Assertio Holdings, Inc. (ASRT) Q4 2012 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Depomed Fourth Quarter and Fiscal Year 2012 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. August J. Moretti, Chief Financial Officer and Senior Vice President. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome to our Fourth Quarter and Year-End 2012 Financial Results and Business Update Conference Call. With me today are Jim Schoeneck, President and Chief Executive Officer of Depomed; Matt Gosling, Senior Vice President and General Counsel; and Jack Anders, Senior Director of Finance. Before we get started, I'd like to remind you that the matters discussed on this call contain forward-looking statements that involve risks and uncertainties, including those relating to the commercial efforts related to Gralise and Zipsor, the efforts of Santarus to commercialize Glumetza and our projected revenue expenses and year-end cash for 2013. 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 that we expect to file with the SEC by the end of this week, and they'll be most particularly dealt with 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. References to current cash, cash equivalents and investments are based upon balances as of December 31, 2012. All other guidance, including guidance relating to the company's expected revenues, expenses, year-end cash and corporate goals, is as of today, February 20, 2013. I'll now turn the call over to Jim Schoeneck.

Thanks, Augie. And thank you, all, for joining us on the call today. 2012 was a very successful year for Depomed, and we're off to a good start in 2013. I'd like to summarize the operational and financial accomplishments of 2012 plus the first 1.5 months of '13. Now I'll turn the call back to Augie to discuss our finances, after which, we will open the call to questions. We're very proud of our accomplishments in 2012, and I'll give you some of the highlights. We recognized over $90 million in revenue for the year and established a foundation of recurring revenues that will support our business going forward. In fact, our recurring fourth quarter revenue in 2012 annualizes to over $100 million for the first time in the company's history. The Gralise launch continues to progress with over 130,000 prescriptions for the year, and our annualized run rate in December 2012 of more than $30 million. We acquired Zipsor in late June 2012. This asset fits nicely into our pain franchise, and we relaunched the product in late July. We recognized revenues of $9.8 million from the acquisition through the end of the year. With respect to Glumetza, we settled litigation with our first filer, Lupin, and recently settled our litigation with Sun, our second filer. We recognized over $42 million in royalties from our agreement with Santarus in 2012. We submitted the NDA for Serada in July. This was accepted by the FDA in October. We are now preparing for our FDA Advisory Committee panel, which is scheduled for March 4, and are looking forward to our May 31 PDUFA date. We initiated, enrolled, completed and reported the results of our Phase II clinical trial with DM-1992 in Parkinson's. We're continuing to monitor the marketplace prior to further advancing that program. We executed a license agreement with Janssen for Nucynta ER. In August, we received the $10 million upfront payment, and we received royalties on the net sales of Nucynta ER until 2021. We also received royalties from Merck on Janumet XR, as well as milestone payment from Boehringer Ingelheim and Ironwood. We converted our full-time sales force from our contract organization to Depomed employees in September, and we've moved into a new headquarters in Newark, California in December. We do agree it was quite a year for Depomed, and I'll now expand a bit on the various aspects of our business. Gralise sales and prescriptions continue to grow. During the fourth quarter, we changed our revenue recognition policy for Gralise from a prescription basis to a sell-in basis. Our sales are now based on our shipments to wholesalers and trade accounts. Gralise product sales for the quarter were $7.6 million. We reported over 45,000 total prescriptions in the fourth quarter, a 25% increase over third quarter. In the weekend of January 18, 2013, we hit a new, all-time weekly prescription high of 4,086 prescriptions. More than 10,000 health care providers have written prescriptions for Gralise since launch, and the majority of those prescriptions continue to be written by pain specialists and neurologists. In late 2012 and early 2013, we've increased our managed care coverage for Gralise. We contract with CVS Caremark for unrestricted Tier 2 status for Gralise in their commercial plans. CVS Caremark provides pharmaceutical benefit coverage for over 50 million lives on behalf of managed care plans and employers. In addition, in December, we entered into a Medicare Part D contract with CVS Caremark for unrestricted Tier 2 coverage for Gralise. This is our first Med D contract covering approximately 6 million Medicare Part D lives or approximately 20% of all Medicare lives. We think this is an important development for Gralise because the demographics of PHN population, where the average age of the patient is 61 years old. With this progress in our managed care and Part D contracting, we expect Gralise to continue to grow in 2013. We will focus on expanding our commercial managed care and Med D coverage, and we will report on the progress during upcoming presentations and conference calls. In mid-December, we raised the price of Gralise by 12%. In January 2013, Pfizer increased the price of Lyrica by 9%. So Gralise continues to be priced approximately 24% below the price of Lyrica on a per-day basis. We added to our patent portfolio in 2012 and now have 9 Orange Book-listed patents for Gralise, 5 of these were patent terms running to 2022 and 2024. We have 6 patents during the year related to Gralise and extended Gralise gabapentin formulation technology issue, and we believe now that we've built a very strong intellectual property position around Gralise. Regarding our patent litigation against the Gralise ANDA filers, we now have 3 ANDA rather than 6. In October 2012, Impax withdrew its ANDA file and it was dismissed from the lawsuits. And in December 2012, we announced that Watson had withdrawn its ANDA and was dismissed from the suit. And Par Pharmaceuticals dropped its challenge to our patents by changing their Paragraph IV filing to a Paragraph III certification. And as a result, Par was dismissed from the suit as well. As for orphan drug status on Gralise, in September, we filed against the FDA in District Court in the District of Columbia. Briefing in the case will be complete by the end of March, after which, the court may elect to hear oral arguments. We anticipate the decision by the end of third quarter 2013. In June of last year, we announced the acquisition from Xanodyne of all the rights to Zipsor and all available inventory for $26.4 million. It was up to an additional $5 million in future payments based on sales milestones. We relaunched the drug in late July to all of our physician targets. From acquisition to year end, we booked $9.8 million in Zipsor net sales. We're pleased with the results for our first 2 quarters of Zipsor sales, and we look forward to further updating you on Zipsor as the year progresses. Santarus, our partner on Glumetza, continues to grow prescriptions and net sales. In the fourth quarter of 2012, we recorded royalty payments of $12.5 million. For all of 2011, as a comparison, our share of Glumetza profits to August and royalties after August totaled $19.1 million. For the full year 2012, we recognized $42.8 million of royalty income from Glumetza, an increase of 124%. Effective July -- excuse me, effective January 1, 2013, our royalty rate on net sales with Glumetza increased from 29.5% to 32%. And in January, Santarus took an additional price increase on the drug. We expect our royalty income from Glumetza to exceed $50 million in 2013. We had another good year in the monetization of our Acuform technology. [indiscernible] of our Acuform technology continues to be an important element in our strategy. In August, we announced the agreement with Janssen regarding Nucynta ER, reporting a $10 million upfront payment that we received in September. We recognized the full $10 million upfront as revenue in Q3. In addition, we are entitled to a low single-digit royalty on net sales of Nucynta, commencing from July 2, 2012, and continuing until 2021. And we'll -- and we began recognizing royalty from Nucynta in the third quarter. Merck commenced sales of Janumet XR late in the first quarter, and our royalty is growing as their sales increase. We received milestone payments of $1 million from Ironwood and $2.5 million from Boehringer Ingelheim during the first half of 2012. We believe that our portfolio of development agreements that we have with Covidien, Boehringer Ingelheim, Janssen and Ironwood can provide us with more than $75 million in milestone payments over the next several years along with significant royalties. In January, we filed suit against Purdue Pharma for what we believed to be a violation of our Acuform patents arising from Purdue's commercialization of OxyContin in the United States. This litigation is at a very early stage, and we will keep you apprised of material developments. Finally, at the end of July, we submitted our New Drug Application for Serada, our product candidate for menopausal hot flashes. We have an FDA Advisory Committee meeting on March 4, 2013. Our briefing documents have been filed with the FDA and will be publicly available on the FDA website at least 2 business days prior to the AdCom. The FDA has informed us that Serada is not an acceptable trade name for the product. We made additional submissions to the agency, and the agency briefing document, when published, will reflect the potential new trade name for the product, Scfelsa. S-C-F-E-L-S-A. The new name is undergoing final review at the FDA. Again, our PDUFA date for Scfelsa is May 31, 2013. To sum it up, 2012 was a very successful year for Depomed, and we are up to a fast start in 2013. We are excited about the prospects for our business and look forward to updating you on our progress throughout the year. We are grateful for the efforts of all of our employees that have made this possible and for the continuing support of our shareholders. I'll now turn the call back over to Augie to discuss our financial performance, and we'll be happy to take questions when we conclude our discussion.

Thank you, Jim. I'd now like to summarize the financial information for the year ended December 31, 2012. At the outset, I'd like to remind you that year-to-year comparisons of 2012 and 2011 are complex because of a number of developments. In Q1 2011, we received $88 million from Abbott in connection with our former license agreement. Of this amount, $48 million was recognized as revenue, and $40 million was recorded as a reduction in expense. In August 2011, we restructured our agreement with Santarus. Prior to the restructuring, we recognized top line Glumetza revenue and cost of goods and paid Santarus an amount that was recorded as promotion expense. Following the restructuring, we no longer recognize either top line Glumetza revenue, Glumetza cost of goods nor the promotion expense. Instead, we receive and recognize royalty income. And for the full year 2012, we received over $42 million in royalties from Santarus. 2012 includes a full year product revenue and sales and marketing expense for Gralise and 6 months of product revenue and sales and marketing expense for Zipsor as compared to 1 quarter of Gralise product revenue and sales and marketing expenses in Q4 2011. With all that in mind, here's the summary of the quarter and year ended December 31, 2012. Total revenue for the year ended December 31, 2012 was $90.8 million compared to $133 million for the year ended December 31, 2011. The decrease in revenue in 2012 was principally the result of recognition of the $48 million milestone payment from Abbott in 2011 and restructuring of the Santarus agreement in August 2011 that reduced the revenue we recognized on Glumetza sales in 2012. These factors were partially offset by greater Gralise and Zipsor product revenue and the $10 million upfront payment from Janssen with respect to Nucynta ER in 2012. Total revenue for the fourth quarter of 2012 was $26.6 million compared to $12.1 million in the fourth quarter of 2011, an increase of 119%. Q4 comparison does not have all of the full year anomalies that we've been talking about and gives some indication of the growth of our business. The increase in revenue in the fourth quarter of 2012 was principally the result of higher Gralise revenue, higher Glumetza royalties and the addition of the Zipsor revenue. Gralise product sales were $7.6 million for the fourth quarter of 2012. And as Jim mentioned earlier on the call, during the fourth quarter of 2012, we changed our revenue recognition methodology for Gralise from the prescription basis to the shipment basis. The impact of the change in accounting resulted in a onetime adjustment to revenue of approximately $1.6 million. I also want to mention a change in the amortization of the $12 million upfront payment that we received from Santarus back in 2008 when we initially contracted with Santarus. When we restructured our agreement with Santarus in 2011, we began to amortize a balance of this upfront payment over a period ending December 2013. In 2012, we reevaluated the amortization period as a result of developments in the manufacturing agreement regarding Glumetza, the settlement of our ANDA litigation with Lupin and Sun and the continuing ANDA litigation against Watson. We've now determined to increase the amortization period to February 2016, the date of expected generic entry by Lupin. As a result, Q4 2012 revenues were reduced by approximately $600,000. Revenues from this amortization in 2013 will be reduced, and we will recognize approximately $360,000 per quarter of revenue from this amortization through the period ending February 2016. Now to look at expenses. Selling, general and administrative expenses were $97.6 million for the year ended December 31, 2012. This was in line with our prior guidance and compares to $81.5 million for the year ended December 31, 2011. Selling, general and administrative expenses were $24.0 million for the fourth quarter of 2012 compared to $21.5 million for the fourth quarter of 2011. The increase in SG&A expense in 2012 was primarily due to increased sales and marketing costs related to the launch of Gralise and the relaunch of Zipsor after our acquisition. 2012 reflects a full year of sales and marketing costs related to Gralise and 6 months of costs related to Zipsor. Research and development expenses were $15.5 million for the year ended December 31, 2012, as compared to $15.2 million for the year ended December 31, 2011. And R&D expense was $3.2 million for the fourth quarter of 2012 compared to $2.8 million for the fourth quarter of 2011. Net loss for the year ended December 31, 2012, was $29.8 million or $0.53 per share. Net income for the year ended December 31, 2011, was $70.7 million or $1.26 per share. Net income for 2011 included the $48 million milestone from Abbott and the $40 million gain related to termination of our agreement with Abbott. Net loss for the fourth quarter of 2012 was $3.7 million or $0.07 per share compared to a net loss of $13.8 million or $0.25 a share for the fourth quarter of 2011. Cash, cash equivalents and marketable securities were $77.9 million as of the end of the year. This was in line with our guidance and compares to $139.8 million as of December 31, 2011. As a reminder, during 2012, we used approximately $26.4 million of cash to buy Zipsor and related inventory. Before providing revenue expense and usage guidance, I would like to point out that the guidance is based on our current budget. As you can well understand, the budget is based on a large number of assumptions, given the complexity and scale of our business and the uncertainties in estimating future product and royalty revenue. These assumptions may change substantially as the year progresses for any one of a number of reasons, some of which are in our control and some of which, obviously, are not. In addition, this guidance does not assume any expenditure on Scfelsa, the new proposed trade name, beyond preparation for an attendance on the Advisory Committee hearing on March 4. And if the Advisory Committee outcome is favorable, we expect that we will begin to spend funds on Scfelsa in preparation for possible commercialization. Obviously, this could have some substantial impact on expense levels and cash usage. I would direct you to the Risk Factors section of our annual report on Form 10-K for a more complete discussion of the relevant risks relating to our guidance. With that said, we expect total revenue to be in the range of $125 million to $135 million in 2013. This includes milestone revenues estimated at $6 million. We expect operating expenses to be in the range of $120 million to $130 million for 2013, and this includes approximately $4 million of intangible amortization related to Zipsor. We expect to end 2013 with between $70 million and $80 million in cash, and we expect to achieve cash flow positive during the second half of the year. I'll now turn the call back to Jim Schoeneck for his concluding remarks.

Thank you, Augie. All of us at Depomed are excited about 2013. We anticipate strong growth in revenues and achievement of positive cash flow in the second half of the year. As Augie mentioned, this could change with investments in Scfelsa after Advisory Committee or a product acquisition. Our efforts in 2013 are highly focused. Our strategy has 3 significant components. And as a result, our 2013 corporate goals are straightforward. First, we will focus on growing our top line with our branded, marketed products, Gralise in PHN and Zipsor in mild to moderate acute pain, both of which we are commercializing directly; and Glumetza for type 2 diabetes, which is being commercialized by Santarus. Second, we'll seek to acquire, in-license or co-promote, market our late-stage differentiated assets that meet short and longer-term financial goals. And finally, we'll be prepared fully to launch Scfelsa if it is ultimately approved by the FDA. We look forward to updating you on our progress throughout the year. We want to thank you for your continued support. And now, we'd like to open the call for questions.

[Operator Instructions] The first question will come from Jason Butler of JMP Securities.

First one, just in terms of your revenue guidance, in terms of the split between product sales and royalties. It seems like you're thinking about this roughly 50-50 and maybe slightly more weighted towards product sales, is that the right way to think about this?

What we've guided -- I mean, what we've laid out there is -- our guidance said, to north of $50 million with regards to the Glumetza royalty stream. We're not guiding to any specifics with regards to product sales and other revenue.

Right. But the aggregate, including all the line items in our revenue, between $125 million and $135 million.

Okay. And then could you maybe give us some more color, specifically, about what your assumptions are for the Gralise component? And obviously, I understand you're not giving specific guidance for Gralise revenue. But what you're -- what you need to see or you're assuming to see for -- in terms of, not just prescription growth, but other things in terms of reimbursement wins? Any plans for sales force expansions? If you can just give us any color about how you're looking for the year -- looking towards the year for Gralise.

Yes. Jason, this is not a broad base. So on the sales force side, we believe we've got -- with 155 reps and 78 flex reps, we believe we've got good coverage on covering the audience that we think is key to Gralise. The managed care piece, I think, is a significant piece. We would definitely want to see some additional wins on the Med D side, and that part of the population is particularly important. About 30% of our potential business comes out of that segment, and that's about 30 million lives there. So each million lives that we get under contract advantages us in about 1% of our overall potential. I think those are keys as we go forward. And we would expect, as we've mentioned, to see prescriptions continue to build throughout the year.

Okay, great. And then just the last question on the Purdue litigation. Obviously, it's still early. But can you give us a framework of the next steps here and any time lines around this process?

So Matt, could you take that?

Yes. Jason, as Jim said, we're inside a very early stage here so haven't heard anything from Purdue with this. And we would expect an activity of this sort to take at least 18, 24 months before there's any sort of resolution to it. So it'll be several months before we have any kind of real substantive material developments to talk about.

[Operator Instructions] Next question will come from Difei Yang of WallachBeth.

I have a quick one on Gralise. So Jim, could you -- could you educate us with regards to Gralise launch, are we near the inflection point? Or are we still a couple of quarters away? And in the worst case scenario, let's say, for some reason, Gralise doesn't take off for over the next 2 quarters, what would you do with the sales force?

So Difei, I think, if I can just handle part of the second part of that question first and that's -- and we think that we sized the sales force correctly for the Gralise opportunity, one; and second, in particular, now that we can leverage it with Zipsor coming into the mix. And so, I think that's first and foremost. Obviously, we will continue to assess just where we are in terms of our goals, which, as we said, is to be cash flow positive in the back half of the year, albeit as we've said, without an acquisition or the determination that we're going to be launching Serada. With regard to the -- for the year -- I mean, an inflection point is always a tough thing to call. I think these managed care wins are an important one, and you studied launches just as we have. And that's very difficult to call when that's going to happen. So I don't know that I can put a particular time frame on when we would hope or expect that to happen.

Our next question will come from Jason Napodano of Zacks.

Can you give me a sense of when the prescription is written for Gralise, what percent of the time is that script actually filled at the pharmacy? What kind of pushback, if any, are you getting from the pharmacist or the patient in terms of out-of-pocket expense? And then, give us a sense of some of the things you guys are doing to help counter either that pushback or that out-of-pocket expense by the patient.

Jason, in terms of the overall commercial -- the overall coverage, on the commercial side, we see very good coverage. And so, there, we get adjudicated, pushing high-80s percent of the time at the pharmacy. There is, as with any drugs, some patient walk away. So we're seeing a number -- a fill rate of north of 80% in the audits. On the Med D side, it's a bit lower. We had said last year that we're at about 50%. We have seen that come up with the recent Caremark win, and so they were pushing into the 60s now in terms of the total Med D audience and what we see out of those audits. So that's where we are in the basic sense of it. In terms of the piece of the patient, the out-of-pocket for the patient, obviously depends on the plan. It's one of the reasons it's so critical on the Med D side to get on the contract in Tier 2 because there, you're dropping a co-pay that could be $50 to $80 for a Medicare patient down to somewhere in the $15 to $25 range. So that ends up a biggie. The reason that's so important as well is because you can't use the co-pay cards that we have in that marketplace. Now for the commercial marketplace, the cash-pay marketplace, there we have co-pay cards along with prior authorization support for the physicians' offices. And we do a lot of work with the people in the office that are either the refill nurse or the people in the office that actually help process claims, so that they can push through the prior authorizations if they're required. Now fortunately, we don't have too many plans that we have prior off. But where we do, we provide that assistance. So I think the big one on that side for the program, really, is the co-pay cards that buy the prescription down to $25 up to a total benefit of $75. So just to give you one other piece on that, last year, we had a -- our card program. It was a $15 co-pay up to $75 benefit. This year, as we go in to 2013, it's $25 out-of-pocket for the patient up to a $75 benefit.

Okay. And that kind of -- your drug is priced at a discount to Lyrica. But maybe the -- I guess I was -- what I'm trying to figure out is, from an out-of-pocket standpoint, does it cost the patient less for Lyrica, even though it may, at a wholesaler, be priced more? But if you got the co-pay card, I guess, that's kind of the difference that you're making up.

Yes. I've heard that they have -- they got co-pay cards in the $25 to $30 range. And on the plans, it just all depends on the individual plan. I mean, there's some places where we're advantaged. There's other places where Lyrica's advantaged. So it really depends on the individual plan.

Okay. And then just to kind of build off of Jason's question on Purdue, did you guys speak to Purdue beforehand before you have filed the lawsuit?

Matt?

Yes. Jason, it's really not -- we don't want to comment on kind of back and forth between us and Purdue. It's -- this is not -- we don't comment on that kind of thing.

Okay. I guess, Matt, will you give me a sense of, if this kind of played out similar to how Merck or J&J played out? Or did those kind of come about in terms of them approaching you or you approaching them?

Again, same answer there, Jason. Sorry.

[Operator Instructions] The next question will be from John Gordon of Deltec Asset Management.

I have a sort of a potpourri of questions to ask. The first is just since we've been talking about litigation in the last couple of questions. And I appreciate that you basically don't want to give any answer to any question. But having said that, I guess the thing I'm curious about most of the things is, how did Purdue's actions even hit your radar screen? Was this something that you just have highly sensitive radars, so you basically know what's going on in the extended release arena everywhere or what? What can you tell us about how this happened to materialize?

Yes, John, I mean, what I can say about that is we certainly pay attention to the other drugs that are out there. And there are certain attributes that we consider worthy of looking at, and that was certainly the case with Purdue's product. And after a very deliberate and thoughtful process, we decided to go ahead and pull the trigger on the lawsuit. It' something that we do pay attention to, particularly in light of a number of the other licenses that we've granted to other companies.

Okay. And Matt, just so, again, where we're talking about litigation but not so much on Purdue. I mean, as it relates to the intellectual property suits with respect to Gralise, where basically half of the initiatives by other companies have been withdrawn, as a relative neophyte, I'm trying to figure out what is the rules of the road with respect to this? Because if you have 3 people withdrawing, either they're being irrational or they're being rational, that's a; and b, is there a different fact pattern being alleged by the 3 that haven't withdrawn from the 3 that did withdraw. I mean, is there anything that you can, and I appreciate that you don't want to be speaking for the 6 other companies, but is there anything that you can help innocent shareholders understand about what exactly is going on there?

Yes, John, I wish there were more I could tell you. But I think the fact that we certainly can't speak for them, and it's hard to know definitively why they all withdrew. However, in one case, of course, we had Watson acquire Actavis. So there were 2 of our filers -- one of our filers acquired another. I think you can pretty safely assume it made sense for one of those filings to fall off. Otherwise, hard to say. That case probably isn't far enough along to make any definitive conclusions as to what they were thinking. Obviously, we've had some additional patents issue. And whether those additional patents influenced the -- their decisions, it's hard to say. There were a lot of filers, and that's a possibility. But again, that's kind of -- those are facts. Now what precisely led those companies to do what they did, I just can't speculate.

But all 6 of the original actions were basically filed in the same court.

Yes, they were. And they're all consolidated in the same court in front of the same judge.

Right, okay. Terrific. Now just moving on, the last thing I would want to do would be to jinx the company's prospects on March 4. But can one of you gentlemen just walk us through what a normal choreography would be in terms of how that day might progress? I'm not the talking about substantively in terms of whether they vote yes or no. But I mean, as a first matter, is it automatically clear that this advisory panel will make a decision that day as opposed to saying, "We want to go back and think about it for 3 weeks."?

Yes, John. Let me jump in, and I'll let Matt or Augie come in afterwards if they got some additional. Yes, so that day, we will be on in the morning on the fourth. It'll be webcast. And as we understand it from the FDA, where in the past, they've had paid webcast on it, this looks like it will be a free webcast. Although the FDA doesn't guarantee that until they actually post the web link, which should happen on or about Feb. 28. So they'll start at 8 in the morning Eastern Time. There'll be some opening remarks. So there'll be during that time a presentation of the company, a presentation by the FDA. There'll be an open-public comment period, where there'll be a 30-minute time that the FDA will allow people that are pre-scheduled to make comment from a microphone on behalf of the public. And then there'll be questions and follow-up from the committee members. And ultimately, the FDA, somewhere around midday that day they'll ask 1 or 2 questions and will then ask for a vote of the committee that day. So they don't have the ability to defer the actual post the question that day. And then based on the briefing books that they've read and then also the proceedings that morning, they'll go ahead and make their individual choices on it. They do have the ability to abstain, although that's relatively rare in these cases. The other thing I should mention is that the briefing books themselves are actually made public what we submitted to the agency. And then what the agency puts together to give to the panel will be public, by FDA policy, at least 2 business days prior to the panel meeting.

Okay. So in fact, you will know what the FDA chooses to submit them before March 4.

We will, at least 2 business days before.

Okay. Okay, terrific. And so that webcast would be on an FDA website as opposed to us going to depomed.com.

That's correct.

Correct.

Okay, terrific. Now Jim, just asking a question which I've asked before, but -- so it's worth asking again. When you look circa February 2013 at the potential acquisition bin, does it look pretty full? Or does it look pretty thin? What should we know about the activity level of your acquisition efforts? I mean, that doesn't relate to the prospects of something happening. But just what -- is it a highly active, sort of active, inactive?

Well, John, I think the fact that I listed it second in the company goals right behind product revenue probably gives you a pretty good sense of how important it is for the company and with that, the amount of focus that we put on it. As I've mentioned before, it is a constant sifting process. And we have a team that's dedicated to doing this. And they continue to -- they have a lot of things that they're sifting through. Some things -- sometimes some things bubble up a second time, as it actually did with Zipsor. So we continue to do it, and we'll continue to push on that front. Obviously, looking for some that's a good fit with the company and also one that's going to make good financial sense for all of us.

Okay. And then just a couple of other questions, Jim, if I may. The first is, with respect to the sales force, I know that you were doing various sort of high grading and reconfiguring of the sales force, and you certainly added the flex group. But I mean, as a general matter, is the current squad one that you're happy with? Or it's just the nature of the pieces that there's always going to be sort of a waterfall effect with a couple of new people coming in and a couple of old people moving on?

Well, John, I think in -- I think as with anything, in a sales group, you've got your star performers and your ones that would potentially become star performers. And you've got some folks that maybe don't perform quite as well. Whether that's the skills or fit or what someone I once had and management consultants call a can-do issue, wasn't so much that they couldn't do it but would they do it. And so with all that said, though, I think we've reached more of a stasis at this point with the sales group, where we've got a solid group that's there. And it's going to be more kind of a normal attrition-type situation, where we see how they're performing and they see how they're performing. And with the incentive compensation we've got in a group like that, oftentimes, it's the lack of incentive comp that also drives them out.

Right, okay. And then just my last question relates to Parkinson's. Is there anything likely to happen there? Or is that sort of going into a quiescent mode?

Well, as I mentioned, we're actually at this point continuing to monitor what's going on in the marketplace, specifically, just to see what else may be there in terms of competitor product and how our product would line up against it. And so we'll continue to monitor that. We may have some more later this year, but we'll be making decisions on that later. At this point, there's nothing imminent in terms of our Parkinson's program as a next step.

Yes, okay. And then, I guess, just as a last thought, I just passed on the comment that -- there's no question that 2012 was a really, really busy, productive year for the company. And one of the things I find interesting when I look back at the year is how much of it actually a shareholder couldn't have anticipated at the beginning of the year. So you clearly act on a current spontaneous basis, and I thank you for what you did last year. And I wish you the best of luck this year.

Our next question will come from James Molloy of Janney.

My questions are on Zipsor. I mean, a great acquisition. It's going to be hard. And we'd talked about it's going to be hard to beat that acquisition for the price and the immediate impact it had on EPS. Is that something we should expect, something like Zipsor coming in next? Or is that a high bar to meet?

I think it's a high bar to meet but it looks like -- probably the key word there is expect. We'd love to do something just like that again. But that was a pretty unique circumstance to pay 1.4x revenue for a product like Zipsor, with the kind of margins it's got and with the potential patent life it's got. So I don't know that I would expect that one. But certainly, we continue to look for things we could add, both immediately and things that we would -- hope would propel the growth going forward.

And I apologize I hopped on the call a little late. So if some of my questions have been asked already, please excuse me. Has there been any back and forth from the FDA and Serada that you can share with us?

Nothing at this point, Jim. Really, at this point, the panel meeting is about 12 days away. So we're focused on the preparation for that. And as you know, at least a couple of business days before, the briefing books will be out, both ours and the FDA's. And so all of that is just about a week away.

And so it's a gripping 300-page read. The other issue with the FDA -- the lawsuit with the FDA, any updates on that? Or when might we next have an update, do you think?

Yes, Jim, as we mentioned on the call, we've got -- we've -- we're about halfway through the briefing with FDA. That will be wrapped up by the end of next month. So we may see an oral argument after that. But ultimately, we do expect decision out of the District Court by the end of the third quarter. So -- and then from there, we'll see whether the -- whether one party or the other takes it to appeal.

Okay, great. My apology for missing that. Then -- I'm sorry, circling back to Serada, assuming Serada can get approved, and I think, obviously, there's a chance it could be going to the FDA's -- trip to the filing and you're going to a panel and with the PDUFA date, it's certainly on the table, which is remarkable, given the history of it. Of the $0.5 billion estrogen market, I know that this is -- I know this would be certainly targeted to women contraindicated in taking estrogen because of prior cancer or risk of cancer. Well, realistically, is there a way to think that this could encroach on a good chunk of the market, given that it doesn't have any cancer risk? And why would you give an estrogen when this is available, if it is?

Well, a couple of features. One, I think there's also -- as you're inferring, there's a lot of women, not only are contradicted for estrogen, but ones that refuse to take estrogen. I think that is also a large segment of the population. I think with that, though, estrogen does some different things. So there's different aspects of menopause that come into play. So physicians, I think, really carefully think about, is it hot flushes the primary or kind of the most common or most -- probably the complaint that is solely there. Or there are other things that they want to address. And so that'll certainly make a decision and a choice as well. So I think we're just going to have to see how old that plays out, but we certainly think there's an opportunity. And even when they are put on estrogen, when they come off of estrogen, guess what they get? Hot flashes. So as they would want to bring estrogen levels down in the patients that have been getting it therapeutically, there remains an opportunity on the back end of that as well.

Great. And as a last question, then I'll hop off. And take -- and let others do -- ask questions. I know that Ironwood is one of your partners. Any info you guys can give us on what the nature of your partnership with Ironwood is?

Just the GI, as far as the field; and Acuform, as far as our technology. But at this point, they have not made the announcement on what area within GI.

The next question will come from Joy Marshall of Sunrest [ph]

Just some quick questions, on the $6 million in anticipated milestones that you're expecting in 2013, which collaborations are these from? And are these tied to any specific events like a drug moving from one phase to another? Or any progression that you're expecting?

Joy, the bulk of that milestone revenue is assumed to come from the -- one of the Covidien programs. Covidien has recently filed their Form 10 with respect to the spinout. And they've described the 2 programs briefly that we are working with them on their -- they've licensed our technology for 2 product candidates. And their statement in the Form 10 was that they expect the first program to file its NDA in the first half of this year.

Okay, great. And so the bulk of that would be a milestone associated with that filing.

With -- and our milestone technically is upon acceptance of the filing.

Okay, great. And then, just again talking about hypothetical, if Serada does get approved, can you describe maybe what kind of magnitude of spend that would involve on your part? And then, as we think about that spend potentially in your future and then also your continued drive to look for new acquisitions for the current Gralise sales force, can you talk about how you may -- I guess, first, what kind of magnitude of the spend would be necessary on the Serada launch from your side? And then also how you would weigh the cash usage from the acquisition point of view, Jim?

Yes. So Joy, I don't think we're prepared to talk specifically about cash requirement for the Serada launch. I mean, I can't say that we're going to be fully prepared to move forward. Depending on what happens at the Advisory Committee, we'll make decisions on whether we make additional investment to prepare for launch or whether we continue to gauge certain things on a risk basis based on how that Advisory Committee goes. With that, we would then look to -- should it ultimately be approved, we'd look to launch the drug later in the year. One of the potentials is for us to look at the OBG side for our own -- sales force of our own and then perhaps a partner on the broader primary care piece. And so, we continue to look at the scenario. We continue to have some preliminary discussions around partnering. But those, I think, really won't crank in earnest until after we get through the AdCom.

Okay. And then lastly, going back to the guidance on the expense side, is there any color, Augie, you can give us between what the R&D spend? I mean, I'm assuming the bulk of it is coming from SG&A. But are we looking at R&D similar to this year? Can you give us any color there?

Joy, there are so many moving pieces in connection with this that we decided that we would give the aggregate spend, obviously, in terms of the recent trends in our business. Our SG&A has been by far the lion's share of OpEx, and we would expect that to continue going forward.

This will conclude our question-and-answer session. I would like to turn the call back over to Mr. Jim Schoeneck for his closing remarks.

So we want to thank all of you, again, for your interest in Depomed, for the time that you take to analyze the company to work on your analysis. And we ask you to continue to work with us. We really are excited about this year. We believe this truly can be a breakthrough year for the company. We think we've done many things over the last 10 years to prepare for this moment, and we want to be able to deliver that for you and deliver value, both -- first to patients; and second, to all of you. And with that, thank you.

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