Endo International PLC (ENDP) 2011 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to Paladin Labs second-quarter 2011 results conference call.

Paladin released its second-quarter 2011 results today at 7.30 AM 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 Company's 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 Report and Annual Information Form and other filings found on SEDAR at www.SEDAR.com.

I'd like to remind everyone that this call is being recorded. I would now like to turn the meeting over to Mr. Jonathan Goodman, President and Chief Executive Officer. Go ahead, Mr. Goodman.

Thank you, operator. Good morning and welcome to Paladin Labs second-quarter 2011 results conference call.

I'm joined today by our CFO Samara Sakhia; our VP, Business and Corporate Development, Marc Nawacki; our VP, Scientific Affairs, Dr. Patrice Larose; and our VP, Government Affairs, Mike Freeman; and Marc Beaudet, our VP, Marketing and Sales. On today's call we will review our financial results and key developments for the three months ended June 30, 2011 and we will than welcome questions.

Revenues increased CAD3 million or 9% to a record CAD36 million for the second quarter of 2011. This increase is mostly attributable to the sales growth of Paladin's portfolio of products including certain significant promoted products specifically Tridural, Trelstar, Testim, Metadol, Plan B and Abstral which combined increased by 16% compared to 2010.

Earnings before interest expense, taxes, amortization and unusual items, EBITDA, for the second quarter of 2011 increased 34% to a record CAD18.3 million compared to EBITDA of CAD13.6 million in the second quarter of 2010. Net income for the quarter was CAD16.8 million or CAD0.80 per fully diluted share compared to net income of CAD4.9 million or CAD0.25 per fully diluted share in the second quarter a year ago.

For the second quarter, Pharmaplan recorded CAD12.3 million of revenue up 21% over the prior year and net income of CAD2.5 million, up 43% over the prior year. Our share of the net income in the quarter after fair value adjustments of CAD443,000 and taxation of CAD139,000 was CAD564,000. We're pleased with Pharmaplan's performance which is being masterfully operated by Dr. Gert Hoogland.

Finally as at June 30, 2011, Paladin's cash, cash equivalents and investments in marketable securities totaled CAD204 million. From this strong cash position, Paladin continues to pursue product acquisitions and development opportunities.

Now turning to recent developments. The second quarter of 2011 was highly productive. We launched two new products, Abstral and Seasonique, which will lay the foundation for near-term organic growth.

We also submitted Oralair for regulatory approval and in-licensed Silenor in Elan's hydrocodone product which will fuel our longer-term growth. Abstral, a novel rapidly disintegrating sublingual formulation of fentanyl is a well-established opioid indicated for the management of breakthrough pain in opioid-tolerant patients with cancer.

Seasonique is a new approach in oral contraceptive designed to reduce the number of periods a woman experiences from 13 to four per year. The launch of these two new products complements Paladin's existing women's health and pain portfolios.

Also during the quarter, Paladin submitted Oralair for regulatory approval. Oralair is a sublingual grass pollen immunotherapy tablet for the treatment of grass pollen rhinitis with or without conjunctivitis for patients uncontrolled with current symptomatic medications. We expect to obtain regulatory approval in the second half of 2012.

Finally during the quarter,we entered into a licensing and distribution agreement with Elan to market and sell Elan's controlled released hydrocodone product for the treatment of moderate to severe pain. In addition, we entered into an exclusive collaboration with some Somaxon Pharmaceuticals to commercialize Silenor for the treatment of insomnia characterized by difficulty was sleep maintenance in Canada, South America and Africa. We intend to submit Silenor for regulatory approval in 2011.

In early May, Paladin and Takeda entered into an outlicensing and distribution agreement under which we granted Takeda an exclusive right to develop and commercialize fomepizole which is marketed and distributed by Paladin under the trademark Antizol in Canada and the United States and is indicated for the treatment of ethylene glycol and methanol poisoning in Japan.

Now turning to corporate developments. On May 17, 2011 Paladin received a total of CAD88.4 million as repayment of its secured debt facility from ProStrakan. Also during the quarter Paladin received regulatory approval from the TSX to carry out a normal course issuer bid to purchase up to 935,367,000 of its common shares effective May 30, 2011. To date Paladin has not purchased any shares under this normal course issuer bid.

Subsequent to the second quarter, Paladin acquired 5.3 million common shares of Afexa Life Sciences through market purchases on the Toronto Stock Exchange giving Paladin beneficial ownership of a total of 15.4 million common shares of Afexa or approximately 15% of Afexa's total issued and outstanding common shares.

Yesterday, Paladin made an offer to acquire any and all of the issued and outstanding shares of Afexa Life Sciences of Edmonton, Alberta. Afexa's core product is COLD-FX, Canada's leading over-the-counter cold and flu remedy. COLD-FX is indicated in Canada to help reduce the frequency, severity and duration of cold and flu symptoms by boosting the immune system.

Under the offer, Afexa's shareholders will be entitled to elect to tender their shares for either CAD0.55 per share in cash or to remain invested in the specialty pharmaceutical sector by exchanging each of their Afexa shares for 0.013 of a share of Paladin. At CAD0.55 in cash per share, our offer provides a 57% premium over the market value of the Afexa common shares of CAD0.35 per common share on the TSX on July 14, 2011 the date we publicly announced that we crossed a 10% ownership of Afexa.

We are providing Afexa shareholders the choice to receive all cash or all Paladin stock. This share alternative provides Afexa shareholders with the opportunity to maintain an ownership interest in Afexa's core products COLD-FX and its related products while becoming shareholders in a larger, profitable and more diversified company which is well positioned for sustained long-term growth.

I would like to add that we would have much preferred to work with Afexa through a negotiated transaction rather than through an unsolicited bid and continue to welcome a dialogue with the Company. We have a great deal of respect for Afexa's management and the Board of Directors.

We particularly admire Dr. Jacqueline Shan, Afexa's cofounder and the driving force behind the development of COLD-FX, a a product that has improved the health of hundreds of thousands of Canadians. For more information about the transaction, please go to www.afexaoffer.com.

This concludes my second-quarter 2011 conference call. We now welcome questions. Operator?

(Operator Instructions) Cosme Ordonez, GMP Securities.

With regard to FX -- sales of COLD-FX have declined in fiscal 2011 relative to fiscal 2009 and fiscal 2010. Is this something that you guys have -- I imagine that during the due diligence process is something that you took a very careful look. Do you expect sales to continue to decline going forward or this is just in the process of stabilization right now?

I'm going to ask Mark Beaudet to answer your question.

Our view of COLD-FX is we think that it's a product that it reached a mature stage of its product lifecycle. The declines that we're seeing in the most recent fiscal year or reporting period are largely due to the year ago base which was -- still had a lot of the sales dude to the H1N1 which was a particularly strong period for the brand. But when you take a look at the long-term trend, we think that the brand is kind of flattish and it's also highly dependent upon the severity of the cold and flu seasons.

Thank you very much. And just a housekeeping question with regard to the income statement on the overall finance income that you're reporting there of CAD9.1 million. Could you shed some clarity on this, what this refers to?

The ProStrakan debt had several components to it. The big component of that CAD9 million is the termination fee that we received which was CAD3 million plus the excess of the interest that went from May 17 all the way through April.

There's also a couple of derivatives that came with the agreement for accounting purposes, the option to convert and the option to redeem. So there was a fair value adjustment on all of that. But the majority of that number is really the gain that we have because of the penalty of early termination.

Pooya Hemami, Desjardins Securities.

Yes, congratulations on the results and thanks for taking my questions. Just a housekeeping question on the tax rate. I saw it was considerably lower this quarter than let's say recent quarters. Could you maybe give some context as to why it was lower and what you expect for the tax rate going forward?

There's actually an unusual item going through this Q which is really that ProStrakan termination. So a portion of that termination, about CAD3 million, is treated as capital gain for tax purposes and is not -- 50% of it is not taxed in Canada. So that's what's really driving the rate reduction.

Okay, perfect, thank you. And can you give us some -- any color on the how the Abstral launch is proceeding, if you have any context on the traction and maybe any if you have any sales numbers on that?

Pooya, it's Mark Beaudet. The Abstral launch is off to a good start.

But we don't have any numbers to share at this point. The sales that we have had to date have mostly been -- we're still in the very early stages and the sales that we have had have mostly been to fill the channel.

We are getting some really positive feedback from physicians and patients about the response to the product. And so we're really confident that we've got a product that brings important benefits to the marketplace.

And the final point on Abstral is that right now we are in the process where private payers are receiving our file and in the process of including it within their systems. We've made great progress in the last month and a half or so in terms of getting our product in their system and eligible for private reimbursement. And we expect that as we continue to do that, that that will facilitate prescriptions as we move into September and the next few months.

Thank you. One last question, the SG&A has been very well contained in recent quarters. Do you expect that to trend upwards because of promotional efforts on Abstral and other products to be launched?

As you know, we don't give guidance on expenses, but I have been saying for the last little while that our EBITDA margins have been unusually high. And I know I keep saying it and they keep getting better and better, but we do expect -- our profitability is not going to get better than this.

(Operator Instructions) Alan Ridgeway, Paradigm Capital.

Good morning, guys, and thanks for taking the questions. Could you maybe comment on how much stocking revenue from Seasonique and Abstral may have been included in the revenue line from this quarter?

The launches were really -- Seasonique was mid-quarter and Abstral was middle of June. So neither one of them really factored in as far as the numbers.

Okay, great, that's helpful. And then secondly on the income statement, just to clarify, in the interest income line that is above the EBITDA, is there any ProStrakan interest in that line as well?

Yes, there is ProStrakan interest up to and including May 17. So the real cash interest that we would have received.

Okay, great, thank you.

Most of it is below the line.

Right, most of it is below the line but there is still a little bit above the line.

Okay, great, thanks.

Yes. But what is in the interest income line is the real interest that we earned up to and including May 17.

Right and below the line would be (multiple speakers)

Right, okay. That makes sense. Thank you.

And then finally, Jonathan, maybe just a comment on Oralair. You are talking about -- or it was recently filed that you're talking about potentially receiving approval before the end of next year.

And given what we've seen out of the Canadian regulatory agencies recently, that seems a little fast. Could you maybe comment on why you guys are thinking you might get it approved that quickly? And I will leave it at that. Thank you.

The average view time is about a year. And they have been pretty good at holding to that benchmark. So we feel pretty good that this product will be about average in terms of review cycle.

Okay, well, maybe I'll follow up then. Have they had this in front of them already?

No. We just submitted it.

Okay. We have been seeing more like a year and a half to two years but I'll take your word on a year. Thanks a lot.

Thank you.

But we're forecasting a year and a half.

(Operator Instructions) It appears at this time that there are no further questions.

This concludes the second-quarter conference call. Thank you and have a wonderful day.

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.