Indivior PLC (INDV) 2016 Q4 法說會逐字稿

Good morning, everyone, and I wish you all a warm welcome to our 2016 results presentation as we continue on our journey towards our vision of ensuring that all patients around the world receive high quality treatments for the chronic relapsing disease of addiction.

My name is Shaun Thaxter. I'm the CEO of Indivior and I'm very pleased to have the opportunity to take you through our business today.

I'll assume that you've read the forward looking statements, and I'll just take you through the agenda for the day. I'm going to make some opening remarks commenting on the performance of the business last year, then Mark Crossley, our new chief financial Officer, will introduce himself and take us through the financials. That will be followed by [Harvey and] Christian who will take us through the litigation and the pipeline. And then I will come back and close out talking about the future and share our thoughts on our guidance.

So obviously, a very positive year; very pleased to see all those pluses down the financial profile. I will make a few comments about the operational performance as we delivered our first year of growth in quite some time.

Our market growth continued in single-digit percentage, so we're very pleased that the underlying market continues to be strong with more patients coming forward to access treatment. Our market share held up very well and we were very pleased with our litigation performance with respect to the generic film; and we had positive progress in our court cases across the year.

We continued to enhance our compliance program to make sure that we keep pace with the growth in the market. Not only that, but we made tremendous progress our pipeline; positive efficacy and safety results on our buprenorphine once a month depot, and good progress on the risperidone once a month depot as well. So we're very confident in the progress of those potential assets as they move towards our regulatory submission.

So I think last year really underlined the resilience of our business. You know that there was as modest improvement in market growth. We had said previously that we were focusing on trying to help more patients access treatment and, consequently, we've seen a modest expansion in the growth of the market. There have been underlying structural changes in the market with the CARA legislation and regulatory change. But it's too soon, really, to attribute to our market expansion [for] that. But we'll have a look in a moment to what actually happened there.

First of all, there was a record number of new physicians that got waivered and trained to treat this disease last year. There [were nearly 5,000 doctors came into treatment, and this means that we're now nearly up to 40,000 doctors across the States who are able to provide care. Of course, the broader the access of the distribution of access to treatment, then of course, the easier it is for patients to find treatment and get themselves into a framework of care. Those are [a] better than expected number of physicians who actually applied for the waiver to go to the 275 patient cap following the regulatory change last August. So we expect that this will help with market expansion in the medium term.

As you know, our share remained very resilient at around 60%. There were a couple of account losses in [managed] Medicaid, but these were offset by gains elsewhere. In the year ahead, we won't have the opportunity to make any gains, so this will continue to be something to keep our eye on. However, generic tablet activity hasn't really changed at all. Our share is fairly stable; there are two new entrants with [Sun] and Lannett who have yet to have an impact on the market. So what we're seeing is a very gradual, sort of, drift down in the generic pricing, but nothing dramatic; just sort of existing trends continuing.

In Europe, we're seeing a fairly stable position here; volume under a little bit of pressure from generics. But being offset with some growth in our export markets, so overall European performance fairly stable.

Things are looking very positive for the medium and long term. I just wanted to make sure that we were all aware of the two key risks. I know the ANDA litigation has been much talked about and you know that we have a court decision coming up in April. I also wanted to make sure that everybody was aware of the latest statement that we've put out on the litigation provision for the government investigations. So I'm just going to read this statement out to make sure that everyone's had the opportunity to take it on board.

The Company recorded a charge of $220 million in the third quarter of 2016 for the investigative and anti-trust litigation matters disclosed on the litigation update on pages eight to 10 of today's press release. And [Harvey] is going to give a little bit more detail about that in his presentation.

The Company continues in discussions with the Department of Justice about a possible resolution to its investigation. The Company cannot predict with any certainty whether we will be able to reach ultimate resolution with the Department of Justice or any or all of the parties, or the ultimate cost of resolving all the matters. The final cost may be materially higher than this reserve. So just wanted, for fair balance, to make sure that we had given you the opportunity to absorb the risk.

So, with that, I'll pass you over to Mark Crossley who will tell you a little bit about himself and take you through the financial results.

Good afternoon. I'm Mark Crossley, and I'm delighted to be here today to present Indivior's financial results for 2016. Shortly, I'll provide the financial review focusing on the key drivers of our performance which, as anticipated, paralleled very nicely with Shaun's review of results in the market. But before I do, given this is my first set of results, I wanted to take a moment to provide you with a little more color on my experience and my background.

I've been with Indivior for about five years, initially joining the Company as the FD prior to the demerger after a 13-year career at Proctor & Gamble. I headed up the demerger firm from [RB] so I have a very good understanding in the systems, the processes, the people across the Company and, more importantly, the financial function. In addition to which, in 2014 at the time of the demerger, I took on the role of chief strategy officer and was focused on developing, setting and operationalizing the strategy for the standalone company.

So with that, let's turn to the financials, and we'll start with the profit and loss statement. As we do each time, we show the profit and loss statement on two bases. The first is reported with exceptional items and the second shows the adjusted P&L which removes the exceptional items on both 2016 and the base period.

I'm going to come back to the exceptional items in a moment, but as you'll see noted, there [are] exceptional costs in 2016 in both cost of sales at about $11 million, in SDA of $227 million, and then a $19 million credit in the tax line.

Taking a look at the revenues, we're recorded a 4% increase in revenues to [$1.058] billion, which resulted in an operating profit all in of $149 million and net income of $35 million. On an adjusted basis, excluding the exceptional items, the operating profit was $387 million and net income was $254 million. In both cases, an increase of 3% on the equivalent adjusted profit for 2015. Notwithstanding the exceptional costs, we're pleased with the underlying profit growth in the business in 2016. It's the first time we've seen this since before the demerger when we had the entry of both the generic tablets and the branded competition.

Now, let's take a little closer look at the net revenue trend. You'll see form this slide that we've now recorded four consecutive quarters of year-over-year net revenue growth. In fact, full year growth at a constant exchange was 5% which matches the fourth quarter.

While I'll explain the market dynamics in the next slide, this is a distinct shift in moment from 2014 and 2015 when revenues were squeezed by a loss of market share as well as increased rebates in the face of the generic and branded competition. This chart also highlights the particularly strong net revenue growth we experienced in Q3. As talked about in November, this reflects inventory build at wholesalers in the U.S. as well as export shipments that were accelerated year-on-year in the rest of the world.

So a little more color on the net revenue by geography; we've seen consistent net revenue growth in North America which makes up just over 80% of the Group total, with full year growth coming in at 6%. Obviously, there's a number of moving parts in the revenue growth. The first is market growth, which during the year was at high single digits, as shared by Shaun in his slides earlier. Market share increased slightly from 60% to 61% and actually there's a little bit of rounding that exaggerates that. It was actually at about 0.5%. We took a price increase in January of 5% at a list price basis, but with the compulsory and other rebates the net effect was much less than this.

We've continued to invest in targeted rebates, as we've talked previously, in the face of competitive bidding for exclusive formulary access. Although the rate of rebates was not as strong in 2016 as it was in the base period of 2015, the level's still increasing so we've got an impact of the [anniversaring] of 2015 as well as a slightly increased rate. And we've continued to experience negative channel mix due to a shift of volume to slightly higher rebates. So taken together, the combination of the higher volume from the market growth to pricing and the share game are partially offset by the increased rebate and channel mix that result's in the 6% revenue increase in North America.

The rest of the world has seen improving performance in Europe. We should flag that the fiscal year performance was flatter by one-offs in Q3 and Q4 in terms of both timing and scale of the export revenues. In terms of what's driving the overall European performance, we are continuing to see good volume increases. But those are continuing to be offset by government austerity measures across Europe [that] results in both demands for price cuts and some [forced] switching, as Shaun talked about on his European share slide.

On to operating expenses; on the expense front, SD&A increased during the period by 12% to $456 million. There's a number of factors that went into this; the first is increased legal costs driven by the ANDA trials and the various investigations and litigations that are occurring. Standalone PLC costs, such as systems costs and increased capability due to the expiry of the TSA from our foreign parent. And this is the last year we'll see such increases with regards to the standalone.

As we said we would, we've leveraged the higher net revenue delivery and increased guidance through the year and invested an incremental $30 million in organic growth; including investment between RBP-6000, as well as growth associated with the policy changes that occurred in the United States. These increases aside, we've also made some impacts with regards to our costs through our own internal actions, and we'll talk about that at the end of the presentation.

The increases on the SD&A were offset by a reduction in R&D of about 20% to $119 million. These were primarily driven by discontinued projects and a phasing of our phase 3 trials. I'll provide details on the exceptional costs on the next slide.

With regards to the margins, we've seen a flat gross margin at 90%, excluding the exceptional costs it came in at 91%, particularly it reflects the API active which is a U.K. sterling-based. At the operating margin level on an adjusted basis, it increased modestly to 37%. We think this is quite a satisfactory result given the increased investment and fully standalone PLC costs. And it shows the benefits to our economic model of growing revenues. We are operationally well leveraged for revenue growth moving forward.

So moving on to the exceptional items; we really had two categories of exceptional items in 2016. The first pot was from costs incurred for preparing for a potentially negative outcome on the ANDA trial. Those are both in cost of sales at $11 million and an SD&A at $7 million. While these are large numbers, I'm sure you'll understand the potential risks of the business from such a negative outcome, if it had happened, and justified taking these costs. And these are also costs we'll be able to leverage moving forward as we deal with additional litigation on the ANDA front.

The second pot is for the legal provision for investigations in antitrust measures. These are disclosed on page eight and nine of the press released, and will be talked about with Javier in a moment. This was booked in Q3 results and there's been no change to the provision.

In Q4, there was an exceptional cost of $1 million. This is direct cost of ongoing negotiations with the U.S. Department of Justice for which the $220 million provision was taken previously. If current negotiations continue in a similar vein, we expect a normal run rate on a quarterly basis in 2017.

Now turning to the tax rate; we guided to a rate of 25% for the full year and exceptional tax charges and that is kind of the outcome we delivered. Admittedly, during the year the tax rate has bounced around from quarter-to-quarter, and this is due to tax planning work which makes it difficult to forecast for you. I understand that. That said, this work has also allowed us to put in place structures which enable us to continue to guide forward at 25% in 2017, and we'll talk about that more when we get into the guidance, excluding any possible exceptional items and any tax impact they may have.

Cash flows; taking a look at the cash flows, what you'll see from this slide is that in cash terms the lower operating profit is immediately offset in the next line by the reversal of items such as the $220 million provision that has not been expensed in cash as the investigation continues.

You'll notice that the depreciation and the amortization figure fell from $40 million to $14 million due to the end of the amortization of the rest of the world rights that we purchased for SUBOXONE and SUBUTEX in 2010. Looking forward, I'd expect depreciation and amortization to start to increase, again considering the investments that we've been making in our SAP and other systems as well as the R&D facilities.

The change in assets and liabilities is essentially further improvement in networking capital which generated $119 million of cash in the year, primarily due to the trade payable dynamic in the U.S.

Tax and interest payments were lower mainly due to the lower tax payments during the year, $63 million versus $131 million in the base period, and the absence of transaction costs on the loan facility.

CAPEX of $20 million was in line with expectations, reflecting the spend on the R&D facilities in both Hull and Fort Collins, which Christian talked about at our R&D day in December.

The $15 million intangibles reflects our investment in the SAP system; and that gave us free cash flow of $372 million in the period, ahead of the equivalent in 2015 of $289 million. Out of this, the Company repaid $78 million of debt and paid its second dividend for 2015 of $69 million. That left $226 million of increased cash, which is added to the $467 million at the end of 2015 and [we] got $692 million of cash.

In terms of the cash conversion, 2016 was a strong performance as we converged over 100% of our adjusted operating profit. It's primarily due to the three items we just spoke about; the further improvements in networking capital, the lower tax payments and continued tight controls on CAPEX and the purchase of assets. Going forward, while we continue to work hard on cash conversion, we wouldn't expect to necessarily continue to match these cash conversion levels.

On the balance sheet, there isn't a great deal of comment here other than primarily on the cash and the borrowings. So I'm just going to move ahead to that slide to take you through that. As I said a moment ago, the cash and equivalents were $692 million at the end of the period. Borrowings declined in the year due to the payment of $78 million in debt; of this, $46 million was purchased throughout the year when debt was trading at a discount on the open market. The remainder was paid off in line with the ongoing facility commitments. That left the Company with net cash at the year-end of $131 million, an improvement of $305 million on the same period a year ago when we were in a net debt position.

We continue to retain cash on the balance sheet at present. This will give the greatest security and flexibility, given the known risk facing the business from ANDA litigation, as well as the DOJ and investigative matters. Once these matters are resolved, we'll certainly look to review the Company's capital structure given the Company's growth aspirations and the expensive debt we've inherited from the parent at the time of the demerger.

So I'd like to close on the cost savings initiatives from 2016 which we've spoken about in previous periods. These come in two parts. The first is on an indirect cost basis where we initiated a cost savings project, and it's found $10 million of savings on an indirect basis. If that number sounds unambitious given [a] business of our size, it is proportional to the amount of indirect cost in our business. We've realized $7 million of those savings in 2016, and the balance will come in 2017.

On direct cost, the benchmarking exercise showed that Indivior is not out of line with our peer group, once you exclude the unusual legal costs that are there associated with the DOJ and other matters. However you know us, we're not happy with the costs where they are. We'll continue to challenge the business total operating costs flat, excluding new investment for organic growth associated with our assets and the market opportunities. I would hope that this is minimum achievable. One of my big focus points in the year ahead will be to ensure that we run and continue to run a very tight ship on costs.

So finally, as I mentioned at the start, I am delighted to be here today, and very much look forward to working closely with all of you in the future. And with that, I'll hand it over to Javier to provide a legal update.

Good afternoon, everyone. My name's Javier Rodriguez, chief legal officer for Indivior PLC.

The next series of slides are excerpts taken from our year-end results press release. And if you haven't done so yet, I'd encourage you all to read the press release for a full description of these matters and associated disclosures. For purposes of this presentation, what I'm going to do is walk you through developments that have transpired since our Q3 results press release in November.

Starting with the Department of Justice investigation, the Federal Criminal Grand Jury investigation of Indivior is continuing, as are our discussions with the Department of Justice about a possible resolution of the investigation. As Shaun discussed previously, we don't know if we will reach a resolution with the Department of Justice or what the ultimate cost of a resolution with the Department of Justice might be on this and other matters with other parties. While these discussions are taking place we're continuing to cooperate fully with the investigation.

With respect to the two state subpoenas that we received last fall from the states of Connecticut and California, we're responding to the subpoena requests and continuing to cooperate in these investigations.

With respect to the Federal Trade Commission investigation, on February 3 of this year, the Special Master, [who was] appointed by the judge to evaluate issues related to legal privilege, released a report and recommendation in connection with the description of documents in our privilege log. We are evaluating the report and will be submitting a response to the Special Master's findings on February 24. Thereafter, the judge will issue his ruling whether and to what extent to adopt the Special Master's recommendations.

With respect to the antitrust litigation, discovery in that matter is continuing; with fact discovery presently scheduled to close in October 2017, expert discovery scheduled to close in May 2018, with a trial likely not to take place until the fourth quarter of 2018 or some time thereafter. We have filed a motion to dismiss the State Attorney General's complaint which is based on similar grounds that we used to file a motion to dismiss against the class action plaintiffs and Amneal Pharmaceuticals. That motion is presently being briefed, and we expect a decision in the coming months.

In the ANDA litigation, as you all know, a trial against Dr. Reddy's on the Orange-Book-listed patents and Dr. Reddy's Actavis and Par on the 497 process patent concluded on November 23. We're presently in the midst of post-trial briefing, which concludes in early March, and we expect a ruling by the Court sometime in the second quarter of 2017. We also expect at that time a ruling on the motion to reopen the Court's previous judgment against Actavis and Par on the 514 patent.

The trial against Alvogen has been postponed and is tentatively scheduled for trial in October 2017. We're in the process of negotiating a discovery schedule with Alvogen, and that discovery schedule could further impact the trial date in that matter.

Finally, on the litigation front, the trial against Mylan is scheduled to take place on September 25, 2017. And more recently, on January 12, the Court issued a claims construction ruling in the Mylan case which among other things further clarified the Court's construction of certain claims relating to the term 'dried' and 'drying' in the 514 and 497 patents.

Moving on to Inter Partes Reviews; on November 4, 2016 Mylan filed an Inter Partes Review petition with the U.S. Patent and Trademark Office, challenging the validity of the 514 patent. The U.S. PTO will issue an institution decision sometime in May 2017. And in early December 2016, the U.S. PTO denied Dr. Reddy's three petitions seeking to invalidate the three Orange-Book-listed patents covering SUBOXONE film on the grounds that Dr. Reddy's failed to establish a reasonable likelihood of showing the claims were unpatentable. Dr. Reddy's has submitted a request for a rehearing, and we expect a decision on that shortly.

On January 11, the French Supreme Court issued a final and non-appealable decision dismissing our appeal of a EUR308,000 fine that was levied against the Company in 2012. This fine was levied in connection with a statement of objections that was issued by the French Competition Authority in relation to an investigation involving anti-competitive conduct of a competitor relating to the sale and distribution of buprenorphine tablets in France. A private claim has been brought against this competitor, and it is possible that a similar private claim could be brought against Indivior.

And finally, on December 27 a complaint was filed against Indivior PLC and Indivior Inc., amongst other defendants, alleging and seeking under Connecticut's Products Liability and Unfair Trade Practices Laws damages allegedly caused by a design defect and labeling defect associated with SUBOXONE film. The complaint was served on Indivior Inc. on February 13, and we are evaluating the allegations contained in the complaint.

With that, I want to thank you all. I will turn it over to Christian Heidbreder for the R&D update.

Good morning, everyone. My name is Christian Heidbreder, chief scientific officer at Indivior, and I will take 10, 15 minutes now to give you the latest update on the pipeline.

First, opioid use disorder; there were two main clusters of activities in 2016. First, the geographic expansion of the SUBOXONE tablet with two main findings. One, a file of supplemented NDS to Health Canada for two additional dosage strengths of 12 and 16 milligram in addition to the existing 2 and 8 milligram. And then, of course as planned, the NDA submission to the Chinese FDA for the SUBOXONE tablet that was achieved on 27th December. The NDA has been accepted by the Chinese FDA, and the review started immediately after the Chinese holidays the first week of February.

Second, a big series of activities is, of course, directly related to our monthly buprenorphine RBP-6000 with a series of activities in preparation of the NDA submission, our first. As you know, we released the top line results of the phase 3 pivotal clinical safety and efficacy trial in the middle of August. As we speak, we are going over additional data analysis and interpretation. You may remember that in the context of the trial, we collected a significant amount of pharmacokinetic samples in order to prepare a very thorough pharmacokinetic, pharmacodynamic and receptor occupancy our model to link the pharmacokinetics to the clinical efficacy and safety. This work is currently ongoing.

The second phase 3 trial is the long term safety extension study to really assess the clinical efficacy and safety of RBP-6000 over a 12-month period. The database for that trial was locked at the end of October. And again, we are going through a very thorough data analysis as we speak.

There were also two trials that are not required for the NDA submission. The first one is what we call the extension study which will allow us to basically follow our patients treated with RBP-6000 over extensive periods of time and way beyond the 12-month period. And in the second one, which is a real health, economics and outcomes research; a big observational study to really understand on the one hand the key factors of abstinence under RBP-6000 or no exposure at all to RBP-6000. And then very importantly, trying to understand better the key triggers of relapse or reinstatement of drug-seeking and drug-taking behaviors with or without RBP-6000.

From a regulatory perspective, you may remember that we were granted fast track designation in May last year. We also had a couple of REMS meeting with the FDA and the DEA. And last but not least, on December 14th we had a pre-NDA meeting with the FDA in order to agree our overall NDA submission strategy. Given all these activities, we are currently on track with our NDA submission during the second quarter of 2017.

Very importantly, in November and December last year, we also sat down with ex-U.S. regulatory agencies; namely TGA in Australia, Health Canada in Canada, ANSM in France, MHRA in the U.K., MPA in Sweden and BfArM in Germany; to really assess our regulatory strategy for filing in these countries by the end of 2017.

The second most advanced product is RBP-7000, our monthly risperidone for the treatment of schizophrenia. You may remember, indeed, that we released the phase 3 results, clinical efficacy and safety, for the eight-week pivotal trial in May 2015. Very importantly, we then had to assess the clinical efficacy and safety of that product over extended periods of time; namely 12 months according to the agreement with the FDA. The database for that trial was indeed locked at the end of October last year. And once again, we are going through a very thorough data analysis and interpretation of this data as we speak. Very importantly, both trials also contained health, economics and outcomes research end points in order to understand the impact of RBP-7000 treatment on the quality of life of those patients.

We had a pre-NDA meeting in August last year to agree with the FDA our overall NDA submission strategy. And, again, given all these activities and of being fully on track with all of them, we are on target for an NDA submission during the fourth quarter of 2017.

Rescue medications for drug overdose and drug intoxication; you remember that our intranasal naloxone product for opioid overdose was granted a temporary authorization for use by the French regulatory agency back in November 2015. And, as you know, we were totally committed to honor this ATU with the French government; not only the regulatory agency in France, the ANSM, but very importantly the Ministry of Health. The ANSM then approved the ATU launch on July 26th. And, in fact, we launched the NALSCUE product in France under the ATU program the following day, July 27th. In the meantime, we filed an MAA to the ANSM on November 28th, and [the] MAA is currently being reviewed by the ANSM.

The second product here is RBP-8000, our cocaine esterase for the treatment of cocaine intoxication. Again, you may remember that in October 2014 we were granted breakthrough therapy designation by the FDA. In the meantime, we had two type B meetings with the agency; one in 2015 and one in March 2016. And per agreement with the FDA, work has continued with the development of a lyophilized product and the first test batch was actually manufactured in October last year.

And last but not least, in alcohol use disorder, our arbaclofen placarbil product. The first trial at Indivior with this product actually was completed the first quarter of 2016 with a final clinical study report in June 2016. And the objective of that trial was to [characterize] the pharmacokinetics of arbaclofen placarbil in the target patient population; that is alcohol dependent patients in a controlled abstinence setting. We also wanted to determine the maximal tolerated dose of that product, again in the target population.

What we saw from the trial is that the product was well-tolerated and safe up to a very high dose of 240 milligram. However, we also observed quite a significant intra-individual viability in the pharmacokinetic's profile, especially as the dose increased. So we immediately put together a [remediation] plan. That plan is a reformulation of the product. We basically prepared a clinical study protocol that was approved by the MHRA on the 18th January this year. And I'm very pleased to say that 12 healthy volunteers have been dosed with that new formulation and the first subject was actually dosed on 6th February; we are currently analyzing these data. And, as you may remember from the R&D day; we scheduled a very detailed to-go, no-go series of time points in 2017.

Clearly, once we optimize the formulation, additional clinical studies will be required. Namely regional absorption study and an alcohol interaction study in order to make sure that we mediate the safety risks for further outpatient studies in alcohol use disorder patients.

On that note, I will hand it over to you, Shaun.

Congratulations to you and your team on the tremendous progress that you made with our core potential assets in the pipeline next year.

So as always, we look forward to our future with enthusiasm. And I'd just like to take you through what the key priorities are now for the year ahead. Clearly, we have two big risks that we are working through at the moment and we'd like to get to the other side of those and, sort of, secure long term certainty for the business. Our first priority, of course, is to maintain the resilience and the performance of our core business. But on top of that, to then progress towards NDA submission and hopefully approval of [R2P] once-a-month injectable potential pipeline assets.

We will continue our work to reach out and expand access to treatment around the world focusing predominately in the U.S., of course, to help optimize the new opportunity for treatment for patients following the regulatory and legislative changes in the U.S. Elsewhere we'll continue our good work in Europe and progress the NDA submission in China.

We will also continue to prepare for business developments and M&A beyond our core business. And, obviously, we'll have much greater opportunity on this once we get the other side of our two key risks.

So that leads us to our guidance for 2017. So our guidance is a constant exchange and excludes exceptional items. You can see the net revenue is [$1.050] billion to [$1.080] billion with net income $200 million to $220 million. As we would expect, this is assuming no material change in the current market conditions, so it does include an assumption that we will win the ANDA litigation and there won't be any generic film entry in this year.

I know that we signaled increased investment in our business this year at our R&D day in December, so I'm pleased to be able to confirm the magnitude of that investment is going to be in $40 to $60 million in driving long term organic growth. This is going to be focused in three key areas; first of all, the pre-launch preparation for our once-a-month buprenorphine depot; secondly, to expand access to treatments in the U.S. to help more patients access the care that they need; and to prepare for the launch of the once-a-month risperidone depot.

We've always said that our first priority for use of cash will be to invest in organic growth to leverage our own expertise. I think it's important to recognize that the launch of the once-a-month buprenorphine depot is going to be a very different experience to the launch of the SUBOXONE film. With the SUBOXONE film, we saw a very rapid uptake in market share as the doctors moved patients from the tablet to the film. With the once-a-month depot, of course, there are a number of key challenges that we need to address as part of our launch preparation.

First of all, this is obviously an injectable technology. This is something that will be done in the doctor's office. We need to educate doctors on the science and have the scientific exchange on the clinical data relating to the new technology. The distribution architecture is different for the once-a-month depot. We're designing this with the hope that by having a closed distribution system, we can reduce the potential for diversion and misuse of the product; the product will go directly to the doctor's office so that the doctor can inject the patient. This also means that reinvestment mechanisms will be different and we will need capability to be able to educate and support doctors in how to do that. So that sort of explains the sort of areas of investment that are the priority for the once-a-month depot.

Clearly, with the changes in the U.S. legal and regulatory environment, we want to make sure that we provide the appropriate level of support for that anticipated growth. Nurse practitioner and physician assistant prescribing is also going to create an opportunity. The training has already been put in place by the medical societies authorized to provide the training. And my understanding is that over 1,000 nurses have already registered to start the training course. So we know that there's a lot of enthusiasm in this area. And as you would expect, we continue to upgrade our capability to meet this anticipated growth.

For the RBP-7000, which is our once-a-month risperidone product, we continue the pre-launch preparation for that asset. We still don't know yet exactly whether we'll launch it ourselves or whether we'll partner with someone else, but we continue to prepare the market for launch in any event. So I'm pleased to share with you the new guidance for both our potential assets, assuming that they get approved, and this guidance again assumes no material change in market conditions.

I think when we did the spin we had expectations that there might well be erosion of our core franchise due to generic competition. Of course, the whole CARA and legislative changes weren't thought about at the time, yet alone known about; and we continue to see a much stronger progression of market growth than was anticipated at the time. So I'm sure you're all expecting a new peak now in that revenue forecast. And our estimate is that this will be over $1 billion at peak.

So lots of obvious reasons in the external environment to expect a higher forecast, but also we've been very pleased with the quality and quantity of the data that we've had from our phase 3 studies that we've shared on our R&D Day. So good reason to feel confident in the future potential for that technology.

Our once-a-month risperidone forecast similarly has received an upgrade as we hoped for. Again, I've been pleased with the quality of our phase 3 data; there's been some progression in the growth of the market since our original guidance. And we've done more market research on the back of the new data that we've got [and that] increased our confidence about the potential for that.

So just to share with you, as always, our agenda for the year ahead. We're always pleased to see you at conferences and one-to-one meetings. Some of our key events that are anticipated - we don't know with certainty, of course, the timing of all these matters. What we do know is that we are going to be at CPDD, which is the big scientific conference [in] addiction in the U.S. every year where we will be presenting a lot of our scientific data.

Here's the agenda for the second half, and that concludes the presentation for today.

So in summary, we've got key challenges to overcome like any business, but we face the future with great enthusiasm and a lot of confidence. We are making tremendous progress across the board, and we look forward to keeping you updated of the results as they come in through the year.

So thank you very much for your time and attention. And I'll be very pleased to take any questions that you may have.

Max Hermann from Stiefel. Firstly on RBP-6000, just trying to get a little bit more detail on where the IP for that is held and trying to get a feel for the potential longer term tax consequences of that. And also the patent expiry and sort of what time horizon we can expect for the product.

And then also you alluded to the ex-U.S. [filing], you've had discussions with regulators around the globe. You talked about, I believe - or Christian mentioned a filing outside the U.S. before the end of 2017. Just wanted confirmation what territories that was?

And then just in terms of your expectations in RBP-6000, I wondered how you've factored in potential competitive threats for that particularly with the Cameras 2038 product as well out there?

And then finally just in terms of - I know that these are preliminary results and you haven't had the formal audit, but understanding the way the process works, the auditors have obviously reviewed your provision for the litigation charges and deem that that's adequate. Otherwise, they would have increased that necessary provision. So I'm just trying to understand what the reason is for the clear emphasis on the litigation potentially being higher than the 220.

Should we take those in turn, Mark? Would you like to address the first, please?

With regards to RBP-6000, the IP will be held in the U.K. so a little bit of tax help there with regards to the planning. I think the ex-U.S. filings you heard correctly from Christian, we're looking to engage and build off of positive results with the U.S. filing and are rushing towards a completion of that by the end of the year. EU5 and Australia is how I would think about it, and Canada.

And then with regards to the guidance on RBP-6000; yes we have built into that the competition in the market that we're expecting through into the peak sales.

Shaun, you want to handle the provision?

Yes. On the legal - why emphasize the legal? We just want to be transparent and balanced to make sure that we give you a presentation that has fair balance of the positive elements for the future as well as the risks. This is the latest language that we've been given by our lawyers to give you as much transparency as possible, so that's why we wanted to share it with you today.

Matthew Kirk, Bank of America Merrill Lynch.

Just on U.S. SUBOXONE pricing; you mentioned that it's kind of stable in the generic side of the market but branded competitors had used discounting. Within your guidance, how much is baked into potentially more aggressive tactics in 2017 as they've not been able to gain any market share there?

And then secondly on RBP-6000 guidance; you've updated the peak sales but you [gave us] that expect a slower launch trajectory. Could you just give us a feeling of when you're expecting to reach peak sales and how that ties in with potential generic SUBOXONE film patent expiry if that comes to the market?

And then, just a final one on the China opportunity for tablets and of the 6000 opportunity in Europe; how much infrastructure will you need to build there and should we think of a similar cost that you've put into the U.S. that you just announced?

With regards to the pricing environment, if we think through 2017, what we've talked about is not having [map] pricing with regards to the generic tablets in the U.S.; but continuing to see some downward pressure on those requiring some tactical rebates on our side.

Shaun mentioned during his discussion on the market dynamics that in 2016 we had some wins on some formularies to offset some of the losses. What we're expecting kind of in the year ahead is; we don't see the wins out there because we have very, very good access. And what we see is another branded competitor that's starting to ramp up on Probuphine. And we see a little bit more pricing pressure with the addition of two more generic competitors, [Sun] and Lannett who have been approved in Q4 and should launch within the year. So that's the way that we've looked at the dynamic.

With regards to the 6000 guidance, the slower launch or pickup you said and if the generic SUBOXONE film comes in; the label for RBP-6000 will be based on new starts. So the way the label is constructed we don't see that as a major impact with regards to the share, it's a new transformational asset with regards to the treatment, new science; and we're expecting to get a fair share of the market regardless of what the component is of the generic film.

And then 6000 in Europe; obviously it'll be a little bit smaller market. There will be some go-to-market investment. We got a little bit of that built in to the RBP-6000 spend this year and we'll get more clarification on that in the year ahead as we look through that.

James Vane-Tempest from Jeffries.

Firstly, just on your R&D budget, it clearly went down 10% last year. How shall we think about the relation of that over the next years given some of your projects?

And secondly, in the presentation, Mark, you had alluded to capital allocation; wanting to have some of the litigations kind of resolved. There's clearly a number of issues outstanding which need to be resolved. Are there sort of one or two which you'd like to have resolved first before starting to put that money to work? The press release clearly states there's no intention for dividends for the foreseeable future, so how should we think about capital allocation?

And then my final question is - I guess I was interested in the timing to change the guidance for the depot today given Dr. Reddy's trial results going to be the next couple of months possibly. So if that was to go against you in terms of thinking about the potential pricing and part of the overall franchise and then the value proposition of the film, could we see that more than a billion number be resolved or how should we think about that?

So I think from an R&D budget standpoint, from a guidance in 2017 we think of that as about flat. We've got some completion payments on the big assets and some investments that are happening on AP and some of the exploratory work that we're doing from a guidance beyond there. We're going to be investing in a pipeline looking to fill some of the vacancy on the early assets.

Capital allocation; I think Shaun explained kind of our key overhangs. We've got an ANDA and we've got the DOJ work that's going on, and those are kind of the two that we view as the key. And we'll be looking at the capital allocation as we get through each of those and they resolve, and the circumstances that they're resolved in; and then looking at the short and the medium and the long term capital allocation as I talked in the presentation.

The timing with regards to the guidance on Dr. Reddy's, I think I covered; one, it's a transformative treatment. If you look at any sort of analog with regards to schizophrenia, there's a bifurcation in the pricing model between the oral and the long acting because of the value that's recognized there. And so the view is that, as I said; it's for new starts, this asset, that's what [it] will be on the label. And so we view it as it's a different decision than a conversion like you would have seen on the tablet to film when the film launched.

Mark, [Porcan from Nemus].

On the [review] guidance for 2017, I think Shaun had mentioned you haven't started to see the impact from CARA Acts and potentially 21st Century Cures Act yet. So what were you kind of assuming for the benefit of the federal efforts for 2017? Just generally how much flex do you have on your kind of cost base on various levels of litigation provision?

And then on the billion dollar guidance; you must have an assumed pricing level and what might that be having had [Alchemy's] set [a nice] last precedent?

All good questions. So with regards to our revenue guidance in 2017; CARA and Cure, those have been built in from a high single-digit very low double-digit market growth which is a little bit ahead of what we saw in 2016. The cost base on litigation, we don't disclose that separately. You see the pace of the litigation and can assume how much, I think, is within the SD&A.

And on the billion dollar guidance; we're not breaking up our various assumptions and filling out the models for you. What we've done is given the top line and updated the guidence, we think, to an appropriate level moving forward.

Sarah Thomas from Deutsche Bank.

Firstly, just on risperidone; you referenced in the press release 200 to 300 because of the specific niche market that it addresses. What is that niche market, given potentially risperidone is potentially quite broad in its use in schizophrenia?

And then on cocaine; what are the timelines from here to you starting phase 3 now that you're up and running with the new formulation?

And then perhaps on the litigation; what is your level of confidence as we head into the litigation ruling today versus where we were 12 months ago heading into a similar litigation ruling, albeit the slight nuance in 'dried' versus 'drying'?

So first of all, for the risperidone product; clearly, this is a once-a-month injectable. So the niche here is for patients for whom the doctor wants to give risperidone but would like to see the patient on a monthly dosing interval. Clearly, we recognize there are some big players with good products in the schizophrenia market. We don't anticipate to go up and take a leadership position in schizophrenia should we launch it ourselves. We're just clear, but there is a very real, very compelling group of doctors and patients for whom this technology - and our market research has shown that there is a very strong level of appeal.

RBP-8000, as I mentioned, we focus really on the development of a lyophilized product in order to move to the next clinical development stages. The plan is then to meet again with the FDA once this is done sometime in [further in] 2017 for a [third type] meeting in order to define the remaining part of the clinical development plan and we will then update the community at that point.

And on the litigation front; we've always said that we believe that our patents are valid and enforceable. And we had the track record of the first trial going in our favor. There was a change in claims construction in the Dr. Reddy's case given the limitation definition of 'dried' and 'drying'. That has since gone through further clarification in the Mylan Markman hearing. And while, technically, that only applies to the Markman case; a lot of those same arguments that resulted in that claims construction were before the judge at trial and will be reiterated in the post-trial briefing. So I'd say our confidence level hasn't really changed. We still think our patents are valid and enforceable, but obviously there is always inherent risk in litigation and difficult for us to predict outcomes.

If there are no more questions, then that concludes our presentation for today. I thank you all for your attention and look forward to seeing you again soon.