from the line of Greg Gilbert with Banc of America-Merrill Lynch.

Thanks. I have a question for Nancy. I am sorry if you covered this, in part. I jumped on late. In terms of NEBIDO, or whatever it will be called. Can you talk about how procurement of the product and reimbursement is mediated for the current injectable products? And how you expect that to play out for your product?

Thanks, Greg, for that question. Obviously, this product is am injectable product. It's a long-acting testosterone or testosterone undecanoate. This means that we will be moving toward a specialty pharmacy model that will be reimbursed through medical benefits for the most part.

Can you go into that a little bit more deeply in terms of whether you think that is an advantage or not versus other therapies in the market? And are there other approvals that we need to see you get beyond FDA approval that open the door for that to happen?

I don't think there are other additional approvals. It is a very different model from a pharmacy benefit where you are only working toward the approval of formularies and then the direct pull-through. Obviously, there is another step in the process here where we have to assure that the product can be delivered either through specialty pharmacies to the physician, him or herself. Or alternatively, you can do what is typically called brownbagging where a patient can pick the product up at the pharmacy and take it back to the physician. Another very creative approach that we're currently exploring is using the emerging clinics in the retail sector that are associated with retail pharmacies as another approach. Perhaps for primary care physicians who really don't want to have to stock products and develop an account with a specialty pharmacy. In that case, not only would the patient have the one alternative of brownbagging through their pharmacy benefit. They could also go to a minute clinic, for instance, where they will have the product on hand and actually receive the injection right there. This is a clinically differentiated product, and we think that that will really help with the investment and the approvals necessary for the product to be reimbursed. I'm sure you are all aware that currently the market leaders are topical products, predominantly gels from two different manufacturers. And that a recent FDA committee suggested that those products should receive a black box warning. So we think that we will have, again, a highly differentiated product which will be far more convenient and also offer more stable levels for the patients over time, which is an important feature when considering the therapeutic arena that is -- that we're dealing with here of low testosterone.

Certainly cheaper to the patient doesn't hurt either, if that plays out. One follow-up for Dave. Is it still your view that the jury is out on the importance of abuse deterrents as it applies to Opana ER in your overall portfolio? Thanks.

Is the jury out? I don't know. I think it's still certainly a big discussion point relative to the agency. I think the elements of REMS are a top priority. I think relative to, if you are referring to some formulation issues, or opportunities that the industry is looking at. I think that is something that will work its way into the marketplace, but I think first and foremost it will be a REMS program. We're very active in it already and want to see it continue relative to the agency's directions.

Thank you.

Thank you. Can we go to the next question, please?

Our next question will come from the line is Shibani Malhotra with Goldman Sachs. Please proceed.

Hello. Just a couple of quick questions. First one, on Lidoderm. I know it was a disappointing last quarter, but that was really due to some destocking that we saw. Can you comment on whether there was any change in stocking this quarter? Do you expect there to be any change going forward? How should we be thinking about that for the year?

Yes,, I think -- thanks, Shibani. I think with respect to Lidoderm, the first half results are probably our best indicator for this product. It has performed very solidly for the first half with sales comparable to the first half 2008. I think that inventory levels for the wholesalers where we have visibility are at the low end of our DSA agreements and have continued at that point. And as we think about the full-year outlook for Lidoderm, we continue to expect a very solid performance for it.

Okay. And just a quick second question, also on Lidoderm. We understand there's a panel at the FDA next week, and one of the things that they're looking at is transdermal delivery. Can you comment on your expectations for that panel? Does it affect Lidoderm and the possibility for generic Lidoderm at all? How are you thinking about this?

I think you are aware there are two days of panel discussions. The first is specific to an antibiotic that is on the market and does purport to have a local effect. The second day will be dealing with transdermal delivery technologies. And, of course, we will be very interested to hear what may come up at that panel. And beyond that we want to just is remind everyone that Lidoderm is a topical product, but we'll be interested in hearing -- (dropped audio).

Hello?

Pardon the interruption, ladies and gentlemen. Please stand by while we reconnect your presenters. Thank you for standing by. We are experiencing technical difficulties. Please remain on the line. (Operator Instructions) Thank you for standing by. Thank you for standing by. We are now ready to resume your conference.

Thanks, everybody. Apologies. We had a technical difficulty, but we can just move on to the next question.

And our next question will come from the line of Gary Nachman with Leerink Swann. Please proceed.

Good morning, maybe I snuck in sooner because of the glitch. First question, how soon would you be able to launch NEBIDO if it gets approved on the PDUFA date? How are you gearing up the salesforce right now to get ready for that launch? Any comments on how you're thinking about pricing relative to the topicals?

Sure, Gary. Let me see if I can capture all three parts of that. We will launch almost immediately following the approval from the FDA. I think on the pricing, you should realize that we will be looking at what the cost of gels would be over a similar period of time for a patient who chose to go that route and pricing with that knowledge in mind. However, we don't disclose specific price information ahead of the launch.

Okay. And I guess the second question, could you just elaborate a little bit more on that manufacturing issue with VALSTAR? And is there really only, I guess, one manufacturer that could make this product? Or is there a situation where you could potentially switch to somebody else if you need to?

Yes, that's a great question. Let me remind you that VALSTAR is a product that had been removed from the market in 2002. It is not an easy product to manufacture. And unfortunately, previous owners had not been able to reintroduce it. For efficiency, we are working with a manufacturer who is already approved to produce this product. And unfortunately, they have recently encountered some issues that have slowed their progress as a manufacturer in general, not specifically related to VALSTAR. We are getting more news every day. But at this point, we are really confident that we're going to be able to work with them as they address their concerns to be able to reintroduce the product by the end of this year. And in so doing, continue with our strategic plan to diversify our base business.

Okay. And then, last question for Alan, and welcome to you. Why was interest expense so high even after adjustments? That really didn't make sense to me. Is that the run rate now, I guess, going forward? Or was there some sort of one-time charge in there?

Thanks, Gary. There are two drivers in the year-over-year change in interest income and expense. One is interest rates have come down, and our excess liquidity on our balance sheet is very conservatively invested. But the bigger driver is that with the Indevus transaction, we acquired about $105 million of notes that have a 16% coupon. And that is a much more significant interest expense. As well, year-over-year, you have the impact of convertible debt that the Company issued in the second quarter of last year. As we look out to the remainder of the year, we'll continue to be vigilant about opportunities to manage our net interest expense and our capital structure going forward.

Okay, thanks a lot.

Thanks, Gary.

And our next question will come from the line of Mark Goodman with UBS. Please proceed. Mr. Goodman, your line is open. Please check your mute feature of your phone.

We can just go to the next question.

Our next question will come from the line of Andrew [Hillenry] with Jefferies & Company.

Thank you for taking the questions. Can you give any update on the Sanctura marketing agreement, and has any progress been made on that front?

Yes, Andrew this is Nancy. I think you're probably aware that there was a six-month extension on the co-promotion for Sanctura signed earlier this year. That co-promotion agreement will end as the third quarter comes to closure.

And are you in -- do you still plan to try to pursue that past that time? Or has any decision been made on that front?

It's open. Although assuming we are successful with our launches, we will obviously have plenty of activity for the urology salesforce and the endocrinology salesforce, focusing on our new products that will be diversifying or base business.

And then on a different question. With the FDA panel on Acetaminophen, have you had any feedback from the agency on measures that they would like the Company to take with combination-type products?

This is Ivan Gergel. We have had no specific discussions, but we will be continuing to work with the FDA. Clearly, both the FDA and ourselves realize that it's important that safe and effective pain therapies are available to patients. We're very much committed to the responsible use of these products. It's also important to bear in mind that the FDA panel has made only recommendations, and we're looking very closely at the data that we've presented to the committee. And it's very likely that we'll be submitting something to the federal docket.

Lastly, on the business development front. Have you seen over the past couple months any changes in opportunities? Or the attractiveness of product there? And with some of these products that are coming on -- NEBIDO and so forth -- do you plan to add to both the pain management and urology salesforce? Or are you looking for early stage products? Or can you give any additional color there?

Yes, I think that we put a lot of stock in the end of -- with the diversification that we've made -- any way we can get, what I will call greater revenue synergies, is a prime target, as we look out there. I think the Bioniche deal, although not a near-term revenue, is again an ability to extend the -- is stainable of that mark segment. As you look at us going forward from a BD standpoint, look at the current franchises we have. And then how we can build those out -- the revenue synergies that could be around there. I think from the standpoint of strategic -- from my standpoint, is just entering today with a -- one-shot product just isn't a long-term sustainable. And I think the model that we're trying to build is, again, the entry development market and have the development and the R&D capitalize on those positions that we build in the marketplace. So, yes, I think from your other question about opportunities. With the diversified strategy that we have, we're certainly being approached more now with greater list of opportunities. We're staying focused and disciplined in the -- what we'll call the public health strategic approach. And more focus, as Alan had had mentioned, in terms of building our revenue in the near-term. That's the focus we have, and I guess the discipline, best put that we're staying on.

Thank you.

And our next question will come from the line of Ian Sanderson with Cowen and Company. Please proceed.

Good morning. Thanks for taking the questions. First, for Al, can you provide a bit more color on the cash balance number? We don't have a balance sheet here. But from the summary cash flow, it appears that quarter end cash balance is closer to $495 million. If you could just talk about how you get to -- I think you stated something close to $800 million. Second, Nancy, can you provide us an update on your attempts to get an Opana ER patent issued? What we should be listening for next there?

Sure. Ian, let me start with respect to the cash balance. There are three components on our balance sheet related to that. The first is about $495 million in cash and marketable securities as of June 30th. The second is some $265 million in auction-rate securities, which are available to us under the access arrangements we've struck with UBS. And then the last is $175 million of cash that sits in escrow, related to the possibility and increasing probability of a contingent payment to Indevus shareholders for our testosterone injectable product.

And you mentioned earlier that that payment could be up to that $175 million. Are there stages based on the label, or is it basically approval -- the $175 million goes out?

Yes, you are correct. There are differential treatments, depending upon whether we have a black box or not in the label. And in the absence of -- if we were to have a black box, then there's also a contingency around sales and the sales levels that are achieved. Net-net, I think that review is progressing well with the FDA. We're cautiously optimistic as we approach our PDUFA date that we can bring this product to market this year and continue to invest behind endocrinology and urology, the therapeutic areas that came with our Indevus transaction.

Thank you.

Ian, this is Nancy. Relative to the question on patents. I'm sure you're aware that we continue to have three standing patents issued and standing in the orange book. And in addition to that, we're continuing to pursue further patents on Opana ER. At this point, I don't have anything to share, but as soon as we have something to announce, we will.

Okay, thank you.

Our next question will come from the line of Bill Tanner with Lazard. Please proceed.

Thanks for taking the question. Dave, maybe just on the BD front, I know comments made earlier about perhaps cutting some of the Frova detailing expense, given the competitive market dynamics. Should we look at that as potentially the Company exiting that therapeutic space? Or do you see other assets that maybe out there that you think could maybe preserve decent market presence? Thanks.

Yes. Certainly not exiting, no. I think the opportunity to build it out -- I think go beyond typical to where we've been is topical. And I think that the way I would like to look at the pain franchise is areas that cause pain. Procedural pain is another area. I think adjuncts to the use of pain medications. All are investment targets relative to the pain specialists that we call on. I think that the other area, going back to my earlier comment, about revenue synergies is into the area of OA. With the launching of the V Gel, gives us a good foothold in that to be able to build that out in greater fashion. So pain, you will see that we'll continue to add into that. I think the name that we've developed -- obviously, the leverage with the force that we have I think the investment with V Gel gives us a good beachhead into the OA. All of those are areas that you will see us continue to expand on in the future.

Bill, this is Nancy. If I might just expand a little further on Dave's comment, the personal promotional support that is quite popular and productive in the support of Triptan is very similar to the promotional effort that would be required for other pain products. And even for Lidoderm for the treatment of post-herpetic neuralgia. So there is a nice overlap there, and we do not intend to walk away at all from that business. But rather, it makes more sense for us to redeploy efforts as competition pulls away to more diversified product opportunities within our own portfolio. Such that we can still continue to support that pain business and reapply some of that effort to the new products to the growth effort on the urology and endocrinology side.

And just from a financial perspective, I think diversification and synergies are two key themes as we pursue our business development strategy in the pain franchise where we already have significant commercial infrastructure, I think there are opportunities to leverage that for greater efficiency as we diversify our top line in pain. In urology and endocrinology, these are two areas that we put a stake in the ground in terms of how we invest in those therapeutic areas. The kind of opportunities we're looking at there are ones that would likely bring near-term revenue efficiencies and synergies for us in that regard. So a somewhat differential strategy, but the two underlying themes here are, number one, the ability to diversify our top line. And number two, the ability to achieve synergies, either on the expense base or the revenue side.

Thanks. That's all very helpful.

And our next question will come from the line of Corey Davis with Natixis. Please proceed.

Thanks. Couple questions. First, can I maybe push you a little bit further on the strategy for the NEBIDO launch? I can understand the argument that a lot of specialists may be perfect for this drug, but is it wrong to think that over time this is going to become more of a primary care-type of treatment? And how are you thinking about that in terms of developing your launch strategy?

Yes, Corey. I think I understand where you're going. You are absolutely right. This market is driven predominantly by two specialty groups. Urology, where we have an extremely strong foothold with the 75 representatives that have been in those specialists' offices for several years now. And in addition to that, endocrinology, which makes perfect sense. And we, again, are well positioned there with our medical center representative group of about 25 specialists. Now, in addition, like many specialty products, although we drive the thought leaders from the specialty base, and we put a concentrated focus on them. We obviously have to place calls on the generalist audience as well. And we intend to do that at a competitive level by utilizing the majority of our general practice [Pharma One] salesforce to support that launch immediately on day one, in addition to urology and endocrinology.

Okay, great. Secondly, on guidance and earnings. I think the last two quarters now you've beaten by $0.06, but you've beaten consensus. And since you don't have quarterly guidance, and you haven't raised your full-year guidance -- other than to say, toward the upper end. So is it the case that the street got it wrong in terms of the yearly progression of quarterly EPS? Or are you just being too conservative in not raising formally your guidance?

Well, I think that we have had had certainly a very strong second quarter and very solid first half. As we think about the remainder of the year, there is a fair amount of dynamism in the quarters from one quarter to the next. On the top line, Lidoderm has, as Nancy indicated, performed very well. Solid performance over the first half of the year, but we have seen some script trend moderation. And we're looking that it very carefully, but I think the outlook there is very solid for the remainder of the year. We did have a benefit in our generics business associated with some market dislocations in supply. And so typically, generics business is more or less a 50-50 split in terms of our revenues historically. I think that's more front end loaded in 2009. We're watching very carefully the Opana generic entrant possibility. And that, if it happened, could have a dampening effect on the growth trajectory. Then on the expense side, I think there's some phasing of that that's associated in acceleration in second half versus first half that reflects the investments we're putting behind our R&D portfolio, as well as preparations for the launch of two new products. So when you put all of that together, I think it still makes for a very solid full year. I think that's part and parcel of why we raised our guidance to the top end of our range. And we'll continue to evaluate the trends of this dynamism plays out over the next quarter.

Think I got it. Thanks.

And our next question will come from the line of John Boris with Citi. Please proceed.

Thanks for taking the question. I just have one follow-up on NEBIDO, if I may. I don't know if this was covered earlier. I hopped on the call late. But, as you think about pricing, it does seem as though the gel and the patch products are relatively expensive. I think they carry a WAC -- wholesaler acquisition cost well in excess of $7.50 a day on an annualized basis. Topical products could be well in excess of $2,700 to close to $3,000 on an annual basis. When you think about pricing NEBIDO, how do you use that as a comp to come to a conclusion as to whether you price it as discount parity or premium? Thanks.

John, I think you're thinking about all the same factors that we are. The gels are obviously the most popular treatment in the marketplace right now. We have watched how that has progressed in the European market, and following the introduction of longer acting injectables, such as our product, that really shifted over time. But, to your point, we have to price with an eye toward what the market is willing to bear for current therapies. Realizing, again, that this will be a differentiated therapy that will imply a certain amount of convenience as well as a much more stable drug level over the 10-week course of therapy that patients sometimes are not able to achieve with the use of gels. Just because it's difficult to be compliant, and it's difficult to always remember to apply the gel in particular approaches at the same time every day. So we think that our long-acting, injectable testosterone will offer advantages, and it will continue with the diversification of the business that we've been planning and that we're now executing against.

And just -- ?

The other thing that I would add is, testosterone replacement therapy market, as we highlighted, is a $900 million market that's growing at 20%. As Nancy highlighted, we think we've got clinical differentiation. Assuming our -- we are successful in bringing the product to market. And so I think that this would be an attractive addition to our top line, and we could see some attractive growth in that.

And just one follow-up, if I may. From some of the primary market research that you've done with the two physician groups, urologists and endocrinologists, especially in light of the FDA panel meeting. What are some of the early indicators of adoption of the product, should it see a favorable action from the FDA?

As I mentioned earlier, the two groups who are the strongest writers for products in this category -- and we believe that that will be increasingly true for an injectable -- are not only the urologists, but also the adult endocrinologists. We will focus directly our two new salesforces on those practitioners, and we expect there to be quite a nice response, along with the continuing support against PCPs. The market research that we have done to date suggests that they see the value in this product. They see the differentiation that it will offer, and they are excited and waiting for the product to be launched.

Thanks.

Next question, please.

Our next question will come from the line of Richard Silva with Barclays Capital. Please proceed.

Hi. Came on a little late as well, but maybe you could address not only the market size, but if it isn't today, do you expect at some point to give us a sense of what kind of penetration you think you could achieve with the sales effort you have?

I'm assuming, Richard, that you are talking to -- .

Sorry, NEBIDO.

Our long acting testosterone that we'll soon be sharing a new name for, but right now we're just calling it our long-acting testosterone. That market is current approaching $900 million. And it has demonstrated about a 20% growth rate annually. So this is a robust market. And in addition, it represents only 10% treatment levels for the patients who have low T levels. It's a very large group of patients. We expect that market to continue to grow. And we, again, think that we offer a very exciting alternative that will be much easier to differentiate than the gels and patches that have stolen the share -- the lion's share of the market to date.

Thanks, Rich. Can we go to the next question, please?

Our next question comes from the line of David Risinger with Morgan Stanley. Please proceed.

Thanks very much. I joined the call late also, so I don't know if I'm repeating a question here, but could you just tell us what the organic revenue growth was and the organic profit growth was ex-Indevus? Thank you.

Yes. So in -- first of all, on the quarter, I think we've had a very strong quarter that reflects not only the solid performance in our base business, which is the legacy Endo business and the pain franchise. But what you are also seeing is a very solid contribution from the Indevus portfolio. Most of the growth has been volume driven. It's about 16.5% year-over-year growth. Of that, the Indevus products add on top of that 5.4% growth. So net-net, about 20% of the total growth was Indevus-related, and 75% from the legacy Endo business.

Thanks, Dave. Can we go to the next question, please?

Our next question will come from the line of John Newman with Oppenheimer. Please proceed.

Thanks for taking the question. In terms of your guidance, does that assume that NEBIDO immediately starts to take share from the topicals? And then the $900 million market size number, does that include only the injectable products? Thanks.

So the $900 million figure in testosterone replacement So the $900 million figure in testosterone replacement is the total market for testosterone therapy. Our guidance for 2009, given the timing of the likely launch has very little baked in with respect to the injectable testosterone product.

Great. One quick follow-up. In terms of the needle size for NEBIDO, would that be identical to the currently marketed products?

18-gauge, so not outside the realm of anything you would expect.

Great, thank you.

I think we have time for one more question. So we can go to our last question, please.

Our next question will come from the line of David Amsellem with Piper Jaffray. Please proceed.

Thanks. On Voltaren, what's your view on the likelihood of a generic for the product after 2010? And do you factor that possibility in your longer term strategic thinking?

Sure, we're always thinking about how long our products will maintain their exclusivity. And as you know, the three-year exclusivity for Voltaren does expire next October. However, this is going to be a very difficult drug to take generic. Because of the fact that it is a gel that is administered topically, it is going to be very difficult for other companies to prove bioequivalence. And we personally believe it is highly likely that they will have to actually conduct clinical trials.

Okay. And then just one last quick question on VALSTAR. Can you give us a sense of how we should be think about pricing for the product? And how you view the addressable market?

Sure. As you know, the bladder cancer market affects about 15,000 patients annually. But the current treatment guidelines suggest that BCG should be used in first-line therapy. Since about half of those patients, essentially, fail over time, you can do the math to see what the size of that market is. And, I'm sorry, there was another aspect to your question, and it just slipped my mind.

Just on how you're thinking about pricing?

Yes, thank you. Because it has been a very difficult product to manufacture, and as you know, it hasn't been available to patients this is an area of high unmet need. We are working very closely well our manufacturer to get it out as soon as possible. But we think that we will likely be able to take the price up to a new level. It is currently published with the first data bank, and it is going to be sold at approximately $22,000 for the six-week course -- or, I'm sorry, it is a six-week course, but it includes six weekly installations to the bladder.

Thank you.

Ladies and gentlemen, this concludes the question-and-answer session for today's call. I would now like to turn the call back over to Blaine Davis for closing remarks.

We're actually going to turn it to Dave instead of Blaine.

I want to thank everybody for the support and following. Also the Endo team for delivering a great quarter and first half. I hope that there's appreciation, certainly from my standpoint, being a part of this organization for a little over a year now --year-over-year -- the Company has progressed very -- in a disciplined fashion. I think we now have a very coherent and disciplined strategy. I think the expansion and diversification of the product and therapeutic approaches in that strategic area. Again, the successful implementation and optimization of our base business. So as we go forward into the second half, we, I think, are wiser and a group that I think is better focused to deliver on the results that we want to see for this business and to be able to show the continuum of growth that I think you've all expected, as well as seen in the past. So I want to close, and again thank you for your interest and look forward to our next reporting session for the third quarter. Thank you.

Thank you for your participation in today's conference call. This concludes your presentation. You may now disconnect. Good day, everyone.