Indivior PLC (INDV) 2015 Q2 法說會逐字稿

Get ourselves ready. Well good morning, everybody. It's nice to see so many of you here and what starts to become a lot of familiar faces. I'm very pleased to be able to present our half-year results.

Before I do, I'll just draw your attention to the notice on forward-looking statements which I will assume that you have read.

Our agenda for this morning is very straightforward. After my introduction, Cary, the CFO, will take you through the financials. Javier has a litigation update for you. I know many of you are interested in that.

I'm going to cover the pipeline and talk a little bit about the future outlook. Dr. Christian Heidbreder, our Chief Scientific Officer, was supposed to come today and unfortunately, he's sick, and so he was unable to travel so that's why I'm covering off the pipeline.

I think you've read the press release, so you'll be aware that we had a very positive start to public life as Indivior. Our financials have exceeded our plan. That's been underpinned, of course, by operationally the business has been very strong particularly in the U.S.

Well, Suboxone Film share has been maintained, in fact, it's just a very slightly above where we ended last year. That's primarily being driven by the fact that we haven't seen a collapse in the sort of pricing driven by the generic sector but we should also be aware that the team there has done a fantastic job in maintaining our competitive position versus other branded competitive -- competition from BDSI and Orexo.

We continue to make excellent progress in our pipeline, and only yesterday, the FDA granted us priority review status for our Nasal Naloxone technology. So I'll talk more about the pipeline shortly.

So let's just remind ourselves of what we said in February so we can then think about what we're saying now to help our guidance across the end of the year. And you've seen that the guidance has gone up 10% on the net revenue line and 30% on income.

Then February, we were very clear that we had a very strong position in the marketplace. The market is growing at a healthy double-digit. We still see that market growth is being maintained but that we anticipated there would be some intense price competition from generics. Well, that hasn't yet materialized in the market. There is some slight downward pressure but nothing material.

So what we're seeing now for the remainder of the year is that we think that the current sort of trend will continue some way into the second half for the current film share will be maintained for a period of time.

But it will be very unwise to get a full sense of security and think that this represents the new status quo. So we are being prudent. We are expecting further price pressure from generics in the second half.

We do think that it's more likely than less likely that we will see the level of intensity of price competition that we might otherwise have expected earlier in the year. Why is that? Well, we still think that from the current dynamics it's possible, it's also possible there could be additional generic care entrants into this marketplace, and so we want to be prudent and make sure that we're prepared to any of these eventualities.

So as you build your models, I just want to remind you that in the second half, normally, our R&D expenditure is greater in the second half than the first half, still within the original plan for the year, of course. But we have had a slight increase in legal expenses to deal with all this litigation.

For the headline news on generic pricing is we still think it's more a matter of timing, it's still when rather than if is our belief at this moment in time, but, of course, we will be updating on this at our results in November for our quarter 3 results.

So just to give you a little transparency into where the generic sector is at, you see here the four players. The slight surprise is that Amneal still have 51% and that Teva only have 5.6%. If you have applied the received wisdom to this, you would have expected that there was greater price discounting by Teva and that that would have taken some share from Amneal. We can all speculate as to why that hasn't happened but we can see that from the market dynamics that it's still reasonable to expect that that could happen.

If we look at how the branded competitors have performed, this chart shows how they performed versus the same week of launch as the Suboxone Film. So if we take week 35, which represents where Bunavail are at in their launch, they're still, you know, working to get traction in the marketplace whilst the Suboxone Film in the same time period had achieved 38% market share. And we see that Zubsolv in their own launch was still working to gain traction at this point.

So there's no surprise then, when you actually look at today's market share chart and you look at the top dark blue line, you can see that the film share has been very stable now since the beginning of the year.

If you sort of squint closely, you see a slight upturn in the line that it's not significant. We say that the share is flat and you see that Zubsolv and Bunavail are very stable, so very, very resilient.

So what we're finding is that even as patients and physicians have more choices, which they do, they have more choices now than they've ever had before. They're still choosing the Suboxone Film in preference to any other technology that is available.

If we just look briefly at Europe, we see that we performed very well against the received wisdom versus generic competition in Europe. You see that our franchise share has been stable now for the last few quarters.

Austerity measures continue to be a drive factor in Europe. That's not specific to us, you know, there's a well-known industry phenomenon. What we are pleased about is that there is a very clear opportunity to treat prescription pain killer dependency in Europe which is not currently treated and we've got some, you know, studies and models that are being built, but that's going to take time to get going.

So that just really gives you a sort of high level overview of the context in which the numbers sit. Cary will now take us through the details of the financials.

Thanks, Shaun. Good afternoon, everyone. We'll start by taking a look at our P&L for the first half versus a year ago, first half as we've done in the past, we're showing you the 2015 on a reported and on an adjusted basis and adjusted is where we exclude exceptional costs which were $5 million in the first half.

So I'll just start with net revenue, very happy with our net revenue performance, down 10% on a year-over-year basis, but when you adjust and put it on a constant dollar basis and I'll show the impact with the strong dollar impact on our European revenues, our net revenue is down 7%.

Our operating profit came in at $230 million on a reported basis and $235 million on an adjusted basis. And our net income in the first half was $144 million and $148 million on an adjusted basis. I'll get in more details on this shortly.

Taking a look at our quarterly trend, our revenue in the second quarter was actually up slightly versus the first quarter. And on a year-over-year basis, you see the decline in the year-over-year revenue of 6% which is slightly better than the decline we saw in the first quarter where our net revenue was down 8% year-over-year.

And part of that improvement is we're now starting to hit the anniversary on the higher level of rebates and discounts that we started to take last year as we saw a more competitive marketplace and we're starting to come to the anniversary of that impact on our net revenues.

Our SG&A in the second quarter was $90 million, essentially flat versus the first quarter, but up 10% year-over-year and as we guided at the beginning of the year, we expect that our SG&A or SD&A to be up roughly $40 to $50 million over 2014 and that's really the cost associated with being a standalone public company now.

On a year-over-year basis, you'll see that it was up $20 million for the half and that's essentially right in line with the $40 million to $50 million guidance we gave for the year.

Our R&D, as Shaun said, as we're progressing and advancing our clinical trials primarily being in two phase 3 trials now, you see that growing from $20 million in the first quarter to $34 million in the second quarter or $54 million for the first half which is up 45% year-over-year.

And we're expecting to see it increase over that level in the second half of the year as we're fully starting to enroll our phase 3 trial for our injectable Buprenorphine product. We also filed as you saw earlier this quarter the NDA for our Nasal Naloxone product and we filed an IND also on our alcohol indication. So right in line of our guidance for the year in terms of what we're going to spend for R&D, but we do from a saving standpoint expect to see more R&D in the second half.

Our tax rate in the first half of the year is 28%, which is roughly in line with our tax rate for 2014. We are expected to come in slightly lower than that in the second half of the year; part of what you're seeing in the first half is the mix of income by tax jurisdiction driving it up slightly which is also why you see a higher rate in the second quarter versus the rates for the first half and for the guided rate for the year.

And taking a little deeper dive on our revenue, we report our revenue segments between the U.S. and rest of the world. Again, in the U.S., we continue to see low market growth in the double-digit which is consistent with our assumptions at the beginning of the year.

Our market share loss dropped from 63-1/2% a year ago to 59% at the end of June, but I think it was also notable is the 59% is slightly above where we ended 2014. So as Shaun mentioned, we're pretty happy with the way our film product in the U.S. has been very resilient in the face of this increased competition, and is exceeding our assumptions and our guidance which is the primary driver for why we're increasing our guidance.

We are still doing tactical rebating strategically to maintain our share when it comes to managed care and formulary access and that's going as expected and was within our original guidance. And then shifting to rest of the world, we see solid volume growth in Europe but that's more than offset in many cases by the government austerity measures that are still having an impact.

And we're down 20% year-over-year but 15% of that 20% is driven by the impact of a strong dollar on our revenues outside of the U.S., so overall, on a net-net basis, year-over-year revenue down 10% but 7% on a constant basis.

Taking a look at our operating cost, as I mentioned, SD&A came in at $180 million, up $20 million, essentially that's driven again by the cost of being a standalone public company, roughly half of what we projected it would be $40 million to $50 million impact on a year-over-year basis.

R&D, you see here, $54 million for the first half versus $38 million a year ago, again, driven by two products being in phase 3 in addition to the injectable Buprenorphine product. As you remember, we've reported very positive top-line data for our Risperidone drug which is also in phase 3.

And I mentioned IND for alcohol and the NDA for Nasal Naloxone, so a lot of activity in our pipeline which is critical to our future and we're continuing to invest in that strongly with increases in the second half of the year.

Our gross margins, 91%, essentially the same as a year ago, so even in the face of increased competition, we're maintaining gross margins, so we're very pleased with how that's going. And our operating margins are down 45% -- to 45% from 57% which is expected with the increases in our operating consensus and a slight, you know, deleveraging of our revenue -- with our revenue coming down.

Tax rate, as I mentioned before, you know, we inherited roughly a 28%, 29% tax rate, yet the end of 2014, we're essentially -- even with that we expect that to be improved to 27% on a full-year basis and we're continuing to look at ways to optimize, you know, our tax rate and take advantage -- full advantage of our domicile in the U.K. and things we can do there to improve our overall tax rate.

Obviously, we don't get too specific about what we're doing but we'll continue to guide you as we're making progress in that area.

This slide just takes a look at our net income and EPS. Net income again, $144 million on a reported basis. When you factor in our diluted share count of $732 million or $733 million, our EPS is $0.20 versus $0.32 a year ago.

And taking a look at our cash flow, very happy with our cash flow as performing this year. We generated $320 million of operating cash flow in the first half of this year. I think what's notable, if you take a look at the cash flow statements, with the decline of revenue and earnings, our operating profit is down, you know, almost $100 million, yet our cash from operations that we generated is $6 million higher than the year ago.

And that came from really our strong working capital management. You see a big change there, the change in [assets line broke]. A year ago, we used $24 million in cash. This year, we generated $82 million in cash. So that's why we're able to still have solid cash flow from operations even in the declining profit situation.

Our net cash flow inflow from operating activities was $220 million when you factor in taxes and interests paid. And on the bottom-line, we ended the quarter with $523 million in cash and cash equivalents, up from $331 million a year ago or at the end of December.

So we're continuing to show good cash conversion despite the fact that our revenues are declining, are compressing, which is difficult to do, but we are still essentially converting 96% which is very, very strong.

As you can see, it's better than a year ago which was 89%. It will be difficult to convert more than 100% of our cash in a declining revenue situation but again, 96% is exceeding what we did a year ago. So we're pretty happy with how that went.

Not a lot has changed in our balance sheet from the end of December to the end of June this year, but a few things I do want to point out, you know, the fact that we have $523 million in cash, which is up from $331 million. So again, you saw where that came from. It came from the very strong operating cash flow that we generated.

Our net borrowings associated with the $750 million loan has decreased on a net debt basis based on the amount of cash that we're maintaining on the balance sheet. We think at this point it's prudent for us to maintain that cash. It gives us a lot of flexibility in terms of the business, investing in our pipeline as well as potential business development opportunities that may come our way.

At this point it would be somewhat of a slight penalty to prepay any of the debt faster than currently scheduled, and that issue will dissipate as we go forward in another six months or so. But at this point, we think it's prudent to just maintain the cash levels that we have.

This slide just walks you through our net cash positions starting with the $523 million at the end of the first half of the year. Our current borrowings $161 million, and that's a little higher than you would expect and that's because our terms of our loans show that beginning in 2016, based on 2015 cash flow projections, part of our excess cash -- operating cash automatically goes to pay down our debt at a faster rate.

So it's sort of already mechanically built in that if we have good solid cash flows, it will pay down the debt faster which is such a bad thing when you consider the overall cost of that debt.

And that's what we point out here on the bottom in this slide. You know, as you know in the first half of the year, we finally syndicated the loan with an all-in cost of 7% above LIBOR floor or 1% minimum.

Our Moody's and Standard & Poor's credit ratings, you see here, came in at B3 and a B. And the result of where we are at the end of the first half is a net debt of $220 million which is an improvement of $208 million in the half and essentially driven by the strong cash flow projections.

I'll end with just repeating the guidance that Shaun had talked about in a little more detail. So, you know, we're increasing our net revenue guidance from a range of $850 million to $880 million, we're increasing that range by $85 million or 10%, you know, to a new guidance range of $935 million to $965 million. And I'll point out this is all on a constant dollar basis.

Our net income adjusted, we're increasing from a range of $130 million to $155 million by $55 million to a new range of $185 million to $210 million. You know, the major changes as Shaun mentioned is that we're continuing to see good -- better than originally expected, resilience in our film business in the U.S.

But we still think it's prudent to assume that it's a matter of timing and we may start to see some impact to that. So we have factored that in to part of our second half guidance. And as Shaun mentioned, you know, as we get through the third quarter and have visibility beyond that, if we feel the need to, we'll reassess that guidance on our third quarter call.

We're also seeing increased legal expenses in the second half versus the first half as a result of the litigation activities that are going on, and Javier will be giving you an update on that shortly. And as well as in the second half, our higher level of R&D which is consistent with our full year plan but just due to timing of how trials enroll and the activities in those various programs, those expenses will be higher in the second half of the year versus the first half of the year.

And we're guiding to a tax rate for the full year of 27%. And once again, I'll just repeat this is all based on a constant dollar level.

So that's my update. So now, I'm going to introduce our Chief Legal Officer Javier Rodriguez who will give you an update on our litigation. Javier?

Thank you, Cary. As Cary mentioned, my name is Javier Rodriguez, I'm Chief Legal Officer for Indivior. It's my distinct pleasure to be here with you this afternoon at Indivior's very first half year results presentation.

So my segment of the presentation is going to entail an update of the key legal matters affecting the company. And this will consist of an update of the legal matters described in the Company's prospectus document that was issued after the merger.

I will begin with the Suboxone Film and the litigation in the U.S. So fact discovery in the lawsuit against Actavis and Par is complete and we're winding down our expert discovery. On the back of the positive claims construction on Markman hearing held back in December, there was a supplemental claims construction hearing and we received another favorable opinion just in June.

That supplemental claims construction hearing dealt with a single claim term referred as "buffer" which is a composition that restricts changes in PH and the court there held that the interpretation of that claim substantially mirrored the interpretation that we proffered at the Markman hearing.

Our trial date for Par on -- in validity and Actavis on both validity and infringement has been rescheduled from August 31st to the 2nd of November. Despite this change in schedule, we anticipate that the court will issue its decision ahead of Actavis' 30-month stay, expiry date which is February 28th of 2016.

The trial date for Par on infringement is scheduled for the 17th of December and Par's 30-month stay expires on the 25th of September 25th 2016.

We've also asserted two recently granted process patents against Par and Actavis and the trial on those claims is scheduled for the 21st of November 2016.

Now, we've asserted our three Orange Book-listed patents and two recently granted process patents against both Teva and Alvogen. The trial in Teva is scheduled for the 7th of November on the Orange Book-listed patents and the 21st of November, both of these in 2016, not 2015, 2016, on the 21st of November.

Now, under normal circumstances, the 30-month stay against Teva would expire on the 17th of April 2017. I say under normal circumstances because Teva has challenged the applicability of the 30-month stay to one of the two ANDAs that they filed against Suboxone Film.

The Orange Book-listed patents and process patent litigation against Alvogen was filed. We don't yet have a trial date but the Orange Book-listed stay, FDA stay of Alvogen's end approval is scheduled to expire on the 28th of October 2017.

So moving on, I'll now discuss the status on the Department of Justice investigation. So the DOJ attorney continues to press the investigation through interviews of former employees and subpoenas seeking evidence against individuals and the Company. We're hopeful that we can schedule a meeting with the U.S. attorney this fall to discuss and understand their legal theories and to present both legal and factual defenses to rebut those theories.

In our class action antitrust litigation, discovery is ongoing. The trial date hasn't been set but the judge in that case did set September 30th of 2016 as the deadline for briefing of dispositive motions.

In our proceedings with BDSI, the Patent Trial and Appeal Board recently held that claims 15 through 10 of our '832 Patent are unpatentable due to certain prior art. We disagree with the PTAB's ruling. We think there were a number of legal errors in their analysis and we are appealing that decision.

It's important to note that the PTAB's decision does not impact our ability to assert claims 15 through 19 of the '832 Patent against the ANDA litigants. The judge in that case will make his own assessment of validity. It's done under a different legal standard, and we have the ability to present additional live testimony in that case.

It's also important to note that, you know, in the ANDA litigation, we have additional claims under the '832 Patent claims 1 through 14 and four additional patents asserted against the ANDA filers.

In addition, the two additional U.S. PTO proceedings on the '167 Patent and the '080 Patent are ongoing. And in the meantime, the litigation between BDSI and Indivior haven't been stayed pending the outcome of those proceedings.

The only activity in those cases is that we recently received a ruling from the court where they transferred the New Jersey lawsuit we filed against BDSI to North Carolina where the other case is pending.

In terms of the Federal Trade Commission investigation, the court-appointed Special Master whose remit is to assess the documents that we've claimed legal privilege over will be reviewing the first tranche of those privilege documents and will be providing an assessment and an initial ruling in September.

And finally, outside of the U.S., we're appealing the French Competition Authority's statement of objections. So with that, I want to thank you all for your time and attention and more importantly, for your interest in Indivior. Thank you.

Okay, thank you, Javier. I'm now going to take you through the R&D pipeline. Just to say that there will be a full scientific session with Christian later in the year and you'll have the opportunity to get into the pipeline in a lot more depth and I'm going to cover now, have the opportunity to really understand this from Christian.

But for now, let's just take a high level view. We'll, we -- the overall picture is very good news and continued progress with our technologies with one slight exception on the Suboxone Film. So we had a disappointing outcome to our reformulation for Europe. We just have that news so we're not sure exactly what that means for timing and progress on that in Europe, but, you know, we're working on that at the moment.

But all other projects in this particular segment are progressing extremely well. Most notable is our once a month injectable product which is our [depot], you know, that we hope to launch in 2017, making very good progress in its phase 3 studies.

We're about to start the PK work on the Buprenorphine Hemiadipate. You'll remember that's the oral swallowable tablet in an abuse-resistant formulation, that is the fifth generation of technology for the treatment of opioid dependence.

Our rescue medications, we're very pleased with. I think you already knew that the cocaine overdose rescue product had special therapy designation from the FDA. And only yesterday, as I said, our injectable Nasal Naloxone technology was given priority review status.

So we're very confident that that will be approved before the end of this year in the U.S., and it's also worth noting that the French government has requested that we supply this to France under a special use designation. We've also had confirmed that this will qualify to the central application process in Europe so very encouraging news there.

Arbaclofen placarbil is about to enter our phase 2A, so that will be done by the end of the third quarter but that will have started, so we are making very good progress with that. You'll remember this is a technology we licensed a year ago and have integrated into our business and everything there is very much on track.

Our once a month injectable Risperidone product, you will remember is the same technology using the Atrigel platform that we have for our Buprenorphine once a month injectable product, is making very good progress.

You saw earlier in the year we have published the very encouraging results from our efficacy phase 3 trial, We are now making good progress with the long-term safety study. So everything progressing very nicely.

So just a quick update, notwithstanding the delay on the film, everything else is very much on track with the dates that we have shared previously.

We're very pleased that the National Institute of Drug Abuse and NIAAA were willing to co-sponsor with us, a publication in nature. This is a special feature on addiction and this has given us a strong platform to raise awareness and to communicate the science around addiction. So if you're interested in understanding more, you can -- you can look this up online.

So Christian will be available on October 15th this year in New York and we'll be there and we'll be sending out invitations in September. So if you're interested in coming to our scientific day, please save the date and we'll also provide that on webcast if you're interested but not actually able to come to the venue. But if you are able to come, we would be very pleased to see you there.

This is just high level update on the pipeline, mostly encouraging and we're very proud of the progress that the teams have made.

So if we just recap what have we achieved in the first half versus what we said we would do, well, I think Javier has covered us on the progress on the legal challenges, with everything else in the first half, we're very pleased and we hit all of our milestones.

There's quite a lot to take on particularly as a new company with our first six months but we feel very sure of our feet and we're very pleased with the progress that we made.

Looking ahead to the second half, equally busy agenda for the second half with some key milestones in the pipeline, continue to make progress with the base business. You can see here there are a number of opportunities to come and meet at conferences if you would like to talk to us on a one-to-one.

So our priorities for the rest of the year I think are very clear. We continue to focus on, you know, re-enforcing the resilience of the Suboxone Film in the U.S. We'll continue to do the work to expand our treatment globally, progressing our pain killer dependence, penetration in Europe, our progress in Australia and continuing the clinical trials in China which will be our next major geographic expansion.

We'll continue to progress the pipeline and we'll start looking at business development opportunities to expand our business further.

Just to remind ourselves of where we're at on some of these metrics, we're 59% film share, we're doing good double-digit market growth in the U.S. which accounts for 80% of our sales. All our major milestones in the first half were achieved and that BD is also the next priority.

So in summary, I think that there is a lot of evidence to suggest we should have increasing confidence in our medium term future. We've made strong progress. We're on top of our litigation issues. There's nothing there really that's our of the ordinary for our specialty pharma company of our size and, of course, we've improved our guidance for the year.

So we are out of spin mode in terms of separation from RB. We are Indivior now and we are on top of our business, we've got a good control of our operations and so we're ready to start developing our business with the ambition and confidence that you would expect.

Thank you. Now, if you have any questions, we'll be glad to take those.

Hi, Erik Sjogren from Morgan Stanley. Thanks for taking my questions. I have three questions if I may.

Yes.

First on OpEx. In terms of your guidance for OpEx, does that still stand especially given the legal costs that are increasing and the phasing in R&D.

Sure.

Secondly, in terms of the generic challenges, do you think that given the delay in the court case and increase in legal cost, how has that changed your thoughts regarding the settlements?

And thirdly, you talked about additional generic entrants into the market. Would this change how you think about pricing pressures with Suboxone in the U.S.? Thanks.

Okay. So do you want to take the OpEx question? So the guidance on OpEx that we referred to, the $40 million to $50 million, that's essentially related to the cost of being a public company.

The -- versus original assumption for the year, OpEx will be higher because of the increased litigation expenses which was not in the original guidance, so that's part of the guidance change for the year. But the $40 million to $50 million hasn't changed because there were specific costs related to establishing ourselves as Indivior and that is -- you know, that is right in line with our expectations. So there's a subset of the overall OpEx that's changed.

You talked about our attitudes will supplement, that's always been very, very consistent. We know that it would be helpful to get some certainty around the uncertainty of what's going to happen in the ANDA litigation settlements and options.

We continue, you know, to pursue that and to, you know, work on that as a potential outcome, but that's always been the case and that our position on that hasn't changed at all.

The third question was around we're talking about potential future generic entry and does that impact our thinking on pricing. No, we've always said that we expect that there will be greater intensity of price pressure from the generic sector.

We thought that that would already happen according to received wisdom and industry analogs from having only four generic players in the marketplace. I think what really the takeaway message is we don't believe it would be wise to get complacent and think, "Well, we talked about this six months ago and it hasn't happened, so now, we should put that to one side."

We say, no, we don't think that's wise, we think it's prudent to still anticipate that from the four generic players that are currently in the marketplace.

And as a reminder, let's not forget there could be a fifth generics and potentially sixth generics. So even if we talked to ourselves into a high level of comfort than we might think is wise on four generics, there could still be additional entrants.

And if we didn't really make that clear and then they came and, you know, we started losing share, you might rather wish we've reminded you of that. So we're just trying to layout what the dynamics could be.

So our thinking hasn't really changed on that. Our sort of thinking around generics is, yes, it's more likely than less likely that there will be increased price pressure from the generic sector, however, that, you know, arise, and we think it's prudent to build that in two models.

Sir?

Okay, thanks. It's James Vane-Tempest from Jefferies. And two first questions if I can. Firstly, the film -- Suboxone Film in Europe.

Yes.

Is it the same formulation as we have in the U.S.? I'm not sure I understand why there was a sort of a setback.

Yes. The formulation of the film, the regulatory pathway there is to replicate the profile of the tablet. And the U.S. tablet was different to the European tablet.

And so when we created the U.S. film, that's why when we tried to register the U.S. film in Europe that it didn't meet the spec. So we did a reformulation exercise to try and match the European tablet formulation and that wasn't successful.

So we now have to analyze why wasn't it successful, how can we deal with that and then think about what the timing might be. So clearly, it's unhelpful that we had that but, of course, we all the plans for Europe and other technologies in the pipeline so we will take that in our stride.

Thank you. And the second question would be just elaborate if possible on the working capital management and was it inventories and how the business has evolved with the [accounting] revenues, was some of it one-off in nature, was it in terms of your suppliers, that would be really helpful.

Yes. One really one-off, there was -- yes, as we, you know, increase our rebates and discounts, as I mentioned on the year-over-year basis, starting to anniversary, that we have better payables as a result of that, so that's the benefit on the cash flow side because we tend to be able to pay those a little bit longer than when we're collecting the receivables on the other side of that.

So that is an ongoing thing and we'll contract it as revenues start to contract but right now, we're getting the benefit of that and doing a pretty good job of managing it.

And perhaps one follow-up if I may. The generics first initiatives in France, you mentioned, and likely price deflation, I was just wondering how do you view the methadone market in France, its competition, and how is that progressing as some companies find that as being very successful with the expenses, some of the Buprenorphine products.

You know, I think the market continues to expand slightly in France and methadone has improved slightly. Methadone was very restricted in France and it's now -- it's now more available, so you are seeing some progress of methadone. But we're seeing that our Buprenorphine share in Europe is relatively stable as you -- as you saw from the chart so.

Thanks. It's Sarah Potter from Deutsche Bank. I have a few questions, so I'll maybe start with the markets question. I can see that Buprenorphine (inaudible) have dropped down to more than 7% to 8% growth range.

And I think you attributed some of that to kind of the Affordable Care Act. Is that the way that we should expect going forward or do you think it will go back up to the low double-digit that you've previously gave?

Well, at the moment, we're still seeing low double-digits. Just to be clear how we measure the market, we have said before that if you just look at scripts or numbers of patients, it's very difficult to translate consistency there because patients might be on a short-term detox for a week, they might be getting a monthly prescription, they might be on, you know, 2 mg a day, they might be on 16 mg a day. So there is so much variability on the value and the volume within each prescription that we think that that's -- that's less reliable.

So what we -- what we do is we try to look to the common -- lowest common denominator on milligrams or milligram equivalents and we kept that's how we calculate our volume. So we're still seeing healthy double-digit growth.

We've made good progress in, you know, increasing our efforts to make patients more aware of the availability of treatment to connect with them online. And we're creating new physician [industry].

And so we think that, you know, there's plenty of headroom for growth in the market because there's over 12 million people in the U.S. who have used opioids every year. Tragically, about 2-1/2 million of those are dependent according to government statistics and we have a 500,000 patients in treatment roughly on any one day.

So you can easily imagine that the opportunity to reach out to patients and recruit them into treatment, and still there are plenty of ways to go before we would be satisfied that we've really addressed this crisis.

And I'm just wondering if you had any anecdotal feedback on why the competitor branded products are being used and why film is still the preferred option.

Well, that's easy to answer from one perspective and it's not anecdotal evidence, it's hard evidence, but patients and physicians when they have the choice prefer the Suboxone Film.

I think there are two key drivers there. First of all, the film technology is a very positive medication experience for patients, it dissolves very quickly and it tastes better than the old tablets that we manufactured used to take. So they felt it was a very big step forward.

Also, an important factor is the quality of the relationship within our clinical liaisons have with physicians. They go into the doctor to help talk to the doctor about patient care and, you know, the quality of patient care and how can we help make this a better experience for patients.

Why their competitors might feel that they're not getting traction, you'd have to ask them. Their products clearly do what they're supposed to do because the FDA has reviewed them and approved them. But for some reasons, patients and physicians choose our products when they've given the choice.

Can you talk about (inaudible) to the litigation, you said you'd still be open or (inaudible) discussions around the potential (inaudible) in the future. The way that the legal process works, are there specific windows were you sit down together and discuss before you say move through the discovery and trial.

You know, there is a legal process but there is no real cutoff point as to when it's too late to have settled by. I mean often people say, well, aren't these things normally done on the [quarter in steps] as you're going into court and so sometimes that happens, sometimes it's done before, sometimes it's done during the trial, you know, sometimes it is done right at the last minute.

So there is no real date you can tag in your mind that says, "Well, if you haven't done it by this date then surely it's not going to happen." This is a very fluid and flexible process.

And then just the final one, on the Nasal Naloxone.

Yes.

(Inaudible) meeting at the beginning of July.

Yes.

And just to discuss the use of Naloxone for that treatment. I wonder if you could just feedback on how that meeting went and how that might influence your thought process into the launch of Naloxone towards the end of the year.

Yes. Well, clearly, the reason the FDA are concerned about is because this is a real public health crisis in itself, as a sort of subset of addiction. There are over 25,000 people buying every year from opioid overdose.

Sometimes when you say opioid, people think heroin and they think of socially marginalized people. But as we've said repeatedly, opioid abuse is something that affects all classes in the areas of societies. So this is a real -- a real disease and people do overdose and tragically, they do die.

As we see more and more measures come in to make it more difficult for people to abuse opioid pain killers, we say that some of those people turn to heroin. Certainly, they're now into a different grade of substance, they don't know about the purity and that's where we're seeing an increase in heroin overdose deaths.

How that feeds into our business model is that clearly, this is a little bit like a fire extinguisher marketing concept. You need to price it so it's affordable for everybody to have one. You hope they'll never need it but if they do then it will be simple and easy to use and it will save their life or the life of the person who [they're with] at the time.

So we're trying to price this with a level that will be affordable to government health budgets and to be able to get very broad distribution for this because it's not available -- if it is not affordable it wouldn't be available, and if it's not available it's not going to work.

So, you know, we think that we really need to be focused on how can -- how can society, you know, with our technology and others, you know, get that number half from 25,000 down to about 12,000, 13,000, you know, as quickly as we can by educating the public, making people aware of the risk and teaching them on how to deal with that risk and with the access to these types of technologies will be very important.

Of course, no matter what technology you have in that situation, people should always, you know, send me ambulance but, you know, time is very, very important and these types of technologies can save lives.

That's why the FDA held their public hearing, that's why the FDA is making it a priority, that's why many states around America are now passing legislations and reviewing legislations to get this technology out of the emergency room and into the hands of the public.

Some legislation is talking about making it available over-the-counter, some legislation is making it through other channels, but there is clearly an environmental shift in attitude of policymakers and legislators and regulators to make this technology more acceptable.

And, of course, the fact that we have a product that can be available is going to enable and accelerate the passage of those types of changes. It's very exciting from a public health point of view to think that, you know, this will -- this was going to happen.

Max Herrmann from Stifel. Just picking up on the generics tablet competition and the pricing there. So firstly, can you give us a view of what the current generic pricing is compared to the branded pricing, again, idea of what differential you've got.

And then just a little bit of a (inaudible) on what you would expect, let's say the pricing does go down from here due to new entrants or the team is trying to get market share or something like that.

How does the market play out? Is that through the formularies and you'll get moved from tier 2 to tier 3 status? What are your expectations in terms of how that will play out if indeed as you're predicting this and more than like them unlikely so then to be a change in the market dynamics in the second half?

Sure. So how it worked, I mean we don't know what that pricing is but we hear stuff and people tell us stuff and we can look at some information and we can get a rough idea.

So our rough idea says that real generic pricing is running at about 50% to 55% discount off of list. Received wisdom and analogs say that that could go down to 80% discount, so clearly, there are some potential for that pricing to go down.

We don't need to argue about the absolute numbers but clearly, from somewhere in the mid-50s to somewhere towards 80 is quite a substantial shift in the pricing delta.

What will happen or what we believe is most likely to happen is that when that occurs, the most price-sensitive payers, so that's some of the government budgets that are almost bankrupt and they're desperately looking for any saving.

They may exercise the choice to say, "Well, we do understand that the Suboxone Film is preferred by patients and doctors." We have seen some data that, you know, convinces us that, you know, patients preferred and they stay in treatment longer, but at the end of the day, we're really, really -- our budgets are under such pressure that we're going to have to block access to that technology because we just need to buy what's cheap, right?

With the commercial payers and some of the fee for service Medicaid who were in a slightly different position, they're looking at the overall economic value and the cost of treatment. And they understand the arguments that we've made about, you know, the whole economic value of providing treatment with the Suboxone Film, the potential to retain patients in treatment for longer. So they're not just looking at the per unit price.

So therefore think that the impact on our business is predominantly going to be in the sort of 25%'ish of our business that is in the managed Medicaid and the cash pays, to where the patient is basically paying cash out of their pocket for the prescription and that's set by the pharmacist and the price that the pharmacist chooses to pay.

We've already got that and you've got the generic capital coming in (inaudible) very dramatic (inaudible).

We've lost some of that business but not the majority of it, no. So we're still holding onto that business and that's why you're seeing, you know, a good deal of the over performance.

Let's not take away from, you know, the credit that's due to, you know, our team who work every day calling on physicians and nurses on behalf of patients and the great job that they've done in, you know, making sure that everyone appreciates the value that our technologies offer versus the branded competitors as well as the generics so where patients have and doctors have the choice, they're exercising that choice in favor of the film.

We anticipate that the only -- the only places we'll lose business to generics is where that choice has denied them by a formulary decision.

Hi, Nick Nieland from Citi. I just have one question which hasn't been answered. I hope this didn't happen but in the worst case scenario where you have generics film competition in 2016, do you see (inaudible) being able to meet the liquidity covenant on your debt of $150 million? And what would your plan be in that scenario?

Well, clearly, that's not the scenario that we're expecting to happen. So we're not -- we're not doing a great deal of planning for that. Do you want to speak to that?

I think again, as I mentioned when I talked about our $520 million in cash that we already have on our balance sheet and hitting our current -- you know, hitting our guidance, we'll continue to generate cash because, you know, that's one of the prudent reasons to maintain our cash position.

But I think as Shaun says, it really is, you know, multiple scenario planning. We're doing it unlikely that we would expect to see that event that soon but maintaining the amount of liquidity we have on our balance sheet as part of that planning.

So it also depends on the number of film products and also it depends on the quality of those film products. So I think to sort of imagine that, you know, suddenly the business is going to disappear because multiple generic competitors are going to rise in the market all at once is certainly, you know, very unlikely scenario as far as we are concerned even if there were a film competitor as we deliver alongside that competitor, you know, successfully, not as successfully as without. But, you know, there are multiple scenarios that we are looking at now.

(Inaudible) a follow-up question. Can you give us a brief update on the -- in formulary environment? You mentioned of higher rebates to make sure you're on the (inaudible) but have you seen any [PDM]s take the, you know, Suboxone Film off the formulary (inaudible) or how are you seeing that environment rolling?

No, we're seeing that environment very stable at the moment. So there's no sort of material changes. Obviously, Orexo forced a sort of a step change last year when they demonstrated that despite being a branded product, they were willing to go to generic level pricing to target specific formularies. But things have been relatively stable this year.

Hi, (inaudible). Just to follow up, you said your next project (inaudible) business development. I wonder if you could remind us what your priorities are and that's in terms of therapeutic category and also whether you're looking for early stage pipeline, late stage pipeline of already marketed products.

Right. Well, in terms of our priorities, just to be clear, it's to drive the sort of value and the growth in our organic business. So we're looking to optimize the commercial footprint that we have to develop our existing pipeline and drive geographic expansion.

Beyond that, we are looking for, you know, BD opportunities. An obvious no brainer is an attractive technology that has been the addiction field. We evaluate everything in addiction. So if there is a new technology or something you read about, you can be sure that we're interested in it, we will have looked at it, we might be pursuing it, we might have picked it up, looked at it and put it down for whatever reason, but you should assume that we will be looking at that.

Anything that's currently marketed is clearly very attractive because, you know, our sales is concentrated into one product, so if we can diversify our income stream, that would -- that would be helpful.

And so we really want to look at opportunities that are closer to our capabilities and our expertise rather than further away. We think that does give us permission, however, to look just beyond the boundaries of addiction. We think other areas of CNS specialty, CNS is appropriate.

You could have said unkindly two years ago, "What the hell are you doing? Looking at a once a month Risperidone product because that's not addiction. You know, that's CNS. These trials are very difficult to run, very difficult to get the outcomes that you're looking for."

But our clinical teams have demonstrated, you know, their ability to go to another therapy to carry and to get the results that we need. So I think that, you know, that's a much lower risk now but it might have been pursued previously. So something in CNS, something that's a comorbidity to all and adjacency and so addiction would clearly be more attractive than something that wasn't.

okay, well, if there are no other questions, thank you very much indeed for your interest and for your questions, and we look forward to seeing you next time. Thank you.