Good afternoon and welcome to Depomed’s Second Quarter Fiscal 2015 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note, today’s event is being recorded. I’d now like to turn the conference over to Mr. Christopher Keenan, Vice President of Investor Relations. Sir, please go ahead.

Thank you, operator. Good afternoon and welcome to our investor conference call to discuss the second quarter 2015 financial results announced earlier today. With me today are Jim Schoeneck, President and Chief Executive Officer of Depomed; August Moretti, Senior Vice President and Chief Financial Officer; Matt Gosling, Senior Vice President and General Counsel; Scott Shively, Chief Commercial Officer; Srini Rao, Chief Medical Officer and Jack Anders, Vice President of Finance. 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 commercialization of NUCYNTA, NUCYNTA ER, Gralise, Cambia, Lazanda and Zipsor, the Company’s financial outlook for 2015, the Company’s expectations regarding Horizon’s unsolicited proposal to acquire Depomed and other statements that are not historical facts. 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 the Risk Factors section and other sections of our annual report on Form 10-K for the year ended December 31, 2014, and of our quarterly report on Form 10-Q that we expect to file later this week with the SEC. Depomed disclaims any obligation to update or revise any forward-looking statements made on this call as a result of new information or future developments. 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 on balances as of June 30, 2015. All guidance including that related to the Company’s expected total product revenues, operating expenses, adjusted non-GAAP earnings and non-adjusted EBITDA as of today, July 29, 2015. I’ll now turn the call over to Jim Schoeneck.

Thank you, Chris and thank you all for joining us today. Before I begin my remarks on our second quarter, I’d like to briefly discuss the latest developments with respect to Horizon Pharma. As most of you’re aware, on July 7, 2015, Depomed announced that the Board of Directors had unanimously rejected an unsolicited proposal from Horizon to acquire Depomed in an all-stock transaction valued at $29.25 per share. Following its review, the Board concluded that the Horizon proposal was opportunistic and highly conditional and importantly, did not reflect the inherent value of Depomed in light of the Company’s standalone prospects. Additionally, the Board noted that Horizon’s proposal was identical to the proposals received by Depomed on May 27 and again reiterated by Horizon on June 12. On July 21, Depomed confirmed receipt of a purported revised proposal from Horizon to acquire Depomed in an all-stock transaction valued at $33 per share. Earlier today and as many of you’ve already seen, Depomed’s Board announced that after careful consideration and with the assistance of independent financial and legal advisors, that it has unanimously rejected Horizon’s purported revised offer. The Board and its decision underscored that the purported revised and highly conditional nature of Horizon’s latest proposal, noting that it does not reflect any increase in the amount of Horizon’s stock that our shareholders would receive nor any increase in the pro forma ownership for Depomed shareholders. It simply just restates a purported increase in Horizon’s July 21 proposal. And that increase was a result of the trading price of Horizon stock having increased since their initial proposal. And in line with its prior rationale, the Board reiterated that Horizon’s proposal substantially undervalues Depomed’s business and does not reflect the inherent value of Depomed in light of its standalone prospects. As demonstrated…

Thank you, Jim. Today I’ll cover two areas. First, a review of a few of the highlights of our second quarter results and second, our updated guidance for 2015. Before we get started, however, I want to mention that I will be discussing certain GAAP measurements, as well as certain non-GAAP measurements. Please refer to today’s press release for an explanation of our non-GAAP financial measures and a table that reconciles the Company’s non-GAAP adjusted earnings per share. In addition, our guidance today will also include certain non-GAAP financial measures, which we expect to continue to present in future periods. As Jim outlined for you earlier in the call, the second quarter was a very strong one for Depomed both in terms of cash flow and product revenue. Our strong cash flow during the quarter reflects our first quarter of sales of NUCYNTA ER and NUCYNTA. As of June 30, 2015, cash, cash equivalents and marketable securities were $122.6 million, which represent a quarterly increase of almost $55 million. As we have stated several times since the closing of the NUCYNTA transaction, our intent is to prepay $100 million of our secured debt in the second quarter of 2016. We remain confident in our ability to do so without jeopardizing our working capital needs. Total product revenue for the quarter ended June 30, 2015 was $94.3 million, representing a year-over-year product revenue growth of 234%. Putting this into perspective, total product revenue for Q2, 2013 was $14.1 million and for Q2, 2014 was $28.2 million. We closed our NUCYNTA acquisition on April 2, 2015 and formally relaunched this important product franchise in mid June. For the quarter, NUCYNTA sales were $56.7 million and NUCYNTA is now Depomed’s largest product franchise. But NUCYNTA isn’t the whole story. The rest of our…

Thanks, Augie. In closing, I’m extremely proud of the Depomed team. The second quarter of 2015 continued a pattern of record-setting growth for Depomed, and we believe this is only the beginning. We are now on track to become one of the top five pain companies in the U.S by 2016. We anticipate reaching 50% EBITDA and 40% operating margins, ratios found in big-cap spec pharma companies within the next two years. Led by a product with blockbuster potential, NUCYNTA, we’ve built a high growth portfolio of six highly differentiated pain and neurology products with significant opportunity for increased sales, unit demand and market share gain ahead. We are committed to growing the business and to grow aggressively by deploying our acquire, integrate, grow and repeat model to bring in additional acquisition targets that can provide even more growth. As we move forward, we have a proven strategy in the hands of an experienced team that’s focused on creating long-term sustainable value for our shareholders. Before going to your questions, as a reminder, the purpose of today’s call is to discuss Depomed’s second quarter results and our outlook. We will not be making further comments with respect to Horizon. Thank you again for your understanding and cooperation, and now we will open the call to questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Randall Stanicky with RBC Capital. Please go ahead.

Hey, great. Thanks guys. I just have a couple of questions. Jim on NUCYNTA, the $500 million target by 2020, how does that change or doesn’t if you were to double or triple the rep base? And the broader question is, now that you’ve had a little bit of experience with the relaunch, do you think 275 reps is the right number? Then I have a couple of follow ups.

Randall thanks for the question. I think the -- I think from where we’re at this point, I think it’s the right size on the rep base. I think in the future there may be an opportunity to add more reps as we get more and broader specialist support. But as with most drugs, I think establishing that specialist support before we go down to the next tier is a really critical piece and while J&J had some success there, it’s clear from our initial interactions that we need to grow that even more before we can go out more broadly to primary care.

Okay. Can you just comment on the inventory levels? Is there anything abnormal across other NUCYNTA or any of the other products that we should be thinking about?

Hey, Randall, this is Jack Anders. With our existing products; Gralise, Lazanda, Zipsor, Cambia, wholesale levels were relatively flat from the end of Q1. With regards to NUCYNTA, they are pretty relatively consistent with inventory levels at the end of Q1. What we saw was shipment demand mirrored -- the actual prescription demand in the second quarter of 2015.

Got it. That’s helpful. And then my final question for Jim, you mentioned this in your prepared comments, but how do you think about lifecycle for the franchise? You’ve got a host of products there that you’ve patent life into the 2020s, but are you actively working on life cycle with respect to some of those products and can you share what that is?

Yes. Randall, with the two parts to your question, the first one is the easy part, which is yes; we are looking at lifecycle both in terms of additional indications and additional product development opportunities, things that we can do for additional ways to put up the product and bring it to the marketplace. At this point, we are not prepared to share any of those. So stay tuned and we will be back to you on that in the not too distant future.

Okay. Are those -- I mean, are you thinking about switch strategies or are these more line extensions?

I’d say its additional indications rather than switch strategies and we’ve got some things that would take it -- that will be a bit farther out that could extend the franchise as well.

Okay. That’s great. Thanks, guys.

The next question comes from David Risinger with Morgan Stanley. Please go ahead.

Thanks very much. Congrats guys on the results and the updated guidance. I had a couple questions. First, obviously, the United News was positive. Could you just talk about your expectations for any additional formulary action and when we might get updates? And second, could you please discuss your pursuit of transactions and I think you may have hinted at possibly even inverting and so I was just hoping that you could provide a little bit more color on your plans for strategic action?

Dave thanks. The first one in terms of the formulary access and status, the two big ones will come up pretty quickly and that will be CVS Caremark and Express Scripts. They’ve indicated that they would likely start to do some of those announcements over the next week, mainly on exclusions, frankly, and then after that in terms of their full formulary piece. We feel like we’ve had very positive interactions with those accounts and we’re very hopeful of being able to continue the broad access that we enjoy now. The United piece was an interesting one. I mean, that was one where we certainly saw that they wanted to take action against Purdue on this and Oxycontin. And that actually creates a big opportunity, because Purdue was enjoying about two-thirds of the branded long-acting opioid market at United and all those scripts are up for grabs. So that I think gives us a great opportunity and we may see some more of that before the formulary season is over. In terms of transactions, there we continue to look at things that are either marketed or late stage that we can bring to the market within 18 months. That’s our primary focus. With that on the inversion side, we’ve said consistently that while we see it as a great opportunity around the tax piece, there is also a piece of it that we want to see a strategic rationale for the Company, not simply doing it on the financial side. And so we continue to pursue those opportunities.

Right. Thank you.

The next question comes from Scott Henry with ROTH Capital. Please go ahead.

Thank you, and good afternoon. A couple of questions. For starters on NUCYNTA, with all the efforts going in place, when would you expect to see prescription growth emerge? When should we start to see the results of these efforts?

Scott, just on a general basis as we stated before, we’d expect to see things starting in the fourth quarter. That’s just based on a traditional piece. We are launching in summer, we’ve got a sales force that about half the people are new to Depomed, a little under half. So they’re getting up to speed and rapidly, but with that just the traditional piece of how many calls it takes to really start to affect a physician. Now the one thing that may modify some of that is if what we are picking up on this latent demand turns out to be a really valid factor. And we’ve heard from doctors -- I mean, literally comments like, I used to write 10 to -- 8 to 10 prescriptions for NUCYNTA a day, now I write 8 to 10 a week. And these are ones that, when you ask them why, they say well, it just really is we haven’t had much noise level on it. There haven’t been programs on it, I haven’t had a rep in and that’s why I think we are seeing this number of doctors that have started either writing the drug or jumps back on writing the drug so quickly in the tune of about 700 new docs a week that are starting to write it.

Okay. Thank you for that color. And with regards to pricing of NUCYNTA, I mean, recognize that you are moving it on par with the competitors, but those competitors are often raising their price continuously as well. So, I guess, my question is, when do you think you get more pricing power there or is that a short-term event or, I mean, obviously you don’t want to telegraph it, but just any -- anything you can say with regards to the pricing environment going forward?

Yes. I think two things there, one, when we do watch the markets on it and the categories act very differently. If you look at the branded gabapentinoid category, so essentially what Pfizer does with LYRICA, they’ve continued to take to 9% to 9.9% price increases a year and we’ve continue to stay in that band with them. For long-acting opioid market, it has been traditionally more of a market that’s taken 5% to 8% increases a year generally once a year, though Purdue took 15% at the beginning of this year. So we will just have to monitor and see how that goes forward. And one other thing that we did do and it’s not a huge thing, but the opioids primarily have a linear pricing relationship between the number of milligrams of drug and the price of the product. And with that, the 200 milligram NUCYNTA ER and the 250 milligram NUCYNTA ER were priced the same when we picked it up from J&J. We didn’t separate that when we took the initial pricing adjustment in April, but we did the end of June. So we actually took the 250 milligram which is about 10% of the units on NUCYNTA ER, up by 25% at that point to have that same linear relationship that the rest of the line does.

Okay, great. Thank you for that color. Just a couple of accounting questions. First, the SG&A for the quarter I think was about $57 million. Could you approximate how much of that was one-time as a result of the relaunch? Just trying to get a sense of the go forward rate?

Hey, Scott, this is Jack. We did have a decent amount of actual NUCYNTA transaction costs that occurred in the quarter and we had approximately $20 million in the first half of the year and about $16 million of that actually occurred in the second quarter of 2015. On a go forward basis, we obviously believe that SG&A will drop off, but it’s not going to be dropping off by that significant amount; particularly we hired the sales force towards the end of June. So while we -- while there will be some offset and we are ramping up the commercial infrastructure and that will be partially offset by increased expenses there. But if you look to the midpoint of our guidance, we -- in Q2, we had total OpEx [ph] -- SG&A and R&D operating expenses around $62 million. If you look to the midpoint of what we are guiding to, it’s going to be a drop in $52 million, $53 million range in the back half of year per quarter.

Okay. Thank you. That’s helpful. Final question. With regards to the taxes, this $0.27 adjusted EPS number, I’m still going through the details, but is that a fully tax number or how are you taxing your adjusted EPS, so I can think about that going forward?

So in the second quarter of 2015, we did recognize a $10.5 million tax benefit in that -- the non-GAAP adjusted net income number.

I think the simple answer, Scott, is yes, that is a number that reflects the taxes.

Okay. But you are going to be reporting an adjusted non-GAAP number reflecting cash taxes or are you ever going to use a normalized tax rate? Just trying to think of how to gauge these numbers going forward?

So what will reflect in our non-GAAP adjusted earnings is actual cash -- expected cash payments or cash receipts, vis-à-vis the actual tax refund that will be again related to fiscal year 2015. So we will reflect those amounts within our adjusted non-GAAP earnings numbers.

Okay. So it will be a lower -- it will be a positive adjustment in 2015. 2016, I think you said mid-teens and then 2017 would be a normalized tax rate, I’d expect?

It should creep up from where 2016 is, but we haven’t specifically guided where that rate is going to be in 2017.

Okay. Thank you for taking the questions.

The next question comes from Traver Davis with Piper Jaffray. Please go ahead.

Hey guy, thanks for taking the question. So just two parts. First on the M&A strategy. So you mentioned staying active on the M&A front is in the cards here. Can you talk about the kind of flexibility you believe your balance sheet has at this time and how this impacts this strategy both in the near and let’s call intermediate term? And then, just two litigation questions. So one, can you just remind us what the end of litigation timeline is on NUCYNTA and maybe also comment on generally on your willingness to settle with the ANDA filers. And then just third on the -- another litigation question on the IPRs. Is there anything you could say about what a best case end game would be here in the Purdue and ANDA litigations?

So first, I will take the first part on the M&A and then I will turn it over to Matt on the litigation questions. On the M&A, it’s our agreement -- our loan agreement with Deerfield and their partners allows us to do transactions that are EBITDA positive. So while acknowledging that we’ve got a fair amount of leverage right now, we do believe with an EBITDA positive transaction, we’d be able to finance that and be able to bring something in that would add to both top line and bottom line and be able to finance it. I guess basically on those revenues and perhaps some as we delever further. When it comes to things that maybe on the -- more in the pipeline stage, I mean, that’s one that we will need to fund out of some of our operating revenue. And so that’s a bit of a different type of case, but we certainly as you saw today are beginning already to generate a lot of cash.

As to your litigation question -- Traver, it’s Matt Gosling. First, the NUCYNTA ANDA litigation, the 30 month stay expires in May of next year. So we’d anticipate -- no trial date has been set yet, but we’d anticipate that being resolved in advance of or around the time of the expiration this day in May. As to settlement, I mean, you can certainly appreciate it. It makes my job a bit more difficult if we comment publicly on our approach to settlement, but I mean, history -- our history has been, we do settle in when it makes sense and is consistent with the merits of the case, so certainly we will see where that goes if anywhere. As to IPRs, the best case for us is that we wind up kind of back in District Court, prosecuting our patent infringement cases against Purdue and against Endo and with better prospects due to the fact that they can’t reassert the prior [indiscernible] they asserted in the IPR proceeding. So with respect to Purdue, we are kind of well on our way there. And frankly, with respect to Endo, just due to the way that some other sort of claims that were challenged, were picked up by the PTAB and some weren’t. We feel like we’ve got viable cases against both of those companies going forward, probably more to come on that next quarter as we expect a decision from the PTAB on Endo not later than September 29.

Okay. Thanks guys. It was helpful.

Traver, thanks.

The next question comes from Chiara Russo with Janney. Please go ahead.

Yes, hey guys. Congrats on the numbers. Just some quick questions here. You talked about sort of growing indications on some of your current products and I was wondering how we should kind of think about the R&D spend going forward with that and sort of the timing around that?

Yes, I’d say that -- I wouldn’t expect any significant uptick in the R&D spend in 2015. As we start to roll this out, we will give you some more color around it and some more timing and it may pick up then in ’16 as we begin those studies.

Okay, great. Thank you. And I know previously you guys had talked about with transitioning to the new sales force that you could cover about 70% of the previous NUCYNTA script writers, and I was wondering how many of those previous prescription writers did you touch, did you hit your 70%? Did you hit more?

Really [ph] interesting, because the 70% was actually the ones that we were already hitting with our existing sales force of about 165 people.

Okay.

So as we sized it to 275, we actually cover a much higher percentage of it than that. I don’t -- frankly, I don’t know what the exact number is, but it’s a nice tick up from that 70%. We’ve focused on the highest writers and the highest potential physicians over this first part of the launch trying to get multiple calls within a month and that’s really where we are. I think that’s why we’ve started to see some of the pickup. We have also gone back and looked at some of the people that have written the drug in the past and we thought by reconnecting with them, it was much easier to get a doc that had written the drug in the past to write it again then to start somebody to know above.

Got it. Got it. Well that makes sense. And my last question is just kind of curious on your non-GAAP adjusted earnings of $0.27, what was your share count on that?

Hey, Chiara. This is Jack again. We use the if converted method related to our convertible debt and to the extent that is dilutive to EPS. So if you look at the three months ended June 30, there was an additional 17.9 million shares in the basis of the diluted shares, which constitute that if the shares were fully converted, you back out the respective interest expense associated with that convertible debt in the numerator. So it’s about -- all in, it’s about 80 million shares in the denominator.

That should expect right. All right, cool. Thank you. That was it. Congrats again.

Thanks, Chiara.

This concludes our question-and-answer session. I’d like to turn the conference back over to Jim Schoeneck for any closing remarks.

Thank you. I want to thank you everyone for your interest in Depomed. With a high growth portfolio led by a blockbuster potential product our successful product and growth strategy and the right people to execute it, we believe that our Company is on a clear path to driving value for our shareholders over the long-term. And we look forward to reporting to you that progress and interacting with you over the coming months. Thank you.

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