Enact Holdings, Inc. (ACT) Q4 2012 Earnings Report, Transcript and Summary

Good morning. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Actavis Fourth Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Lisa Defrancesco. Please go ahead.

Thank you, Christie, and good morning, everyone. I'd like to welcome you to the Actavis Fourth Quarter 2012 Earnings Conference Call. Earlier this morning, Actavis issued a press release reporting its earnings for the fourth quarter and full year ended December 31, 2012. The press release is available on our website at www.actavis.com. Additionally, we are conducting a live webcast of this call, which will also be available on our website after its conclusion. With us on today's call are Paul Bisaro, our President and CEO, who will provide an overview of the fourth quarter and full year business highlights. Todd Joyce, our Global Chief Financial Officer, will then provide additional details on the performance of our business segments, as well as our consolidated financial results for the quarter and year. Paul will conclude our presentation with a review of our outlook for 2013. We'll then open the call up for questions and answers. Also on the call and available during the Q&A are Siggi Olafsson, President of Actavis Pharma; Fred Wilkinson, President of Actavis Specialty Brands; Bob Stewart, President of Global Operations; Al Paonessa, President of our Anda Distribution division; and David Buchen, our Global Chief Legal Officer. Please note that today's call is copyrighted material of Actavis, Inc. and cannot be rebroadcast without the company's express written consent. I'd also like to remind you that during the course of this call, management will make projections or other forward-looking remarks regarding future events or the future financial performance of the company. It's important to note that such statements about estimated or anticipated Actavis results, prospects or other nonhistorical facts are forward-looking statements and reflect our current perspective of existing trends and information as of today's date. Actavis disclaims any intent or obligation to update these forward-looking statements except as expressly required by law. Actual results may differ materially from our current expectations and projections, depending on a number of factors affecting the Actavis business. These factors are detailed in our periodic public filings with the Securities and Exchange Commission, including, but not limited to, our Form 10-K for the period ended December 31, 2011, and our Form 10-Q for the period ended September 30, 2012. With that, I'll turn the call over to Paul.

Thank you, Lisa, and good morning, everyone, and thanks for joining the call today. With the close of the Actavis Group acquisition and the combination of our 2 companies and now under one new global name, Actavis, we are beginning 2013 on a solid commercial and financial foundation, well positioned for sustainable long-term growth. While the Actavis Group acquisition was our most significant event in 2012, there were many other accomplishments to note across our businesses. In our Actavis Pharma segment, net revenues in the fourth quarter increased 21% from the prior year. In the U.S., we launched a number of notable products, including generic versions of Adderall XR, Lovenox, Xopenex and Actos. In our ex-U.S. markets, we experienced strong growth as a result of a record number of launches. On a combined basis, we filed over 1,500 new dossiers globally, and ended the year with over 185 applications on file in the U.S. We were a leader in U.S. First-to-Files in 2012, with 49 First-to-File applications pending with the FDA, including 33 believed to be exclusive. In addition, in January 2012, we acquired Ascent Pharmahealth and became the fifth largest generic pharmaceutical company in Australia, an important market for us moving forward. In our Actavis Specialty Brands segment, we experienced growth in key promoted products, including Rapaflo, Crinone and Generess Fe, and we launched Gelnique 3% in the U.S. Additionally, we added Kadian, a modified-release morphine product that we acquired with the acquisition of the Actavis Group. We expanded our brand portfolio globally as we launched Rapaflo, Gelnique, ANDRODERM and Oxytrol in Canada and began filing products in Latin America with the filings of Rapaflo and Gelnique in Brazil. We continue to make progress on our development pipeline with the completion of our Phase III program for our progestin-only patch in the U.S., with the NDA submission by the end of the first quarter 2013. Our FSH product also entered into a Phase I clinical program. We furthered our biosimilar initiatives with the acquisition of a biosimilar to Herceptin from Synthon, which we contributed to the Amgen biosimilar collaboration. After year end, on July 23, we announced the acquisition of Uteron Pharma, enhancing our pipeline in women's health worldwide. The acquisition includes 3 potential near-term global commercial opportunities in contraception and infertility, including 1 novel oral contraceptive. Several additional products in early stages of development are also included in the acquisition. We also continued our strong focus on operational excellence and the rationalization of our global supply chain. These efforts resulted in the announcement earlier this year to restructure our Corona, California facility. The facility will scale back to focus solely on the manufacturer of our oral contraceptive products. As you can see, it has been an exceptionally busy and productive year. Now looking to the financials. We delivered solid results in the fourth quarter of 2012, with net revenues up 13% and non-GAAP earnings per diluted share of $1.59 compared to $1.77 per diluted share in the prior-year period. The fourth quarter of 2011 included the launch of an authorized generic version of LIPITOR in November, which contributed $0.64 to non-GAAP earnings in 2011 compared to a contribution of $0.03 to our fourth quarter 2012 results. Also, our fourth quarter and full year 2012 results include our current best estimate of shares issuable to the former shareholders of the Actavis Group. The number of shares issuable is based upon year-over-year growth and cash EBITDA for the legacy Actavis business as that is defined in the acquisition agreement. Based on our current estimate, we believe they achieved year-over-year growth and cash EBITDA of 10%, which would require the issuance of 3.85 million shares associated with that earnout. By agreement, we will submit our determination of 2012 cash EBITDA following our 10-K filing. With that, I'll turn the call over to Todd to take us through the financial results in more detail.

Thanks, Paul. I will now review our results on a consolidated and divisional basis. GAAP net revenues for the fourth quarter were $1,750,000,000, an increase of 13% over the prior year. Net revenues for our Actavis Pharma division were $1,414,000,000, up 21% year-over-year as a result of the inclusion of legacy Actavis since November 1 and increased sales related to new products in key markets, including generic versions of Lovenox and Xopenex in the U.S. These increases were partially offset by lower sales of the generic LIPITOR. Ex-U.S. net revenues were $524.7 million, up 245%, primarily due to the inclusion of legacy Actavis. Actavis Pharma adjusted gross margin was 46.7%, up 2.9 percentage points year-over-year, primarily due to the prior-year impact of lower margins on sales of generic LIPITOR and Concerta. Moving to Actavis Specialty Brands, net revenues were $132 million, up 9% on higher-sales promoted products, including Generess Fe and Rapaflo and the addition of Kadian, which we acquired with the Actavis Group. Actavis Specialty Brands' adjusted gross margin was 76.9%, down 1.5 percentage points as a result of a favorable product mix in the prior-year period. Finally, net revenues from our Anda Distribution segment were $204 million, down 19% on lower chain sales, which were partially offset by new product launches. Anda's gross margin for the quarter was 17.6%, up 3 percentage points due to the lower chain sales relative to the prior year. Turning now to operating expenses. Consolidated GAAP R&D for the fourth quarter was $121.1 million, up 80% year-over-year, primarily due to R&D associated with the addition of legacy Actavis as well as increased biosimilar products development spending. SG&A for the fourth quarter was $424 million, up 99% year-over-year, primarily due to the inclusion of legacy Actavis, including certain acquisition, integration and restructuring charges. Litigation settlements also contributed to the year-over-year increase. Net asset and impairment charges during the fourth quarter were $29.9 million. $17.6 million relates to planned disposition of a German subsidiary, and $10.2 million relates to product rights acquired in connection with the Specifar acquisition. Amortization expense for the fourth quarter was $148 million. On a non-GAAP basis, our income tax rate for the fourth quarter was 28.5%, down from 35% in the prior-year period primarily as a result of the acquisition. In addition, the company realized certain onetime foreign tax benefits associated with our U.K. operation, which includes our biosimilar facility in Liverpool. This onetime tax benefit had a 1.5-percentage-point impact on our fourth quarter non-GAAP tax rate, or $0.03 per share. On a GAAP basis, our income tax rate was 75.3%. Earnings on a non-GAAP basis, which excludes amortization and impairment charges and other charges detailed in Table 4 of our press release, were at $1.59 per diluted share in the fourth quarter, down 10% year-over-year due to lower sales and contribution from generic LIPITOR, offset in part by new products and the addition of the legacy Actavis business. As a reminder, non-GAAP earnings for the fourth quarter of 2011 included a $0.64 per share contribution from generic LIPITOR. Due to the significant decline in the U.S. market for this product during 2012, the company ceased selling generic LIPITOR last month. GAAP earnings for the fourth quarter were $0.21 per diluted share. Adjusted EBITDA for the fourth quarter was $393 million, unchanged from the prior year. Cash flow from operations for the fourth quarter was $220 million, and at year end, cash and marketable securities were $328 million. And as of today, current and long-term debt is approximately $6.5 billion. We remain well positioned financially following the acquisition of the Actavis Group. We will continue to focus on accelerated repayment of our debt and maintaining the strong financial foundation to support strategic growth initiatives within our global businesses. With that, I'll turn the call back over to Paul for a review of our 2013 forecast and concluding remarks.

Thanks, Todd. I'll now provide the review of the 2013 forecast. First, there are no changes to our assumptions that were provided at our Analyst Day in January. For Activis Pharma, our forecast continues to include: a launch of generic Pulmicort with competition in the second quarter; one competitor on generic Concerta, beginning in quarter 1, and a second competitor 181 days after launch, of each strength; no additional contribution -- competition in 2013 for generic Lidoderm and generic Adderall XR; mid single-digit price erosion in the U.S. on our base business and high single-digit ex U.S.; finally, no additional patent challenges are included in our forecast. For Actavis Specialty Brands, our forecast includes continued growth of our core promoted products; successful approval and launch of Esmya in Canada; and no revenue contribution from the Uteron products. Our 2013 forecast remains as follows: our estimate for full year net revenue is approximately $8.1 billion; we expect Actavis Pharma revenue to be between $6.3 billion and $6.5 billion; our Actavis Specialty Brands, we expect net revenue of $550 million to $600 million; and for our Anda Distribution business, we anticipate revenue to be between $1 billion and $1.2 billion, with adjusted gross margins between 12% to 13%. As a reminder, Anda's results do not include the sale of the Actavis products. We expect adjusted EBITDA of $1,870,000,000 to $1,940,000,000. We expect non-GAAP earnings per diluted share in the range of $7.70 to $8.10 per share, reflecting a full year estimated shares outstanding of approximately 134 million. For purposes of our 2013 forecast, we have taken the conservative approach of retaining the full earnout of 5.5 million shares in our current calculations. As I noted earlier, our best estimate is that legacy Actavis achieved year-over-year growth of cash EBITDA of 10%, which would result in the issuance of 3.85 million shares rather than 5.5 million shares. However, the process for determining the final number of shares issued pursuant to the acquisition agreement contains certain dispute resolution provisions. Because the share count will not be finalized for some time, we are continuing to include the full earnout in our current 2013 non-GAAP EPS forecast. We will provide an update on finalization of the numbers of shares issuable as soon as it becomes available. However, in the event that the total number of shares issued -- issuable is determined to be 3.85 million, you could expect an increase of approximately $0.10 per diluted share to our current forecast. In summary, 2012 was a historic year in the continued evolution of our company into a leading global specialty pharmaceutical company. As always, I would like to thank our employees around the world for all their hard work and dedication to the growth of our global organization. Now I'll turn the call back to Lisa for Q&A.

Hey, Christie, we'll take a question.

[Operator Instructions] And your first question comes from Greg Gilbert of Bank of America, Merrill Lynch.

I have 2, guys. Paul, maybe from a higher-level industry level, you can comment on some of the implications of GDUFA implementation that maybe the investment community may not appreciate. And for Siggi, at this point, if you were a betting man, I was curious if you expect generic versions of the old OxyContin to be launched this year?

I'll let Siggi go first.

Greg, that's a very good question. I think the complexity around the OxyContin remains. There's a patent case outstanding. And also, we have seen the review of the new OxyContin that the FDA has published, and there's also been an FDA blog around this product that has been published on the Internet. I think at this point in time, we remain -- we're saying the same as in our Investor Day. It's a very complex situation. Clearly, OxyContin today doesn't have TR in their label, but at the same time, we saw that in the review that there's some TR detergent in the formulation. So at this -- we don't know, but I want to emphasize, we don't include it in our forecast for the year, and that's probably where my bet is.

okay. That's good to hear.

And on the implications of GDUFA implementation, I think the issue will be how quickly can the FDA ramp up its personnel and be able to improve the timelines that we all hope they can do. I think certainly, they will be able to move certain things faster than others. I think the review process will take them a while to get up to speed. It's going to -- they're going to have hire more reviewers. They're going to have to train those reviewers and get them up to speed. So that may take a little time, but I'm also hoping that they can hire lawyers and toxicologists and other things that will help us improve the speed of some of the more complicated applications that are pending -- and lawyers, of course, because you never have enough lawyers. So you got to hire enough lawyers to review the citizens petitions and things like that, that should help accelerate some of the approvals of the more complicated products, which I think we have a lot of products pending, so I think that would be very good for us. And finally, I would continue to expect the FDA to continue its compliance push, as I would describe it. They will have more resources to do that. And frankly, we look forward to that. We're certainly very comfortable with our compliance position, and we applaud their efforts there.

Your next question comes from Randall Stanicky of Canaccord Genuity.

Paul, and maybe Siggi, just can you maybe frame for us the -- or your Crestor 505(b)(2) opportunity? And how much potential penetration would you be thinking about, should you be successful in the trial decision and get out to the market?

So Randall, it's a little difficult to put a number to it. We have been quite open as we are preparing to launch this product, hopefully, midyear. There's a 30-month stay on this product. I think the opportunity we have been talking about is either through the PBMs, to work with a PBM to lower the cost of Crestor in the market, or to look towards the retail angle to work with us to change the prescription of Crestor. Obviously, this is, as I said, challenging marketing effort. We have spoken to quite a few of the retailers. There's clearly an interest in this product, but this would never be an ordinary generic with 80, 90 post generic [ph] penetration, for sure, because the prescription needs to be changed. But this could be an opportunity when it's launch, but it needs marketing support, and we need to work with probably both the PBMs and the retail angle to make it a good opportunity.

Are there other opportunities out there similar to this? I mean, we've seen this approach play out with LIPITOR via Arrow. As you think about the landscape, are there other opportunities on generic drugs that you're seeing out there, Siggi?

Yes, there are. Clearly, there's a lot of opportunities. I think because this is a prescription drug, it's a little bit more complex, because usually, you need a sales force behind it. I think some companies have 505(b)(2) and different salts on big blockbusters out there, which is an opportunity. But also, I want to emphasize, half of our portfolio is a 505(b)(2) in the injectable space, and that is much easier to market for the reason that a decision of using that product is taken in the hospital, the nursing home, in the clinical center instead, and so they buy in the 505(b)(2) because they deem it clinical equivalent and they use that in the clinic. So I think it's a much better opportunity or easier to get the opportunity on the injectables versus the prescription drug. In Europe, on the other hand, I'll remind you is -- that different salts are interchangeable. Actavis, for example, launched atorvastatin magnesium in Spain before the LIPITOR sold came off patent. And it was a great opportunity because in Spain, they were allowed to change within the pharmacy. But as I said, there's quite a few opportunity. You have to find the smart way to sell it, but the injectable space is clearly where we will be making an in-road.

The 15% to 20% aspirational target on Crestor wouldn't be unreasonable in your view?

You're quite good at this.

Okay, I'll take that as a yes.

Your next question comes from Ken Cacciatore of Cowen and Company.

Just a quick question on Adderall XR, Paul, I think that was your original filing. So just any thoughts going on with the FDA in terms of moving along on some of these products, Concerta, Adderall XR?

Well, I need to be clear. I didn't formulate the product so but -- it was a bar filing [ph] , I assume, back many years ago. Yes, I think the FDA has been, at least, demonstrating the ability to move quickly, more quickly on some of these complex issues. I suspect they have a number of complex issues facing them, including Greg's earlier question regarding OxyContin. These are complex, not easily figured out issues that they've got to work through, and they're obviously spending a lot of resources trying to do that. So I applaud them for that effort. Hopefully, we can shake loose some of the other products that we have pending that have issues surrounding them like this.

Okay. And I was going to ask if you could point to any kind of products, as you just mentioned, that are like this? Is there any one that you want to highlight as it moves forward to the agency?

At this point, I don't think I would like to do that. I think there was -- there's clearly been issues that citizens petitions have slowed down a number of our applications. And I think the agency is well aware of how that works, and they're doing their best to address it. But I think more resources are going to be needed for them to be able to deal with them.

And our next question comes from Louise Chen of Guggenheim.

So I had a few. First one is, in light of the pricing pressure and manufacturing issues faced by some of your competitors in the generic injectable space, how do you see this as an opportunity playing out for you? And do you see the ability to make money where others have failed and why? Second question I had is that you have a lot of potential shots on goal with respect to your women's health care business. How big is that business today? And where do you want to be over the next 3 to 5 years? And maybe what is the key growth driver or key growth drivers for this business? And the last question I have was on the key themes and topics you think maybe discussed at the upcoming GPhA meeting that starts tomorrow.

So let me start on the injectable business. Clearly, there has been a pricing pressure. It's on different -- between different molecules, for sure, because there's a shortage in the market. I think the FDA is working with us to accelerate approvals. We have a big portfolio pending at the FDA of ingestible products, where we see opportunities. But also, at the same time is that, usually, manufacturers tend to fix their manufacturing problems. So we don't know how long it stays. It also is different between different molecules on different time points. But I think from our point of view is we feel this is an opportunity. We are investing a lot in injectable product on portfolio, both oncology and non-oncology. We have good manufacturing sites both in Romania and in Italy with supply into the U.S. market. So we feel good about the market, but to make an overall statement about the pricing, it's different between different molecules, different days on who your competitor is on each of the molecules.

Yes, this is Fred Wilkinson. On the woman's health care, I'm glad you recognized that we're -- got a lot of shots on gold. We do. We've been spending the last several years restocking the women's health care portfolio. We really just entered back in about 2, 2.5 years ago with the launch of -- with the acquisition of Crinone and the launch of Generess Fe. We have a prenatal vitamin line that's accompanying the woman's health care franchise right now, and that rounds out what we're marketing today. However, I think, as you've seen with the acquisition of Uteron and the development, our own internal development, we've got 5 products that are coming down the road fairly soon. We've got our progestin patch, which is a progestin-only contraceptive product. We have Esmya, which is entering Phase III for uterine fibroids. We have an IUD that comes out of Uteron that will have global implications. We have an infertility product that will also have global implications and then eventually a novel OC, which will change the estrogen component of the oral contraceptive business. So we're very excited about the women's health care opportunity. We're excited not only for the United States, but the fact that we get to launch most of these things globally. So I hope that kind of gives you a picture of how we intend to expand the women's health care franchise.

Yes, and Louise, regarding the GPhA meeting, I think the one big topic will, of course, will be GDUFA implementation and FDA cooperation and trying to work together to make sure that's as smooth as possible. There's going to be a lot of unintended consequences for some for this stuff, and I think we're going have to have a very open dialogue with the FDA. I think patent settlements, of course, will come up. We're heading toward a Supreme Court hearing, and I think you know our position on that, or at least, my position on that. And then finally, I think Biologics will be a big part of the discussion as well. As we look to the future, as the country looks to the future, something needs to be done on biosimilars that makes a reasonable, reliable pathway for biosimilars to become approved and marketed, and it simply can't be overlooked how much that has to get done. So I think those are going to be the top topics.

Your next question comes from David Amsellem of Piper Jaffray.

Just to follow up on the Adderall XR with the Teva generic getting approved, any new thoughts on how you think the competitive landscape will shake out in 2014? Do you think we're going to see approvals of perhaps the impacts of the Sandoz filings? And then on the generic Lidoderm, any update on what your latest intelligence is telling you about where Mylan is on their filing there?

So let me take Adderall, and I'll leave Lidoderm to Paul. I think on Adderall, as we said on our Investor Day, we will know better the further we go into the year how the competitive landscape will be in 2014, and exactly that happened. Teva got approval for the product. It doesn't change the picture this year because obviously, they're in our model. They have an AG today. I don't know their intention if they're going to change it to their own supply or continue with the AG. But it doesn't change the picture as we see it for 2013. For 2014, we obviously -- we expect Teva to be in the market. Will there be an additional player? We will know the further we go into the year and before we give the 2014 forecast. You mentioned, I think, 1 or 2 players that could be there. At this point in time, we really don't know. But we think -- I think in the next 3 to 6 months, the picture will become a little bit more clear. Also, for the reason, this is a very complex product. The development in Actavis took over 7 years. The development in Teva took many years, as was mentioned before. So I think, overall, this is not an easy product to develop and get approval for, but I think the picture will get clearer throughout 2013.

Right. And David, on generic Lidoderm, we remain convinced that we have maintained our exclusivity, and we will not see generic competition in 2013. It is our anticipation -- and if we were to model today how we would look at '14, we would include a Mylan launch in 2014. But we also know that there has been at least some argument that their patch, which is designed differently than the existing Lidoderm patch, may not be equivalent. That will be an issue between the innovator and Mylan and the FDA so -- but at the moment, as I said, if we were to model it today, we would include them as a competitor in 2014.

Your next question comes from Shibani Malhotra of RBC Capital Markets.

I've got a couple. The first one is for Bob. It's on manufacturing. Janet Woodcock recently spoke about the fact that many sales don't value different levels of manufacturing. So I just wanted to talk -- well, I wanted you to talk through that sort of idea where the FDA comes in and creates manufacturing operations and how you believe Watson would kind of be placed in that sort of scheme. And then secondly on -- for Paul, the reason Actos generic that was approved by the FDA, which wasn't yours, can you just talk about the implications of that and what that means for the way the FDA is dealing with First-to-File exclusivities?

Okay. So on the manufacturing side, I would say that what we're seeing is certainly FDA is increasing the bar, both in terms of its expectations in terms of what's required in filing, so shifting more towards a quality-by-design filing requirements, and then also in the inspectional aspect, we're seeing FDA increase both the duration of inspections as well as the intensity of inspections. So there's no question about it. There's a rising expectation around process capability, process understanding, as well as just leveling the playing field, so to speak, between both brands and generics. And we're seeing it across the board on both. What I would say within the Actavis world, both in terms of legacy Actavis as well as legacy Watson, we were focused on improving our R&D through quality-by-design efforts, as well as investing a lot in our manufacturing capacity and capability. So we're already, in our opinion, ahead of the curve in regard to that. And we're seeing that in our inspection performance. So what I would say in general terms is that we feel -- we actually embrace where FDA is moving in this regard. And I would say that, looking at our compliance across the myriad of manufacturing side -- sites both before and after the close of the transaction here, that both -- all of our facilities, really, are focusing on the same operating principles.

Yes, Shibani, it's Siggi here. I think on the Actos approval, if I recall, it was Ranbaxy that got approval late. But really, it doesn't affect us. We have built in additional competition on Actos. The 6 months are more lesser [ph] at this point in time. We came in 3 months late due to our court case with the FDA, but overall, it doesn't impact our model for this year.

Okay. I was just more wondering about the fact that there were questions around the First-to-File and the company hadn't actually challenged the patent, and that's why they got approved...

Yes, I know there's been a number of, I guess, blogs about this issue. I can't say I've followed them all that closely. I think it's something we need to take a look at. This has, I think, has a lot to do with the question about whether it's a pre-MMA or post-MMA decision. And I think there was also part of that decision, particularly with respect to Ranbaxy, where they were able to give a selective waiver. Remember, a selective waiver was -- is that if you were able to launch the product, you can selectively wave your exclusivity to someone else. And that was, I believe, an old rules provision. It may have carried over into the new rules, but I'm not 100% certain. So it probably requires a bit of additional research around this whole question about old rules versus new rules. It may be an issue that comes up -- rears its head again with OxyContin, as a matter of fact, old rules versus new rules. So while we'd like to think they're all dead and those products are gone, but they're not. They're still sticking around.

Your next question comes from Marc Goodman of UBS.

Siggi, can you talk about some of the key markets OUS.? So U.K, France, Australia, some of your key markets and just what happened in the fourth quarter in the market, what happened with your share, and did anything happened that's different from what you expected? And just things like that?

Yes. So let's take a few markets. So in the U.S., clearly, we finalized the integration of Actavis and Watson under the new name. We have kept the market share of the combined company. We haven't lost anything, which is -- was important and was the goal of the integration. We have worked hard to integrate, so customers today, they order from one place today. We have one invoice system, and really, the team has done a fantastic job in keeping the sale and keeping the market share. So that was a good thing. I think, overall, in France -- both Actavis and Watson had an operation in France. The -- France is doing much better. The increase in volume in France is significant after the French government changed the prescription rule and has been pushing for more generic utilization. Still, the prices are quite low. There's a competition. This is a market which is in between of being a branded generic market where the sales force is needed because you need to drive sale with the sales force towards the pharmacy even though you don't visit doctors. But it's a growing market in terms of volume and a little bit in terms of value at the same time. U.K. is a good market for us. U.K. now, with Actavis and Arrow combined in U.K., we are getting close to 14-plus market share, the second biggest market. Overall, the growth in U.K. for us is -- was on the altered molecules. We have close to 300 different products on the market. I think it's about 330 products. I mentioned in our Investor Day the biggest growth product is our old molecule that came off patent maybe 20, 30 years ago. But we have a great supply chain from our manufacturing plant in Barnstable to allow us to supply the market. Overall, in Australia, there's a big price pressure. Australia market is still growing. What we got with the Ascent acquisition is we are not only in prescription. We are in OTC. We are in dermatology. We are in skincare. And we are now, we are introducing the first brand product into the Australian market. But the price pressure is clearly -- the PBS in Australia is introducing a new price list, I think, first of April of this year. So we need to find a way to lower our cost of goods to compete in the market, but we are strong enough. Remember that the top 5 companies in Australia are about 97% of the market. But clearly, we see additional price pressure in Australia. So maybe without spending maybe more time, these are maybe the markets that you mentioned to me. I think maybe -- if I add one more market, Russia was probably the biggest surprise, positive surprise in the Actavis acquisition. Actavis, we didn't have any operation in Watson in Russia when we came in. Actavis was #9. A significant growth on top line and bottom line, 430 sales reps. And in fact, we are today the sixth largest OTC company in Russia. And that's, I think, a market which we will see our significant growth in 2013 and going forward.

So just to understand, France in actual dollars grew in the fourth quarter and grew throughout the full year?

Yes, France, in actual dollars, grew top line in fourth quarter and grew top line for full year. Probably bottom line, it grew also a little bit, but not by the same amount as the top line.

[Operator Instructions] And your next question comes from Douglas Tsao of Barclays.

Paul, at your Analyst Meeting, you pointed to Amgen's upcoming Analyst Meeting for greater details on the biosimilar strategy or partnership. They didn't provide that much incremental detail relative to what we knew and what you had talked about. I was just curious from your perspective when we should learn more about some of the timelines and -- or in particular, around development milestones related to that partnership?

I'm going to pass that one over to Fred.

Yes, so Amgen -- between Amgen and ourselves, we did outline the products that we're now in our collaboration. You saw the 4 products. I think Amgen outlined what the revenues were and they had announced that they expected launches sometime in the 2017 and beyond period. My sense is that you're going to see a lot more information flow as we go through the year, primarily because the clinicals will start to get listed on some of the websites that -- well, where clinical trials are required to be listed. And I think you'll see from that the phasing of when those products will be coming to the marketplace. Obviously, we're still early for trying to prognosticate what revenues will look like and what competition will look like. But I think, suffice it to say that the strategy of emphasizing manufacturing, emphasizing good quality clinical programs and other things were -- are coming out both of our mouths, and I think we believe in it very wholeheartedly. I think they were great in describing the flexibility of our relationship, which really affords us the opportunity that when commercialization comes along, we have 2 solid selling organizations that can take the opportunity that exists in different marketplaces, in that most likely, most of these products will be launched differently in each different country.

Okay. And then Paul or perhaps Siggi, if you could perhaps talk about opportunities for Actavis to take additional market share, both in the U.S. market as well as in some select international markets, given the greater scale and product portfolio that you're now offering?

Yes, Doug, that's a very good question. I think, overall, the markets here in the U.S., we have the opportunity because we haven't been able to grow market share in the U.S. due to the strength of our supply chain. I have to say we -- as of today, we have the strongest supply in the industry. We have an extremely good service level to our customers, and that has allowed us to take additional market share. On top of that, we have 185 ANDA pending. So we will have significant new product launches, some of them fairly small, but everything counts when you go for market share going forward. Outside of the U.S., there's also this opportunity -- and this is a little bit what we have talked about, the revenue synergies which we see going forward. First of all, like in country like U.K., where I mentioned, we have 330 products on the market, we have a 5.5 billion tablets coming from the manufacturing plant in Barnstable to supply the market. We have an excellent service level that -- which has allowed us to grow. Actavis 3, 4 years ago was only 9% to 10% for its market share. We are growing to 14%, 15% now, which is linked to new products, service level and the breadth of the portfolio. But coming back to the revenue synergies is this cross-selling opportunities. We have a significant portfolio around the world. We have been saying we have more than 1,000 products all around the world, which we want to introduce in the right market, obviously, in the right form. We have a great regulator and R&D team to support that. We have already filed products, Watson product into Actavis market and Actavis product into Watson market, to allow us to take this opportunity. But this will not come to light until after 2 to 3 years due to the regulatory timeline there is.

Our next question comes from David Buck with Buckingham Research.

This is, I guess, for either Todd or Siggi. Can you just give the pro forma number for what the International business was overall in 2012 and what the growth rate was for the business ex U.S.? And then maybe for Paul, can you talk about just a couple of the product updates? Mucinex family, how important the oxymorphone standard formulation is to yourselves? And also, Loestrin 24 and that ANDA, anything important there?

Dave, this is Todd. In terms of the pro forma, we're not going to break down the pro formas on the top line basis. We did give some guidance at the Analyst Day in terms of pro forma EBITDA for the combined business, and that was $1.7 billion.

Yes, David, maybe I take the first 2 about Mucinex. We mentioned on our Investor Day. It's included there, late 2013. It's not a very significant number in our forecast. Obviously, the Mucinex, the brand company is moving to a new dosage form at the same time when we don't have approval. So the opportunity has decreased a little bit at the same time. We still feel good about our application, and we put it in our forecast for 2013. With regard to Opana ER, the question there is we have a tentative approval for the 10-, 20-, 30- and 40-milligram strength. Impax has launched, 1st of January. Still, the uptake hasn't been significant. As I mentioned in the Investor Day, we are going to monitor that very closely, how much generic penetration will be on this product. We are ready to go if it is worthwhile as an opportunity to go, but we are monitoring that as we speak. With regard to the tamper-resistant formulation, it's in public knowledge that we have filed that formulation also. So we see that as an opportunity later on. And maybe Paul, if you take the...

Yes, on Loestrin 24, David, that's a launch we have by contractual right into 2014, and we would expect to have 6 months of exclusivity on that product. So it is an opportunity for '14. It is a date certain, and we'll be -- we'll maximize that the best we can.

And Paul, just to follow up, so your view is that you still maintain that 180-day exclusivity on Loestrin 24?

Yes. At this time, that's correct.

Your next question comes from Ronny Gal with Sanford Bernstein.

Two questions. First, on injectable. Siggi, I guess this one will go for you. I mean, one of the things we're hearing from the companies or incumbents in this field is that there is a much more of a portfolio effect in injectables as opposed to being first to market, which is the situation with some of the oral products. And therefore, when they come back to market, they'll be able to take substantial shares at the group purchasing organization and some of the new entrants will not be able to hold to the shares they get. I just wanted to get your take on that. And second, we are hearing comments from the FDA that the respiratory guidelines are coming. And if history serves us right, then some of the companies involved would have seen that portfolio, and I just guess to your global, I guess, guess, would we -- would a pathway to make a substitutable genetic for Advair and Symbicort be possible?

So on the injectables here, Ronny, you're absolutely right. It is -- and this is why I didn't want to comment on the pricing, because when a player comes back in the market, the pricing usually goes back down again because it's group purchasing, as you said. It's a key account management. You win a big portion through a key account management. So it's not like you take a fair market share, you win the accounts so -- but this is -- the goal that we have is we are building the portfolio. We feel that in 2014, probably late 2014, we have a significant enough portfolio to be able to compete in the injectable space. Today, we have relatively few products approved. Part of the portfolio is with Sagent, which is selling the products on our behalf, and we get part of that profit in the agreement between the 2 companies. But we also have a long list of product pending at the FDA to be able to offer to the groups -- the group purchasing a big enough portfolio to make it worth their while to work with us. So this is the reason why Actavis originally didn't go alone into the market because you're spot on, group repurchasing is very, very important in this whole thing, the service level to be able to maintain pricing but maintain market share. Maybe on the respiratory, it's a fair question. The guidelines are coming, the guidelines are coming. We sincerely hope so. We still remain that we are hoping to develop an AB-rated. The back-up strategy is 505(b)(2), but because of our infrastructure and sales structure, the opportunity for us on Advair would be an AB-rated Advair. Like all the companies in the respiratory space, I think we have been concerting the FDA both on the device, but also on the clinical program that needs to be run, and we are hoping that clarity will come out. What I can say is that the FDA has been very open to give advice. They have moved forward in giving out scientific and technical advice, both on the device itself but also on the scientific program. So we feel that we are in a better position today than a year ago in terms of developing the product. But I emphasize again, this is a big challenge to develop AB-rated generic Advair.

Your next question comes from Elliot Wilbur of Needham & Company.

First question for yourself and Todd with respect to pattern of quarterly EPS progression over the course of the year, any commentary or color you can provide there? It looks like Street consensus has it roughly evenly distributed, about 48% in the first half and obviously, the balance in the second half. Are you comfortable with that pattern? And then as a follow-up, with respect to the performance of the Anda Distribution business in the quarter, can you talk about some of the factors that led to what seems to be a very high margin and obviously outside the reiteration of your expectations for ANDA. Certainly exited the year in a much higher gross margin rate than you're guiding to for the full year, and just curious if there were some onetime items in there, or what sort of drove that strong performance.

Okay. Thanks, Elliot. Let me take the first one on the quarterly EPS progression. I think we would expect that they would be slightly back half-weighted, and that would be principally due to, of course, as it always is, to launches. But also, the realization of certain synergies won't really take place until the second half of the year. So probably, the progression needs to be modulated a bit from our -- from what's in consensus. But as you would expect, it would be more backward-weighted the third and fourth quarter. Bob, do you want to take the Anda question?

Sure. On the Anda side, what we saw really is kind of a quarter-over-quarter phenomenon. In which that this year, we're projecting a higher chain, a large chain-type contribution, which dilutes our margin profile. And that's -- we didn't have that same effect in the fourth quarter of '12. And so basically, as you roll that forward, there's a dynamic there in terms of a mix between what I would say a larger impact of retail and distribution services in which that dilutes the margin profile, and that's why you see us guiding a little bit lower in '13 in terms of distribution margin.

Your next question comes from Chris Schott of JPMorgan.

Two quick ones here. First, on the base business pricing dynamics you're seeing in the U.S. market, is the dynamic you're seeing today in line with that mid single-digit decline you've modeled? Or is there an expectation that market dynamics will change over the course of this year? And the second question is, I think about the guidance and potential upside levers to the guidance. If we were to see Actavis beat numbers this year, do you think it would be far more likely that comes from product launches occurring that aren't in guidance? Or would that come more from the cost side of synergies being realized faster than expected?

So let me talk about the base business. I think overall, there's -- it's difficult to say. I think we built in, as we said, a low single-digit price erosion or mid single-digit price erosion in the U.S. business. It is driven by new launches. So when you get the significant new launches on -- of a great product, like in the fourth quarter when we got additional competition on metoprolol, that had an impact on the price erosion in the market. Also, at the same time, as every year, we try to take the opportunity of raising pricing if we can. That happens once in a while when some of our competitors have a manufacturing issue at the same time. So we try to balance that. We look for that opportunity all the time. But overall, it is quite stable through the year, but you see it in jumps a little bit when we get the significant competition on our product because straightaway, when you get additional competition, the price goes down.

Yes, and Chris, on upside to guidance, I think it comes from actually both issues. I think our ability to achieve greater cost capture, that would be one area that we would look to, to drive growth faster. And of course, additional launches. And then overall, general performance. If we can capture more revenue, if you want to call them revenue synergies, you can call them that, but it's getting better revenue performance from all of the businesses. And then finally, our tax rate. If we can continue to find ways to improve our tax position even 0.5% or 1% makes a significant difference to our guidance. So those are the things, I think, would be the levers.

Your next question comes from David Risinger of Morgan Stanley.

It's Chris Caponetti for Dave. A couple of quick ones for Todd, please. I was wondering if you could comment on organic growth in the OC and extended release franchises in the fourth quarter? And then also, if you could provide some color on the adjusted other operating income, I think it was $33 million after GAAP adjustments in the fourth quarter. What drove that? And should we be seeing that in 2013?

Sure. In terms of the OC, I'll have Siggi.

Yes, so as we have been very clear on, in OCs, there's no organic growth, per se. We have the largest supplier to the U.S. market with Teva, and it declines because of additional competition quarter-on-quarter. We built that into our forecast. We expect it to decline. There's been approval from Sandoz, Lupin, Glenmark and others, and obviously, Mylan has been talking about coming into the market over the last 2 years. So there's no organic growth, but there has been less decline in the OC business than we had expected, and that gave us the upside in the last year. With regard to the modified release, its market share is basically when you get an additional modified release is when we launch a new product. We have a significant pipeline on modified-release products that we develop in Florida. Actavis also brought to the company a significant pipeline of modified release, so we see an opportunity. Do you call that organic growth? Yes, I want to call new launches an organic growth, because that's part of our business. So I feel that we will continue in the controlled release formulation. We have a significant pipeline, significant portfolio. Each and every product obviously goes down due to additional competition. As I mentioned, Toprol had competition from both Mylan and Dr. Reddy's after mid of last year, and that led to a significant price erosion in the market.

And in terms of what's going through the other line within our financials, we've got some significant non-GAAP gains going through there, which includes the gain on the divestiture of the morphine -- our own morphine sulfate product. We had the gain on the euro hedge that was entered into to hedge our exposure on the acquisition price. We also had the Rugby disposition, as well as the Moksha8 gains running through that line during the fourth quarter, and we'll post the full detail of all of those items on the web shortly after this call.

And Siggi, any good news on Intuniv for us?

What do you mean by good news? We are in -- the court case is ongoing, and thus I think we just want to say that this year -- we are in talks, but there's no progress as of today.

Your next question comes from Jami Rubin of Goldman Sachs.

This is Ariel, actually, in for Jami today. Just one quick one on Revlimid. Can you just give us a broad update on the case and your confidence in your position, and then maybe what are the next catalyst we should be looking for?

I think I'll handle that reasonably quickly. It's still a long way off, as you probably know. We're expecting, hopefully, the Markman hearing sometime later this year. We're hoping for it. It hasn't been set yet. That would be the next catalyst in the case, and we'll continue to pursue it. There's lots of patents that we've got to get through. It's complicated, but we're going to continue to pursue it.

Your next question comes from Jason Gerberry of Leerink Swann.

Just an Advair question. A couple, actually. But can you just talk about when you would need to invest in your own proprietary dry powder inhaler device? And whether 2013 CapEx includes any spend towards building up manufacturing capacity for DPI inhalers? I know your competitors have been pretty vocal about making investment in DPI inhaler manufacturing. So I'm just kind of curious where Actavis stands on both of those fronts and whether we should think about that as a partnership opportunity to kind of overcome those hurdles or whether you'd make those investments through CapEx in the out years?

Yes, Jason, you're spot on, right? We see this as partnership opportunities. We are working with different partners on different product. So overall, we see who brings the best to the table. There's multiple devices out there. We have evaluated quite a few of them. We think we have a good device that we are working on. But overall, we see this that our partner would bring the device to the table for DPI manufacturing plant. We don't see that as a priority at this point in time because there's a significant clinical program to get through before even we go there. And there's plenty of manufacturing space available that we can use utilize. So not at this point in time investment.

Could you give us a sense of what you think it would cost if you were to go it alone to build up enough manufacturing scale to go after Advair?

It would be a total shot in the dark. I don't think I'm going to comment on that.

Yes, same here.

Our next question comes from Gary Nachman of Susquehanna Financial.

Paul, what's the outlook regarding your ability to do more branded deals in the near term? Are there a lot more opportunities out there? Would they most likely be in similar size and scope to Uteron, do you think? How do we think of that?

Yes, I think that would be the way to think about it for the short term. We're looking to continue to fill pipeline slots, as well as looking for even revenue slots, if possible. But I would say that that's about the right size in the short term. We're looking to pay down debt, as you know, but we certainly have the flexibility to do that. I would also say we would continue to look for opportunities on the Actavis Pharma side as well. We've not -- we know we have some areas we like to shore up and provide additional opportunities. So continue to look for us to do smaller tuck-in acquisitions in the short term and then position ourselves well for maybe a deal later on.

Todd, maybe you can just help, what was the leverage ratio at the end of 2012? And just remind us of your targets for the end of this year and next year?

The leverage ratio was just under 3.8x at the end of the year. And our goal, assuming no business development opportunities present themselves, we should be at roughly 3x by the end of the year.

We've reached the allotted time for questions. I would now like to turn the call back over to Lisa Defrancesco for closing remarks.

Yes, there's a couple that we didn't get to on the queue, and we'll follow up with you directly shortly. Thank you for joining us.

Thank you. This does conclude today's conference call. You may now disconnect.