Enact Holdings, Inc. (ACT) Q1 2013 Earnings Report, Transcript and Summary

Good morning. My name is Darla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Actavis First Quarter Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Ms. Lisa Defrancesco, Vice President of Investor Relations. Please go ahead.

Thank you, Darla, and good morning, everyone. I'd like to welcome you to the Actavis First Quarter 2013 Earnings Conference Call. Earlier this morning, Actavis issued a press release reporting its earnings for the first quarter ended March 31, 2013. The press release, together with additional materials reconciling our GAAP and non-GAAP financial results and forecast, are available on our website at www.actavis.com. Additionally, we are conducting a live webcast of this call, which is also 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 first quarter 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. Paul will conclude our presentation with an update on 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; 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 expressed 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, the Actavis Form 10-K for the period ended December 31, 2012. With that, I'll turn the call over to Paul.

Well, thanks, Lisa, and good morning, everyone. I know it's a busy day. But before we begin talking about the quarter, I just wanted to make a few comments on the recent news and analyst speculation about the reported discussions of a potential merger. As you know, as a matter of corporate policy, we do not discuss business development activities until we have something concrete to report to our investors and the media. I know this policy can be frustrating, but we do not intend to comment specifically on the current speculation. Just know that as a matter of ongoing business, our management team is in what I would describe as routine and exploratory discussions about a variety of business development initiatives, including product transactions, business combinations and even large-scale mergers and acquisitions. All of these business development initiatives are focused on 2 things: achieving our publicly stated objective of building a leading global specialty pharmaceutical company, and creating shareholder value. As always, if and when we have anything of substance to announce, we are committed to announce that news to all shareholders and employees globally. So we remain focused on driving growth for our company and our shareholders. And now turning to the quarter. The new Actavis is off to a great start. And as a result of the strong performance of our global businesses today, we are increasing our forecast for 2013. But before we get to that, I want to briefly review the highlights from the first quarter. First quarter net revenues increased 24% to $1.9 billion. Non-GAAP earnings per diluted share were up 21% to $1.99. Adjusted EBITDA increased 26% to $464 million. In our Actavis Pharma segment, net revenues increased 37% over the prior year period. In the U.S., highlights include the first quarter launch of generic version of Suboxone. Since the quarter ended, we have launched an authorized generic version of Zovirax ointment and relaunched Vestura, our generic version of Yaz. We also received a favorable ruling on our generic Pulmicort patent suit on April 1. We're awaiting a ruling from the federal circuit on a preliminary injunction that is currently keeping us off the market. Outside the U.S., key launches in our international markets include a generic Singulair, which launched upon patent expiry in multiple European markets, and a successful patent challenge of generic Crestor in Australia, which we anticipate launching midyear. In February, the European Committee for Medicinal Products for Human Use, or CHMP, adopted a positive opinion recommending the granting of marketing authorization for Actavis' generic version of Gleevec. We have launched Gleevec in one European market and expect to launch it across Europe upon patent expiry. In March, we amended our agreement with Sagent Pharmaceuticals to achieve accelerated termination date, which allow us to take back our portfolio of generic injectable products in the U.S. by the end of 2014. When combined with the applications for generic injectable products we -- that we have currently pending on file with the FDA, we are on our way to becoming a player in the U.S. generic injectable market by the end of 2014. We have recently announced settlements and several patent challenges. These settlements remove the inherent uncertainty of litigation, as well as FDA delays, and provide for date certain launches of generic versions of OxyContin in 2014, Exalgo 32-milligram dose in May of 2014, Intuniv in December of 2014, Crestor in the second quarter of 2016, Ziana in July of 2016 and Zyclara in January of 2019. We've also made great strides in our Actavis Specialty Brands segment during the quarter. In this segment, we experienced growth in key promoted products, including Generess Fe, Rapaflo, Crinone and ANDRODERM in the U.S. On January 23, we announced the acquisition of Uteron Pharma, which includes 3 potential near-term global commercial opportunities in contraception and infertility, including one novel oral contraceptive. Several additional products in early stages of development are also included in the acquisition. In April of 2013, we signed an agreement with Valeant that will maximize the commercial value of Actavis' Cordran Tape and Valeant's Zovirax cream 5% by capitalizing on the commercial reach of our respective specialty brand sales forces. Earlier this week, we acquired worldwide rights to Valeant's Metronidazole 1.3% Vaginal Gel, further expanding our Women's Health pipeline. We completed our Phase III program for progestin-only patch in the U.S. and filed the NDA during the first quarter. We also made significant progress on our Phase I program for our biosimilar for FSH. And through our Amgen collaboration, initiated our Phase III for a biosimilar of Herceptin. Finally, the Actavis integration is progressing according to plan, and we remain on track to achieve our estimate of $300 million and expected annual synergies within the first 3 years. We've also determined that the legacy Actavis Group achieved the full value of their earnout based upon year-over-year growth and cash EBITDA, as defined in the acquisition agreement. With that, I'll turn the call over to Todd, who'll take us through the financial results.

Thanks, Paul. I will now review our results on a consolidated and divisional basis. GAAP net revenues for the first quarter were $1,896,000,000, an increase of 24% over the prior year, reflecting strong growth in our Actavis Pharma and Actavis Specialty Brands segments, partially offset by decreased revenues in our Anda Distribution segment. For the first quarter of 2013, Actavis Pharma net revenues were $1,534,000,000, up 37% year-over-year as a result of the acquisition of the Actavis Group and new product sales in key markets, partially offset by lower U.S. sales of the generic version of LIPITOR due to the loss of exclusivity in May of last year. Ex-U.S. net revenues were $608.6 million, up 254% from the first quarter 2012, primarily due to the inclusion of legacy Actavis. Actavis Pharma net revenues during the quarter consist of product revenues in the Americas of $965 million; Europe product sales, which include Medis, of $483 million; EMEA product sales of $85 million. Actavis Pharma adjusted gross margin was 50.7%, up 5.7 percentage points year-over-year due in part to higher margins on generic Concerta under our contractual arrangement with J&J and sales of Lidoderm under our agreement with Endo. The prior year margins were negatively impacted by sales of the authorized generic version of LIPITOR at lower margins. Moving to the Actavis Specialty Brands. Net revenues were $131 million, up 19% on higher sales of promoted products, including Generess Fe, Rapaflo, Crinone and ANDRODERM, and the addition of Kadian, which we acquired with the Actavis Group. Adjusted gross margin increased to 77.2%. Finally, net revenues from our Anda Distribution segment were $231 million, down 23% due to lower chain sales and fewer new third-party product launches relative to the prior year period. Anda's gross margin for the quarter was 15.8%, up 430 basis points as a result of lower chain sales. Consolidated operating expenses have increased significantly year-over-year as a result of the addition of the legacy -- of legacy Actavis. Consolidated GAAP research and development for the first quarter was $132 million, up 49% year-over-year. Consolidated GAAP SG&A for the first quarter was $413 million, up 46% over the prior year. Amortization expense for the first quarter was $158 million. Our GAAP results include $270 million of charges related to the acquisition of the Actavis Group. This includes a $150 million charge related to the contingent earnout. During the quarter, the company agreed to pay out the full 5.5 million shares associated with the earnout. Consequently, the value of the additional 1.65 million shares to be paid pursuant to the earnout, compared to our assumption at year end, is reflected as a charge for GAAP earnings purposes. The company also incurred $120 million in other acquisition-related charges, which consist primarily of the amortization of the inventory step-up recorded in connection with the acquisition. On a non-GAAP basis, our income tax rate was 25.3% in the first quarter, down from 35.5% in the prior year period. The non-GAAP rate was favorably impacted by the extension of the R&D tax credit in January of this year. On a non-GAAP basis, which excludes amortization and acquisition-related charges, as well as other items detailed in Table 4 of our earnings press release, earnings for the first quarter were $1.99 per diluted share, up 21% year-over-year as a result of growth across our Actavis Pharma and Actavis Specialty Brands segments. As a result of acquisition-related charges, we incurred a loss, for GAAP purposes, of $0.79 per share. Again, this includes $270 million pretax or $1.77 per share of charges related primarily to the acquisition of the Actavis Group in November of 2012. Adjusted EBITDA for the first quarter was $464 million compared to $367 million in the prior year as a result of the addition of legacy Actavis and growth across the businesses. Cash flow from operations for the first quarter was $219 million, and cash and marketable securities were $337 million at the end of the first quarter after using $150 million in cash to acquire Uteron in January. Our total debt at quarter end was just over $6.4 billion, and our leverage ratio, on a pro forma basis, was approximately 3.8x. We still expect to generate cash flow sufficient to reduce leverage to under 3x by the end of 2013. We remain well positioned financially following the acquisitions of the Actavis Group in 2012 and Uteron Pharma in January of this year. We will continue to focus on rapid pay down of 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 an update on our 2013 forecast and concluding remarks.

Thanks, Todd. I'll now provide an update of our 2013 forecast. For Actavis Pharma, our forecast includes a launch of generic Pulmicort with competition in the second quarter. No change in our generic Concerta estimates from the previous forecast, which includes one competitor on generic Concerta beginning in Q1 and a second competitor 181 days after launch of each strength. No additional competition in 2013 for generic Lidoderm and generic Adderall XR. For generic Suboxone, we assume a successful conversion of the tablet market for generic Suboxone. No additional competitors on generic Zovirax ointment. We have included Vestura, our generic version of Yaz, from the second quarter. And we continue to assume mid-single-digit price erosion in the U.S. on base business and high-single digit ex-U.S. 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 in 2013 from the Uteron products. Our updated 2000 (sic) [2013] forecast is as follows: our estimate for full year net revenue is approximately $1.8 billion; we expect Actavis Pharma revenue to be between $6.3 billion and $6.5 billion, with slightly better adjusted gross margin in the range of 50% to 52%; for Actavis Specialty Brands, we expect net revenues of $550 million to $600 million; for Anda -- for the Anda Distribution business, we anticipate third-party distribution revenue to be between $1 billion and $1.2 billion; we expect adjusted EBITDA of $1,950,000,000 to $2,030,000,000; we expect -- we continue to expect our non-GAAP effective tax rate to be between 27% and 29%; we expect our non-GAAP earnings per diluted share in the range of $8.10 to $8.50 per share, reflecting a full year estimated shares outstanding of approximately 134 million. In summary, this year is about execution. The first quarter of 2013 was a very productive quarter, laying the groundwork for yet another year of significant achievement in growth, as well as increasing investor visibility to growth drivers for 2014, 2015 and beyond. I would like to thank our employees around the world for their hard work and dedication to the growth of our global organization. And with that, let's turn the call back to Lisa for the Q&A.

Hi, Darla. We'll go ahead and take our first question.

[Operator Instructions] Your first question comes from the line of David Risinger with Morgan Stanley.

My first question is, are you asking for a $150 or $200 for the stock?

As you know, David, we were not going to comment on any speculation. But listen, we continue to remain focused on our business. We have a lot of things going, a lot of activities underway. As you can see, it was an extraordinarily busy first quarter. Our growth strategy hasn't changed. Our acquisition strategy hasn't changed. We're going to continue to look for tuck-in acquisitions to help us continue to grow our Actavis Pharma business, as well as our Actavis Specialty Brands business. We're going to remain focused in that Specialty Brands area in Urology and Women's Health. Many of the transactions that we accomplished this quarter, some of the transactions at least, reflect that commitment, and we're going to continue to stay focused on that.

Okay. And then with respect to my 2 real questions, first, with respect to Pulmicort, could you just walk us through the timeline here and the different scenarios? And then second, with respect to OxyContin tamper-resistant, could you speak to what you've currently assumed in your press release and then what the potential upside scenario would be?

Sure. I'll take Pulmicort and then I'll turn it over to Siggi to talk about OxyContin. On Pulmicort, we're awaiting a decision. And David, by the way, is here to correct me if I make a mistake. But we're awaiting a decision. We expect it any day. We continue to maintain high hopes that this product will be in our -- we'll be launching the product shortly. We have built inventory. We did launch the product briefly. We were kept -- and then we had to stop because of the injunction. But we're very hopeful that we will -- during the pendency of the appeal, we will be marketing the product, not sitting on the sidelines.

David, on the OxyContin, our settlement with Purdue, as we mentioned in the press release, we gave, I think for 2014 and '15, approximately $100 million of gross profit between the 2 years, a little stronger in 2014. We assume competition during those years. If there will be less competition, that could be an upside. We don't expect a big downside to that number. In the outer years, '16, '17, '18, and of the outer years, the number is less than $100 million, but there will be a tail on that product for the remaining 3, 4 years after '14 and '15. So I think we have assumed the right competition. I'll give you a pretty accurate number on the gross profit as we expect them.

And then just a follow-up on both of those. So quickly on the Pulmicort, could you just tell us how much you shipped or give us a sense for how much you were able to get out the door before you were stopped? And then second, could you talk about the upside on OxyContin TR if Actavis itself gets an approval and manufactures the product using a supply to authorize generic?

Yes, so if we talk about Pulmicort first, we are very quick to react in this company, but we got the TRO in about 3 hours after we started shipping. So there was very, very little that went into the marketplace of the product, so it didn't affect our revenue or outcome at all. I think with regard to OxyContin, we gave you our best case as we see it. The difference between an AG and our own approval is not significant in that term. So we built it based on our own product assumption, so -- but the big driver in chains would be the competition in the market, not if it's an AG or our own application.

Your next question comes from the line of Randall Stanicky with Canaccord Genuity.

Paul and Siggi, just a question for you. First, Paul, can you just talk about your own ability to do larger transactions yourself as we think about the back half and where your areas of interest are relative to going out and doing branded deals versus more product collaborations like the one that we saw yesterday with Valeant? And then I have a question for Siggi.

With respect to larger transactions, I think, in the short term, we have to continue to focus on paying down our debt. We've committed to achieving below 3.5x debt-to-EBITDA this year. We'll certainly do that. However, the larger transactions are something that you always have to be watchful for because they don't always come up all the time. It's not ever clear when assets will become available. And so we're constantly looking and constantly participating in discussions and processes around the world, looking at these kinds of things. Our preference would be, one, a deal that would give us more depth and breadth in our Specialty Brands franchise. But we would use those assets to drive value in many of the markets that Actavis Pharma operates in around the world. Remember, our Actavis Pharma division outside of, say, Western Europe has significant sales presence in Russia, Central and Eastern Europe, Southeast Asia, and even in non-emerging markets like Australia and Canada where we can leverage those assets in those marketplaces. So we're looking for something that can help drive -- continue to help drive growth for the company in 15, '16 and '17.

But the brand side is clearly where the focus is right now, is that fair?

Yes, I mean, for a significantly -- for a large transaction, I would say, yes, that's where we're -- our head is at. If we are presented with an opportunity on the generic side, we would look at it and try to evaluate the strategic value of it, if it was compelling. We would have to look at that. But right now, our drive is on Specialty Brands for big transactions. Doesn't mean we won't continue to do, what I would describe as tuck-in acquisitions around the world. I mean, there's OTC product franchises we're looking at right now. There's small generic opportunities around the world. The world's a big place.

And defining big, is $2 billion a fair definition of big?

That or larger, yes.

Okay. And then a follow-up for Siggi. There's been, obviously, a lot of very positive product announcements over the last several months. As people are looking for the next 6 to 12 months, additional opportunities, either from settlements or launch, can you maybe outline the ones that we should be focused on?

Yes, I think the big opportunity for the next 6 to 9 months is obviously Pulmicort. I think Pulmicort is -- the outcome of the trial is very important for us. As Paul mentioned in the forecast for the year, we have built in Pulmicort but with a competition in second quarter. If there's less competition, that has a significant effect on that number, of course. So I think that's the big one to watch out in the U.S. for sure.

Your next question comes from the line of Tim Chiang with CRT Capital.

Paul, certainly, I think you guys have done an incredible job making acquisitions in your own right. I mean, what do you think the market's missing with this Actavis transaction? Do you think the synergies longer term will be more significant than what you think can generate today?

Well, with -- I hope that we've been clear with our -- the -- regarding the legacy Actavis acquisition, that the $300 million of synergies that we've included and talked about did not include revenue synergies and did not include operational synergies like plant rationalization and the like. We know we're going to get those kinds of synergies. So I think if people haven't factored that into their equation for the out-years, then they probably have missed something. And as I think -- as we look at this over time, we also know that with the Actavis, the legacy Actavis acquisition, we've now increased our ability to improve our tax rate. We're going to continue to drive intellectual property into tax benefited jurisdictions. As the intellectual property starts to generate profit, we should see a lower tax rate. And I've been talking about this for a long time. We've know we've got to do something about our 27% to 29% tax rate, and that's a big key.

Maybe, Tim, if I add to it. I think the 2 things that investors missed in our Actavis acquisition is probably the strength of the Actavis Group R&D. We told people that we have 49 pending First-to-File. I think the new number is that 33 of the 49 are now exclusive First-to-Files and the remaining are shared. But we also have a significant number of potential First-to-Files waiting for acceptance at the FDA. So the R&D pipeline coming from Actavis Group has a significant synergy in output with the R&D at Watson. And last, but not least, I think it also -- I think investors underestimated the strength of Actavis in the emerging markets. In Eastern Europe, if you look at the IMS data for Russia, for example, for January to January, there was a 20 -- over 20-plus growth from January 2012 to January 2013 for Actavis in Russia. Just as an example, it's the same story in Ukraine, in the CAS market, in Southeast Asia, even in -- and many of the Eastern European markets. So I think the investors missed that point, how strong the R&D was on the strength of the company and emerging markets.

Your next question comes from the line of David Amsellem with Piper Jaffray.

Just a couple and I apologize if you have addressed this since I'm toggling between a couple of calls. So first, on generic Adderall XR, thinking longer term, what's your expectation regarding Sandoz and whether or not you think they'll eventually enter the market? And then secondly, regarding the Metronidazole Gel product, can you just talk about how you think about the peak sales opportunity there? And any plans to present any detailed clinical data on that product later this year or next year?

Hey, David, maybe I can start with Adderall XR. I think as we said in our forecast for the year, we don't expect additional competition. I think it's not appropriate for me to make comment on the capabilities of our competitors to bring product to market. We know for sure that many of our competitors are working on this product and have been working for some years. This is a very challenging product and speaks highly of the capability of the R&D we have in-house today to deliver products to the market. But I think, at least for this year in our forecast, we don't assume any additional competition.

Yes, and with -- It's Fred Wilkinson. Regarding metronidazole, we actually probably will not be reporting clinical information throughout the year. Valeant will be prosecuting the NDA, so they'll be working through the filing process. The transfer of the asset actually does not occur until the product is approved. So they'll be in charge of the activities from there. The way we look at the marketplace though is it's a very, very large vaginal infection marketplace. There has been no product that is a single-use therapy for at least 4 years with Clindesse out of the marketplace. We think if those conditions stay the way they are through the time of the filing and ultimate approval, I think this is a real nice opportunity to take a base compound that's well known by our audience and be able to put it into the marketplace as a single-use therapy.

Your next question comes the line of Louise Chen with Guggenheim.

I had a few. First question I had was just on your 2013 EPS guidance. You're suggesting at the high end of the range almost 42% year-over-year growth, which is great, but I'm wondering how we should think about the following years. You're still intact on the double-digit EPS growth that you've given in the out-years. And then second question I had was how we should think about your North American Generics business, now that the U.S. brand patent cliff is coming to an end and you're a larger company that needs bigger P IV opportunities to move the needle. I mean, is this still an area of high growth for you? What do you think on that front? And then just on the generic injectables business, there's obviously been some issues on the manufacturing front with your competitors and also on pricing pressure and just wondering where you think your competitive advantages are to take advantage of those opportunities.

Okay. Louise, I'll start with the first question. Yes, we have -- it looks like we're heading toward a very strong 2013. That's always good news and we expect to be able to carry that momentum -- a lot of that momentum into 2014. We continue to maintain our objective of achieving double-digit growth on a year-over-year basis in EPS, adjusted EPS basis. And that will be our target going through '14, '15 and '16. And what we've tried to do, and just happenstance some of these things all hit at the same time, is we've given, I think, some clarity and visibility on opportunities that will be coming in '14. And don't forget, we'll be launching Loestrin 24 in 2014. We will have at least a portion of the year remaining on our 180 days of exclusivity on Lidoderm. We believe significant continued contribution from Concerta and Intuniv now in 2014. So you can see that we have a lot of growth drivers remaining in the franchise. Not to mention, we would continue to see continued growth of the core of Specialty Brands promoted products, as well as potentially up to 4 launches of new products in 2014. So 2014 is also going to prove to be a very interesting year.

Yes, maybe if I talk a little bit about the U.S. business. I think when we talk about the patent cliff is, in my mind, the patent cliff is more for the branded companies because, as I mentioned before, we have 49 first -- potential First-to-Files being reviewed at the FDA. 33 of them are exclusive. And you're absolutely right in saying that these are not multibillion dollar First-to-File opportunities from the brand side, but these are hundreds of million dollars opportunities and we have many of them. So I think how we think about it, there's still a significant growth in the U.S. market. We need to continue to invest significantly in R&D and IP and litigation to continue the pipeline. But the growth is still there. The opportunities are there. They are not $5 billion to $6 billion brand products we are going after, but we are still going after a strong portfolio of products that will allow us to grow the company for '14, '15, '16 and '17. You have seen the settlements even into '19. So we feel good about the U.S. market as long as we continue the invest into both R&D and IP to grow the business. And I think on the generic injectable business, we will be focusing more on the oncology and even into the 505(b)(2) area. We strive for higher margin products and maybe a niche opportunities which not everybody are in. Today, the prices of the injectables is quite high due to the quality issues that some of the competitors have in that market, but that could change when we come to the market by the end of '14. So we are not going into a significant investment in buying an injectable company. What we're doing is we are focusing on resources in R&D for the more complex injectables. We are focusing on slow-release injectables. We are taking the approach of 505(b)(2) because that is a good opportunity for the U.S. market. So we are focusing, not on the overall injectable space but to be a player in the niche, in oncology and the more complex area.

Your next question comes from the line of Ami Fadia with UBS.

It's Marc Goodman. So Siggi, maybe you could talk about Europe a little bit, how the markets have played out in the first quarter of the year and how you've done relative to the market and just go through some of the key ones? And then is there anyway that we can quantify the tax rate and where it can go, Todd, maybe 4, 5 years from now, if you can you give us a sense?

Yes, I think if I take a few markets, first of all, U.K., we had a very good first quarter in U.K. We have combined the Arrow U.K. and the Actavis U.K. operation. We have also -- because we have a manufacturing plant in Barnstable, a very good manufacturing plant in Barnstable, we have been able to take -- respond rapidly to market shortages in the market. So many of our older products have seen a significant increase in sale in that market. So U.K. was probably one of our best markets in Europe in first quarter. Russia, I mentioned before significant growth, 20-plus, year-on-year. We are introducing new products in Russia later this year. We are bringing big products to the market. As we mentioned, 50-plus OTC and 50-plus prescription medicines. Germany, still is a problem. We think German market is challenging. We have won quite a few tenders and that is what's keeping the top line up. But we are looking at options, how we can improve our bottom line in Germany. Our hospital business is the best part of the business. We have an injectable business, a wide range of injectables in Germany. But clearly, the prescription business takes our attention now, how we can improve our business in Germany. Nordics, a very good market for us, good growth in OTC. We are launching a new OTC line, a dental OTC line now in second quarter in Nordics. We have seen growth where we are still #1 in Norway, Sweden and Iceland, #5 in Finland and #3 in Denmark. We remain #1 in Bulgaria. And in France, I think -- maybe if I take that as the last country, we have seen a significant growth in the top line. There's clearly a much better usage of generics in France. This is continuing from fourth quarter and is continuing in second quarter of this year. But the growth in the bottom line is not following [ph] because the price erosion is also significant in that country. It's in the high-single digit at the same time. So we are not seeing the same growth on the bottom line as we are seeing on the top line. So to summarize it up, I think Eastern Europe is performing extremely well. Nordics are very good, U.K. good but the -- but Germany, maybe Holland and France, even though there's a growth in top line, I'm not satisfied with the growth in the bottom line.

Hey, Marc, this is Todd. Going to the tax rate question, our current guidance is still 27% to 29% in the current year. As we look out over the next 3 to 5 years, I think growth of earnings offshore will help provide an advantage to us from a tax rate perspective. As Paul mentioned, IP migration is very much something that we continue to do with our existing portfolio, look at ways in which we can develop that IP offshore, and when those products hit, that will enhance our tax rate longer term. And then on the business development front, I think that's where we're really going to see the opportunities from a tax rate perspective. And where could it go? It depends upon the scale of that BD activity and the growth in some of the markets that we have offshore. But we can see anywhere from 3% to 5% very easily from kind of what we have planned today.

Your next question comes from the line of Chris Schott with JPMorgan.

Just had 3 quick ones here. First, can you talk about the Amerisource-Walgreens partnership and what you see that meaning for generic industry pricing over time? The second question is on Concerta dynamics with Mallinckrodt now in the market. Just how is price holding up here? And do you have any updated views on KUDCo and the ability of further generic competition to enter the market this year? And then the final one was on Suboxone, just talking about any opportunity and what you can do here to help convert this market back to tablets relative to the film?

Okay. I think on the Amerisource-Walgreens, I think we're all sort of waiting and watching to see what happens. We don't expect any major impact in 2013. 2014, of course, is yet to be seen. We will be watching very closely to see how things go. We have very close relationships with both of those companies. We're a major supplier to both of those companies, and we just met with the senior leadership of both of those companies at NACDS about a week ago. So stay tuned for more on that, but we'll be in close contact with them and try to work through their issues and our issues for 2014.

And Chris, maybe on Concerta. I think the Concerta is behaving exactly as we explained it before. It's a very complex product. It takes time to get the quota to take the markets here. As it stands today, I think Mallinckrodt is at roughly 8% and we are at roughly 87% market share, but they are growing. They will grow over time. The price is stable in a 2-player market, but we -- the market is behaving exactly as we expected in a 2-player market. But clearly, Mallinckrodt is growing their market share week by week, in time, when they have enough supply to take more market share. With regard to KUDCo, we don't know. You heard previously that KUDCo is clearly in our forecast for the year. We expect KUDCo to come to the market 181 days after the launch of Mallinckrodt on each of the strengths. So we haven't heard anything differently to change our assumptions on additional competition on Concerta. With regard to Suboxone, it's a very interesting thing, is that we have a -- we compete with Amneal in the market, and we are getting a good market share on the tablets. There has been very little or non-movement from the thin film to the tablet at this point in time. We are looking into a marketing campaign because there's a significant saving for the patients to use generics versus the thin film. Many of the patients using these drugs don't have health insurance, so the opportunity might be for them if they are out-of-pocket to move patients from thin film to the tablet. We are working on that, so stay tuned how it will go. But at this point in time, we haven't seen any thin film movement to the generic tablet.

Your next question comes from the line of Shibani Malhotra with RBC Capital.

So one for you, Paul. I know you said you wouldn't comment on any speculation, but can you just help us understand how you are thinking of the various options available to you, specifically under what circumstances does it make sense to grow organically versus acquire a company or brand versus M&A? And then on the tax rate, can you talk us through the mechanics of how you could bring this down as a stand-alone company and how important M&A is for you to really bring the kind of rate down over the next few years?

Sure. Well, Shibani, you guys -- I think you all know that I always believed in strong organic growth as the main driver of your business. We have shown that we can -- are committed to R&D spending in both the generics and the brand franchises. We will continue to do that. I think that's consistent with being a pharmaceutical company and that's, I believe, everyone who's in our space sort of have that same notion. Nevertheless, we generate a lot of cash and we know that we need to put that cash to work. We have obligations to pay down debt, which we will obviously do and we will do so appropriately and meaningfully, so that our bondholders are in a good spot and remain in a good spot. But we have excess cash to put to work and we will continue to put that cash to work in the way we've always done it, looking for the right kind of opportunities. With respect to looking for things that help take down our tax rate, that does have an added benefit. We do pay very high taxes compared to other companies in our space, and we need to find a way to manage that. We've looked at all kinds of options to address it in a meaningful way in a sort of a one fell swoop move, and that's really not easy to do. It's very challenging to do that, and we are not really in a position at this time to be able to do that. So we have to look for the singles and doubles to drive down that tax rate and then we'll continue to do that. But this strategy hasn't -- our strategy hasn't changed. That's very consistent with what we have been talking about for the last 5 years since I've been here.

Just Paul, if you would, I mean, the question is also under what circumstances would M&A, like a merger of equals, make sense to a company like Actavis, which has strong growth on its own?

Well, I think you have to -- you always have to look at every opportunity that's presented. As I said, there's constant routine and exploratory discussions going all the time from all kinds of areas, and I just don't think that I can comment on what is the right time to pull a trigger on anything. It's about specifics. It's about timing. It's about all of those factors. So for now, I think I'll just leave it with we're going to continue to pursue our business transactions as we've always done. We're going to continue to talk to people as we've always done. And at the time we make a decision to do something, we'll pass that along.

Your next question comes from the line of Andrew Finkelstein with Susquehanna.

Maybe we can just talk as the integration gets more underway and that the synergies seem to be on track where you're looking to invest, particularly on the R&D side and where that should be going over the course of the year and into next year.

Yes, maybe, Andrew, if I take it -- it's Siggi here. I think the -- as you said yourself, the integration is on track where we are getting the right synergy numbers. We have integrated all of the sales unit. We sold from a single unit. There's one point of contact in the U.S. from 6th of February. So all the basic part of the integration is done. So what -- where are we going to use the money we get? The investment in R&D is that we are moving a little bit towards the more complex products. So we have set up a special department on developing respiratory products. We have set up a small team in U.K. led by Stefan Sveinsson, who was the Head of R&D in Actavis, which focuses only on the complex respiratory product. We have quite a few under development at this point in time. We are investing in that even though the payback on these products is 2016 and later, but that's an important area which I think the generic industry hasn't been able to get into or penetrate, as I would hope to do later on. I think also we are investing a lot in the semi-solids, creams, ointments, where you have to do clinical aqualine [ph] studies. These are more complex. The development of a cream and ointment is in the $10 million range, roughly each of the development, where an ordinary solid, oral dose tablet is maybe in the $1 million to $2 million. And then last, but not least, is the complex injectables where we are investing in slow-release injectables, very complex clinical studies to do. So we are moving a lot of the synergy dollars into R&D to allow us to grow for the future because, as I mentioned in the previous answer, the patent cliff of big products is not there but there's so many opportunities of the complex generics which we are tackling now to allow us to show the double-digit growth going forward.

This is Fred. The other area that we obviously were making investment in the small molecule brand business and then eventually the biosimilar space. With the collaboration with Amgen, obviously, we've made a bet on 4 biosimilars in the oncology space. Those are progressing very nicely, with the first one going into Phase III during the quarter. Our FSH program is moving nicely and on track for an appropriate launch time when markets are being made. And then the small molecule business, we continue to look opportunistically for both the midsize products and some larger opportunities that we are working through our pipeline as we go.

And so is the level of activity on the R&D side expected to ramp up over the course of the year?

Yes, how it is, when you look at the year, we were a little bit low on first quarter but there will be a continuous investment. It depends a little bit where the clinical studies fall into the year, but we will have a continuous investment and a little ramp-up during the year in the R&D segment.

Ours is a little spotty because it'll go based on when we drive into Phase III. So that's the big spend. We've tried to always keep ourselves in a position where we have at least 2 products in Phase III at any given time.

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

First question, I guess, would be for Siggi with respect to full year guidance and specifically thinking about some of the key U.S. product drivers. Are you still expecting a launch of all strengths of oxymorphone ER non-tamper-resistant formulation midyear? And do you think there's any read-through from the FDA's recent decision around oxycodone ER tamper-resistant formulation, what that may mean in terms of actually being able to obtain approval? And then just a quick one for Paul. Certainly, not evident by a lot of your recent activity, but just wondering if you think the forthcoming Supreme Court decision around pay-for-delay decisions will have any real practical impact on generic industry behavior or certainly, the kind of leverage generic companies have going forward in terms of being able to negotiate favorable settlement agreements.

Hey, Elliot, let me start on the generic Opana. I think, from our side, and we mentioned this on -- in our Investor Day, we remain not to include the Opana ER, the non-tamper-resistant formulation. That is not in our guidance for the year. We are monitoring the situation as it is. We don't know if the guidance that came out from the FDA on the OxyContin directly affects the Opana product. There's clearly a difference between OxyContin TR and Opana TR in development. But overall, we feel it's prudent not to include it in the guidance for the year for all the reason you mentioned before. And how the market has performed since Impax launched in January, how the market has reacted to the non-tamper resistant formulation, we are still working out what will happen but it's not included in guidance.

Yes, and Elliot, as to the Supreme Court case, as you know, we're awaiting a decision from the Supreme Court on this matter. I am hopeful that the Supreme Court will do the appropriate thing and keep the law as it currently is. I would -- for all those people who keep pounding the table about pay for delay, I would point them to the Pulmicort decision as the perfect example as to why they always miss the most important point, and that is litigation is inherently unpredictable. I will remind you that we won on both patents in the Pulmicort case and the judge who issued the opinion granting us the case issued an injunction during the appeal. So yet again, there is no certainty in litigation, and again, it's always about certainty. And what we do is settle cases that guarantee early entry to a product prior to patent expiry and provide value to consumers and to our shareholders. That should be allowed, it's perfectly appropriate, and we will continue to enter into these agreements as long as I'm here. But I don't feel strongly about it, Elliott.

And your next question comes from the line of Greg Gilbert with Bank of America Merrill Lynch.

Paul, you can add new vigils roll into that list of -- so I'll wrap up with a few here. First, Paul, I think that you, as well as investors, feel pretty good about the short- and long-term growth outlook and investors understand that, that growth will be driven by internal and external factors and that you and your team have done an excellent job executing on the business, so no reason to believe that will stop. So I guess what I'm getting at here is, if I'm Actavis' board and management, I feel pretty good about my own prospects and it would probably take a meaningful premium to make me a seller and that premium would come with some near-term certainty. Am I missing any parts of that equation? Or do you think the Street is naïve about the things that doesn't consider that can make a company a seller other than price?

Well, I like the first half of your question a lot because I agree with everything you said. Yes, that was good. But the second half of the question, again, Greg, I'm going to have to -- I'm going to pass on sort of addressing that directly. Every board, every company, everybody who's faced with any sort of discussions regarding anything that has to look at the long-term value for its shareholders, and that is our obligation and we will continue to look at long-term shareholder value as the key driver to our decision-making at, not just the management level but also at a board level. I think you need to remember that we are, I think, a good solid management team. We believe in our growth prospects. We believe in the long-term growth of the company. Our employees are committed to that growth, and we believe we have a bright future. So that is our -- that is where I stand.

Clear enough. Siggi, I wanted to ask about generic Exalgo. Are you still on track to launch those strengths you settled on in November? And have you filed on the 32 mg strength? And then I have one last one for Paul. I'll ask it now. How confident are you that Amgen's interests are aligned with yours in terms of where you'd like to see the regulatory and legal landscape end up on biosimilars? I just want to make sure, for my own edification, that they're not a biosimilar spy.

Greg, on Exalgo, as we announced in the script, is we settled the 32 milligram patent doses already. So we have filed and we are ready to launch. I think we feel very good about the approvability of our product. The review at the FDA is going well. So we are ready to launch at the assessment date.

And as to the Amgen interest, I believe Amgen's interests are aligned with ours on biosimilars. They we have certain things that they believe strongly in that we talked to them about, and -- but I don't see them as a spy. I think they're actually a fantastic partner. We've had a great relationship. They're driving products with us to conclusion. They believe in the biosimilar opportunities that exist, not just in the U.S. but around the world, and so we don't find ourselves at odds with them. Fred, did you want to add something?

Probably the best statement to add to this is that the cornerstone of this agreement is the quality side of it. And they've driven the need to make sure the qualities are driven -- is driven into the biosimilar space, just as they have into the originator brand space. So we see eye-to-eye on that. We work very aggressively together on trying to work on advancing the biosimilar space. But I think it's with a quality background, and I think that's going to help the American public as these biosimilars come to market in the future.

And our final question for today comes from the line of Michael Tong with Wells Fargo.

Todd, you talked about business development bringing down tax rate. Are you thinking more a geographic revenue mix? Or are you thinking more structurally oriented where you can bring down the tax rate in a more permanent way? And then secondly, as you consider -- obviously, borrowing cost is not high at this point. As you consider paying down debt, would you consider -- or can you use stock as part of an acquisition?

We're basically -- we're looking at both ways of reducing the tax rate, both looking at it geographically, which markets and enhancing the profitability in certain markets. But also we're evaluating BD opportunities that may be able to more significantly achieve a much lower tax rate. The tax rate is a problem for us competitively, and we're looking for all alternatives to reduce that rate.

Yes, and Michael, I'll take the question about equity. I think as we've done in the past, as we did with the legacy Actavis acquisition, we will use equity as appropriate in a transaction. Oftentimes, it is the difference between completing a transaction and not completing a transaction. And I think that's one of the tools that you have to use in your arsenal as you look at acquisitions to make them, in many cases, more palatable for the seller to be part of the organization. So yes, equity could be part of it. But you're right, certainly, cash is quite inexpensive at the moment.

Thank you for joining us, and we'll see you again next quarter.

Thank you. Ladies and gentlemen, this concludes today's Actavis First Quarter 2013 Earnings Conference Call. You may now disconnect.