August Moretti - Chief Financial Officer Jim Schoeneck - President and CEO Matt Gosling - Senior Vice President and General Counsel Scott Shively - Chief Commercial Officer Srini Rao - Chief Medical Officer Jack Anders - Vice President, Finance.

David Risinger - Morgan Stanley Randall Stanicky - RBC Capital Markets Jason Butler - JMP Securities Scott Henry - Roth Capital Jason Napodano - Zacks Chiara Russo - Janney.

Good afternoon. And welcome to the Depomed Fiscal Year 2014 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to August Moretti, Chief Financial Officer. Please go ahead..

Thank you, Operator. Good afternoon. And welcome to our investor conference call to discuss the Fourth Quarter and Full Year 2014 Financial Results announced earlier today.

With me today are Jim Schoeneck, President and Chief Executive Officer of Depomed; 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 would 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 Gralise, CAMBIA, Zipsor and Lazanda, the company’s financial outlook for 2015, the company’s anticipated consummation of the acquisition of the NUCYNTA franchise in the United States, the timing and benefits of the acquisition and the company’s post-acquisition strategy, plans, objective, expectations, financial and otherwise, and intension, future financial results and other statement that are not historical facts.

Actual results and the timing of the events could differ materially from those anticipated in such forward-looking statements 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, that we expect to file later this week.

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.

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. All references to guidance are as of today, February 23, 2015.

I'll now turn the call over to Jim Schoeneck..

Thanks, Augie, and thank you, all, for joining us today. For today's call, I'll start with a discussion of the key accomplishments over the past year. I will review our sales highlight and we will look forward to the future of Depomed.

Then I'll turn the call over to Augie to discuss our finances, and finally, I'll provide a few closing remarks, we will then open the call to questions.

Over the past three years, Depomed has transformed into a leading specialty pharmaceutical company focused on pain and neurology, and we believe that we have substantial growth opportunities extending well into the next decade. We have produced tremendous growth in our product revenue.

The combined sales of Gralise, CAMBIA, Lazanda and Zipsor in 2014 were $114.2 million, almost doubling our 2013 product revenue and are more than four-fold increase from 2012.

We have executed our strategy of growth by addition, with CAMBIA, Lazanda and Zipsor added to Depomed line of differentiated products and now most importantly, the pending transaction to acquire NUCYNTA. We have also taken steps to ensure that this growth is sustainable, focusing on securing lengthy periods of exclusivity for our products.

2014 was an outstanding year for the company. Let me list just a few of the major accomplishments since the beginning of 2014. We received two major court victories versus Actavis in our Gralise patent suite and versus the FDA in our orphan drug exclusivity litigation. We now expect Gralise market exclusivity until 2024.

We re-launched CAMBIA in February, with new prescriptions up 36% in just nine months. We earned a $10 million milestone for the FDA approval of Mallinckrodt's XARTEMIS XR, which uses our advanced Acuform delivery system.

We strengthened our leadership team with the appointment of Srini Rao, as Chief Medical Officer and Scott Shively, as our Chief Commercial Officer. In October, we modified our Glumetza agreement with Salix and then approach the SEC about adjusting the accounting for 2013 PDL royalty sales transaction.

I am happy to report that beginning in the fourth quarter 2014, we will no longer be required to report the transaction as debt and we will no longer report non-cash Glumetza royalty revenue. Augie will provide further details on this later in the call.

We completed our first public financing in seven years with an upsize $345 million, seven year convertible note offering, that significantly strengthened our ability to compete for attractive product acquisition target. And finally, we signed an agreement to acquire the U.S.

rights to the NUCYNTA franchise from Janssen Pharmaceuticals for $1.05 billion, adding a differentiated drug with a lengthy period exclusivity that fit precisely into our pain and neurology strategy.

One point I hope that will become clear discussion today as we review the transformation and growth over the past few years is that we see this only as the beginning. We believe that the best is still ahead as the brands we have acquired provide a dynamic growth opportunity that is sustainable well into the next decade.

The NUCYNTA acquisition is the landmark event for Depomed. Upon closing, NUCYNTA immediately become our flagship product, a significantly differentiated asset in the multi-billion dollar pain market. The financial profile of Depomed is transformed by this acquisition.

Upon closing which is targeted for the second quarter of 2015, the transaction is expected to be immediate accretive and the significantly increase Depomed’s product revenue, cash flow, EBITDA and adjusted earnings per share for 2015 and beyond.

Importantly, NUCYNTA is protected by a composition of matter patent through August of 2022 or February of 2023 depending on the receipt of the pediatric extension.

And updating our previously released historic sales for NUCYNTA, unaudited net sales for the fourth quarter of 2014 were approximately $44 million, an annualized revenue rate of $176 million. Later in this call, I will share some information about our progress in signing.

Of course, the NUCYNTA transaction is, Depomed’s base business continues to be strong. Product sales were $33.9 million for the fourth quarter of 2014, an increase of 80% over the fourth quarter of 2013. Our compound annual growth rate for product revenues since 2012 is over 100%.

Each of the brands has performed well and we are proud to see our product positioning and commercial strategies bearing fruit. Gralise continues to be the driver of our revenue. Full year 2014 Gralise net sales were $60.4 million, up from $36 million in 2013 and $17 million in 2012.

Fourth quarter sales for Gralise were $18.1 million, up 54% compared to the same quarter in 2013.Over 24 million Gralise tablets were prescribed in 2014, up 25% over 2013. Gralise continued to benefit from Tier 2 coverage at the three largest pharmacy benefit managers, CVS Caremark, Express Scripts and Catamaran.

Clinical differentiation from other gabapentin and gabapentin like products is also an advantage. As Gralise is taken only once a day to achieve 24-hour pain control and has a favorable tolerability and side effect profile.

Gralise is now supported by Depomed’s proprietary simple script prescription support program, which was rolled out during the second half of 2014. Simple script eases the burden of getting a prescription covered by insurance, strengthens our relationship with healthcare providers and gains greater patient access to Depomed products.

We anticipate that the strong reimbursement coverage, clinical differentiation and enhanced prescription support will continue to drive solid Gralise growth in 2015. Moving now to CAMBIA, we are encouraged about the strong traction we have seen with the products since adding it to our portfolio.

CAMBIA was re-launched in the first quarter of 2014 and achieved full year 2014 sales of $21.7 million. Quarterly sales climbed each quarter from $4.6 million in first quarter to $6.3 million in the fourth quarter. Total prescriptions for CAMBIA were about 30,500 during the fourth quarter, an increase of 33% since re-launched in the first quarter.

We see additional upside for CAMBIA in the marketplace as well. Last month, the American Headache Society or AHS published its first assessment of acute migraine treatment in the last 14 years, which included two studies of CAMBIA compared to diclofenac tablet.

This rigorous evidence based assessment established CAMBIA as an effective Level A treatment for acute migraine attack. The assessment reinforces CAMBIA’s unique migraine targeted formulation as a standalone option for treating acute migraines in adult, with evidence for efficacy similar to other migraine specific medications like the Triptan.

Like Gralise, CAMBIA is now also supported by Depomed simple script prescription support program. Full rollout of simple script was completed in November of 2014. We have market exclusivity on CAMBIA until 2023 and see peak sales still ahead. So we anticipate CAMBIA will continue to drive our revenues for many years to come.

We are similarly excited about the trajectory of Lazanda since we have acquired the product. We re-launched Lazanda in the fourth quarter of 2013 with focus on expanding the prescriber base of pain -- the pain specialist as well as oncologist and that strategy is clearly paying off.

The product grew rapidly in 2014 with full year sales of $7 million, up 472% from 2013. Fourth quarter 2014 sales were $2.7 million, up 244% compared to the fourth quarter of 2013. Lazanda’s nasal delivery for the management of breakthrough cancer pain is proving to be an attractive differentiator when compared to other rapid acting fentanyl med.

Lazanda is quickly absorbed and starts relief pain within about 5 minutes. Absorbed nasally, drug levels increase quickly to provide pain relief, but also dissipate within about 80 minutes matching the typical course of a breakthrough episode. 2015 Lazanda sales are already off to a hard start.

Express Scripts formulary changes effective January 1, 2015 made Lazanda the only branded fentanyl for the breakthrough pain on its national formulary. The most recent SHA data indicated that Lazanda generated over a $0.5 million in gross sales during the week ended February 13th.

While it’s too early in the year, during the first six weeks of 2015, Lazanda SHA reported gross sales average more than $400,000 per week on annualized rate of over $20 million. That’s up 60% compared to the first four weeks of fourth quarter 2014.

As many of you know, we recently increased our dedicated sales force focused on rapid acting fentanyl prescribers by 50% to 24 sales specialist. These representatives joined us at the beginning of the year and we expect further upside from their efforts later in 2015.

Moving to Zipsor, the product has been a steady contributor to our sales and fits nicely with our portfolio. Zipsor reported fourth quarter 2014 sales of $6.8 million and full year 2014 sales of $25.2 million, up 24% over the full year of 2013. Looking ahead to 2015, our first priority is closing the NUCYNTA transaction and integrating the product.

Of course, second is maintaining the growth of our current trends. We are currently leveraging the extensive expertise with product acquisitions that we gained as we prepare for rapid and efficient launch -- relaunch of NUCYNTA. There are three areas where we believe we can impact the sales of NUCYNTA.

First, we think that NUCYNTA can better fit from expanded resource, with the focus on pain and neurology. DepoMed will relaunch NUCYNTA with the sales force of at least 250 representatives, which is over three times larger than the contract sales organization, currently promoting the product for Jannsen.

The sales force call points for DepoMed’s current products already overlapped approximately 70% with the NUCYNTA prescriber base, allowing us to capitalize on well-established relationships we already have with key prescribers.

Second, the unique properties of tapentadol, the active ingredient in NUCYNTA and the product positioning are also key parts of the relaunch. Our market research suggests that the dual mechanism of action of NUCYNTA is an important differentiator.

The research shows that many physicians believe that patients with mixed pain states can benefit from NUCYNTA. In addition, NUCYNTA ER is the only opioid FDA approved for both chronic pain and diabetic peripheral neuropathy. NUCYNTA ER hasn’t been fully launched for DPN. And we feel this is upside in the market.

In a nutshell, we believe the clinical benefit with NUCYNTA may not be fully appreciated in the U.S. We have noted before that there's a disparity in the total prescription share for long-acting market for opioids in Europe which is over 10% versus the U.S. which is 1.5%. In our opinion, this is the real opportunity for growth.

Finally, many of you have asked about the price of NUCYNTA, relative to other opioids, well, here are the numbers. Based on the wholesale price of the products and the average number of pills taken per day for each brand, the cost of NUCYNTA ER is currently $12.80 per day that compares to OxyContin CR at $18.40 a day and Opana ER at $20.40 a day.

At this time, we've not made any decisions about the future pricing of NUCYNTA. And we’ll continue to evaluate the market between now and the closing of the transactions. Within the company, we have two parallel work streams focused on closing the transaction and preparing for relaunch. We’ve closed the transaction.

We have already submitted the required information for Hart-Scott-Rodino Antitrust review and have requested early termination. We’ll keep you posted as this progresses. We are now actively preparing to raise the remaining capital needed for closing.

As we previously stated, we expect to maximize the debt component of capital raising, since we believe that DepoMed has strong cash flow, post the transaction and can quickly delever. We may then use a convertible offering and lastly equity to acquire the remaining capital.

As far as preparing for the relaunch, over the past 30 months, DepoMed has acquired and successfully integrated three products in the pain and neurology space. I believe that we’ve shown an ability to execute our product acquisitions and turn them into growth generators.

With this experience and track record, we are well positioned to leverage this playbook to maximize NUCYNTA opportunity. We’ve already completed several months of market research at risk to help us prepare.

And our internal team along with industry savvy consultant is working in every discipline to get ready for the new and expanded promotions of brand plus the transition of clinical, medical and manufacturing activities.

Our hiring efforts are on full gear to bring in the critical positions prior to closing and to have a great team ready for the relaunch. Before Augie takes us through the financials, I’d like to reiterate how well positioned we are for 2015 and beyond.

Following consecutive years of record sales, we are guiding to record high product sales for our current products in 2015, which Augie will share in a moment. And this does not include the sale for NUCYNTA, guidance for which we will provide once the deal is closed. We firmly believe that the best time for DepoMed are still ahead.

And with that, I’ll turn the call over to Augie to discuss our finances and guidance..

Thank you, Jim. There are three areas I will cover today; first, the change in accounting for our PDL royalty transaction; second, a review of our fourth quarter and full year results and finally, our guidance for 2015.

With respect to the accounting for our PDL transaction, as most of you on the call know in October 2013, we sold interests in future royalty and milestone payments in the type II diabetes therapeutic area to PDL for $240.5 million, which we received in cash at the closing of the transaction in October 2013.

As we have discussed our previous calls, we submitted this matter to the office of the Chief Accountant of the SEC in 2013. And the data accounting method was determined to be most appropriate under our particular facts and circumstances.

This accounting conclusion was principally based on the ongoing responsibilities that we had with respect to the 1000 milligrams Glumetza tablets manufactured by Valeant and sold by Salix. The debt accounting method required us to recognize as revenue the underlying royalties and milestones that we sold to PDL.

To record the proceeds of $240.5 million as a liability and to impute an ongoing interest charge against the amount of the liability deemed to be unpaid. The revenue was recognized within the line item non-cash PDL royalty revenue in our statement of operations.

As we mentioned on our earnings call in November effective October 1, 2014, we modified our agreements with Valeant and Salix to eliminate any further obligations on our part with respect to the supply of 1000 milligram Glumetza from Valeant or Salix.

As a result of the termination of these obligations, we again took this matter up with the SEC office of Chief Accountant. We reconsidered the way we account for the PDL transaction and effective October 1, we have no longer accounting for this transaction as debt.

Consequently, we reversed the outstanding debt balance at October 1, 2014 and recognized approximately $147 million within the line item non-cash PDL royalty revenue in our statement of operations.

We will no longer report any amounts remaining to non-cash royalty revenue, non-cash interest expense or non-cash taxes relating to the PDL transaction in future periods. In conjunction with this revenue recognition, we also recognized $56.1 million in non-cash tax expense in fourth quarter 2014.

In addition, in the fourth quarter of 2014 we recognized as license and other revenue approximately $13.2 million of deferred revenue relating to upfront payments from Salix and Valeant.

It's important to note that as a result of this revenue recognition of the deferred revenue relating to upfront payments, future periods will no longer include the $750,000 per quarter that we have reported in 2013 and 2014 with respect to these upfront payments.

So the net result is that we have some very large non-cash numbers, working their way to our income statement in fourth quarter 2014 and our financial presentation for future periods should be more straightforward as we have removed the impact of the PDL non-cash royalty, the PDL non-cash interest and the non-cash tax.

As we have discussed in our earlier earnings call in addition to GAAP presentations we have presented non-GAAP financials in today's earnings release along with an appropriate reconciliation to give our investors and other readers of our financials a view of our operations that among other things eliminates the PDL non-cash royalty income and the non-cash interest charge.

I refer you to today's press release for an explanation of non-GAAP financial measures and a table that reconciles the company’s non-GAAP adjusted earnings per share. I would now like to summarize the financial information for the fourth quarter and the full year ended December 31, 2014.

Total revenues for the year ended December 31, 2014 increased to $390.4 million from $134.2 million for 2013. 2014 revenues include $242.8 million of noncash PDL royalty revenue as discussed earlier. Fourth quarter revenues for 2014 were $194.6 million as compared to $40.6 million for fourth quarter 2013.

Again the 2014 fourth quarter revenue includes $147 million of non-cash PDL royalty revenue. Total product revenue for the quarter ended December 31, 2014 was $33.9 million compared to $18.8 million for the fourth quarter of 2013. Total product revenue for the 2014 full year was $114.2 million compared to $58.3 million for 2013.

The increases in product revenue in 2014 periods were the primarily the result of significantly higher release of Zipsor revenue and the addition of CAMBIA and Lazanda revenue. With respect to CAMBIA and Lazanda, we purchased CAMBIA in December 2013. So 2014 reflects a full year of CAMBIA revenue.

We acquired Lazanda in July 2013 and 2014 reflects a full year of Lazanda revenue. I should mention that we took price increases for all of our products in the December-January timeframe. As a result of these price increases, we increased return reserves approximately $1.4 million, which reduces reported product revenue for the fourth quarter.

So the fourth quarter product sales numbers reflect the burden of the price increased but none of the benefit. That is higher prices will only be reflected in future periods. Released stock sales were $18.1 million for the fourth quarter 2014 and $60.4 million for the full year.

This compares with $11.8 million in the fourth quarter of 2013 and $36.2 million for full year 2013. The 2014 increases reflected increased prescription growth and increased unit prices.

CAMBIA, which we acquired in December 2013, and re-launched in February 2014, had net sales in fourth quarter 2014 of $6.3 million and $21.7 million for full year 2014. CAMBIA sales in 2013 of $555,000 reflect December 2013 sales.

Lazanda, which we acquired in late July 2013, and re-launched in October 2013, had net sales in fourth quarter 2014 of $2.7 million and for full year 2014 of $7 million. Fourth quarter 2013 sales of Lazanda were $774,000 and full year sales were $1.2 million.

Zipsor sales in the fourth quarter of 2014 were $6.8 million and for the full year 2014, $25.2. This compares to $5.7 million and $20.3 million in the comparable periods of 2013. Zipsor prescriptions were slightly down year-to-year and the increased revenues in the 2014 periods reflect price increases. Moving on to expenses.

Selling, general and administrative expenses were $29 million for the fourth quarter of 2014 and $121.1 million for the full year 2014, as compared to $27.5 million and $105.2 million in the comparable periods in 2013.

The increases in SG&A expense in 2014 were primarily due to increased sales and marketing expenses related to a full year of expense for Lazanda, which we acquired in July 2013 and CAMBIA, which we acquired in December 2013, and increased legal expense related to patent infringement cases and inter partes review proceedings.

Fourth quarter 2014 expense also includes certain costs related to the NUCYNTA deal and at risk spending to assess the asset and prepare for the acquisition. We will incur similar expenses in 2015 prior to the closing of the NUCYNTA transaction.

Research and development expenses were $2.0 million for the fourth quarter of 2014 and $7.1 million for the full year of 2014, as compared to $2.0 million and $8.1 million in the comparable periods of 2013.

R&D expenses were flat in Q4 relative to last year and the decrease in R&D expenses for full year 2014 primarily related to the absence of all SEFELSA expenditures, which occurred in Q1 2013. We expect R&D expense to increase in 2015 primarily as a result of pediatric studies that we will undertake with respect to CAMBIA and Zipsor.

In addition, as the NUCYNTA transaction closes, we will incur additional clinical trial expenses related to NUCYNTA. GAAP net income for the fourth quarter was $94.6 million. This results in EPS of $1.61 per share and fully diluted EPS of $1.23. GAAP net income for full year 2014 was $131.8 million or $2.26 per share and $2.05 fully diluted.

These results are heavily impacted by the revenue recognition and tax impact resulting from the change in accounting relating to the PDL transaction that we discussed earlier. Cash, cash equivalents and marketable securities were $566 million as of December 31, 2014. We were cash flow positive for the fourth quarter and for the year.

As we announced in January in connection with the NUCYNTA transaction, we paid $500 million of this cash into escrow to be credited against the NUCYNTA purchase price. We want to spend a moment and just speak about the accounting for convertible debt.

As most of you on the call know in September 2014 we completed a convertible debt offering in principal amount of $345 million. Under the GAAP accounting rules, we evaluated and separately accounted for the debt and equity or conversion option components of the convertible debt.

We determined the fair value of the liability to be $226 million and recognized that amount as a long-term liability. We recorded the difference of $119 million between the gross proceeds and the fair value of a liability as debt discount with the corresponding increase to additional paid-in capital.

The debt discount cost will be amortized to interest expense through September 2021 using the effective interest method. And as a result, we will record noncash interest expense in addition to the 2.5% coupon.

Total interest on the convertible debt for the three months and full year ended December 31, 2014 was $5.5 million and $6.9 million respectively. Fourth quarter interest includes $3.4 million of noncash interest related to the convertible feature of the debt and $2.1 million of stated interest.

All of this is set out in great detail on Note 8 to our financial statements that will be included in the 10-K. In addition, we use the, if converted, method of accounting for calculating fully diluted earnings per share and adjusted non-GAAP earnings per share.

This method adds back total interest expense net of tax to earnings and assumes that the shares underlying the convertible notes are converted to common stock. Now I would like to move on to our guidance. In light of the NUCYNTA transaction, we are modifying our guidance to focus on net sales for 2015 for our existing products.

We expect to issue more comprehensive guidance on closing of the NUCYNTA transaction, which is expected to close in the second quarter. Our net product sales guidance for 2015 is based on our current budget. The budget is based on a larger number of assumptions and there are significant uncertainties in estimating future product revenues.

I would direct you back to the Risk Factors section of our annual report on Form 10-K that will be filed later this week for more complete discussion of the relevant risks related to guidance. With that said, net product revenues for 2015 for Gralise, CAMBIA, Lazanda, and Zipsor are expected to be between $152 million and $162 million.

We will update guidance upon closing of the NUCYNTA transaction. With respect to our annual guidance, I would mention that we expect first quarter 2015 net sales will show decline from Q4 of 2014 as a result of two factors that we have seen in prior years.

First, our wholesalers generally reduce total days on hand of product inventory in Q1 relative to year end. And as a result, product shipments in Q1 may be less than product demand.

Second, many health insurance plans and government programs reset annual limits on deductibles and out of pocket costs at the beginning of each calendar year, and this can cause patients to delay filling or refilling prescriptions for our products or substitute less expense generic products until such deductibles and annual out of pocket costs are met.

That concludes the financial discussion. I will now turn the call back over to Jim..

Thanks, Augie. 2014 continued the transformation of Depomed that began three years ago. At the time I joined the company in 2011, we didn’t have a single product in the marketplace and then finished that year with about $1 million of product revenue and our market cap under $300 million.

Upon the close of the NUCYNTA transaction, Depomed will have five proprietary marketed products with long-term high-growth opportunities. Each of those products fits within our marketing expertise in pain and neurology. In 2015, we are guiding to $152 million to $162 million in current product sales without the impact of NUCYNTA.

We’ve surpassed the $1 billion market cap a full year ahead of internal goal and continue to look up. We believe that we have come a long way and we are proud and excited about the progress. We are now being looked at by many of the high growth company and a major player in pain and neurology. And this is just the beginning.

With the product portfolio of differentiated assets, lengthy periods of exclusivity, and untapped market potential, we see our best years ahead. That concludes the formal comments. So let’s now open the call for questions..

[Operator Instructions] And our first question today comes from David Risinger of Morgan Stanley..

Thanks very much. Hi, Jim and Augie. Congrats on the results..

Thanks, David..

Thanks, David..

So I have a couple of questions I guess. So I will sort of go one by one rather than rattling them all off. I guess, Jim, maybe you could just put the forthcoming S-4 filing in context.

And how we should be interpreting the forthcoming profit disclosures for 2014 by J&J?.

Dave, we are kind of looking each other here and going exactly what you’re looking for on the S-4 piece.

Are you thinking about the financials that we will get from them?.

Yeah, sorry. So when S-4 is filed, we’re going to see the J&J business profit disclosure with the expenses associated with running that business inside of J&J.

Just trying to get an understanding of what expenses you will be taking on, how we should think about the various cost line items in terms of interpreting that for your company?.

Yeah. So the obligation -- I will let Augie or Matt jump in with anything here as well. We will assume certain obligations from their license from Grunenthal, so we will certainly have the royalty on that sales, but also some obligations in terms of supporting clinical programs that will guide to once we close the transaction.

From a standpoint of the manufacturing side, we will initially buy from J&J, but eventually we will move that elsewhere, so we will have some things here that we will be doing. But in terms of the business itself on the commercial side, that we really are looking at a build up within Depomed rather than crossing anything over from the J&J side..

Got it..

We may use CSO just for a short period of time until we have our sales force build and relaunch..

Got it. Thank you. And then just some additional questions here. So with respect to forthcoming formulary negotiations for Part D for your products, obviously those occur usually in the second quarter of the calendar year.

Could you just talk about whether you have any expectations for any changes in your key product formulary positions for January of 2016?.

I mean, at this point, David, as you’ve said, I mean, the submissions are all in at this point, are virtually all in at this point and met the -- generally the discussions really start up in about the May time period or so on Med D. So at this point, we have nothing to report in terms of expected changes on it.

And in terms of NUCYNTA, we’re working very closely with J&J to ensure the continuity on the product..

Got it. And then two minor questions for Augie.

Augie, could you just tell us what the number of weeks of inventory were in the channel at the end of December? And then separately, you mentioned inter partes review proceedings, could you just provide some more detail on that, including timing for next steps?.

Sure. First, with respect to days on hand in the channel was approximately 28 days of inventory on hand..

And this is Matt. On the inter partes review proceedings, those related to our offensive patent litigation against Purdue and Endo. We will have hearings in front of the patent office in March and June. We would decisions in the April and July timeframe on those. But again, those are offensive patent litigation for damages..

Great. Thank you very much..

And the next question comes from Randall Stanicky of RBC Capital Markets..

Great. Thanks, guys. I just have a couple. Jim, first for you on the guidance. When we look at the midpoint of the new guidance, it’s about 16% above the annualized 4Q revenue result. I know you said that maybe stepping down a bit in Q1. But when I look at just the run rate of Lazanda, it was combined with some of the pricing increases.

It kind of gets you that pretty quickly.

So my question is, is this just conservatism built-in? Or is there anything else in with respect to moving parts in those numbers we should be thinking about?.

No, Randall, I don’t think there’s anything unusual in the moving parts at all on it. I think we have -- I think traditionally tried to be somewhat conservative on our guidance. And I think you're seeing that reflected here as well..

Got it. Okay. And then a related question, I think this might be for Scott. As you build into those numbers and you’re thinking about the revenue look for this year, obviously you’re making assumptions around the sales force and some of the changes that are going to occur. You're adding reps, 80 or 85 reps there.

You can make some changes I would think to frontline detail on with certain of those reps as well. So, two-part question.

Number one, how do you think that is going to impact the legacy products? And then number two, when you bring on these new reps, can they start detailing these products -- excuse me, on day one? Or would this occur with the relaunch of NUCYNTA, which probably, I would guess be a six to eight weeks post closing of the deal?.

Sure. Let me address your questions. And so obviously, a major priority for us is to minimize disruption as we make the transition want relaunch of NUCYNTA. The ramp up that we’re going to do and we probably said we’re going to go up to 250 reps total, so adding 85, incorporates our best efforts to optimize for all the products.

So it’s not just to maximize NUCYNTA sales but also to optimize effort against Gralise and CAMBIA, in particular, as well as at Lazanda, which is kind of the standalone where we operate.

So we think we got a approach that we are putting the finishing touches on right now that will enable us do that and keeps on track the numbers that Jim and Augie were talking about on the legacy products.

With the new reps coming aboard, it’s all about training and so we got a very rigorous plan in place to train up all the new hires ASAP and they will receive in-depth training on all the products and be fully equipped to sell them, as we deploy them in the launch and we hope to do that as soon as possible after closing the deal.

So yeah, we’re not just training on NUCYNTA, we’re going to try to optimize all the products..

So Randall, maybe just couple of clarifications. One is, we have said at least 250, so be at least 85 more reps in that primary sales force. And in terms of timing, I think your question somewhat infers that we go ahead and bring them on board and have them sell the other products first.

I mean, our intent is that we will bring those folks on board shortly after the closing on the sales reps side. And so we will then immediately put them into training and then relaunch as quickly after that point as we can..

Okay. Got it. And then if I can sneak one more on Lazanda, obviously it’s tracking quite well. And this is a product where you don't have to reach a lot of docks really to move the needle on this one. So two things have happened. Obviously, the formulary, the express change to preferred and then also you brought in some additional reps there.

So maybe Jim, I mean what do you think is driving that out-of-the-box? And where do you think you can get the most of that push from going forward? Thanks..

Yeah. I think there’s a couple of dynamics here. One is the new reps have really had no impact yet. I know the data that we’ve seen to the audit. So that still to come. In terms of the Express Scripts piece, I mean one, we are seeing doctors writing the drug that have never written it before, so the writing was on and now they never written it before.

We’ve also seen the market share within the Express Scripts universal up on Lazanda from just under 2% to 12.9% in two months. So basically, from November to January, we've increased over 10 share points and Insys and Fentora are down more than 10 share points..

And it’s actually the runs data that you’re seeing?.

No, that’s too actually the SHA data that snaps it back to managed care..

Got it. Okay. That’s great. Thanks, guys..

Okay. Thanks..

And the next question comes from Jason Butler of JMP Securities..

Hi. Thanks for taking the questions. Just a quick one clarification for Augie.

Can you just -- sorry if I missed this, but the $13 million in license revenue for Glumetza in fourth quarter, can you just give us some more color on that please?.

That was up -- those were upfront payments that we had received in connection with the [indiscernible] and Santarus agreements. They were booked as deferred revenue when we’re being amortized through the income statement on a quarterly basis.

The change in the agreements that was the predicate for changing accounting on the PDL transaction that same logic apply to that deferred revenue. We no longer had any continuing obligations there. And on the accounting rules, the appropriate response was to run that, essentially recognize that revenue in Q4..

Okay. That’s helpful. Thanks. And then just I guess, a bigger picture question, thinking forward. You mentioned in the prepared comments, this is the beginning. There are more acquisitions that you would plan over the next few years? Just thinking about, you said that the fact that you plan find a lot of the NUCYNTA acquisition out of debt.

Thinking forward overtime, how should we think about the appropriate level of leverage that you expect to have on the balance sheet? And do you expect the company to be fully levered once the NUCYNTA transaction closes?.

Jason, I think, the -- to take in the order, which you pose them. I would assume going forward that our leverage ratios will revert to essentially the norm in our industry. I wouldn’t expect those to be outlined as we incorporate NUCYNTA and move forward.

I think at the closing of the NUCYNTA transaction, our leverage ratios will be high -- how high it is a function of how much debt we raise and how much equity we may have to issue in connection with closing the transaction. But, certainly, our goal in the transaction is to delever quickly.

We think that the transaction in our model generates very strong cash flow and we think that overtime we will absolutely be within the norm in terms of operating leverage ratios..

And Jason, to the other part of your question, I think part of that is referencing in terms of the excitement about the future. Where we are now with the product that can be the scope and scale of NUCYNTA and then what that allows us to do is we start to delever and continue to look for other product acquisitions.

I mean, any of those front acquisitions take a long time to do particularly as the product gets larger. I mean, it’s not untypical as you know to see, over a year ago by from when you start discussions to when something maybe closing or even longer. So keeping ourselves in that game not knowing that it can take awhile to get it done..

Okay. Great. That’s helpful. Thanks for taking the question and congrats again on all the progress..

Thanks, Jason..

Thanks, Jason..

And next we have a question from Scott Henry of Roth Capital..

Thanks, guys. I think you covered most of my strategic questions in the prepared remarks. I thought that was well done, a couple nuts and bolts questions.

For starters, Augie, shares outstanding 79.4 million? Is that how we should think about diluted shares going forward and I guess, along the same line should we be adding back 3.4 million every quarter as well?.

Here the most current numbers that I have, Scott, so common shares outstanding 59.3, options outstanding 7.3, the full number of shares underlying the convertible debt 17.9 and so on a fully diluted basis that’s 84.5. If you do the treasuring method, the average exercise price on the options is $8.46.

So that obviously reduces the calculation with respect to the shares issued on exercise of the options..

Okay.

So Q4 was a normalized quarter?.

In terms of the calculation….

In terms of shares outstanding..

… shares outstanding, right. Exactly right..

Okay.

And then net add back will be on a recurring basis as well for 3.4?.

That’s correct, Scott. That’s going to move a little bit. The non-cash interest expense piece on the debt is going to grow slightly higher, but not significantly higher. But I think that’s -- looking at our Q4 interest expense that’s a good starting point and it should slightly move up north from there..

Okay.

And when we think about license and milestone revenue going forward, given you -- you did that one-time event with Glumetza this quarter? How much is left in that line?.

Scott, there is going to be nothing left over, that is deferred and that is going to be going through there, which you’ll see on a go forward basis is any of that -- the future milestones that we may see with respect to our malachite arrangements and as well as, our Ironwood arrangements..

Okay. Perfect.

And then, leading into that discussion, MNK-155, have you heard anything about that or did I miss it?.

We have not and we have not heard anything and we are doing the same thing you are doing. We are just watching to see when our press release comes across on it..

Okay. I appreciate that.

As well, first quarter 2015, I am just curious you take -- how is this weather affecting it? I mean, is it the significant hindrance and by the weather, I would be referring to the snow storms on the East Coast?.

Scott, you maybe the fact that you are based in Boston, is that….

Certainly impacting me..

I think at this point we actually are off on the prescription -- weekly prescription side to a better start than we were last year. Last year in January we dropped about 9% from December to January. This year it was down about 3, 3.5%.

So at least through the end of January data, Scott, we are not seeing as much of a drop, I know you guys are continue to get hammered every about seven days here. So we’ll continue to monitor that as we get into the February data..

Okay. Great.

And just, I guess, the final question, obviously, the closing of the NUCYNTA transaction is the primary event right now to focus on? Do you have any kind of sense of the range of when that could happen? I know you said, Q2, I mean, any color within Q2, you had mentioned there was the possibility of expediting it? And as well, would you wait for that transaction to close prior to raising any of the finances?.

No. We’ll need to raise the money prior to closing. I don’t think we’ll see any type of hang up at all for the HSR review. I think that will resolve itself fairly quickly. So, I mean, at this point, it’s like as when you ask that, Matt, is over here, shaking his head going no second quarter. So we are expecting to close in second quarter..

Okay. Fair enough. Well, thanks a lot guys. Appreciate you are taking the questions..

Thank you, Scott..

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

Hi guys congrats on great year..

Hi Jason. Thank you..

So I’m just curious I wonder if you could talk for a little bit, Jim, about why the market in Europe is so much more open for long-acting opioids, you said greater than 10% share versus 1.5% in the U.S.? And I’m wondering if that’s a scheduling thing, I m wondering if it’s a perception thing.

If it’s a scheduling thing, is there any opportunity, I know, NUCYNTA is scheduled or Class II now. Schedule II, I wonder if there’s opportunity to move it to III, I just -- if you would entertain us for a little bit on the differences between U.S. and Europe and where the ultimately the U.S.

could head?.

Jason, I am actually going to take a half step back, which is at -- we’ve know the Grunenthal people for a long time.

And so we actually have a good relationship with them even prior to this transaction and with the rope, either they get on the product they are obviously very motivated to see us be successful and to be putting a lot more effort around the center.

So we’ve already opened up dialogue with them and we’ll continue to build on that over the next few weeks as we prepare for a relaunch and beyond. With that they actually -- they have positioned the product differently there.

So some of what we’ve talked about in terms of looking at the dual mechanism of the action of the drug, the fact that it does have different way that it works then the rest of the opioids have and the mixed pain state.

So that's really what they’ve gone after to differentiate themselves that if -- that this really should be the first choice opioid for anything with a neuropathic component, which is a lot of pain patients and that different I think is made tremendous difference in the receptivity in the way and the product has been received by a healthcare providers in Europe..

Okay.

And so the opportunity to -- J&J never really promoted for the DPN indications, so the opportunity for you guys to go out and promote for DPN you think could be significant opportunity for growth in 2015?.

Yeah I think its DPN…..

Beyond..

It’s also the overall positioning of the drug and we’ve seen this throughout in the two, four rounds of marketing research we’ve completed already that they promoted the product more as a strong but gentle. And their campaign was a lion with a rose in its mouth and still is to this day rather than playing off, of the dual mechanism.

And so we are going to reposition that and we've done -- it’s a quite a bit months of market research already around us to give us confidence heading forward in that path..

And last question just on the IP 2022, 2023, you guys have plans to work to extend that, file new applications, I wonder if you could talk a little bit about what, what the opportunity is to get beyond 2023?.

Its Matt, Jason, there is a patent deferred related to that specific crystalline form that goes after 2025. So there’s certainly some possibility there.

In terms of additional prosecution that certainly always a possibility in particular in conjunction with the new clinical work, but we are not modeling for kind of well out past the paths that are already out there..

All right guys. Thanks a lot..

Thank you Jason..

Thanks Jason..

[Operator Instructions] and our next question will come from Chiara Russo of Janney..

Hey guys, I’ll be real quick since most of my questions have been asked and answered already. Just for a quick clarity in terms of the mix on the raise, you said that we will sort of know more clarity about that before the deal closes in the second quarter.

Do I have that correct?.

Right. We have to complete the financing and it’s the proceeds from the financing that allow us to close the transactions..

Would you be issuing sort of a separate press release for once you get the finances set?.

I think as we would secure the financing or head to market, we certainly would be announcing that..

Okay. So there is something to track..

So you’ll see that it comes out..

Okay. Great.

And my second question is basically I’ve seen some other companies sort of start to poke around the PDN space and I was wondering if you had any comments on thoughts on possible competition coming in?.

Just to be clear, do you mean the PHM space or the DPN or….

The diabetic neuropathy?.

Scott or Srini ….

From a market perspective, not in the immediate future nothing that competes directly with the several product we have. I think there is people developing things back. For the pipeline, maybe Srini can give us a bit of an insight..

Yeah, exactly. I mean there is a number of compounds that have been looked at or are being looked at currently from basically [indiscernible] like compounds as well as calcium channel antagonists and things. There are quite a few compounds are being looked at.

The attrition rate going from phase II to phase III is very high DPNP studies are very difficult to run and ultimately this products position will be differ particularly as it does have the strong opioid characteristics that clearly differentiates a lot of other compound. DPNP is very much a mixed state. There a clearly no pain.

There is clearly neuropathic pain element as well. It’s probably going to take more than one piece of pharmacology to adequately address the benefits associated with it..

Okay. Great. That was all the questions I had guys. Thank you and congrats..

Thank you..

Thank you, Chiara..

So with that, I’d like to thank you everybody for your continuing interest in DepoMed. We believe that we are in a great position to continue to build on the dynamic growth that we've created over the last few years and to carry the momentum forward. I can tell you the level of excitement here within the company has never been higher.

We hope you’ll join us during the case of our existing shareholders, stay with us as we believe it’s going to be quite a ride. Thank you for your support..

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