Endo International PLC (ENDP) 2011 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to Paladin Labs first-quarter 2011 results conference call. Paladin released its first-quarter 2011 results today at 4 PM Eastern time. If you did not receive a copy of the release, please visit the Company's website at www.PaladinLabs.com, where the release may be accessed.

Before turning the call over to Mr. Jonathan Goodman, President and CEO of Paladin Labs, listeners are reminded that portions of today's discussion may, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. The Company considers the assumptions on which these forward-looking statements are based to be reasonable at the time they were prepared. But cautions that these assumptions regarding the future events, many of which are beyond the control of the Company and its subsidiaries, may ultimately prove to be incorrect.

Factors and risks which could cause actual results to differ materially from current expectations are discussed in the annual report, as well as in the Company's annual information form for the year ended December 31, 2010. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or except as required by law. For additional information on risks and uncertainties relating to these forward-looking statements, investors should consult the Company's ongoing quarterly filings, annual reports, and annual information form and other filings found on SEDAR at www.SEDAR.com.

I would now like to remind everyone that this call is being recorded, Wednesday, May 25, 2011. I would now like to turn the meeting over to Mr. Jonathan Goodman, President and Chief Executive Officer. You may proceed, sir.

Thank you, operator. Good afternoon, and welcome to Paladin Labs first-quarter 2011 results conference call. I'm joined today by our CFO, Samira Sakhia; VP Sales and Marketing, Mark Beaudet; our VP Business and Corporate Development, Mark Nawacki; our VP Scientific Affairs, Dr. Patrice Larose; and our VP Government Affairs, Mike Freeman. On today's call, we will review our financial results and key developments for the 3 months ended March 31, 2011, and we will then welcome questions.

As you may be aware, Paladin adopted international financial reporting standards effective January 1, 2011. Accordingly, we have some changes to our accounting policies and presentation from the previous years. However, the adoption of IFRS has not had a material impact on our results.

Revenues increased CAD900,000 or 3% to CAD31.7 million for the first quarter of 2011, from CAD30.8 million for the same period in 2010. This increase is mostly attributable to the sales growth of certain significant promoted products, including Tridural, Trelstar, Testim, Metadol, and Plan B, which combined, increased by 16% compared to 2010. Please note that we did not record any international sales for Impavido in the first quarter of 2011, compared to CAD1.6 million of Impavido revenue in the first quarter of 2010.

First-quarter 2011 EBITDA increased 50% to CAD17.3 million, compared to EBITDA of CAD11.5 million in the first quarter of 2010. Net income for the quarter was CAD8.1 million, or CAD0.40 per fully diluted share, compared to net income of CAD3.1 million or CAD0.16 per fully diluted share in the first quarter a year ago. For the quarter ended March 31, 2011, Pharmaplan, our South African operation, recorded CAD10.5 million of revenue, and net income of CAD1.8 million, of which Paladin's share of net income after fair adjustments of CAD436,000, and taxation of CAD98,000, was CAD201,000.

At March 31, 2011, Paladin's cash, cash equivalents, and investments in marketable securities totaled CAD105.7 million. In addition, subsequent to the quarter, we received a total of CAD88.4 million from ProStrakan, representing CAD77.2 million to reimburse the debt facility, CAD2.8 million of earned interest, and CAD8.4 million related to the early redemption of the convertible debenture. Essentially at this time, we have more than CAD190 million of cash.

Now, turning to recent developments. The first quarter has been active at both the product and corporate-development level. On the product development front, Paladin received regulatory approval for DigiFab during the first quarter of 2011. DigiFab is indicated for the treatment of patients with life-threatening or potentially life-threatening digoxin toxicity or overdose. In early February 2011, Paladin entered into an agreement with Bristol-Myers Squibb to acquire the Tempra line of products in Canada, including both syrup and drop formulations. According to IMS Canada, the Tempra line of products achieved sales of approximately CAD3 million in 2010, representing approximately 19% of the total sales in Canada pediatric acetaminophen products.

In late February 2011, Paladin obtained Canadian regulatory approval for Abstral. Abstral is a novel, rapidly disintegrating sublingual formulation of Fentanyl, a well-established opioid used for the management of episodes of breakthrough pain experienced by cancer patients who are already receiving opioid analgesics for chronic pain. We expect to launch Abstral later this quarter, and for Abstral to become an important product in our pain portfolio.

Subsequent to the first quarter of 2011, Paladin announced the Canadian launch of Seasonique. Seasonique is a new approach in birth control pills, and is designed to reduce the number of periods a woman experiences from 13 to 4 per year. Moreover, it is the first 91-day combination oral contraceptive regimen approved in Canada, which is placebo-free.

Also subsequent to the quarter, we entered into a licensing and distribution agreement, under which we granted Takeda Pharmaceutical Company Limited, an exclusive right to develop and commercialize Antizol for the treatment of ethylene glycol and methanol poisoning in Japan.

Finally, in May 2011, Paladin and Elan Drug Technologies, a business unit of Elan Corporation PLC, entered into a licensing and distribution agreement, under which Paladin was granted exclusive Canadian rights to market and sell, upon regulatory approval, Elan's controlled-release hydrocodone product for the treatment of moderate to severe pain. Hydrocodone is the same active ingredient as is in Vicodin, which is widely prescribed in the United States. The product is currently in 2 pivotal Phase III trials in the US, and is expected to be submitted for Health Canada approval in the second half of 2012. This unique, controlled-release hydrocodone product will compete in a CAD385 million market in Canada, and strengthens our late-stage, relatively low-risk product pipeline.

Turning to corporate developments, in January 2011, Paladin closed its agreement with ProStrakan Group, whereby Paladin was granted an exclusive license to ProStrakan's products for certain emerging territories, and acquired, by way of assignment, ProStrakan's existing secured debt facility of GBP50 million or CAD77.23 million, with the addition of certain conversion rights. In the second quarter, in connection with the acquisition of ProStrakan by Kyowa Hakko Kirin Company Limited, Paladin received a total of CAD88.4 million upon early termination redemption of the debt. In short, we earned a 14.5% return on our investment in around 4 months, while we still maintained the emerging market product rights to their products.

In early February 2011, Paladin agreed to amend its partnership with Isotechnika Pharma, in order to support a transaction between Isotechnika and ILJIN Life Science Company, for the continued development of voclosporin for transplantation autoimmune diseases. Paladin assigned its intellectual property rights for certain territories to Isotechnika Pharma. In consideration for this amendment, Paladin received CAD1 million from Isotechnika. Further, Paladin sold 12.5 million shares of Isotechnika to ILJIN for CAD3.125 million. Paladin retains its rights to voclosporin for transplantation autoimmune diseases for Canada, South Africa, and Israel, in addition to certain rights under the Lux and Atrium licenses, and third-party manufacturing agreements.

Also in February, Paladin further demonstrated their confidence in Pharmaplan by increasing our planned investment from 5%, as stipulated in the original agreement, to 10%. This increased Paladin's ownership from 34.99% to 44.99%, effective March 1, 2011. Paladin remains confident in Pharmaplan's business model, their ability to grow and generate profits, and ultimately generate significant value for Paladin shareholders.

On February 24, 2011, Paladin closed its bought deal offering of 1.15 million common shares, which includes 150,000 common shares issued pursuant to the exercise by the underwriters of their over-allotment option. The common shares were issued at a price of CAD35 per common share, for total gross proceeds at Paladin of approximately CAD40.25 million.

For fiscal 2011, Paladin expects to generate CAD130 million to CAD135 million in revenue. This forecast excludes the impact of acquisitions that may be made by the Company between now and the end of 2011. With over CAD190 million in cash, or CAD9.50 per fully-diluted share, we clearly have the capital to deploy in low-risk, high-ROI product or corporate development opportunities. We will work diligently and in a disciplined manner at finding investments that complement our existing Canadian and South African businesses, or allow us to gain a foothold in select, emerging markets.

This concludes my call. Operator?

Thank you, ladies and gentlemen. (Operator Instructions). Our first question is from the line from Pooya Hemami from Desjardins Capital Markets. You may proceed.

Yes, thank you for taking my questions. I just have a question on the ProStrakan arrangement. Has the Company identified any additional products that it would expect to launch in Canada from ProStrakan's product rights?

We currently have all of ProStrakan's existing products for Canada so they don't have any additional products to provide us for Canada.

Have you narrowed down in terms of which ones you think you are more interested in bringing to market shortly? I know, after the arrangement was first announced there was a couple on the list, but have you narrowed that further to particular products that may be more interesting for Paladin?

Yes, we are taking a good hard look at Rectogesic, the product for anal fissures.

Okay. Thank you. And just one other question. Can you just discuss a bit how you see the Oralair product that you recently filed for approval? How you see it in the Canadian marketplace and what its potential can be for Paladin? And when you it to be on the market, if approved?

That's a very hard question to answer and it's one that we're struggling with, is how big can Oralair in Canada, and I will tell you what we know. What we know is that right now, the market is constrained by the fact that it's only allergists who are providing the injections and there are very few allergists in Canada, and it's very difficult to get an appointment with them. And, the other constraint is the fact that it is an injectable, and after the injection, patients have to sit around the doctor's office for 45 minutes to an hour to see if they go into anaphylactic shock. And, so those are two major constraints.

With Oralair, the product, it is a sublingual tablet, it can be taken, it can be prescribed by a GP, so there won't be the constraint of having to get an allergist appointment, and as of today, there's been no incidences of anaphylactic shock. So, patients can likely take this product at home. And, it is very hard for us to figure out exactly how big this market is going to be, suffice it to say that we think it's going to be substantial. And, just to give you some evidence of that, Schering, Schering-Merck, or Merck now licensed the competitive product from [ALK Othello] and it's a several hundred million-dollar deal for just North America, so they clearly believe that this is a really going to be a game changer for the treatment of grass allergies.

Okay, thank you.

Our next question is from the line of Cosme Ordonez from GMP Securities. You may proceed.

Hi, gentlemen, thank you for taking my question. With regard to the business development plans, are you targeting still Europe or are there plans to expand to emerging markets and continue to consolidate the division of bringing Paladin to becoming a global specialty pharma company?

Thank you, Cosme for the question. So in Europe, we have been very opportunistic. So, we did ProStrakan, it was opportunistic, yet very strategic for us, because in addition to the fact that we made CAD10 million in four months, we also secured the rights to all their products for the emerging markets that are of interest to us. We also did a deal with SpePharm, which was also opportunistic, where we, through a secured convertible debenture, we made an investment and then we also obtained product rights in select, emerging markets and Canada. But, our primary focus, really is to build out our presence in South Africa and build our presence in at least one other emerging market this year. So, we are really focused on trying to find a transaction in another emerging market, or for us to establish on our own in that market.

Would you consider raising debt to fund any of the future transaction or the plans are to remain debt-free?

Philosophically, I am debt averse, but, I'm not going to tell you categorically that we will never take on debt. But, we have a CAD190 million in cash, and I'm not about to bet the farm on one single transaction. We are going to do this very disciplined, very methodically, and we're going to deploy the capital as we have done, very successfully over the past 15 years at high-ROI, low-risk opportunities.

Any plans to increase the size of your business development team? Or, are you happy with the people that you have at the moment?

Right now, if you just look at our business development team, it would be, by far, the largest life science investment banking team in Canada. That being said, so we've already got quite a number of professionals in there. That being said, we're more than likely to add to our capabilities through an additional headcount or two.

Thank you very much.

Our next question is from the line of Philippa Flint from Bloom Burton, you may proceed.

Thanks very much. Good afternoon. On Impavido, can accommodate the expected sales are going to come back at similar levels as last year, to the remainder of this year? I know it's lumpy, but you expect to recover sales to a level that you were?

Philippa, it's Mark Nawacki, so just to comment, that yes we are confident and comfortable that we will match last year's levels of sales and really, we see this more as a timing difference than an issue around actual achievement of sales.

Okay, great, thanks. Your margins seem to have improved over the last three quarters or so. Do you expect them to be at similar levels going forward?

No. We believe that our margins were unusually high. Mainly due to product mix and the -- mainly due to product mix, it was a particularly profitable quarter.

And, with the launch of Abstral, coming up in other products that you've recently licensed, do you think that will, that plus how the products shake out will come in a little lower?

Yes. We haven't really begun to spend on Abstral, and we typically lose money for the first three years from the launch. And, so, we will be investing heavily in Abstral, very shortly.

Okay. And then, did you take any price increases in the first quarter? And if so, can you comment on an average level across all products?

So, we took price increases, some in December, and then we have provincially, they roll out over the next several months in Quebec and Ontario. But it's really -- it's like 1% to 2%. It's not material.

Like CPI. Okay, great, thank you very much.

(Operator Instructions). Our next question is from the line of Lennox Gibbs from TD Securities. You may proceed.

Thanks. With respect to Tridural, in the event of a worst-case scenario at Labopharm, what assurance does Paladin have of security of supply?

It's a great question. In the event of receivership or bankruptcy of Labopharm, we are able to go directly to, we have the right to go directly to their contract manufacturer for supply. So, we are pretty confident that there would be no interruption in supply.

Okay. And then I will ask the converse I guess, which is whether or not there's a potential opportunity for Paladin to, just coming out of the Labopharm situation? To the outside obviously.

I can't comment.

I guess another way of putting it is, are there alternate structures to your relationship around Tridural that might make more economic sense? To Paladin?

Labopharm is a valued partner to us. And, we have a lot of confidence in them. Last year, we lent them CAD10 million, secured against the Canadian distribution of Tridural. So, we believe that they are our partners, and we are fully supportive of them.

Okay, good, thanks. And just with respect to Pharmaplan, should we expect building top line momentum for that business as we look over the next 12 months, and if so why? And if you can speak specifically to the number and kinds of new product introductions that are scheduled for 2011?

Lennox, it's Mark Nawacki, so we think that Pharmaplan is going to continue to grow versus prior year. There have been some delays with respect to new product introductions just because of regulatory timeline, so we don't anticipate the same number of new product launches this year versus prior year, so a slight moderation, but that being said, we're still looking at probably double-digit percentage growth, year-over-year within the Pharmaplan business. So, we remain pleased, and just continued focus around new product introductions, which is a focus for Canada, but certainly in South Africa as well. We've got lots of capacity to bring in additional products. So, a lot of work ongoing there.

Okay. So, just to be clear, so the delays are at the regulatory side and not the submission site? Is that right?

That's right.

Thanks very much. Sorry, Jon.

What's interesting about Pharmaplan, are certainly about the valuation of Paladin, on EBITDA it is that our share of -- our share of Pharmaplan's profitability is not really -- is not recorded in EBITDA. Nor are there revenues. In fact, it's been a source of cash from us, diminishing kind of our cash per share. And, I think when we ultimately own all of Pharmaplan, it's going to kind of radically change how we look, adding all of their profitability and all of their sales. And, it's going to happen sooner than later.

Good. Thanks for the color.

Our next question comes from the line of Doug Miehm from RBC Capital Markets. You may proceed.

Hi, good afternoon. Jonathan, maybe you can talk about, you're spending a lot of time looking at potential acquisitions in emerging markets, but can you comment on if you seeing any change in multiples, whether they'd be sales multiples, EBITDA multiples, et cetera, in terms of pricing over the last six to 12 months?

I would say that over the last six to 12 months, multiples haven't changed. I would say over the last five years, or three to five years, multiples have changed quite dramatically. Brazil is a red-hot market. And, multiples there have gone up quite dramatically over the last three years. As have their currency. I would say that in Mexico, multiples have stayed pretty much the same. They really -- it's really very market-specific. In Greece as an example, multiples really have gone down the toilet. Or Spain. As an example. Or Turkey. So, it really, it's very country-specific, but Brazil is certainly red-hot.

So, are you looking at potential opportunities in Greece and Turkey?

It's funny, we just talked about Greece at the board meeting today. And, yes, I think Greece is the word. I think we should take a look at that.

Okay. And what type of multiples are you seeing then, on the more attractive side of things?

Well, it's different. There is -- to acquire a product is different than to acquire a company and as I mentioned, the Company multiples are very much dependent on what market they are in, and what growth prospects they have. But, on the product side, I would say the multiples have stayed within the same bounds that we have historically purchased at.

Okay. When you say you wouldn't want to gamble the whole cash position on the single acquisition, how large would you be willing to go if you found the right transaction?

Well, I would go pretty high, provided that the deal is structured properly. Or, structured in a risk-mitigated manner. It's my fundamental belief that most acquisitions don't pay for their cost to capital. That the seller is better off than the buyer. So, when we bought Pharmaplan, as an example, we initially bought 34.99% of the Company. And, we then committed to buy 5% of the Company each year at a predetermined multiple, which was always below ours. And so, we had three years to determine if we wanted to buy the -- we had three years from which to see -- to learn how to run the Company. And then, at the end of the third year, we have the right to purchase the 50.1% of the business that we don't already own, at a predetermined multiple that is below ours.

So, it really gives us an opportunity to learn how to run the business, incent management to run the business for the best interest of -- for the long-term interests of the Company and not to operate more in the short-term. In that way, it's true, that Pharmaplan has grown very nicely since we acquired it, and we probably could have bought the whole thing for less than ultimately we are going to pay for it, in a year in change from now. But, this way, we have learned how to operate, we are learning how to operate the business in South Africa, and we've taken out a lot of the risk.

Okay, that's great.

Those are the types of transactions that we are looking for.

Okay.

So I would, if Pharmaplan would've been, instead of being a CAD50 million business, would have been a CAD500 million business, if they would've accepted the structure that we -- that they ultimately accepted, we would have leaned forward and done it.

Okay. And then, maybe you could just talk about your expectations for the new hydrocodone product that you licensed in from Elan, once it hits the market? Well right now, it's undergoing two Phase III trials, we expect to submit in 2012. It competes in the CAD385 million market in Canada. It's a couple of years -- I should say it's several years away so it's really hard to comment. But, there is no single-ingredient hydrocodone product in Canada.

It's a very large product in the states, it's probably north of a CAD1 billion molecule in the states, it's not available in Canada. Again, it competes in a big market for moderate to chronic pain. If fits really nicely with Tridural. We will need to hire anybody, any additional people, it's pure leverage. We think it's going to be a winner.

Excellent. Okay. Thanks very much.

Our next question is from the line as Alan Ridgeway from Paradigm Capital. You may proceed.

Hi, Jonathan, thanks for taking the question. Just coming back to Pharmaplan in South Africa, and the regulatory environment down there. Could you maybe talk a little bit about typical timelines for drugs to get through the regulatory pathway in South Africa? And have any of the delays that you discussed earlier changed the outlook for that business in your eyes?

So, it takes about two to three years to get a product approved in South Africa. Since we've been very happy with the transaction, management is terrific, because of -- well-aligned with building a South African business that we could all be proud of. It continues to bring in new licensors and we continue to support that through bringing in licensors of our own, where we are securing the South African rights like ProStrakan. So the business is doing really well. It's very solid, it continues to make money and will make more money this year than it did last year, and is projected to make more money next year than this year.

So, in that situation, with some of the products that you have licensed from ProStrakan, it's more of a two to three year outlook before those would be available in the South African market?

That's right.

Okay. And then maybe, just jumping back to talking about the allergy market in Canada for Oralair, do you have any idea how large the market is, even though it is constrained in Canada for the allergists? And I will just leave it with that, thanks.

There is no IMS data on immunotherapy. And, the reason is that the doctors are buying these allergens from multiple suppliers, sometimes within Canada, sometimes outside of Canada. They are keeping the allergens in their drawer, and then they are injecting. And so, our best estimate is, and then there's multiple allergens. Right now, Oralair is just going to be for grass, which is a substantial allergen, but of course, there's other allergies. We think that the total, and this is very rough cut, and I wouldn't swear on a stack of Bibles that it's right, but immunotherapy is probably around CAD20 million in Canada, currently, injectable.

And that would be for all therapy? All injectable?

All therapy.

Okay, great, thanks a lot, Jonathan.

Thank you. To kind of put in perspective, before Viagra launched, where there was an injectable, the total erectile dysfunction injectable market in Canada was under CAD2 million. And, Viagra now is about a CAD65 million brand in Canada, and I'm not even adding Cialis and all of the other wonderful pills. So, it's really hard to say how big this market is going to be, once you remove the injection, once you remove the risk of anaphylaxis, once you move the market away from allergists towards GPs.

Okay, great. Thanks a lot.

You're welcome.

We have no further questions at this time, sir. You may resume with your presentation or closing remarks.

Thank you for attending our first-quarter 2011 conference call. Have a great day.

Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great day, everyone.