Good afternoon, and welcome to the DepoMed Reports Second Quarter Fiscal Year 2012 Financial Results. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to August Moretti, Chief Financial Officer of DepoMed. Please go ahead.

Thank you, operator. Good afternoon, and welcome to our second quarter financial results and business update conference call. With me today are Jim Schoeneck, President and CEO of DepoMed; Matt Gosling, Senior Vice President and General Counsel; Dr. Mike Sweeney, Chief Medical Officer; and Jack Anders, Senior Director of Finance. Before we get started, I'd like to remind you that some matters discussed on this call contain forward-looking statements that involve risks and uncertainties, including those relating to the commercial launches of Gralise and Zipsor, the efforts of Santarus to commercial Glumetza, the submission of a new drug application for Serada, our projected revenue on expenses and the ability of DepoMed to support operations based on existing cash resources. Actual results may differ materially from the results predicted, and recorded results should not be considered an indication of future performance. These and other risk factors are more fully discussed in our annual report on Form 10-K and our quarterly report on Form 10-Q for the first quarter of this year. And they will be fully discussed in the quarterly report on Form 10-Q that we will file with the SEC in the next day or so. In each case, under the caption Risk Factors. DepoMed disclaims any obligation to update or revise any forward-looking statement made on this call as a result of new information or future developments. As a reminder, Depomed's policy is to only provide financial guidance and guidance on corporate goals for the current fiscal year and to provide, update or reconfirm its guidance only by issuing a press release or filing updated guidance with the SEC in a publicly-accessible document or providing or updating guidance on a publicly-accessible conference call or webcast investor presentation. Financial guidance relating to current cash, cash equivalents and investments is based upon balances as of June 30, 2012. All other guidance, including guidance relating to the company's expected expense levels, is as of today, August 2, 2012. I'll now turn the call over to Jim Schoeneck.

Thanks, Augie. And thank, all of you, for joining us on the call today. DepoMed has continued to make substantial progress since our last call. Today, I'll summarize the developments in our business, and then I'll turn the call back over to Augie to discuss our quarterly financial results. After that, we'll open the call to questions. The launch of Gralise is progressing well with increasing prescriptions and numbers of prescribing physicians. Gralise products sales for the quarter were $3.2 million, and in June, we recorded over 10,000 monthly prescriptions for the first time. In July, we hit an all-time weekly high of 2,739 prescriptions. To date, more than 6,000 healthcare professionals have written prescriptions for Gralise. And the majority of prescriptions are being written by pain specialists and neurologists. With the addition of our flex representatives and the progress in our managed care contracting, we expect Gralise to grow, and perhaps accelerate the growth, in the second half of 2012. Our 78 flex representatives are now on the field, actively promoting Gralise as of the 1st of July. These pharmaceutically experienced and seasoned salespeople are working hand-in-hand with our existing sales force and provide approximately 60% of the calls of a full-time rap. As a reminder, we believe that adding these flex reps will increase our total physician calls by approximately 30%, and we expect to see their impact during the third and fourth quarter of 2012. In managed care, we continue to focus on our reimbursement position and commercial plans and improving access in Med D and Medicaid. I'm happy to report that we recently signed an agreement with CVS Caremark's commercial plan, which moves Gralise to tier 2 formulary status. CVS Caremark provides pharmaceutical benefit coverage for over 50 million lives on behalf of managed care plans…

Thank you, Jim. I'd now like to summarize the financial information for the quarter ended June 30, 2012, that was included in today's press release. I'd like to be clear at the outset that year-to-year comparisons of 2012 and 2011 results are complex. In the first half of 2012 -- in 2011, excuse me, we recognized over $100 million related to our Gralise agreement with Abbott and the termination of that agreement. We received $88 million in cash consisting of a $48 million milestone payment recognized as revenue and a $40 million payment received in connection with the termination of the agreement, which was reported as a reduction in expense. In addition, we also recognized $12.6 million in license revenue related to the Abbott agreement. Also, 2012 Q1 and Q2 results reflect the effect of the restructuring of the Santarus agreement and the sales and marketing expense related to Gralise. Earlier on this call, Jim provided a summary of the revenue and expense related to the Santarus agreement in the second quarter of 2011 in contrast to the royalties received in the second quarter of 2012. With that in mind, here's a summary of the second quarter. Total revenue for the second quarter of 2012 was $14.1 million compared to $21.2 million for the second quarter of 2011. The decrease in revenue was primarily related to $16.2 million of Glumetza product sales in the prior year, offset by the Glumetza royalties in the current year. Gralise product sales were $3.2 million for the second quarter of 2012. We began selling Gralise in October 2011 and recognized revenue during the quarter on a prescription basis. Gralise product revenue for Q2 2012 does not include the effects of the May price increase because of the deferral of revenue recognition until product is…

Thank you, Augie. In summary, we believe we've made substantial progress in 2012 and have made important steps to strengthen and build the company. We have continued to establish Gralise as a potential standard of care for postherpetic neuralgia with over 6,000 physicians already prescribing the product. We've enhanced our managed care coverage and patent positions on Gralise, added to our marketed products with the acquisition of Zipsor, advanced our Parkinson's program and now submitted the NDA for Serada. We continue to seek to acquire, end license or co-promote market or late-stage differentiated assets that we can leverage with our sales force and help us meet our short- and long-term financial goals. And when the opportunity arises, we'll work to further monetize our active form delivery technology. We look forward to updating you on our progress through the rest of the year and we want to thank you for your continued support. And with that, I'd now like to open up the call up for questions.

[Operator Instructions] Our first question comes from Scott Henry at Roth Capital.

Just a couple of questions. Starting with Gralise, the numbers were a little lighter than I expected. I guess that is due to this lag in the price increase coming in. My question is when I think about third quarter, what kind of revenue per prescription should we expect? I mean I can do a price increase of the average this quarter or I just want to -- curious if you have any thoughts where we should be looking for that number to come in?

Scott, Jack Anders here. We're still -- we're recognizing the revenue under prescription basis on a first-in-first-out model. I would expect, from a prescription perspective, the bulk of Q3, if you go 2/3 of that will be roughly weighted towards the higher price.

So I would assume it will be around $130 to $140 per prescription, is that a reasonable way to think about it?

That's a reasonable way to think about it.

And, Jim, I know in the past, staying on Gralise, you have given kind of long-term targets. I think it was exiting next year, the -- was it $100 million run rate? I don't know. If you could just remind me what that was and do you still feel comfortable with that?

Scott, we have and we do. Our guidance had been that we expect to exit 2013 at approximately $100 million run rate on Gralise and we still believe that to be true.

And with Orphan Drug on Gralise, there was this common determination relatively soon. Could you help me out, I want relatively soon means, I mean is that within the next 3 months? Or how does one think about that statement?

Scott, it's Matt Gosling. You know, I really can't get more specific than relatively soon. FDA is a bit unpredictable, certainly they're aware that this is a high priority for us and we're pleased with the dialogue and the fact that we've been able to make our case to them. So beyond that, it's really hard to say definitively when we'll get a final determination from them.

Okay. Now JANUMET XR royalties are starting to show. Could you tell us what they were in the quarter? Just to get a sense of -- I assume they're still pretty small but just trying to guess where that hits.

We have not broken them out again under our arrangement with Merck. To date, we have not broken those out specifically, Scott.

Shifting gears, license and other revenues, $1.3 million. I guess, 2 things. One, it's a little lower than it has been even in recent quarters. Even in the low quarters. Two, I thought there was going to be a milestone in there this quarter, but apparently not. I thought I was looking for $1 million milestone, but I guess not.

Actually, that milestone was the Ironwood milestone and we actually recognized it in Q1. It came in earlier than we had originally anticipated.

In Q2.

Yes, but the accrual was in Q1.

Okay. The final question, Zipsor scripts have been continuing to decline as they often do when a product is sold. When do you expect to see those plateau and when should we look for growth in the Zipsor franchise?

Well, I think the first thing that you say is to get them to flatten out. The sales force literally just starting selling Zipsor this Monday, so I think we need to give them a couple of months to be able to get the stabilization there. And then I'll look to see if we can grow it past that point.

Your next question comes from Jason Butler at JMP securities.

If I could just follow-up on Scott's question on the Orphan Drug status. Is there anything now you think you guys need to do? Is there another meeting you have or are you just sitting here waiting for a response from FDA at this point.

For the most part, Jason, we are waiting on a response from FDA. There may be some limited additional interaction with them at this point but we're largely waiting a determination from them.

Okay. And then I guess for Jim, just now that you have another quarter of experience with Gralise, can you give us an idea of how many sales visits you need for a physician to start writing? And then give us a little clarity. Again, metrics you've given us before about the number of docs that are repeat prescribers.

So Jason, in terms of the number of visits, it's not unusually -- we, certainly, we look at about 10 visits, 7 to 10 visits as a kind of line of demarcation where we really start to get more activity. So I think that's probably the best I can give you on a guidance there. And some docs started that point, some docs really start to take off of at that point. We do, we have seen that this is a promotionally sensitive product that the continued calls are important to keep the prescriptions going. We've seen them particularly among the specialists that we call on. So our frequencies are actually fairly high in those groups to be able to maintain and build a prescription volume. And then in terms of the number of active prescribers, we haven't specifically put that in the last couple of presentations. The weekly number of active prescribers has been around 1,300 to 1,400. I think through the summer, we've seen some of them, which is vacations and such. But that number continues to grow weekly as well.

Okay. It is -- you are starting to seeing growth trends in all of these metrics that you talked about before in terms of how often, how are the number of physicians, number of patients, et cetera?

We continue to see, in terms of the number of prescribing doctors per week, and overall in terms of the -- the calls, I think, is just a function of establishing as a habit in those practices.

Your next question comes from Jason Napodano at Zacks.

So we know that gabapentin and drugs like Lyrica are used for multiple indications and PHN is just a small part of that. But that's the label that you got and without directly going and promoting the drug off label, which we know you can't do, what are some things that you guys are doing or things that the sales force is doing to drive Gralise use as a superior alternative to gabapentin. Because I think that's the kind of the real upside for the molecule. Some 40-some-odd million prescriptions per year for gabapentin and for pregabalin. So, again, without breaking the law and then just promoting off label, What are some things that kind of market Gralise as a superior alternative to gabapentin, the molecule, and not just PHN?

Jason, it's Matt Gosling. Listen, the product is indicated for PHN only and we're going to promote it only for PHN. We certainly take that very seriously here and, as you're aware, they're pretty serious consequences for doing otherwise, so that's really all we can say about it.

Okay. But I mean in conversations with doctors, I mean that's the -- the conversation certainly has to come up that, oh, it's gabapentin but only -- but better. I mean, that's not essentially the marketing message?

If the physician asks a sales rep about an indication other than PHN, that sales rep is then instructed to turn that into our medical affairs group who will then send out an appropriate response to that physician's unsolicited question. And so that's the way that we handle those. Those are questions that are outside of the formal PHN indication. Certainly, when we're in there with the reps, talking about Gralise for PHN there we are talking about the attributes of our drug and of the fact that we have a low incidence of side effects with dizziness and somnolence. The fact that we're able to dose once a day and get pain control. So we really -- to draw a conclusion beyond that compared to another drug or for other implications, that's really going to be in their mind and not something that we're promoting.

Okay. Let me just -- just a housekeeping question for Augie. And maybe you said it in your prepared remarks but I missed it. What cost of goods sold were lower than I expected in the quarter. Was there something that I missed?

In terms of -- for Q2, we actually had -- it's a bit higher than they typically would be with respect to as a percentage of costs of sales in Q2. We did have some -- the minor inventory write-offs that roll through cost of goods sold in Q2.

So, Jason, if anything, we can expect that number to be going down rather than it being low for the quarter. We expect it to go down further.

No, I'm sorry, I meant the actual gross margin number was lower, not the [indiscernible].

[Operator Instructions] Our next question comes from Jim Molloy at ThinkEquity.

I wanted to follow-up on the comments about Gralise and the talks with the FDA. When's the next date from which you expect -- you guys expect to hear back [indiscernible]? Did they give you a certain timeframe to hear back but you're -- that can move because it's the FDA, you don't want to share it or you don't know...

There's actually no statutory requirements from them to answer us within a particular period of time on these -- on the matters with Orphan Drug. So we don't have a definitive timeframe for that -- they need to respond to us by.

Fair enough. You don't want to put a timeframe with the FDA they haven't given you. So if they come back and say no, is suing the FDA is still on the table?

Here's what I'll say about that Jim. It's Matt. We certainly feel pretty strongly about the correctness of our physician here, but our hope is that we're able to resolve this with FDA in a manner that works for everybody. So that's all we have to say about it for today.

And the launch of Zipsor obviously just happened. I guess the sales meeting just recently happened as well. Any changes in the price? On Zipsor, I know that you'd mentioned when you bought it, the price has not been raised for any -- for a number of quarters?

It had not been raised for about 16 quarters. We actually did take a price increase in early July of about 20% on Zipsor.

Excellent. And then any anecdotal comments from the doctors? I guess -- or is it still too soon to hear from the field?

I think it's a little bit too soon on it just because they have literally been out there now for 3 days.

And then 2 last questions. One, following up the COGS question at 45% of sales, when does that start? What number does that start -- what sales number did that start getting back to a normalized when you think of a branded drug on a 10%, 15% COGS. Where do you think that starts kicking in?

It's definitely going to tail pretty significantly in Q3 as a percent of product sales. We'll probably start to see those types of margins probably not until 2013, early 2013.

And then a final question, looking at the reps, the sales level, I guess by -- to get each rep to profitability and obviously they're probably not all there yet. How many reps sort of are profitable right now? And the flex reps how are they doing with this kind of a part-time deal with those folks?

The flex reps, they've been in the field for about 4 weeks now. And it was an expansion of physician coverage. So at this point, they are still in a very early stage of investment in terms of building the prescriptions from those physicians. In terms of profitability, which we have -- now with Zipsor in the bag, I have that to look to as well. We're making progress on it. We haven't reported. I know you've asked that a couple of times. And while we look at it internally, we haven't reported that publicly. And so we continue to use the metric but at this point, don't have any numbers for you to share. All right. And so since there's no other questions. We want to thank you all for the time on the call today for your consideration of DepoMed and we look forward to communicating with you in the future.

The conference is now concluded. Thank you, for attending today's presentation. You may now disconnect.