Christopher Keenan - Vice President of Investor Relations Jim Schoeneck - President and Chief Executive Officer August Moretti - Senior Vice President and Chief Financial Officer Matt Gosling - Senior Vice President and General Counsel Srini Rao - Chief Medical Officer Jack Anders - Vice President of Finance.

David Amsellem - Piper Jaffray Ami Fadia - UBS Scott Henry - ROTH Capital Ken Trbovich - Janney Chiara Russo - Cantor Fitzgerald.

Good afternoon and welcome to the Depomed's First Quarter Fiscal Year 2016 Financial Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Christopher Keenan, Vice President of Investor Relations. Please go ahead..

Thank you, operator. Good afternoon, and welcome to our investor call to discuss the company’s first quarter 2016 financial results announced earlier today. The press release covering our earnings for this period is now available on the Investors page of our website at depomed.com.

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; 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 related to the commercialization of NUCYNTA, NUCYNTA ER, Gralise, Cambia, Lazanda and Zipsor.

The Company’s financial outlook and earnings guidance for 2016, development plans and expectations for cebranopadol and other statements of future expectations 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 risks are more fully described in the Risk Factors section and other sections of our Form 10-K for the year ended December 31, 2015 and our quarterly report on Form 10-Q that we expect to file tomorrow with the SEC.

Depomed disclaims any obligation to update or reuse 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 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 the balances as of March 31, 2016. All guidance, including that related to the company’s expected total product revenues, operating expenses, adjusted non-GAAP earnings and non-adjusted EBITDA is as of today, May 05, 2016.

Investors can find an explanation of the methodology for calculating non-GAAP earnings and adjusted EBITDA in today’s earnings release as well as reconciliation to the corresponding GAAP financial measures. I’ll turn the call over to Jim Schoeneck..

Thank you, Chris and thank you all for joining us today. I will start by reviewing our first quarter 2016 achievements, top line financial results, progress made on our NUCYNTA growth initiatives and some comments on the rest of our portfolio. Augie will then discuss our financials, before I provide closing comments and open the call to questions.

During the first quarter of 2016, we booked revenue of $105 million, up 225% compared to the first quarter of last year and above the midpoint of our Q1 revenue guidance. This topline growth was led by the strong performance of our flagship NUCYNTA franchise.

We achieved first quarter non-GAAP adjusted earnings of $0.12 per share or $8 million and non-GAAP adjusted EBITDA of $27 million. In the four quarters since we closed the NUCYNTA acquisition, we have produced over $140 million in adjusted EBITDA or $2.31 per share and generated approximately $150 million of positive cash flow.

This operating cash generation gives us the flexibility to pay down debt and as compelling opportunities arise, pursue additional strategic acquisitions with the goal of continuing to create substantial value per shareholders. We continue to be pleased with the NUCYNTA re-launch.

The first quarter saw net sales of our NUCYNTA franchise was $69.4 million. In March, NUCYNTA ER prescriptions reached an all time high of over 28,767 surpassing our previous record set last December and posted a 22.6% year-over-year increase in prescription volumes. The prescription trends continue to accelerate.

The most recent data for the week ending April 22 shows a prescription increase of 27.9% as compared to the same week last year. While our re-launch strategy is primarily focussed on NUCYNTA ER, it is important to note that NUCYNTA IR has also shown favourable prescription trends.

Immediately prior to our relaunch, NUCYNTA IR prescription volume was down at 9% year-over-year. Since then we have changed this trend with NUCYNTA IR prescriptions coming in above the prior year levels for four of the past five months. Going forward, we believe that NUCYNTA IR prescriptions will grow as we target the appropriate specialist.

We are continuing to see progress implementing our four pillars of NUCYNTA growth; promotion, positioning, patient access and proper dosing. On a promotion front, we are focussed on growing NUCYNTA ER with a pain specialist as well as our Physicians Assistant and Nurse Practitioners.

These two groups write almost 75% of the prescriptions for NUCYNTA ER and the brand is growing faster in these specialities than the rest. In fact, prior to our re-launch, NUCYNTA ER prescriptions from pain specialists were only growing 1% year-over-year.

In March 2016, pain specialist [Indiscernible] 25% over the same month last year and our market share of the long acting opioid prescriptions is now almost 3%. Since one of the effects of the increased group may on opioid prescribing maybe further concentrations the pain specialist offers.

We believe that we are well positioned to continue to accelerate growth. We are also pleased that our new product positioning and key message points are resonating.

As we mentioned during our Investor Day presentation, this is supported by a recent market research study which showed the responded perception of the efficacy of NUCYNTA ER improved significantly and for the first time is equal to other long acting opioids.

Regarding patient access, we are in the final stages of transitioning almost 40 contracts that J&J have when we acquired the franchise. During the quarter, we continued to gain strong formulary access.

In January, Cigna Commercial which represents 6.4 million patient lives kept both NUCYNTA ER and NUCYNTA in a tier 2 position as Cigna moved all but one of their brand to non-preferred with a double step at it. In February, we gained two significant wins.

The first as Blue BlueCross BlueShield of Tennessee, which represents 1.3 million lives rated [ph] tier 2 unrestricted status to NUCYNTA ER and NUCYNTA. The 2nd February win came as the Federal employee benefit program which represents 5.4 million lives places NUCYNTA ER in front of OxyContin.

These recent wins build on our already strong formulary coverage. 76% of commercial patients have unrestricted access to NUCYNTA ER, equal to that of OxyContin and more than OPANA ER. When taken together, we feel that this strategy will continue to serve as the cornerstone to deliver future growth and value with our NUCYNTA franchise.

The rest of our portfolio experienced a 11% year-over-year growth for the quarter, pulling in $35.1 million. As you will hear from Augie several factors distinguished the first quarter from the fourth quarter of 2015. We are not pleased with the performance of Gralise over the past year and are taking steps to revitalize the brand.

First and foremost, we are assigning primary responsibility for selling Gralise to our CNS focussed reps and Gralise will become their number one priority. Previously, Gralise was either in the number two or number three positions with both of our rep types and we believe that this additional focus and ownership will benefit the brand.

This will also allow our pain focused reps to spend more time selling NUCYNTA IR which we expect to start showing growth during the second half of 2016. For example, orthopaedics is one area where we have not seen progress with NUCYNTA IR and this adjustment should provide more selling time directed at that group.

One other product area I’d like to touch on is Lazanda. We continue to see good year-over-year growth with bottles prescribed upto 35% compared to the first quarter of 2015. Yet we see the slowdown in the market due to increased scrutiny by payers.

Specifically, payers are demanding more and more documentation of both the diagnosis and the prior drug regimens before authorizing a tough [ph] script. As a result, we have redoubled our efforts to support the physicians and patients.

While our growth in the pain specialist office was down during the first quarter, our bottles of Lazanda coming from oncologists increased more than 100% compared to the same quarter last year.

As part of our recent investor and analyst day, we reviewed the topline clinical results from the four trials of our -- from trials of our cebranopadol development program. These trials are part of the 17 phase 1 studies and 7 phase 2 trials that enrolled approximately 2000 patients and healthy volunteers.

A replay of the discussion of the trial results as well as the corresponding slides can be found on the investor relations page of our website. Data from four of these trials were accepted for presentation at the Eight World Congress of the World Institute of Pain which takes place in New York later this month.

Finally, I’d like to provide some framework about the timelines for ending law suits against the three NUCYNTA ANDA filers. These three companies are seeking to market generic versions of NUCYNTA and NUCYNTA ER and assume focus on the validity and infringement of our patents that expire in 2022, 2025 and 2028.

The trial proceedings took place in March and then on April 27 all sides presented closing arguments in further presiding judge in the U.S. District Court for the district of New Jersey. As a reminder, the Hatch-Waxman generic law provides for 30 month stay of the approval of generic applications which expires on May 20, 2016.

Given the timing of the trial, we do not expect a ruling by that date and expect the judge to issue an order temporarily in joining all parties essentially extending their Hatch-Waxman stay until [Indiscernible] renders a decision. This is something that we saw on the Gralise ANDA proceedings as well as other ANDA cases in the industry.

We believe that we can see a judgement in the August-September timeframe and of course a settlement could occur at anytime between now and then. We believe that we are presenting clear and persuasive arguments built on the strength of the patterns and look forward to the resolution of the ANDAs.

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

Thank you, Jim. Today I’ll review a few of the highlights of our first quarter results. I want to mention at the outset however that with respect to our first quarter 2016 results I will be discussing certain GAAP measurements as well as certain non-GAAP measurements, which we expect to continue to present in future periods.

Please refer to today's press release which is available on our website for an explanation of our non-GAAP financial measures and tables that reconcile the company's non-GAAP adjusted earnings per share and non-GAAP adjusted EBITDA.

Performance in the first quarter was strong; importantly our NUCYNTA franchise achieved net sales of $69.4 million for the quarter which was up sequentially over Q4, 2015. Our balance sheet at March 31 was also strong with cash, cash equivalents and marketable securities of $194 million.

This cash position allowed for the early payment of a portion of our secured debt in April which was our first step in de-leveraging the company and will reduced annualized cash, interest expense by approximately $11 million. Adjusted EBITDA for Q1, 2016 was a positive $27 million compared to a negative $3 million in the prior year.

Non-GAAP adjusted earnings for Q1, 2016 was $8 million or $0.12 per share compared to a loss of $8 million or $0.13 per share in the prior year. Both adjusted EBITDA and non-GAAP earnings for Q1 2016 include a $3 million milestone charge related to achieving a sales milestone on Cambia which we discussed in our Investor Day in March.

This charge had the effect of reducing non-GAAP adjusted earnings per share by $0.04 for the quarter. Turning to revenue. We stated in March that we expected our net sales performance in the first quarter would represent approximately 20% to 21% of annual net sales guidance.

This is consistent with our performance in past years and results from the first year insurance resets [ph] and reduction by wholesaler customer of days on hand of inventory. Total product sales for the quarter ended March 31, 2016 was $105 million representing a year-over-year product sales growth of 230%.

To put this $105 million of product sales into perspective and to give you a sense of the growth of our business, total product sales for Q1, 2013 was $9 million. Q1, 2014 was $22 million and Q1, 2015 was $32 million.

Days on hand of wholesalers at March 31 were reduced on average by approximately 3 days compared to December 31 and were at approximately 3 weeks. Please note that days on hand in Q4 2015 increased by approximately 3 days, so when comparing Q1, 2016 versus Q4, 2015 product sales there is about a 6 days swing.

Based on our experience over the last three years we expect that days on hand as wholesalers will maintain approximately the levels at March 31and may increase somewhat in Q4 of this year. As I said it for the first quarter NUCYNTA sales were $69.4 million.

As Jim mentioned we are pleased with NUCYNTA ER growth and believe that we have stabilized IR prescriptions with our goal to achieve year-over-year growth in IR prescriptions in future quarters. We anticipate increased sales and unit demand from the franchise for the remainder of the year.

Gralise had first quarter net sales of $19 million an increase of 10% compared to the first quarter of 2015. This increase is primarily a result of price increases and to a lesser extent higher unit demand. We anticipate increased sales and unit demand for the remainder of 2016.

Cambia had first quarter net sales of $6.2 million, an increase of 15% compared to the first quarter of 2015. The gross to net on Cambia in the first quarter was impacted more than the other products due to deductible resets and increased use of our co-pay assistance programs. We anticipate sales and unit demand for the remainder of 2016 to increase.

Lazanda had first quarter net sales of $4.6 million an increase of 43% compared to first quarter of 2015 driven by higher demand. The decrease in revenue from the fourth quarter of 2015 resulted from disruption in the turf [ph] market and the implementation of stricter prior authorisation standards for turf products by payers as described by Jim.

We anticipate increased sales and unit demand for Lazanda for the remainder of 2016. Regarding Zipsor, as we stated in our last quarterly call, there was a larger amount of days on hand at wholesalers at December 31, resulting from the introduction of our new 120 pill bottle.

This normalized during Q1, 2016 as wholesalers ordered less and returned their days on hand to about 3 weeks. Moving to COGS. As discussed earlier we incurred a $3 million milestone charge with respect to Cambia sales reaching a milestone.

This was accounted for as cost of goods for Cambia and as a result of this $3 million charge, COGS for the first quarter was approximately 23% of net sales, that’s COGS for our entire operation. We expect COGS for the remainder of the year to be slightly less than 20% of net sales. Now lets look at expense levels.

Non-GAAP SG&A expense was $48.7 million in Q1, 2016 compared to $33.4 million in the prior year. These amounts exclude stock-based compensation as well as the cost associated with the Horizon takeover attempt.

The increase in non-GAAP SG&A expense over the prior year is a result of NUCYNTA marketing and sales expenses and costs associated with the NUCYNTA ANDA litigation. For the first quarter of 2016, fees associated with the NUCYNTA ANDA litigation were approximately $5 million and we expect ANDA related expenses of approximately $1.5 million in Q2.

The increase in non-GAAP SG&A expense in Q1, 2016 relative to Q4, 2015 is largely due to the NUCYNTA, ANDA litigation. We have previously guided non-GAAP SG&A expense to be in the range of $180 million and $195 million. We currently believe we are trending towards the upper half of our range.

Non-GAAP R&D expense for the first quarter of 2016 was $5.9 million compared to $1.7 million for the prior year. The principal component of R&D expense for the quarter was expense related to Q1 pediatric trials for NUCYNTA which we assume that's part of its acquisition.

Completion of these pediatric trials will convey an additional six months of exclusivity for NUCYNTA IR and ER. There was minimal cebranopadol spend in Q1, 2016, however we expect cebranopadol expenses to pick up in 2016 as we prepare for Phase 3 trials in 2017.

We have previously guided non-GAAP R&D expenses for 2016 to be in the range of $30 million to $40 million. We currently believe we are trending towards the lower half of our range. Non-GAAP cash taxes were approximately $1 million and reflect the cash taxes that we estimate we will pay.

On a non-GAAP basis we expect our effective tax rate to be in the low to mid teens for 2016. Turning to cash, we ended the quarter with $194 million in cash, cash equivalents and marketable securities.

This is down from year end as a result of the anticipated timing of certain payments specifically during the first quarter we made a two-quarter royalty payment to Grünenthal, NUCYNTA and we made a two-quarter interest payment on our convertible debt, each of these are paid twice a year in the first and third quarters.

The cash payment for these two items totals over $20 million. In first quarter we also paid approximately $8 million to our advisers and lawyers related to our defence of the takeover attempted by Horizon in 2015. These expenses were accrued in 2015, but paid during the first quarter of 2016.

Additionally annual employee bonuses were paid in Q1, 2016 which resulted in a decrease in our accrued compensation liability by $5 million from year-end.

At beginning of April we announced that we've reduced the balance of our secured debt facility with Deerfield and Pharmakon to $475 million within early payment of $100 million, we enforcing our commitment to deleveraging. This early payment will result in a decrease of approximately $11 million in annualized cash interest expense going forward.

Looking to April 2017 when we are eligible to make another prepayment, we may choose to make a payment from cash on hand and refinance the remainder or refinance the entire remaining balance. With regards to guidance for 2016, we are revising our 2016 financial guidance for total revenue, total non-GAAP SG&A expense and total non-GAAP R&D expense.

Guidance for the year is based on actual results for the first three months of the year and our current budget and expectations for the remainder of the year. Our budget is based on a large number of assumptions and there are significant uncertainties in estimating future product revenues.

This is particularly true for our largest revenue products NUCYNTA and NUCYNTA ER. For a more complete discussion on the relevant risks relating to our guidance, I'll direct you to the risk factor section of our quarterly report on Form 10-Q that we expect to file tomorrow.

With that said, total revenues for our six products for 2016 are expected to be in the range of $490 million to $520 million.

SG&A expenses for the remainder of the year reflects the cost associated with marketing expenses for both NUCYNTA and NUCYNTA ER, as well as cost associated with NUCYNTA litigation that we have assumed in connection with the acquisition. Non-GAAP SG&A expenses are expected to be in the range of $185 million to $195 million.

Research and development expenses include pediatric studies from NUCYNTA, Cambia and Zipsor, as well as cebranopadol development. Non-GAAP R&D expenses are expected to be in the range of $28 million to $35 million. That concludes the financial discussion. I'll turn the call back over to Jim..

Thanks, Augie. In March Depomed host their first Analyst and Investor Day in New York. During the two and hours of presentations and Q&A, attendants were from Depomed executives is also leader in the area of pain management who provided a comprehensive overview of the pain market.

We discussed our plans to further differentiate our novel portfolio, grow our business and bring additional value to shareholders. I encouraged those who have not review the webcast and the slides to do so by visiting our website. Based on favourable feedback we look forward to conducting similar events in the future.

Finally, as most of you are aware, on April 7, 2016 Starboard Value filed a 13D with the SEC indicating their position as a large holder of our common stock and disclosing their intent to gain control of the company. We note that Starboard did not contact the company prior to filing the 13D.

We welcome open communication with Starboard as we do with all of our shareholders and value constructive input towards the goal of enhancing shareholder value. Before going to your questions, as a reminder, the purpose of today's call is to discuss Depomed's first quarter results and outlook.

We will not making any further comments with respect to Starboard. Thank you for understanding. And we'll now open the call to questions..

[Operator Instructions] Your first question comes from Randall Stanicky..

Hi, guys. This is Ashley [ph] right here on for Randall. Thanks very much for taking my questions. I had two. So, first on NUCYNTA what was the pricing benefit that you saw in Q1 of the [Indiscernible] kind of mid last year and then also on December.

Just wondering how much flowed through in Q1 and how we should think of the rest coming through for the rest of the year? And second, in Q4 I think your channel inventory was a few days higher than usual. Was this normalized back down in Q1, and can quantify the effects of the additional inventory to Q4? Thanks..

So, Ashley, I'm going to let Jack Anders of VP, Finance to step in on that..

Hi, Ashley, so with regards to the first question in terms of the midyear price increase that we've recognized about 65% of that price increase in Q1 and with respect to the price increase that occurred in December, we've recognized about, we realized about half of that in Q1.

On the second question, could you repeat your second question?.

Yes, sure. So I think in the last quarter in Q4 you said that channel inventory was a few days higher than usual.

I just wonder for NUCYNTA, I was just wondering was this normalized back down in Q1, can you quantify kind of the effect of that additional inventory in Q4?.

Yes. This is all been ready. As we said today, the days on hand increased in Q4 approximately three days and again this is absolutely consistent with patents that we've seen over the last several years and I think it's completely consistent with what you see with the other participants in the industry.

And in the first quarter, this year they've reduced approximately three days, so back to the level that they were at the end of Q3. But the net, I’ve mentioned in my comments that the net swing was positive three in Q4 and negative three in Q1, so there's about six-day difference..

Got it. Thanks very much..

Thanks, Ashley..

Your next question comes from David Amsellem..

Thanks. Just a couple. So, on NUCYNTA IR and ER, I don't know if you did this and I joined late, so I apologize if you did.

But can you just talk through the margin mix between the two products and how much of NUCYNTA ER is contributing to sale of the franchise? And then secondly, how we should think about gross to net on the NUCYNTA products and how they should trend over the remainder of 2016 as it relates to 2015.

And then also just in terms business development and how you are thinking about things there. I was just curious to get your latest thoughts on, your willingness to add another commercial stage asset or even if you think there are assets out there that are available. Just give us your latest thoughts there? Thanks..

We'll do David..

David, this is Jack here. In terms of kind of the mix in 2015, NUCYNTA IR was closer to 60% of the NUCYNTA franchise volumes. I think what we're seeing is as NUCYNTA ER grows we're starting to see a little bit of shifts there. And so NUCYNTA IR is closer to high 15% range with NUCYNTA IR, ER being kind of the lower 40% range.

With regards to gross to net, I think what we've said previously and it still consistent is that the franchise is around 60% gross to net and NUCYNTA IR carries a higher gross to net than ER but on average here in that 60% range. We don't expect any major change going forward..

And then on the business development front, Dave, this is Jim. We will continue to what we're done. We continue to look for assets. We continue to see this; we do have things that are coming through.

I think we still have -- there is still some pricing expectation differential between those with assets and those seeking assets, I don't think that's fully collaborated yet.

But we will continue to -- we’ve done in the past and that's the very judicious and picky about what we bring in and we're looking for thing that fit our franchise, that fit the strategy, and that will give us long-lived assets..

Okay. Thank you..

Your next question comes from Ami Fadia..

Hi. Thank you. Couple of questions.

Firstly, on NUCYNTA, could you characterize for us if there was any impact from the deductibles to lot of the other companies are talking about in the quarter? And could you also layout for us off of the price increase has taken in 2015, when do you expect to see the next step ups as the year progresses? And then separately on cebranopadol, could you give us your latest thought with respect to development programs starting play at this year end, early into next year? Thanks..

Okay. So, I think on the deductible piece, I think Ami, we haven't seen anything extreme that we see what we've seen in the past perhaps a bit more , but as much as I've seen others reporting in terms of the effect of deductibles in the first quarter particular on the center franchise.

I think we thought more so on Cambia and Gralise which I think is reflected as you see in the numbers. As far as the step-ups I don't foresee with the price increase we've already taken, any dramatic step-ups as we go through this year.

We may see a bit on July 1, just because we've got a couple of resets, but the majority of resets on those contracts are of January 1 contracts. So, what you see in the first part of the year is what you see. And then last of cebra pieces, as you know, we went through the development program at the Investor Day.

Really no change from the thinking there other than I do just want to make sure I clarify that, that we were – we have stated that we would look to start the Phase 3 program in 2017 not in 2016.

We will be doing prep work this year and that's primarily around preparation of the clinical trial material and the Phase 2 meeting with the FDA and of course we'll need to get feedback from that before designing the final protocol and then actually having to produce the clinical trial material..

When do you plan to meet with the FDA?.

We haven't stated a date other than we intent to do that this year. As you know, you request the date from the FDA and even though there is a 60-day deadline, and the FDA will help guide you on when they wants you make that request. So it fits your schedule. So, at this point 88 is not yet scheduled and we'd expect to do it sometime later this year..

Thanks you..

Thanks, Ami..

Your next question comes from David Buck..

Yes. Thanks. Good afternoon. Just couple of questions on the smaller products and just to follow-up on NUCYNTA, so you talked little bit about Cambia.

Can you talk a little bit about Zipsor trend and for Gralise what is the confidence level that changes in salesforce will actually work for this year? And you'd narrow the guidance range of revenues a bit, was that related to any change in expectations for Gralise? And just for NUCYNTA, NUCYNTA ER and what impact if any are you seeing just based on the controversy over opioid prescription in general and specifically are you seeing any changes in physician behaviour? Thanks..

Okay. So, I think – David just took those. On Zipsor, Zipsor clearly is the bottom product in our bag. It’s sold by part of our sales force and not all of it and so, I think while we may see some demolition of the decline there.

I think what you see on Zipsor and the trend is the trend and until we see differences on it, I wouldn't model anything different than that. In terms of Gralise in the change, one of things that we saw was that we really didn't have a group that had ownership of Gralise. So whether being in a second and third position in both of our types of reps.

We didn't have anything what was really carrying the full banner and now we're making changes on their incentive compensation, and that is the best way to get somebody's attention, selling pharmaceutical products. You change that waiting on their incentive comp, and you will get a change in behaviour and change of focus.

And that's what we're looking for. It's really ownership and focus. So confident we're seeing this type of activity worked in the past and we expected to. But I'm one that once you see the numbers change before we actually start talking about where they're going to go.

And then, to your next piece which is around the guidance, its only the range, it really was narrowing the range, it really was more just around the fact we've now got a quarter under our belts and felt with the guidance that we could narrow down that range, of course still centered around the same number.

If you look at the midpoint of the guidance that hasn't change, we just took some off of beach and narrow that down. And as just reflected, we're now quarter in to the year. And then finally on the NUCYNTA and NUCYNTA ER pieces, you're interested in it if there is lot of activity out there among physicians and lot of talk in terms of what's gong on.

The activity on the ER side, with the actually change in behaviour, scripts are still down about 1% overall, atleast the way with the bucket we look at for the long active market. You certainly have seen more drops than that in OxyContin and to a lesser degree OPANA, but we're still seeing the growth and still seeing the acceleration of the growth.

And I think one physician realized that NUCYNTA ER has different properties than the other opioids, particularly when it comes to the kind of activity that CDC and others are most concerned about.

And then I think the other part of it is, because of the risk starting to concentrate more in the pain specialist office, and that's where we have our greatest impact in our greatest market share. So, I think these things actually could play in our favour as we continue to see the acceleration.

We're experiencing something very different in some of our peers..

So David, thank you. I appreciate the questions. I hope I got them all. If I didn't, I know I’ll hear from you later..

Your next question comes from David Risinger..

Hi. This is [Indiscernible] on the call for Dave. We have two questions. One, could you please provide some more colors on how do you think about sequential momentum into, to key one key products. And the second question is could you please discuss the cash flow outlook for 2016 including CFO and uses of cash this year? Thank you..

Do you just repeat about on sequential, I didn't picked up after sequential..

Yes.

Sequential sales momentum of key products into 2Q?.

I think on the sequential it will be driven as it has been by script trends, I mean, script trends will drive the volume in the wholesalers and so in case you're modelling that down, you're looking at the script trends we should see correlate with the script trend increases quarter-to-quarter as we are now pass this inventory adjustments, some of the deductible pieces, so I'd expect to see that as we get sequentially.

Augie, you want to comment on the cash flow piece..

Yes. With respect to cash flow, we have maintained our guidance with respect to adjusted EBITDA and adjusted earnings we expect to be very strongly cash flow positive for the remainder of the year..

So, thank you. If you have some follow-ups, we're happy to take that call..

Your next question comes from Jason Gerberry..

Hi, there. This is Derrick [ph] on for Jason. Just a couple of questions here.

So, on NUCYNTA growth can you maybe just talk about some of the initiatives that are starting to bear fruit, is it the conversion for dosage forms, does it focused on the neuropathic pain? And the second, can you maybe just give us the next steps in the patent encroachment with Purdue. What should be expecting there? Thanks..

Okay. I'll take the part then I'll let Matt Gosling, our Genera Council take the piece on Purdue.

So I think what we're seeing most on it is couple of things I mentioned, one is certainly the promotion aspect is having an effect and we're seeing that in particulars I mentioned with the pain specialists and the nurse practitioners and PAAs and their officers.

I think the important piece is the positioning, and that's the one that may not quite as evident, but the fact that we position the drug for a patient type particular to low back pain piece is really still just gaining attraction. There is estimates there about 49% of the patients seen by the pain specialists have low back pain.

And so, I think it's less around the DPN indication much more around the low back pain. Now I do think the piece with the two single products with two type of relief that you get, the neuropathic relief with NUCYNTA ER and you have neuropathic elements to low back pain. That certainly is something that I think in physicians minds.

So I think that is a positive for us. And I'd say at this point we're really not seeing a change in the dosage part. We've seen a small change but not yet.

I think some of that maybe a bit mitigated by what you're seeing in the press around opioids I mean certainly as we said in our Investor Day, we agree that you want to treat someone with the lowest effective dose. Our hope is around dosage is to get to effective dose.

And should patients have a second or third titration step to get to the right dose for them. I think at this point our growth is somewhat muting that effect though, because we get a lot of patients coming in. We've got so much – so many new starts coming in and those patients typically start off on the 50 milligram.

That's really the elements that I see in terms of most affecting it. And then, Matt if you can mention on Purdue IPR..

Yes. In the Purdue case we are through with the IPR proceedings and the appeal on that, so we're thankfully as of last month back in District Court in New Jersey and we will be sort through this year and into early next year going through claim construction and discovery pointing toward the trial about a year from now.

So that's kind of timeline of case going forward and we certainly look forward to pushing that forward aggressively..

Great. Thanks guys..

Your next question comes from Scott Henry..

Thank you. Good afternoon. Most of my questions have already been asked. I would comment that NUCYNTA ER scripts look great as of late. Sounds like that sustainable.

So, only one minor question, the ongoing proxy fight not a question related to it, but could you talk about is there – how much is the cost of that ongoing events and is that in your guidance?.

So, I'll handle the first and let Augie talk about it on the guidance piece of it. Essentially, we don't have full estimate of what it may cost us because we don't know exactly how long it will go at this point, Scott. But I would say you saw somewhat happened last year in the full fees related the Horizon situation were $11.9 million.

I would expect this to be less than that, but at this point we can't give a good number on until we see exactly how long it goes and when it goes. And in terms of the guidance piece, Augie..

We excludes these costs from non-GAAP SG&A, again as we said here today it's hard for us to anticipate exactly how this is going to play out, Scott..

Okay. So you will be excluding them in future quarters as well..

Right..

Okay, great. Thank you for taking the questions. Thanks..

Thanks Scott..

Your next question comes from Ken Trbovich..

Thanks for taking the questions.

Just a couple of quick ones, specifically Augie with regard to the ANDA expenses being quite high obviously in the first half of the year, is there any chance that we actually see SG&A lower on absolute dollars in the back half even though we'll have higher sales figure likely in the back half of the year?.

So, Ken, this is Jack. I think kind of as we're looking at the progression on SG&A expense, I think as we sit here today Q2, Q3 we may see SG&A expense that's fit similar to Q1, but I think right now we're projecting Q4 to be a bit lighter..

Sure. And then specifically with regard to from a commercial standpoint I guess Jim this is more towards your side on the repositioning of Gralise with the CNS focus reps.

Can you give us a sense again as to what number of reps we're talking about putting it into number one position and then what implications you think that might have when we start talking about back half of the year with year-over-year comps, when we we're comparing to a period where you re-launched as opposed to a period where there was a contract salesforce in pain [ph] there?.

Yes. So, I think it relates on two different things, one with Gralise and one with NUCYNTA and so on. The first one with Gralise, there is – the split on the salesforce is approximately 190 reps that are more pain focused and then about 90 that are more CNS focused.

So it would be 90 people have it in the first position and approximately half of their incentive compensation coming from Gralise. So that will be a lot more focused there. It's interesting; it’s about the same number of equivalents in terms of time with the physicians which is much more focused.

And then in terms of comps piece, we will be coming on to the part of the year when we started to see our own salesforce efforts. But really those first few months on even through the third quarter last year we were up I think by September we were up about 10% year-over-year.

J&J had been up about 2% year-over-year, so the comps are there, but they're not that steep as you get into the back half of the year, and we think we'll keep real one. But we've got great momentum going right now.

As you heard we're picking up more support on the managed care side and with all of that and people getting their feet under them, I think we'll be in good shape. This is also the time of year, at the time where we also see that some of the reps that we hired last year, when we did our big expansion, we're finding out what they can really do.

And so, its not untypical having done both new salesforce and expansions on number of times over my career about this time when you start to see about 25% of them not make it. And so you bring in fresh blood [ph] there and you actually then see an uptick from there because you get more people and they are making it.

So if you just the numbers on the 130 or 40 we hired last May, June, probably about 35 of them won't be here by the end of summer, some I have already called out of it. As just kind of one of things that's natural in terms of as we bring people in and see what they can really do and perform..

Got it.

And then last question and I know this is very early days, but can you talk it about sort of impact you'd expect to see with the FDA push to see mandatory training for opioid prescribing going forward?.

Yes. I think that one of the reasons I mentioned during my earlier remarks about in both the CDC and FDC piece, but we do have such a concentration and people that are specialists in pain. And I think as that happens, I mean, those are the ones that already trained on it.

I don't think there'll be any effect of the FDA guidelines, training guidelines on those folks. And in fact the bigger part of the FDA guidelines really effects will goes on in the IR side and really adding to what's already been on the ER side.

So I think there's – there'll be relatively little impact on us compared to where some other companies may fall at..

Okay. Thanks so much..

Hey, Ken. Thanks..

Your next question comes from Chiara Russo..

Hi, guys. Thanks for taking my call. And I apologize if it's been asked and answered since I kind of got on a little bit late.

So just to sort of touch on something, I know you guys have commented in the past about the potential for prepayment of your debt and refi opportunity, can we sort of assume that you're going to be sticking to that sort of calendar as that is sort of what the debt covenants allow you to do.

You can't go forward and just prepay the whole thing, because obviously you get hit more substantial penalties..

Yes. So, I'll start with the very first part of it then I'll turn over to Augie for the bulk of the answer on the care. When we looked at the options we had for finance in NUCYNTA acquisition.

We looked across the capital on doing equity, mix of equity, convert and bonds, we were certainly not assured that we would have investment grade bonds and we could have been looking at interest rates on the bond at 9% anyway, plus having to do equity and actually hold on top of that. And so cost capital was significantly north to where we ended up.

With that said, we did structure the flexibility in to that note.

We did that purposely where we could do the $100 million and we paid down last month and tend to continue on that path and as you know we structured it so that on the second anniversary we can restructure the whole, and we can pay down the whole thing, we can decide to go refine a different way on it or we can simply pay down and the penalty goes down each year.

The penalty for prepayment penalty next year is only 4%, then the next year it goes down to 3%..

So you were literally paying this off as quickly as you can or….

As quickly as we can. You know that’s exactly what I….

As cheaply [ph] as you can, okay..

Exactly. And I think ultimately it ends up the efficient use of capital on that asset….

Okay..

And Chiara, this is Augie.

As we said from time to time in the past given our guidance for this year, we would expect that in April of next year, when we have the ability to repay and or refinance the debt that our debt-to-EBITDA ratios will be much more comfortable looking at trailing 12 month EBITDA and that we will be a much better [Indiscernible] obviously in April of 2017 than we were in April 2015..

Okay. All right, perfect. So my next question in terms of the cebranopadol development.

I know you guys have pegged the number for development cost and I was wondering if you could give us a little bit more color on what type of sort of write offs you can get from that as well?.

The full development program, the expenses associated will be deductible and then will also give rise to R&D tax credits.

So, when we talked about the after tax amount for the development and spend, you know and the kind of that $100 million of topline are R&D [ph] development through the end of the phase 3 program translates to about $61 million, $62 million of after tax expense..

Great. And my last question, I thought that sort of individual riders were numbers across all products were a little bit weak January February of this year but they came back with a vengeance in March specifically with NUCYNTA to IR and ER.

And I was wondering if there was anything in particular that was attributable to that?.

No, I think we had a sales meeting at the end of January. And I think you started to get the full effect of the sales force being out there with additional materials and just the additional training and so I think that really helped us into that time period, plus we picked up these managed care wins.

So I think that happening during that period has allowed us to increase both the scripts, but as you are pointing out increase the number of riders..

So when is the next sales meeting?.

Hey come on, soon, soon….

Thank you..

Hey Chiara thank you. And as we close the call today, it’s hard to believe that it was a year ago that we had just acquired NUCYNTA and really transformed the company. And I think we’ve made substantial progress over the last year and the fact that we are now talking about the type of numbers that we are on NUCYNTA.

Now we continue to advance the business, we continue to build value for you the shareholders and we look forward to reporting our progress to you throughout 2016. So thank you very much for your continued support at Depomed..

This concludes today’s conference call. You may now disconnect..