Good day, and welcome to the Depomed First Quarter 2013 Financial Results and Business Update Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. August Moretti, Senior Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome to our first quarter 2013 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 commercialization of Gralise, Zipsor and 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 and in our quarterly report on Form 10-Q that we expect to file with the SEC by the end of this week, most particularly under the caption Risk Factors in both documents. 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 March 31, 2013. All other guidance, including guidance relating to the company's expected revenues, expenses, year-end cash and corporate goals is as of today, May 8, 2013. I'll now turn the call over to Jim Schoeneck.

Thanks, Augie, and thanks to all of you for joining us on the call today. I'd like to summarize our operational and financial accomplishments in the first 4 months of 2013, then I'll turn the call back over to Augie to discuss our finances, after which we'll open the call to questions. Depomed continues to make progress toward becoming a growth-oriented and profitable specialty pharmaceutical company. Our first quarter 2013 revenues were $26.2 million, an increase of 55% over first quarter 2012. Our prescription growth for Gralise has slowed in the first quarter of 2013, 7% above fourth quarter 2012. In late January of this year, we realigned our sales force to increase the frequency of calls on our top potential prescribers and to better balance our sales territories. We eliminated or merged 16 of our 164 sales territories and established 7 new territories in areas that we see as ripe for growth. We believe that the resulting disruption of the sales rep-physician relationships affected our first quarter prescription growth. We expect that the sales force optimization will create additional demand in future quarters. We have also taken additional actions that we believe will help the growth of our brands. So with that as background, let's start with Gralise. Gralise prescriptions continued to grow in the first quarter with over 50,000 total prescriptions in the quarter, more than tripling the prescription volume of the first quarter of 2012. Gralise sales for the quarter were $6.1 million. I'd like to mention 3 factors relating to our quarterly sales report. First, product sales were impacted by a 9% price increase for Gralise effective April 1, 2013. The price increase caused us to increase our return reserve at March 31, 2013, which in turn reduced first quarter 2013 Gralise product revenue by approximately…

Thank you, Jim. I'd now like to summarize the financial information for the quarter ended March 31, 2013. Total revenue for the quarter ended March 31 was $26.2 million compared to $16.8 million for the quarter ended March 31, 2012. The increase in revenue in 2013 was principally the result of higher Gralise revenue, higher Glumetza royalties, the addition of Zipsor revenue and receipt of collaboration revenue for a project we completed for Janssen. Gralise product sales were $6.1 million for the first quarter of 2013 as compared to $1.7 million in the first quarter of 2012. Zipsor sales in the first quarter 2013 were $3 million. Glumetza royalties were $13.3 million for the first quarter of 2013 as compared to $9.2 million in the first quarter of 2012. We recognized $2.2 million in revenue for the project we completed for Janssen in Q1. Amortized license revenue representing the upfront payment we received from Santarus in 2008 in connection with our Glumetza collaboration for Q1 was $360,000 compared to approximately and $990,000 for the first quarter of 2012 as a result of the increase in amortization period that we discussed in our February 2013 conference call. As we discussed at that time, we've increased the amortization period to February 2016, the date of expected generic entry by Lupin. As a result, we expect to recognize approximately $360,000 per quarter of revenue from this amortization through the period ending February 2016. And the corollary of that is the revenue recognized this year will be approximately $1.9 million less than last year. Selling, general and administrative expenses were $26.0 million for the first quarter of 2013 compared to $21.8 million for the first quarter of 2012. The increase in SG&A expense in 2013 was primarily due to increased sales and marketing costs…

Thanks, Augie. We anticipate strong growth in revenues during the remainder of 2013 and achievement of cash positive cash flow during the back half of the year. As Augie mentioned, this could change if we make a product acquisition. Our efforts in 2013 are highly focused. Our strategy and corporate goals have 2 significant components. First, we'll focus on growing the top line with our branded marketed products, Gralise in PHN and Zipsor in mild to moderate acute pain, and increasing royalty revenue from our partners highlighted by Santarus with Glumetza for type 2 diabetes. We also plan to defend and enforce our IP both in ANDA litigation and against other potential infringers. Second, we seek to acquire and license or co-promote marketing late stage differentiated assets that help us meet our short- and longer-term financial goals. We look forward to keeping you updated on our progress through the year, and 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 Jim Molloy of Janney.

I had a -- just a quick check. Jim, you said greater than $53 million in Glumetza royalties for 2013, is that correct?

That's correct.

Excellent. And then can you walk through the sales force restructuring? I take -- I add up to net 9 fewer sales people than you had in the fourth quarter, and talk about sort of what was the thinking behind of doing that now versus earlier or later. And then are the flex reps still working? Is that still an idea that's helping?

Yes, so a lot in there Jim. So first of all, your net is right. So we were at 164 sales territories. We're now at 155. So there were 16 that we either closed down or merged and 7 additional ones that we opened up. So you're right on the net of 9. Current number, 155. We do have 78 flex reps out that are selling both Gralise and Zipsor. So that continues to move forward. And then on the piece of -- and actually, I forgot the last part of your question, Jim.

Is that -- are the flex reps still a good idea? And I guess, I'd add in, you have been guiding to $100 million run rate exiting 2014 in Gralise. Is that still something you think will happen?

Yes, I think on the run rate piece of it, I think at this point, there's no change that we've got in things and we continue to monitor it constantly. But in terms of flex reps, as I said, I think things are working pretty well on that front. We're always looking to improve, always looking for efficiency. So we'll continue to look at things like we do at the sales force. You asked about the timing and why we did it now. I think as we -- when we launched the drug, we had a very small number of pain specialists, and we had changed and added up to about 5,000 pain specialists to our call mix, and that left us short and pretty unbalanced. And so we're finding that we couldn't get to some of the top prescribers for the category as frequently as we wanted to, and we thought that was going to hurt us longer term and even in the medium term. And so with that, knowing that some of the disruption of switching the rep that calls on a physician could cause us to slow down a bit, we thought it was the best thing for the business. And indeed, over the last few weeks, we've seen the scripts come back up to an average of about 45 new additional scripts per week.

And one final one and I'll hop back in the queue and let other folks ask questions here. Any additional discussions with the FDA on SEFELSA post the panel, or do you expect to have any in front of the PDUFA date?

We always have some interaction but at this point, Jim, nothing to comment on.

And our next question will come from Jason Napodano of Zacks.

Just trying to get a sense of the inventory destocking that occurred for both Gralise and Zipsor. Usually you see a little bit of a load-in ahead of price increases as the wholesalers want to try to stock up inventory ahead of the increased price, so a little surprised to see some destocking. Can you provide any additional kind of clarity on the amount of destocking and why you think the inventory came down ahead of a price increase?

So one, Jason, as you know, the wholesalers will try and figure out when price increases are going to happen. And so you got to be a little bit unpredictable on our side when you do that to try and prevent some of that from happening. With that said, I think many of them anticipate that there is going to be price increases -- or there will be price increases toward the end of the year or right at the first of the year, which can lead to some increase in inventory. And I think that's a little bit of what we saw. And then we saw the amounts come down by the end of first quarter. I mean, on a couple of the big ones, we saw it come down 7 to 10 days of inventory. So certainly, it was not something that we would have naturally anticipated.

Okay. And then just kind of changing gears a little bit to potentially in licensing product for your sales force to promote alongside of Gralise and Zipsor. Could you give us a sense of the kind of stage of the product that you'd be looking for? I mean, obviously, it makes sense if you can find another commercial product like Zipsor, that would be fantastic. But how much R&D would you guys be willing to spend, or what kind of stage do you think is maybe ideal for you if you couldn't find a commercial product? I mean, the R&D has been tracking pretty low. I suspect that it will kind of remain low and given your growing top line, it certainly seems like the company could support a little higher R&D.

On the last piece, Jason, it's probably a matter of when. At this point, we're focused on getting to cash positive in the back part of the year. And the type of assets we're looking for, ones that we've talked about before, which is that things that are already on the market that we believe are good synergy with our call points, both in pain and neurology. And then secondly, we would look at things that were at a registration stage, essentially past clinical risk. But at this point in time, I think until we reached some of these other goals, we don't see ourselves dipping back into the large scale clinical trials. I think once we get the cash flow going, then we've got a little bit of a different way to look at that.

Okay. So it seems like the goal to become cash flow positive is kind of more important to you right now at least than the goal to look to acquire and build up kind of the pipeline?

And I would say what we have said, it's important that we're looking at things to acquire that would either already be marketed or things that would be really at the registration point or past clinical risk, so things that could be launched in the next year to 2 years. That's really where the first focus is around that.

[Operator Instructions] The next question will come from Joy Marshall [ph] of Sundesk [ph].

Just wanted to talk a little bit about the -- your new managed care group and the changes that you've made there. You mentioned the Cover My Meds program and maybe if you could detail that a bit more? And then also, any progress that you might be making on the Med D contracts?

So I think the 2 programs that I specifically mentioned, one the eVoucher program and second, the Cover My Meds, the eVoucher really, we did some work looking at where patients fill drugs with their co-pays and where they -- where the walk-away rates went higher. And we saw some break points there and with that, we thought that the eVoucher program could get more people to fill scripts if they were getting it automatically through those -- through the pharmacy rather than just if they happen to come in with their co-pay card. And so the hope there is that more patients will go ahead and pick up their script, ones that have already been adjudicated by the managed care plans, but the co-pays happen to be high. We see them -- we've done some work on it. We've seen it work with some other companies, and we think the time is now right for us to do this. On the Cover My Meds on the prior auth, there what we found was that Cover My Meds was actually in a number of large pain centers. They've done a very good job of getting into the pain specialist market. And with that, we thought it was a good fit for us to use them, since pain specialists write about half of our scripts now and about another 10% of the scripts come out of mid-level practitioners, nurse practitioners and PAs that are in those offices. And then finally, on Med D, the key times on Med D are coming up. I mean, the preliminary formularies have already been sent to CMS by the plan. The final ones have to be in on June 3. So we're in a real key point here as we look to get additional Med D coverage in 2014. And then once you would secure coverage in 2014, you would look to negotiate with the plans for an early entry on that. So until that process is done, we don't have anything to really be able to update you on.

Okay. So look to maybe in June -- after June 3 to hear an update, or is it July?

It's likely going to be -- I would just -- probably going to be more July, August that the timing would happen on it where we would actually know. And in some of the cases, Joy, we won't be able to tell you until the plan wants it announced because many times, the plan doesn't want it to be there until it's actually on their out -- it's on their published formulary and they start marketing those formularies to seniors in the fall.

The next question will be a follow-up from Jim Molloy of Janney.

Just on -- I want to follow up actually on Jason's question on the acquisition environment. Can you talk a little bit about as here and another quarter in, have -- has any change from before you're looking for is in perhaps Zipsor size, twice the size of Zipsor, what sort of capacity you guys could handle? And any thoughts on how timing looks? I know these things are never done till they're done, but there are multiple opportunities that are looking good right now and maybe something this year. Or can you walk through that a little bit?

Like I said to Jason, on the timing piece, I wish I had that crystal ball and could actually give that answer. But for a lot of years in this industry, I've learned that, one, that a deal is not a deal until it's signed and the money changes hands. So we continue to be aggressive on it. But until we got that, I really can't comment on the timing one way or the other. In terms of the kind of profile of product, really things that are -- that fit the pain market. There are subsegments of the neuro market that we're looking at. There are certain areas in neuro that we don't think would be a good fit for us like, things like MS, which really is a much more of a big boys' game at this point. I don't think I'd want to get in there and fight against some of the players on that side of it. And in terms of scope and size, I think this is where -- it could be a smaller product that we think we've got some insight in how we could grow it to something of Zipsor size or bigger. It just really depends on what we see as the opportunity and the fit on it. So it could be smaller with growth. It could be a bigger product as Zipsor or bigger. And if we had an opportunity to do something that might be transformational, we would look at that too if it made sense for the shareholders.

And level follow-up from Joy Marshall [ph] of Sundesk [ph].

Just a quick one on the wholesaler inventory drawdown. I was wondering, could you quantify that in terms of the impact to the Gralise and then Zipsor sales?

Joy, this is Jack here. So we saw -- with Gralise, we essentially saw prescriptions grow quarter-over-quarter by 7%. What we did see from a shipment perspective is they decreased quarter-over-quarter by 10%.

All right. And then anything on Zipsor?

With regards to Zipsor, along the same lines, we did see total prescriptions drop by 5% and total shipments drop by 22% quarter-over-quarter.

Okay. And then just on that, I guess, on Zipsor, I think you said there -- it's been said in the past that you feel like that share loss in Zipsor has been stabilized. Do you feel that you've been turning the corner here?

Yes, I think we -- I think we're actually set up for now for [ph] some of the redo in the sales force. I think we're on with the right people there. We've seen it right around 1,800 scripts a week for a number of weeks here. And I think one thing that may be a little bit underappreciated, we've seen the size of the scripts going up as well. So when we took over the product last summer, there were 79 capsules per script. The more recent data from the most recent month is 85. So it's been an interesting one that scripts have stabilized but actually the number of capsules per script are up.

Okay. And are you seeing that continue to grow?

Yes, we've seen it continue. It's been on kind of a month-on-month thing where it's continued to grow in terms of the scripts. I think some of it is that some physicians are realizing that a month's supply of Zipsor is 120 and it's the same co-pay for a month's supply at 120 capsules as the patient would pay for 60. And so we're seeing some bigger scripts come through.

Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the call back over to Mr. James Schoeneck for his closing remarks.

Thank you, operator. Thank you, all, for spending the time on the call. We truly appreciate your continuing support and interest in Depomed. We are here and dedicated to growing the company. And we, with some of the things we put in place on Gralise, believe that we are the place that we will start to see some of that continued and increased growth. Zipsor, as we've talked about, we believe that we have stabilized the decline on it. I think we're set up well there as well. You've seen what we've done on the technology side, and I believe we're set up for a very good back half of the year. So thank you very much for joining us today.

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.