Q2 2021 Endo International PLC Earnings Call

August 6, 2021

[music].

Thank you for standing by and welcome from the second quarter 2021, Endo International Plc earnings Conference call. At this time, all participants are in a listen only mode.

After the Speakers' presentation, there'll be a question and answer session.

And I ask a question and session you will need to close stores and 1 of your telephone.

Please be advised for today's call is being recorded.

If you require additional system for Starz and he worked with and operator.

And I have to hand, the call over to Laurie Park, Senior Vice President Investor Relations and corporate Affairs. Please go ahead.

Thank you Michele good morning, and thank you for joining us to discuss our second quarter 2021financial results. Joining me on today's call are Blaise Coleman, President and CEO of Endo, Mark Bradley Executive Vice President and CFO, and Patrick Barry President Global commercial operations.

We have prepared a slide presentation to accompany today's webcast and that presentation as well as other materials are posted online and the investors section at Endo dotcom.

I would like to remind you that any forward looking statements made by management are covered under the U S. Private Securities Litigation Reform Act of 1995, and the applicable Canadian Securities laws and are subject to the changes risks and uncertainties described and the press release and and our U S and Canadian Securities filings and.

In addition, during the course of the call. We may refer to non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in the United States and that may be different from non-GAAP net financial measures used by other companies and investors are encouraged to review and does current report on form 8-K furnished with the SEC for <unk>.

<unk> reasons for including those non-GAAP financial measures and its earnings release and presentation.

Conciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures are contained in our earnings press release issued yesterday, unless otherwise noted therein.

I'd now like to turn the call over to Blaise blades.

Laura Good morning, everyone and thank you for joining US we're pleased to report solid financial performance and continued progress against our strategic priorities during the second quarter.

We saw better than expected performance across each of our segments, including double digit percentage sequential revenue growth and our branded pharmaceuticals segment.

Driven by continued strong volume growth and XIAFLEX.

Based on the strength of our second quarter performance, we are raising the low end of our 2021 full year financial guidance.

Turning to slide 3 last year at this time, we introduced our strategic priorities.

Which guide all that we do.

As we work to transform our company.

During the second quarter, we made progress across all 3 of our strategic priorities.

And expand and enhance our portfolio. We continue to successfully deliver on our core launch client drive continued strong XIAFLEX volume growth through effective commercial execution and focused investments for.

Aggression grow more internal product pipeline and actively pursue external business development opportunities and our core areas of growth.

And reinvent how we work we continue to advance our business transformation initiatives, including the recently announced sale of our manufacturing facility and Chestnut Ridge New York.

And be force for good we published our second annual ESG report in May and reporting our continued progress across many of our initiatives and support of our ambition to adapt and more sustainable practices that benefit all of our stakeholders.

Moving to slide for this is a snapshot of our segment and consolidated revenues and our adjusted EBITDA for the quarter.

Second quarter revenues of $714 million increased by 4% compared to the prior year.

This increase was mainly due to an increase in revenues from the specialty products portfolio of our branded Pharmaceuticals segment.

Partially offset by anticipated decreases in revenues from our generic pharmaceuticals, and sterile Injectables segment.

Reported second quarter, adjusted EBITDA of $343 million increased by 2% compared to prior year.

This increase was primarily due to higher consolidated revenues and favorable changes and product mix and was partially offset by increased adjusted operating expenses.

Second quarter 2021, consolidated revenues and adjusted EBITDA exceeded our previously communicated expectations due to better than expected performance across all of our segments and lower adjusted operating expenses, mainly due to the re phasing of expenses for the second half of the year.

Turning to slide 5 second quarter revenues from our branded Pharmaceuticals segment increased 76% compared to prior year driven by the performance of our specialty products portfolio.

XIAFLEX revenues increased by over 200% and the second quarter compared with prior year.

On a sequential basis XIAFLEX net sales grew 17% driven.

Driven by an 11% increase and volume compared to the first quarter of 2021.

These increases are the result of an increase and physician office activity and patient office visits coupled with continued strong commercial execution.

Compared to the same period and 2019 XIAFLEX revenues have grown at an impressive compound annual growth rate of approximately 22%.

As we discussed earlier this year, we are continuing to invest and XIAFLEX commercial strategy that includes increasing patient awareness through expanded promotion to empower patients to seek non surgical options.

Coupled with physician education and training.

Based on strong demand growth and the ongoing opportunity to improve condition awareness and enhance overall treatment and diagnosis rates.

We are planning additional investments and direct to consumer marketing campaigns and the second half for the year.

As part of our overall commercial strategy.

Specifically, we're planning to introduce a branded consumer activation strategy for the peroni and indication.

We believe a branded DTC approach will further enable diagnosis treatment and unlock further demand for XIAFLEX.

Our experience so far demonstrates the majority of consumers who request XIAFLEX by name receive treatment.

These additional investments are reflected in our full year financial guidance that Mark will discuss later in the presentation.

So pro and OE revenues grew by 79% and the second quarter compared to prior year, primarily driven by the products continued recovery from the pandemic.

As well as stronger than expected demand, resulting from expanded patient awareness and.

And a competitor product shortage, we are pleased by the volume growth and the quarter and the first half of 2021.

And are proud to provide central precocious puberty patients and their healthcare providers with a solution that delivers 12 months of duration.

And use from our sterile Injectables segment declined by 8% compared to the second quarter of 2020.

However, revenues did exceed our expectations for the quarter.

Visa strict revenues declined by 8% in the quarter compared to prior year driven by the anticipated decrease in volumes as COVID-19 related hospitalizations declined.

On a full year visa strict revenue assumptions anticipate a continued decline towards pre COVID-19 volume levels in the second half of 2021.

Moving to slide 6.

Revenues from our generic pharmaceuticals segment decreased by 23% and the second quarter compared to the prior year.

The anticipated decrease was primarily due to the impact of prior competitive events.

This decline was partially offset by the successful launch of Lubiprostone capsules Dr.

And the authorized generic of Amitiza in January of this year.

Second quarter.

Order generic pharmaceuticals segment revenues exceeded our expectations, mainly due to delay and certain anticipated competitive events, coupled with better than expected Levie Pro stone brand to generic conversion.

Finally International Pharmaceuticals segment revenues for the second quarter were comparable to the second quarter 2020 revenues.

Turning to slide 7 while still early and our launch of quo. We are pleased with our progress to date and the positive feedback we're receiving from both the medical aesthetics community and women, who have been treated with <unk>.

We've recently completed and market survey of early experienced health care professionals and patients being treated with quote.

Which showed that a strong majority of the patients and clinicians are satisfied with the treatment results.

Approximately 80% of treating physicians right. The overall experience positively and would recommend <unk> to a fellow colleague.

After completing the full core treatment, approximately 75% and patients reported being satisfied with the treatment and would recommend treatment to others.

Survey results also suggested a boost and patient feeling largely involve increasing confidence among the other factors.

Our PR and media planning continues to generate brand awareness and consumer enthusiasm and the marketplace year to date <unk> had 100 as 130 for unique media placements generated over $5.3 billion media impressions.

88 feature stories and he.

Had 36 broadcast placements <unk>.

Additionally, <unk> continues to be recognized with consumer Beauty awards.

So far <unk> been awarded the 2021, New Beauty Award the Sheepskin Award and recently brought home the 2021, Cosmopolitan and beauty breakthrough Award and.

Increasing the number of beauty awards received the 5.

The complement growing consumer awareness, we recently launched a find a specialist feature on our website.

For match interested consumers with treating medical aesthetics practices.

In terms of our launch execution, we are on target with our planned account onboarding.

Purchase and utilization rates.

Our focus continues to be a deliberate and progressive approach aimed at supporting practices to successfully launch and integrate <unk> into their practices and and efforts to support positive patient outcomes and overall consumer satisfaction.

Moving to slide 8 and discussing our ongoing branded and clinical studies and pipeline starting with <unk>. Our data generation plan to remain focused on dosing and injection technique and responses in target patient populations as well as rollover studies on durability.

Results analysis from these studies are key to our publication.

Okay.

We continue to make progress and our XIAFLEX development programs last week at the American Podiatry Medical Association annual meeting held in Denver, We presented and the poster on the phase 1 safety and Tolerability results of XIAFLEX as a non surgical treatment for plantar fibromatosis.

We are encouraged by these initial findings and are excited to progress our plantar Fibromatosis program with the initiation of a phase II study and the second half of this year.

In terms of adhesive capsulitis or phase <unk> study interim analysis is anticipated towards the end of the year.

We believe both plantar fibromatosis and adhesive capsulitis represent opportunities to bring innovative treatment options to address potential large unmet needs for patients who are seeking non surgical approaches to treatment.

Turning to slide 9 we continue to evolve our R&D pipeline and manufacturing capabilities to support the introduction of more sterile products that focus on the evolving needs of our customers.

The number of R&D projects and our pipeline has increased approximately 35 with the addition of new sterile injectable projects.

Overall grid and 80% of R&D pipeline consists of projects across the sterile injectable product continuum.

With approximately 2 thirds and ready to us and more differentiated products.

Across our sterile injectables and generic segments, we plan to launch approximately 10 products in 2021, which includes our launch of Lubiprostone capsules earlier this year.

In addition to organic efforts to expand enhance our portfolio. We continue to remain active on the business development front.

We're focused on opportunities and our core areas of growth, including medical therapeutics medical aesthetics, and sterile injectables to enable us to further leverage our existing capabilities.

We've taken and will continue to take a disciplined approach to deploying capital on business development opportunities.

Now, let me turn the call over to Mark to further discuss the company's financial results and our financial guidance Mark.

Thank you Blake and good morning, everyone first on Slide 10, you will see a snapshot of our second quarter GAAP and non-GAAP financial results. Please covered consolidated and segment revenues earlier, so I will not review that again.

On a GAAP basis loss from continuing operations was approximately $10 million or <unk> <unk> per share on a diluted basis in.

And the second quarter of 2021 compared to income from continuing operations of approximately $18 million or <unk> <unk> per share on a diluted basis and the second quarter of 2020.

This decrease was primarily attributable to higher litigation related cost, including the recently announced Tennessee settlement.

And higher interest expense and was partially offset by increased revenues and a favorable change and product mix.

On an adjusted basis and.

<unk> from continuing operations of $152 million or 65 per share on a diluted basis.

And the second quarter of 2021 with comparable to similar amounts in the second quarter of 2020.

Second quarter 2021 results reflected an increase in revenues and a favorable change and product mix, partially offset by increases and operating expenses and interest expense compared to the second quarter of 2020.

Turning to slide 11.

Based on better than expected performance across all of our segments and the second quarter. We are raising the low end of our 2021 full year financial guidance.

We now expect full year 2021, total revenues to be between $2.73 billion.

And $2.79 billion.

Adjusted EBITDA to be between $1 billion to $3 billion.

And 1.2 dollars 8 billion.

And adjusted diluted net income per share from continuing operations to be between $2.15.

And $2.30.

Our full year 2021 guidance continues to assume and adjusted gross margin of 70% to 71%.

Adjusted interest expense of approximately $560 million.

And an adjusted effective tax rate of 11% to 12%.

However, we now assume adjusted operating expenses as a percentage of revenue will be approximately 28, 5%.

While our full year guidance ranges contemplate a number of different uncertainties, our guidance does not assume a broad reinstatement of COVID-19 restrictions.

For a significant resurgence of COVID-19 related hospitalizations during the remainder of the year.

With respect to quarterly phasing, we expect total revenues to decline by approximately $50 million to $90 million in the third quarter of 2021 compared to the second quarter of 2021. This.

This decline is expected to be driven by anticipated lower sterile Injectables segment revenues due to lower visa strict volumes as demand continues to return to more normalized levels.

As well as lower generic for generic Pharmaceuticals segment revenues due to continued expectations for competition on certain generic products.

Branded Pharmaceuticals segment revenues are expected to remain relatively flat in the third quarter of 2021 compared to the second quarter of 2021 is continued growth and XIAFLEX is expected to be offset by declines and our established products portfolio due to continued competition.

We expect adjusted gross margin in the third quarter to be at the low end of the full year 2021 guidance range, reflecting the change and product mix.

Additionally, we expect adjusted operating expenses as a percentage of revenue in the third quarter to be and the low to mid 30% range, which reflects increased investments to support the launch of quote the.

And the progression of our branded and sterile injectable R&D pipeline projects and the continued growth of our XIAFLEX on market indications, which includes the introduction of our branded direct to consumer campaign for our <unk> indication.

Switching to slide 12. This is a summary of full year segment and total enterprise revenue assumptions.

As you will notice we have slightly updated the full year revenue assumption for our branded pharmaceuticals, sterile injectables and generic pharmaceutical segment as well as for XIAFLEX invasive strict.

Advancing to slide 13, and wrapping up the financial discussion and.

Unrestricted cash flow prior to debt payments was $372 million for the first 6 months of 2021 compared to $390 million and the prior year.

This decrease was primarily due to a decrease in cash flow from changes in net working capital and was partially offset by a decrease and cash interest payments and an increase and net cash tax refund.

We ended the second quarter of 2021 with approximately $1.5 billion.

Of unrestricted cash and a net debt to adjusted EBITDA leverage ratio of approximately 5 times.

For the full year 2021.

We are updating our expectations for unrestricted cash flow prior to debt payments to be between approximately $195 million and $245 million.

Compared to our prior estimate of between $140 million and $240 million.

This net change primarily reflects the increase and the low end of the adjusted EBITDA guidance range previously discussed.

Coupled with an increase and cash flow from changes in working capital par.

We offset by increases and opioid related legal expenses and cash distributions for settlements, which corresponds with the recently announced Tennessee settlement.

Let me now turn the call back over to Blaise place. Thanks, Mark Hake prior to turning the call over to Lori to manage our question and answer period. We understand there are many questions regarding our ongoing trials and California, and New York, Our recently announced Tennessee settlement and Yoplait litigation matter as a whole.

And as I'm sure you can appreciate we're eliminate what we can say on this front.

With respect to Tennessee or settlement includes no admission of wrongdoing fault or liability of any kind by endo and our decision to enter into it was based on avoiding litigation risk and the cases associated costs.

With respect to California, and New York by other liability phase of both trials are pending so we're not going to comment on those proceedings.

With respect to the opioid litigation as a whole we continue to be open to identifying and executing on and constructive paths for resolution.

And it's important to note that while constructive resolution remains our goal there can be no assurances that this will be achieved and we are prepared to continue to litigate if necessary.

More importantly, while we continue to address the opioid litigation our Endo team remains highly focused on our day to day business execution and advancing.

Advancing our strategic priorities and delivering on our portfolio of life and life enhancing products to our customers and the patients we serve.

I want to thank each of our Endo team members for all of their strong execution during the quarter and continued commitment to helping us transform into the company that we aspire to be and future.

Let me now turn the call over to Laura and manage our question and answer period Laurie. Thank you Blake and the interest of time, if you could limit your initial questions to 1 and we can get and as many as possible and we would definitely appreciate it operator can we have the first question. Please.

Our first question comes from Chris Schott with Jpmorgan. Your line is open.

Great. Thanks, so much for the question.

I guess my question is on quo and some of those numbers you've cited with the early access program and I guess, maybe specifically for 75% satisfaction rate were there any themes and I guess, the 25% that werent satisfied as you look to maybe further refine the target population and I guess it was there just anything that you take away from that traditional survey.

Net that you use going forward and it just maybe more broadly I guess I think about 75% it's clearly.

A good number but can you just give us some of the highest satisfaction rates, we see and other aesthetic markets. How do you think about positioning that as you think about a broader rollout of the product. Thanks. So much.

Chris Thank you very much for those questions and I'll, let Patrick.

Address those Patrick thanks.

Thanks for the question, Chris again, I think the takeaway on the early experience market researches us that's an early directional trend. So we did.

And we did actually engage with those patients relatively early after the completion of their course of therapy. So we really like the fact that 75% us directionally.

A good watermark for us and.

It also is somewhat consistent with what we saw and some of our other data generation as well if you look at our 305 trial, which studied patients and both buttocks and thighs we saw.

Investigator global aesthetic improvement scores and patient satisfaction scores well into the <unk>. So again directionally and the early days, we're looking for a focus on good patient outcomes and good patient satisfaction and so what we're seeing in terms of data generation and also what we're seeing and this.

Small market survey is exactly what we want to see and Thats, where our focus is to continue to drive good patient outcomes.

Next question please.

Our next question comes from David <unk> with Piper Sandler Your line is open.

Thanks, So <unk>.

And so I'm not mistaken.

Back in 2019 year and PK study.

Looking at our ready to use formulations for you talked broadly about it.

And the line extensions.

On the asset strength and when you could be in a position.

To bring and proof of version of it to market and then with that and mine to the extent you do lose exclusivity and can you just talk broadly about.

And the extent to which that could create any liquidity issues for you. Thanks.

Great David Thank you for the for the questions on Bezos. So David on visa, we do have a very active lifecycle management strategy around that what we have right now approved is a visa strict premixed bottle.

And we believe that's going to really bring value to our customers as they look to identify.

And realize the benefits of red and ready to use product look and visa premixed bottle can bring to the market and and what we've talked about us that we will launch that product product strategically in terms of.

In terms of the potential outcomes around launch of exclusivity David were really not going to speculate around that we have the the matter is pending with the with the court and Delaware and we'll be ready for whatever that decision is built we're not going to speculate in terms of that potential outcome overall from liquidity standpoint, right now we feel.

Very good about our liquidity and our go forward position on that front, regardless of the outcome on that matter.

But that's where we stand in terms of the day, the strict matters and we're not going to comment much more on that until we have the decision and the Delaware trial and.

Michelle can we and the next question please.

And next question comes from the non tie with Citi. Your line is open.

Hi, good morning, and.

Okay can I try and opioids and I know you can't comment on New York and California.

To cut and generally on the progress towards a potential global set and then do you feel that plaintiffs and more willing to settle and do you have a better idea.

Timing and then I have a second question on <unk>, if you had any updates on the introductory.

Alright, thank you.

Patrick why don't you comment on the price and I'll take the opioid question, Yes sure place we launched through our early experience program, an introductory price and that's still is and the market. We're not commenting beyond that so we've got 2 price points out there we've got a for a mill at $200 per vial and then we have a 8 ml at $3.50 and.

What I would say is that we've received really very positive receptivity to our price point.

I think it and allows us.

US to have a price from the marketplace that.

Allows our clinicians to drive good margin introduce a new vertical but and doing so it also creates a product thats very accessible to a wide swath of consumers and so that's what we wanted to do us really address a wide scale need for a and effective cellulite treatment and that's the first and only and jackpot those price points.

And we've received really positive feedback from our price.

On the opioids question as we said and our prepared remarks, we continue to work towards identifying and executing on our constructive paths for resolution, we believe its and the best interest of all of the various parties and stakeholders to find that type of constructive resolution.

However, this is a very complex matter and as we said, it's not really possible for us to assign a probability of likelihood of that outcome or when the timing and outcome might be might be reached.

He placed and Michelle next question.

Our next question comes from Gary Nachman with BMO capital markets. Your line is open.

Hi, good morning.

XIAFLEX continues to outperform has more of the upside and then coming from Cupid trend and sort peroni and it seems like you're pretty optimistic for upside and peroni is going forward with the DTC campaign can you comment on that and are you getting a tailwind from the pandemic with people less inclined to get surgical procedures at.

And at this point and.

And then just a quick 1 on quo.

How many physicians have you trained thus far I think you started with $3.50 for the EEP and how much for you expand that network over the next year just talk about the process for getting certified and how that will play out.

Yep, Thanks, Gary for those questions I'll, let Patrick comment on both maybe just a quick comment on XIAFLEX is that we've seen really impressive growth on both indications and we are very excited about our move to a branded strategy on the <unk> indication and Patrick and can comment more about that in a moment on quo.

Gary right now, we're really focused on driving awareness and trial of that product and and a big part of that is training, we're probably not going to get into specific numbers on exactly how many we've trained it at this stage, we feel really good about the progress we've made but all again, let us let Patrick provide some additional color on on what we're doing on that front as well.

Sure Let me let me. Thank you for the question, let me start with XIAFLEX, we've seen really very impressive growth are really across both indications as we discussed in our prepared comments, we saw a revenue growth of over 200% and that was largely driven from a volume perspective.

Both indications are growing versus prior year, the cronies indication grew to about 80% from and underlying demand perspective, and the <unk> indication grew at 138% and we saw really excellent sequential volume growth across the board so double digit volume growth.

And quarter 2 versus quarter, 1 and so really all good signs that we see really strong health across the molecule and that's exactly what I want to see as it relate and I would I would attribute that to a couple of things I would attribute that to the fact that we're seeing an increase and physician activity we're seeing.

And our approach towards pre COVID-19 level in terms of consumer and patient activities and we continue to stay committed to us XIAFLEX maximization plan to have the right resources and the market and our teams are executing extremely well it's based on that confidence that we are moving forward with plans to.

And introduce a branded direct to consumer activation strategy behind peroni.

As we've created condition awareness, we have created a strong call to action and the marketplace and a key insight and key learning for US is is that when that patient does in fact asked for XIAFLEX. The majority of the time for that Peroni us indication they do get XIAFLEX and so for us.

And that exists a lot of confidence going into the latter part of the year and an exciting opportunity for us to to introduce a branded campaign, which we think will further enable diagnosis treatment and unlock underlying demand, which is really great for patients.

As it relates to <unk> I think blaze address that question again, I think and the early days, it's really about focusing on patient outcomes and.

And helping physicians integrated into their practice and to have confidence and so again and our prepared comments. The trends are very very positive. If you look at the early experience program. The fact that 80% of those market Influencers had a positive experience with endo aesthetics positive experience with quo, that's exactly what it is.

Want to see those patients are satisfied.

And there they are satisfied with their treatment and they're willing to recommend as well. So that's really our focus and the early days is on patient outcomes integrated deeply and the end of the practices and getting repeat utilization.

Next question please.

As a reminder to ask a question. Please press Star then 1.

Our next question comes from Annabel <unk> with Stifel. Your line is open.

Hi, Thanks for taking my question.

That's for your questions.

First now that you've had a little time with a soft launch and the market what are physicians, saying as far as patients coming in for the full course of treatment.

And how is the potential and transactional peloton.

And for Cellulite, and let's just just acquired by Allergan aesthetic and it'd be changing the competitive landscape for us and you've heard any any pause there and then on XIAFLEX, it's been out there for for quite some time.

Now I imagine that most of the physicians who adopt this product have already adopted so what is the focus and here.

Primary investment DTC, clearly to bring patients and but do you feel that you've fully penetrated the physician population and and.

And and you can move your investment dollars more and then development area. Thanks.

Great great. Thanks for those questions on quo XIAFLEX, maybe a quick comment or 2 on XIAFLEX, which as Patrick said, we're really excited about now moving into the branded consumer activation strategy on Proteus disease, and and there is still a significant significant opportunity there and 1 other ways were going to drive us.

And what Patrick said, which is by further activation and the consumer.

And so as Patrick said as we as we activate that consumer and that consumer recognizes that theres, not only and non surgical treatment to treat that condition, but also knows it by name that's going to have significant impact and drive additional demand not only with existing.

Physicians that use XIAFLEX to date, but also.

Additional extension of a new new injectors going forward, but Patrick maybe you can comment further on Covid and anything else on XIAFLEX sure happy to do so let me start with the third question again, it's certainly early days, but we are generally seeing that physicians are positioning flow for a full course of treatment again that the <unk>.

Nicole trials, we're focused on 3 of course us 3 cycles and so we're generally seeing patients are willing to go through a full force and we're seeing a physician's successfully position it that way as it relates to salto and the acquisition from Abbvie Allergan.

The way we look at it we certainly feel like that validates some of our sentiments on the relative size of cellulite, the enthusiasm for that market opportunity anytime youre going to get a player like allergan and coming into the market, that's only going to fuel condition awareness. So that that's a good thing for US there is certainly room for more.

Paul treatments, we see and the medical aesthetic area, most many times physicians.

Look 2 multi modality type of approach and so we really like the positioning that well has us the first and only injectable to treat cellulite.

And that's.

With an injectable I think that positions us well Ah patients are very accepting of Injectables. We also know that physicians can very easily operationalize and injectable and their practice Theres no capital outlay.

I know how to do that and so there is an opportunity to create a new vertical for them and opportunity to grab a good margin and an opportunity to have a price point that is accessible to a wide addressable market as it relates to.

XIAFLEX.

Again.

And while focusing on the <unk> indication since we talked about our branded campaign there you've got about 12000 high prescribing urologists out there that are treating erectile dysfunction and treating men's health issues on a daily basis, we know that the diagnosis rates and treatment rates are really really low.

And so there's a huge opportunity to pour more patients into the funnel. There is an opportunity to activate more urologists and and again, we know that based on the growth of the peroni us indication that the condition awareness has been effective and we also know that when they ask for XIAFLEX by name.

It unlocks even more underlying demand there are men out there suffering in silence.

With Proteus disease, and we feel like this is a great opportunity to <unk>.

Not only create further conditional awareness, but to get more treatment get more diagnosis and more treatment more men treated.

And so that's an exciting day for patients with the branded campaign coming and the future.

Next question please.

There are no further questions I'd like to turn the call back over to Blaise Coleman for any closing remarks.

Great. Thank you very much operator, just want to thank everybody for joining this morning, and we look forward to providing updates as we move forward. Thank you everybody.

Okay.

This concludes the program and you may now disconnect everyone have a great day.

Okay.

[music].

Thank you for standing by and welcome from the second quarter 2021, Endo International Plc earnings Conference call. At this time, all participants are in listen only mode and.

After the Speakers' presentation there'll be a question answer session.

So I'll ask a question for this session you'll need for.

Stars and 1 or your telephone.

Please be advised for today's call is being recorded.

If you require additional system for Star then he worked with us not forget.

I would like to hand, the call over to Laurie Park, Senior Vice President Investor Relations and corporate Affairs. Please go ahead.

We have prepared a slide presentation to accompany today's webcast and that presentation as well as other materials are posted online and the investors section at Endo Dotcom and I would like to remind you that any forward looking statements made by management are covered under the U S. Private Securities Litigation Reform Act of 1995.

And the applicable Canadian Securities laws and are subject to the changes risks and uncertainties described and the press release and and our U S and Canadian Securities filings.

In addition, during the course of the call and we may refer to non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in the United States and that may be different from non-GAAP net financial measures used by other companies and investors are encouraged to review and those current report on form 8-K furnished with the SEC for us.

And those reasons for including those non-GAAP financial measures and its earnings release and presentation. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures are contained in our earnings press release issued yesterday, unless otherwise noted therein.

And now I'd like to turn the call over to Blaise plays.

Laura Good morning, everyone and thank you for joining US we're pleased to report solid financial performance and continued progress against our strategic priorities during the second quarter.

We saw better than expected performance across each of our segments, including double digit percentage sequential revenue growth and our branded pharmaceuticals segment.

Driven by continued strong volume growth and XIAFLEX.

Based on the strength of our second quarter performance were raising the low end of our 2021 full year financial guidance.

Turning to slide 3 last year at this time, we introduced our strategic priorities.

Which guide although we do.

As we work to transform our company.

During the second quarter, we made progress across all 3 of our strategic priorities.

And expand and enhance our portfolio, we continue to successfully deliver on.

And our quote launch client drive continued strong XIAFLEX volume growth through effective commercial execution and focused investments.

Progress and grow our internal product pipeline and actively pursue external business development opportunities and our core areas of growth.

And reinvent how we work we continue to advance our business transformation initiatives, including our recently announced sale of our manufacturing facility and Chestnut Ridge New York.

And beef force for good we published our second annual ESG report in May and reporting our continued progress across many of our initiatives and support of our ambition to adopt a more sustainable practices that benefit all of our stakeholders.

Moving to slide for this is a snapshot of our segment and consolidated revenues and our adjusted EBITDA for the quarter.

Second quarter revenues of $714 million increased by 4% compared to the prior year.

This increase was mainly due to an increase in revenues from the specialty products portfolio of our branded Pharmaceuticals segment.

Partially offset by anticipated decreases in revenues from our generic pharmaceuticals, and sterile injectables segments.

Reported second quarter, adjusted EBITDA of $343 million increased by 2% compared to prior year.

This increase was primarily due to higher consolidated revenues and favorable changes and product mix and was partially offset by increased adjusted operating expenses.

Turning to slide 5 second quarter revenues from our branded Pharmaceuticals segment increased 76% compared to prior year driven by the performance of our specialty products portfolio.

XIAFLEX revenues increased by over 200% and the second quarter compared to the prior year.

On a sequential basis XIAFLEX net sales grew 17% drew.

Driven by an 11% increase and volume compared to the first quarter of 2021.

These increases and the result of an increase and physician office activity and patient office visits coupled with continued strong commercial execution.

Compared to the same period and 2019 XIAFLEX revenues have grown at an impressive compound annual growth rate of approximately 22%.

As we discussed earlier this year, we are continuing to invest and the XIAFLEX commercial strategy that includes increasing patient awareness through expanded promotion to empower patients to seek non surgical options.

Coupled with physician education and training.

Based on strong demand growth and the ongoing opportunity to improve condition awareness and enhance overall treatment and diagnosis rates.

We are planning additional investments and direct to consumer marketing campaigns and the second half for the year.

As part of our overall commercial strategy.

Specifically, we are planning to introduce a branded consumer activation strategy for peroni and indication.

We believe a branded DTC approach will further enable diagnosis treatment and unlock further demand for XIAFLEX.

Our experience so far demonstrates the majority of consumers who request XIAFLEX by name receive treatment.

So for Illinois revenues grew by 79% and the second quarter compared to prior year, primarily driven by the products continued recovery from the pandemic.

As well as stronger than expected to ban, resulting from expanded patient awareness and.

And a competitor product shortage we.

We are pleased by the volume growth and the quarter and the first half of 2021 and.

And are proud to provide central precocious puberty patients and their healthcare providers with the solution that delivers 12 months of duration.

Revenues from our sterile Injectables segment declined by 8% compared to the second quarter of 2020.

However, revenues did exceed our expectations for the quarter.

These are strict revenues declined by 8% in the quarter compared to prior year driven by the anticipated decrease in volumes as COVID-19 related hospitalizations declined.

On a full year visa strict revenue assumptions anticipate a continued decline towards pre COVID-19 volume levels and the second half of 2021.

Moving to slide 6.

Revenues from our generic pharmaceuticals segment decreased by 23% and the second quarter compared to the prior year.

The anticipated decrease was primarily due to the impact of prior competitive events.

This decline was partially offset by the successful launch of Lubiprostone capsules.

The authorized generic of Amitiza in January of this year.

Second quarter generic pharmaceuticals segment revenues exceeded our expectations, mainly due to delay and certain anticipated competitive events, coupled with better than expected Levie pro stones branded generic conversion.

Finally International Pharmaceuticals segment revenues for the second quarter were comparable to the second quarter 2020 revenues.

Turning to slide 7 while store early and our launch of quo. We are pleased with our progress to date and the positive feedback we're receiving from both the medical aesthetics community and women, who have been treated with <unk>.

We recently completed and a market survey of early experienced health care professionals and patients being treated with <unk>, which showed that a strong majority of the patients and clinicians are satisfied with the treatment results.

Approximately 80% of treating physicians right. The overall experience positively and would recommend <unk> to a fellow colleague.

After completing the full core treatment approximately 75% and the patients reported being satisfied with the treatment and would recommend treatment to others. So.

<unk> results also suggested a boost and patient feeling largely involve increasing confidence among the other factors.

Our PR and media planning continues to generate brand awareness and consumer enthusiasm and the marketplace.

Year to date <unk> had 100 as 130 for unique media placements generated over $5.3 billion media impressions.

88 feature stories and had 36 broadcast placements <unk>.

Additionally, <unk> continues to be recognized with consumer Beauty awards.

So far <unk> been awarded the 2021, New Beauty Award the Sheepskin Award and recently brought home the 2021, Cosmopolitan and beauty breakthrough Award and.

Increasing the number of beauty awards received the 5.

The complement growing consumer awareness, we recently launched a find a specialist feature on our website to match interested consumers with treating medical aesthetics practices.

In terms of our launch execution, we are on target with our planned account onboarding per.

Purchase and utilization rates.

Moving to slide 8 and discussing our ongoing branded and clinical studies and pipeline starting with <unk>. Our data generation plans remain focused on dosing and injection technique and responses in target patient populations as well as rollover studies on durability.

Results analysis from these studies are key to our publication and presentation strategies.

We are encouraged by these initial findings and are excited to progress our plantar Fibromatosis program with the initiation of the phase II study and the second half of this year.

In terms of adhesive capsulitis or phase II B study interim analysis is anticipated towards the end of the year.

Turning to slide 9 we continue to evolve our R&D pipeline and manufacturing capabilities to support the introduction of more sterile products that focus on the evolving needs of our customers.

The number of R&D projects and our pipeline has increased approximately 35 with the addition of new sterile injectable projects.

Overall grid and 80% of R&D pipeline consists of projects across the sterile injectable product continuum.

With approximately 2 thirds and ready to us and more differentiated products.

Across our sterile injectables and generic segments, we plan to launch approximately 10 products in 2021, which includes our launch of Lubiprostone capsules earlier this year.

In addition to organic efforts to expand and enhance our portfolio. We continue to remain active on the business development front.

We're focused on opportunities and our core areas of growth, including medical therapeutics medical aesthetics, and sterile injectables to enable us to further leverage our existing capabilities.

We've taken and will continue to take a disciplined approach to deploying capital on business development opportunities.

Now, let me turn the call over to Mark to further discuss the company's financial results and our financial guidance Mark.

On a GAAP basis loss from continuing operations was approximately $10 million or <unk> <unk> per share on a diluted basis.

And the second quarter of 2021 compared to income from continuing operations of approximately $18 million or <unk> <unk> per share on a diluted basis in the second quarter of 2020.

This decrease was primarily attributable to higher litigation related cost, including the recently announced Tennessee settlement.

And higher interest expense and was partially offset by increased revenues and a favorable change and product mix.

On an adjusted basis and.

<unk> from continuing operations of $152 million or 65 per share on a diluted basis.

And the second quarter of 2021 with comparable to similar amounts and the second quarter of 2020.

Turning to slide 11.

Based on better than expected performance across all of our segments and the second quarter. We are raising the low end of our 2021 full year financial guidance.

We now expect full year 2021, total revenues to be between $2.73 billion.

And $2.79 billion.

Adjusted EBITDA to be between $1 billion to $3 billion.

And 1 and $2.8 billion and.

And adjusted diluted net income per share from continuing operations to be between $2.15.

And $2.30.

Our full year 2021 guidance continues to assume and adjusted gross margin of 70% to 71%.

Adjusted interest expense of approximately $560 million.

And an adjusted effective tax rate of 11% to 12%.

We now assume adjusted operating expenses as a percentage of revenue will be approximately 28, 5%.

While our full year guidance ranges contemplate a number of different uncertainties, our guidance does not assume a broad reinstatement of COVID-19 restrictions.

For a significant resurgence of COVID-19 related hospitalizations during the remainder of the year.

With respect to quarterly phasing, we expect total revenues to decline by approximately $50 million to $90 million in the third quarter of 2021 compared to the second quarter of 2021.

This decline is expected to be driven by anticipated lower sterile Injectables segment revenues due to lower data strict volumes as demand continues to return to more normalized levels.

As well as lower generic generic pharmaceuticals segment revenues due to continued expectations for competition on certain generic products.

We expect adjusted gross margin in the third quarter to be at the low end of the full year 2021 guidance range, reflecting the change and product mix.

Additionally, we expect adjusted operating expenses as a percentage of revenue and the third quarter to be and the low to mid 30% range, which reflects increased investments to support the launch of quote.

The progression of our branded and sterile injectable R&D pipeline projects and the continued growth of our XIAFLEX on market indications, which includes the introduction of a branded direct to consumer campaign for our peroni us indication.

Switching to slide 12.

This is a summary of full year segment and total enterprise revenue assumptions.

As you will notice we have slightly updated the full year revenue assumptions for.

For our branded pharmaceuticals, sterile injectables and generic pharmaceutical segment as well as for XIAFLEX and <unk> District.

Advancing to slide 13, and wrapping up the financial discussion unrestricted cash flow prior to debt payments was $372 million for the first 6 months of 2021 compared to $390 million and the prior year.

This decrease was primarily due to a decrease in cash flow from changes in net working capital and was partially offset by a decrease in cash interest payments and an increase and net cash tax refunds.

We ended the second quarter of 2021 with approximately $1.5 billion.

Of unrestricted cash and a net debt to adjusted EBITDA leverage ratio of approximately 5 times.

For the full year 2021.

We are updating our expectations for unrestricted cash flow prior to debt payments to be between approximately $195 million and $245 million compared to our prior estimate of between $140 million and $240 million.

This net change primarily reflects the increase and the low end of the adjusted EBITDA guidance range previously discussed.

Coupled with an increase and cash flow from changes in working capital.

Really offset by increases and opioid related legal expenses and cash distributions for settlements, which corresponds with the recently announced Tennessee settlement.

Let me now turn the call back over to Blaise place. Thanks, Mark take prior to turning the call over to Lori to manage our question and answer period. We understand there are many questions regarding ongoing trials in California, and New York, Our recently announced Tennessee settlement and the opioid litigation matter as a whole.

As I'm sure you can appreciate we're eliminate what we can say on this front.

With respect to California, and New York La liability phase of both trials are pending so we're not going to comment on those proceedings.

With respect to the opioid litigation as a whole we continue to be open to identifying and executing on and constructive paths for resolution.

And it's important to note that while constructive resolution remains our goal there can be no assurances that this will be achieved and we are prepared to continue to litigate if necessary.

More importantly, while we continue to address the opioid litigation our Endo team remains highly focused on our day to day business execution.

Advancing our strategic priorities and delivering on our portfolio of life and life enhancing products to our customers and the patients they serve.

I want to thank each of our Endo team members for all of their strong execution during the quarter and continued commitment to helping us transform into the company that we aspire to be and future.

Our first question comes from Chris Schott with Jpmorgan. Your line is open.

Great. Thanks, so much for the question.

I guess my question is on quo and some of those numbers you cited with the early access program and I guess, maybe specifically for 75% satisfaction rate were there any themes and I guess, the 25% that werent satisfied as you look to maybe further refine the target population and I guess it was there just anything that you take away from that initial survey.

That you use going forward and and just maybe more broadly I guess I think about 75% is clearly.

Chris Thank you very much for those questions and I'll, let Patrick.

Addressed us Patrick yes. Thanks for the question, Chris again, I think what I, though.

Takeaway on the early experience market researches us that's and early directional trends. So we did we.

We did actually engage with those patients relatively early after the completion of their course of therapy. So we really like the fact that 75% us directionally.

A good watermark for us and.

It also is somewhat consistent with what we saw and some of our other data generation as well if you look at our 305 trial, which studied patients and both buttocks and thighs we saw.

Our small market survey is exactly why we want to see and Thats, where our focus is to continue to drive good patient outcomes.

Next question please.

Our next question comes from David and Xylem with Piper Sandler Your line is open.

Thanks, so on and that district.

From not mistaken.

Back in 2019 year and PK study.

Looking at our ready to use formulations and you talk broadly about it.

And the line extensions.

And on fastest strict and when you could be in a position.

To bring and proof version of it to market and then with that and mine to the extent you do lose exclusivity can you just talk broadly about.

And the extent to which that could create any liquidity issues for you. Thanks.

Great David Thank you for the for the questions on days, though so David on days, though we do have a very active lifecycle management strategy around that what we have right now approved is a visa strict premixed bottle.

We believe that's going to really bring value to our customers as they look to identify.

And realize the benefits of red and ready to use product look at visa premixed bottle and bring to the market and and what we've talked about us that we will launch that product product strategically in terms of.

In terms of potential outcomes around launch of exclusivity David were really not going to speculate around that.

<unk>.

And the matter is pending with the with the court and Delaware and we'll be ready for whatever that decision is but we're not going to speculate in terms of that potential outcome overall from liquidity standpoint, right now we feel very good about our liquidity and our go forward position on that front, regardless of the outcome on that matter.

But that's where we stand in terms of the day, the strict matters and we're not going to comment much more on that until we have the decision and the Delaware trial and.

Michelle can we and the next question please.

And next question comes from the non tie with Citi. Your line is open.

Hi, good morning, and.

Can I try and opioids and I know you can't comment on New York and California.

We're able to come and generally on the progress towards a potential global set and then do you feel that play into some more weighted to settle and do you have a better idea on timing and then I have a second question on <unk>. If you had any updates on the introductory.

Okay, great. Thank you.

Patrick why don't you comment on the price and I'll take the opioid question, Yes, sure Blake, we launched through early experience program and introductory price and Thats still is and the market. We're not commenting beyond that so we've got 2 price points out there we've got a for a mill at $200 per vial and then we have 8 ml at $3.50 and.

And what I would say, it's us that we've received really very positive receptivity to our price point.

I think it it allows us.

US to have a price and the marketplace that are.

Allows our clinicians to drive good margin and introduce a new vertical.

And doing so it also creates a product thats very accessible to a wide swath of consumers and so that's what we wanted to do us really address a wide scale need for a and effective cellulite treatment and that's the first and only injectable at those price points, we've received really positive feedback from our price.

However, this is a very complex matter and as we said, it's not really possible for us to assign a probability of likelihood of that outcome or when the timing of that outcome might be might be reached.

Place and Michelle next question.

Our next question comes from Gary Nachman with BMO capital markets. Your line is open.

Hi, good morning.

XIAFLEX continues to outperform has more of the upside and then coming from Cupid trains and so peroni and it seems like you're pretty optimistic for upside and peroni is going forward with the DTC campaign can you comment on that and are you getting a tailwind from the pandemic with people less inclined to get surgical procedures at.

At this point and.

And then just a quick 1 on quo.

Many physicians have you trained thus far I think you started with $3.50 for the EEP and how much for you expand that network over the next year just talk about the process for getting certified and how that will play out. Thanks.

Yep, Thanks, Gary for those questions I'll, let Patrick comment on book, maybe just a quick comment on XIAFLEX is that we've seen really impressive growth on both indications and.

And we are very excited about our move to a branded strategy on the <unk> indication and Patrick and can comment more about that in a moment on quo.

And Gary right now, we're really focused on driving awareness and trial of that product and and a big part of that is training, we're probably not going to get into specific numbers on exactly how many we've trained it at this stage, we feel really good about the progress we've made but all again, let us let Patrick provide some additional color on on what we're doing on that front as well.

Sure Let me let me. Thank you for the question, let me start with XIAFLEX, we've seen really very impressive growth really across both indications as we discussed in our prepared comments, we saw a revenue growth of over 200% and that was largely driven from a volume perspective.

Quarter, 2 versus quarter, 1 and so really all good signs that we see really strong health across the molecule and that's exactly what I wanted to see as it relates I would I would attribute that to a couple of things I would attribute that to the fact that we're seeing an increase and physician activity we're seeing.

And our approach towards pre COVID-19 level in terms of consumer and patient activities and we continue to stay committed to our XIAFLEX maximization plan to have the right resources and the market and our teams are executing extremely well it's based on that confidence that we are moving forward with plans to.

Introduce a branded direct to consumer activation strategy behind peroni.

As we've created condition awareness, we have created a strong call to action and the marketplace and a key insight and key learning for US is is that when that patient does in fact ask for XIAFLEX. The majority of the time for that for owners indication they do get XIAFLEX and so for us that.

As it relates to <unk> I think blaze address that question again, I think and the early days, it's really about focusing on patient outcomes and.

And helping physicians integrate it into their practice and to have confidence and so again and our prepared comments. The trends are very very positive. If you look at the early experience program. The fact that 80% of those market Influencers had a positive experience with endo aesthetics positive experience with quo, that's exactly what it was.

And then see those patients are satisfied and there.

They are satisfied with their treatment and they're willing to recommend as well. So that's really our focus and the early days is on patient outcomes integrated deeply into into the practices and and getting repeat utilization.

Next question please.

As a reminder to ask a question. Please press Star then 1.

Our next question comes from Annabel <unk> with Stifel. Your line is open.

Hi, Thanks for taking my question.

And a few questions here.

First now that you've had a little time with a soft launch and the market what are physicians, saying as far as patients coming in for the full course of treatment.

And how is the potential introduction of solid time.

And for Cellulite, and let's just just acquired by organic Statics and it'd.

And be changing the competitive landscape for us and you've heard any and <unk>.

Was there and then on XIAFLEX, it's been out there for for quite some time.

And I imagine that most of the physicians who adopt this product have already adopted so what is the focus and here.

Primary investment DTC clearly to bring patient soon but.

And you feel that you've fully penetrated the physician population and and and you can move your investment dollars more and then development area. Thanks.

Great great. Thanks for those questions on quo XIAFLEX maybe.

Quick comment or 2.1 XIAFLEX, which is as Patrick said, we're really excited about now moving into the branded consumer activation strategy on Proteus disease, and and there is still a significant significant opportunity there and 1 other ways, we're going to drive us what Patrick said, which is by further activation of the consumer.

And so as Patrick said as we as we activate that consumer and that consumer recognizes that there is not only a non surgical treatment to treat that condition, but also knows it by name that's going to have significant impact and drive additional demand not only with existing.

Physicians that use XIAFLEX to date, but also.

Additional extension of our new injectors going forward, but Patrick maybe comment further on Covid and anything else on XIAFLEX sure happy to do so let me start with the third question again, it's certainly early days, but we are generally seeing that physicians are positioning flow for a full course of treatment again that the <unk>.

Nicole trials, we're focused on 3 courses 3 cycles and so we're generally seeing patients willing to go through a full force and we're seeing a physician successfully position it that way as it relates to salt on and the acquisition from Abbvie Allergan.

The way we look at it we certainly feel like that validate some of our sentiments on the relative size of cellulite, the enthusiasm for that market opportunity anytime youre going to get a player like allergan and coming into the market, that's only going to fuel a condition awareness. So thats a good thing for US there is certainly room for more.

<unk> treatments, we see and the medical aesthetic area, most many times physicians.

Look 2 multi modality type of approach and so we really like the positioning that well has us the first and only injectable to treat cellulite.

And that's.

With an injectable I think that positions us well patients are very accepting of Injectables. We also know that physicians can very easily operationalize and injectable and their practice, there's no capital outlay.

They know how to do that and so there is an opportunity to create a new vertical for them and opportunity to grab a good margin and an opportunity to have a price point that is accessible to a wide addressable market as it relates to us.

XIAFLEX.

And again.

And while focusing on the peroni indications since we talked about our branded campaign there you've got about 12000 high prescribing urologists out there that are treating erectile dysfunction and treating men's health issues on a daily basis, we know that the diagnosis rates and treatment rates are really really low.

And so there's a huge opportunity to 2.2 for more patients into the funnel. There is an opportunity to activate more urologist and and again, we know that based on the growth of the peroni us indication that the condition awareness has been effective and we also know that when they ask for XIAFLEX by name and.

It unlocks even more underlying demand and there are men out there suffering in silence with.

For Aunis disease, and we feel like this is a great opportunity to not only create further condition awareness, but to get more treatment get more diagnosis and more treatment more men treated.

And so that's an exciting day for patients with the branded campaign coming and the future.

Next question please.

There are no further questions I'd like to turn the call back over to Blaise Coleman for any closing remarks.

Great. Thank you very much operator, just want to thank everybody for joining this morning and wed.

Look forward to providing updates as we move forward. Thank you everybody.

This concludes the program and you may now disconnect everyone have a great day.

Q2 2021 Endo International PLC Earnings Call

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