Christopher Keenan - Vice President, Investor Relations and Corporate Communications James Schoeneck - President and Chief Executive Officer Matthew Gosling - Senior Vice President and General Counsel August Moretti - Chief Financial Officer and Senior Vice President Jack Anders - Vice President of Finance.

Randall Stanicky - RBC Capital Markets Ami Fadia - UBS Chiara Russo - Cantor Fitzgerald Jason Gerberry - Leerink Partners David Buck - Northland Capital Markets David Amsellem - Piper Jaffray Ken Trbovich - Janney Montgomery Scott LLC Irina Koffler - Mizuho Securities USA Inc. David Risinger - Morgan Stanley.

Good afternoon and welcome to the Depomed’s Second 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, Jason. Good afternoon, and welcome to our investor call to discuss the company’s second 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; 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 was filed today 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 available accessible document.

References to current cash, cash equivalents and investments are based on the balances as of June 30, 2016. All guidance, including that relate to the company’s expected total product revenues, operating revenues, adjusted non-GAAP earnings and adjusted EBITDA is as of today, August 3, 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. With that, I’ll turn the call over to Jim Schoeneck..

promotion, positioning, patient access and proper dosing. Let’s look at what we have accomplished in the past year, since our re-launch of NUCYNTA. On the promotion front, we continue to perform well with pain specialists, plus the nurse practitioners and PAs that work with them.

Our market share with pain specialists now exceeds 3% of the long-acting opioid market and is almost that high with NPs and PAs. These groups together write about 75% of the NUCYNTA ER prescriptions.

This is even more important when you consider that many primary care physicians are slowing their use of long-acting opioids, and referring more and more patients to pain specialists where we are much more likely to capture the scripts for NUCYNTA ER.

For product positioning, we believe that we have fundamentally changed the perception of NUCYNTA ER in the marketplace. Our work on repositioning NUCYNTA ER is paid off by defining a key patient population for the first time.

Our market research study shows that the number one profile for physicians to prescribe NUCYNTA ER is the low-back pain patient with both nociceptive and neuropathic pain.

In addition, the market research reports that NUCYNTA ER is now seen as equally effective to other long-acting opioids in traditional pain and the number one choice for patients with neuropathic pain, a significant change from the pre-Depomed days.

Finally, the product is viewed as having low abuse potential and no evidence of a dose group seen with other opioids. We believe that these favorable characteristics reported by physicians will lead to further increases in prescribing and market share. Turning to patient access, we’ve maintained strong formulary coverage and in some cases enhanced it.

As I mentioned, 76% of commercial patients have unrestricted access to NUCYNTA ER, equal to that of oxycodone and more than OPANA ER. We are happy to report that Depomed products have retained favorable formulary positions at both Express Scripts and CVS Caremark.

At ESI, NUCYNTA, NUCYNTA ER and Gralise will all continue as Tier 2 Unrestricted in 2017. At CVS Caremark, NUCYNTA, NUCYNTA ER and Gralise will again be covered as Tier 2 Unrestricted on their national formulary.

In addition, we have recently completed an analysis of our patient assistance and co-pay programs and we are making adjustments that we believe will improve our gross to net calculations in the back-half of 2016.

Regarding proper dosing, we’ve mentioned in the past that the dose of NUCYNTA ER used in the Phase III clinical studies was significantly higher than the amount used in the marketplace. Part of our 2016 forecast was predicated on seeing a slight increase in the milligrams per day of NUCYNTA ER prescribed.

There are two things that we’ve seen since our re-launch. First, physicians are now even more cautious about raising the dose level of any opioid. So we have actually seen a slight drop in the average milligrams per day rather than an increase.

Second, our market research shows that physicians do not see the dose creep with NUCYNTA ER that they see with other opioids. In other words, patients see continuing pain relief with NUCYNTA ER without the need to increase the dose due to tolerability and their doctors attribute this to NUCYNTA’s unique dual mechanism of action.

As I mentioned earlier, we fully support the appropriate prescribing of opioids, including using the lowest effective dose for each patient. Even with these market headwinds that have affected both the overall market prescriptions and the dosing levels, we saw NUCYNTA ER and NUCYNTA prescriptions and sales trends continuing to accelerate.

We believe that the unique value proposition offered by NUCYNTA will continue to fuel growth for years to come. The rest of our portfolio experienced a 19% year-over-year growth for the quarter with $45 million in revenue. The Gralise and Lazanda hit all-time record-high quarterly net sales.

As I mentioned during our last quarterly conference call, we were not pleased with the performance of Gralise over the past year since our re-launch of NUCYNTA. During that call, I also told you that we would be making changes to move Gralise back to growth mode.

In May, we initiated a net additional product training for our CNS sales reps that sell Gralise. As of June 1, we also adjusted the incentive compensation levels for this group. So that Gralise now accounts for 50% of this group’s bonus compensation. In addition, we rolled out new medical education speaker content to further differentiate Gralise.

We believe that these steps achieved the goal of increasing product knowledge as well as increasing focus, accountability and personal ownership for the brand.

Starting on June 1, Gralise is the number one priority for our CNS focused sales team, and we are expecting to start seeing results from this initiative sometime in the second-half of the year. Cambia continues to grow nicely, achieving all-time high total prescriptions during the quarter, up 15% in prescription volume over second quarter 2015.

Neurologists continue to be the key to Cambia sales and we expect growth to continue throughout 2016 and beyond. With Lazanda, we posted record quarterly revenue of $6.4 million, up 65% over second quarter 2015.

We achieved 18% year-over-year growth in units during the first-half of 2016, in contrast to the overall TIRF market, which saw an 11% drop in units during the first six months of the year. This growth was impacted by compressions of market as a result of increased scrutiny by payors.

We saw that payors were increasingly examining incoming prior authorization requests and continue to demand additional documentation supporting of patients diagnosis and prior pain management regimens before authorizing a TIRF script. Recognizing this trend, we took two active steps during the quarter.

First, we provided even more reimbursement support for physicians prescribing Lazanda, bringing prior authorates [ph] back up to around 80% approval from the 55% approval rate that was seen earlier in the year. Second, we’ve expanded the sales force for Lazanda by 9 reps to total of 33.

Designed further the reach and increase the frequency among our key prescribers, this group of primarily experienced oncology reps was hired and trained late in second quarter and started selling Lazanda in July. We believe that this group is a key to continued growth for Lazanda and we expect to see their impact during the fourth quarter.

Finally in June, we introduced a 300 microgram dose strengths of Lazanda, adding to existing 100 and 400 milligram strengths. This new dosage strength addresses the need for greater dosing flexibility that we heard from physicians shortly after we re-launched Lazanda.

It’s particularly important for patients requiring higher doses as the two-straight dose of the 300 microgram, now provides an intermediate step between the 400 and 800 microgram doses.

Regarding the development of our Phase III ready asset cebranopadol, last week, we submitted our End-of-Phase II request to the FDA, which keeps us on track for starting Phase III trials in 2017. We will continue to update you on cebranopadol as the program moves forward.

And looking ahead to September, we will again have a strong presence of PAINWeek 2016, the nation’s largest pain conference for frontline pain physicians. And now, I’ll turn the call over to Matt, to give you an update on the NUCYNTA ANDA Litigation and the recent PTAB decision..

Thank you, Jim. On the intellectual property front, we continue to expect the decision from the District Court in the NUCYNTA ANDA Litigation, no later than September 30. We remain confident in our prospects for securing exclusivity for the NUCYNTA franchise well beyond the expiry of the primary composition-of-matter patent.

As a remainder, with the six month pediatric patent term extension, we expect FDA to apply to all of the NUCYNTA patents. The patents on the tapentadol-molecule protect the franchise until February of 2023. The polymorph patent covering the marketed forms of NUCYNTA and NUCYNTA ER extends that protection to December 2025.

And the neuropathic pain method-of-use patent covering NUCYNTA ER will expire on March 2029. The defendants in the litigation have conceded infringement of both the 2023 and 2025 patents. So the District Court is only considering whether those patents are valid, and whether the polymorph patent is enforceable.

In that regard, as we disclosed on July 18, the Patent Trial and Appeal Board denied the IPR petition filed in January 2016, challenging the validity of the polymorph patent.

Though the IPR proceeding in the ANDA Litigation are unrelated procedurally, the invalidity arguments made in the IPR petition were duplicative of many of the invalidity arguments the defendants made to the District Court in the ANDA Litigation.

It’s important to point out that the legal standard applicable to invalidating a patent in an IPR proceeding is a lower preponderance of the evidence standard than the clear and convincing evidence standard that applies in District Court litigation.

Thus we believe the fact that the PTAB declined to review the patent altogether indicates our confidence that our polymorph patent is well-placed. As to the other arguments the defendants asserted in the ANDA Litigation, we are unaware of any court invalidating a polymorph patent on those grounds.

As for the 2029 method-of-use patent covering NUCYNTA ER, we believe we presented a strong case demonstrating them the claims of the patent are invalid and infringed. So we feel we have a very good chance of securing nearly 13 more years of exclusivity from NUCYNTA ER. We look forward to the court’s decision.

In the meanwhile, we remain amenable to any settlement opportunities in line with the merits of the case. But we won’t be commenting further on the prospects for settlement on today’s call. I’ll now turn it back over to Jim..

Thank you Matt. And now Augie will jump in to discuss our finances and updated guidance..

the decline in the market for opioids and the fact that we have not seen our expected slight increase in milligrams per day of NUCYNTA ER prescribed, but rather have seen a slight drop. Guidance for the year is based on actual results for the first six 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 of the relevant risks related to our guidance.

I’ll direct you to the Risk Factors section of our quarterly report on Form 10-Q that we filed today. With that said, total revenues for our six products for 2016 are expected to be in the range of $480 million to $505 million. This is a reduction from our previous guidance of $490 million to $520 million.

We are also reducing our non-GAAP SG&A expense guidance. Non-GAAP SG&A expenses; that is GAAP minus stock compensation, purchase account and contingent consideration adjustments and non-recurring costs; are expected to be in the range of $185 million to $190 million, a reduction from our previous guidance of $185 million to $195 million.

Non-GAAP adjusted earnings are expected to be in the range of $95 million to $105 million. Adjusted EBITDA is expected to be in the range of $175 million to $190 million. These are changes to the high-end of the ranges from our previous guidance that reflect the adjustment in revenues and expenses. That concludes the financial discussion.

And I’ll now turn the call back over to Jim..

Thanks, Augie. Over the past year that acquisition of NUCYNTA transformed Depomed. By adding this unique novel drug, we now have one of the most highly-differentiated pain and CNS focused portfolios in the industry. As I mentioned, we’ve grown NUCYNTA revenue significantly over the past year, up 59% from the level before our re-launch.

And we believe that there is plenty of room to grow. Our entire product portfolio is built upon lengthy product exclusivity. We have already won in Court or settled with ANDA filers, keeping exclusivity till 2022 with Zipsor, 2023 with Cambia, and 2024 with Gralise.

The exclusivity on NUCYNTA and NUCYNTA ER will be determined soon and cebranopadol potentially takes the current portfolio into the mid-2030s. As most of you are aware, during the quarter 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 welcome open communication with Starboard as we do with all of our shareholders and we appreciate 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 second quarter results and our outlook.

We will not be making further comments with respect to Starboard. Thank you for your understanding of that. And we now open the call to questions..

[Operator Instructions] And your first question comes from the line of Randall Stanicky..

Great, thanks, guys. I just have a couple of specific ones and then a bigger picture question. Jim, just first, I know you guys touched on inventory, but can you just comment specifically on NUCYNTA inventory in the quarter? And then secondly, you talked about gross to net moving, improving in the back-half.

Where is it now and where can it get to? And then I have a bigger picture question..

So I’m going to actually turn it over to Augie and Jack on the financial questions..

Yes. With respect to days on hand, on average the two with NUCYNTA and NUCYNTA IR were essentially flat. One was up a day and one was down a day..

Okay, and on gross to net?.

So we actually haven’t - we actually don’t disclose the overall gross to net Randall. And we got some things though that around our co-pay cards, around our e-vouchers and some other things that we’re looking at optimizing.

That would potentially bring us back more revenue on each script and this would be revenue on those adjustments that would drop straight to bottom-line..

Okay. And then, Jim, I mean, this one is probably for you.

When we look at the changed guidance - or maybe, Augie - when we look at the updated guidance, is it fair to assume that NUCYNTA, lower assumed NUCYNTA revenue outlook for the year is the primary change to that new range? And then, the second part of that would be as we look to the full-year it still implies, at the higher end at least, a pretty sharp ramp.

Can you help us understand the swing factors, what needs to happen to get to the higher end of that revenue range for the year?.

I’m going to let Augie take the first part and I’ll take the second..

I think, we - in our normal quarter-end process, Randall, we review all of the brands. And I don’t have the breakdown of any brand, the brand adjustment here. So I’m not prepared to answer specifically the causes of the delta..

So, Randall, with respect to that, I think as we look at it I would say, NUCYNTA just by the fact that it is our largest overall franchise and it’s about two-thirds of our sales really is the biggest factor in terms of that change.

I mean, some of it is around the opioid market, which at the beginning of the year was basically flat to 1% up and is now down 4% to 5% year-over-year. That’s the first part.

The second is on the dosing level that I mentioned earlier, where we had estimated that we would have a slight increase in the dosage per day and now we’re actually seeing is it’s slightly down. And so, that really are the two biggest factors in terms of that change in the guidance range. Well, I think, in terms of….

Well….

Go ahead. Go ahead, Randall..

No. No, go ahead, please..

I was going to say, in terms of the back-half of the year, I mean, we continue to see things accelerate. We’ve seen things move up. I would point out we have not yet taken a price increase this year on NUCYNTA, NUCYNTA ER or Gralise, so we will be looking at a number of avenues that we made due to enhance revenue in the back half of the year..

One of the questions you’ve gotten lot is around the 2018 target for NUCYNTA. You guys have done a very good job re-launching in both the IR and ER, and the growth, both is inflected nicely. Obviously, there has been some macro-challenges to the broader opioid market.

For the term investors looking at 2018 and anything beyond, is that $500 million target still something you guys aspire to, how much confidence do you have in your ability to continue to inflect growth higher, because that’s effectively what needs to happen to get to that number? Can you still do that given the macro backdrop?.

Yes. I think a couple things, Randall. One is we actually have not mentioned the $500 million number since first quarter. It hasn’t been in our presentations since then. It hasn’t been on our calls or the oral presentation since then. So that should give you some indication.

Some of it really is around some of the changes that we’ve seen in the opioid market. And so, that’s in particular why we haven’t reiterated that number. I still think that we have a good opportunity to continue to increase the prescriptions. Again, we saw the 26% up in June. We continue to see the growth starting to occur now on IR.

And so I think, there is a lot of upside on NUCYNTA as we continue to gain even more traction. And this concentration as I mentioned into the specialist office actually helps us. I mean, we have about three times the market share in the specialist office and the pain specialist office than we do in primary care.

So any patients that switch from one to the other have a much higher chance to get in our drug..

Yes. That’s great. Thanks for the detail guys..

Thanks, Randall..

And your next question comes from Ami Fadia of UBS..

Question, firstly on NUCYNTA.

Could you give us a little bit more color on what else might be slowing down besides the overall market and maybe the size of the prescription and maybe if you could sort of give us some sort of quantification around the average dosing levels currently versus where they were previously? And what types of patients are no longer getting NUCYNTA, which you thought could have been good candidates for NUCYNTA before? That’s my first question….

Yes, Ami, one, thanks for the question. I think a couple things in there, you mentioned about prescription, the number of pills per prescription down. They actually happened. That actually remained constant. It’s been the milligrams per day that’s come down.

So immediately before our re-launch it was around 270 milligrams per day average dose of NUCYNTA ER. It’s currently ranging depending on the month at 258 to 260. And so what we had thought it would go up slightly, it’s actually come down about 10 milligrams a day, so about 4%.

So that’s a pretty large swing when you look at a market that the pricing is essentially linear and based around the milligrams per pill. So that really is the biggest around things..

Got it. And you previously talked about potentially looking into expanding the sales force in 2017 and you said that wanted to review that decision at some point.

Is there any update you have around that?.

When we do that every year, every year we take a look to see are we - is our alignment optimal, do we have the right resource in terms of our field personnel, so both in terms of who we’re calling and on the number of people. I mean, one of the interesting things about this market right now, it is constant. It’s becoming more concentrated.

The pain physicians’ offices, some of them that we talk to say, that they’re actually overwhelmed with referrals coming in. And so, I think that’s really an opportunity for us, because we have extremely good coverage of that audience. But to answer your question, we will look at that as we do every year.

And then make the decision as we through our fall and late New Year budgeting cycle..

Got it. And then, just lastly on Gralise and Cambia, for Gralise was there any change in inventory stocking in the second quarter? And last quarter, you talked about an impact from deductibles that you had to sort of help patients with impacting the net realized price for Gralise and Cambia.

What is the trend you’re seeing in second quarter and have you sort of recovered from that with respect to the net realized price? Thanks..

In terms of days on hand of these….

Ami, this is Jack Anders here. In terms of days on hand, Gralise was probably a little bit about the one-day average. So probably close to the two-days, increase from a days-on-hand perspective.

With regards to gross to net, we did see a little bit of an improvement from a gross to net perspective, specifically for Gralise relative to Q1, relative to the deductibles. So there’s a trend in Q2 and we hope we can continue that through the rest of the year..

Yes, what we continue to see, Ami, as I think a lot of companies see, as you see a drop off in the January and somewhat into February timeframe is some of the high deductible plans reset and you’ve got higher deductions around your co-pay cards or the equivalents of those. And those tend to be then washout by the end of February or so..

But just so I understand correctly, did you continue to see an impact from that in the second quarter? It sounds like….

It really minimizes after the first couple of months of the year, because that are on those, once they meet their deductibles, then things are covered. And so, once they are covered we’re no longer having quite the expense going out in the terms of the co-pay cards that had dollars going toward each of those scripts.

So it seems to be a first quarter phenomenon..

Okay. Thanks..

And you next question comes from Chiara Russo of Cantor Fitzgerald..

Yes, hey, guys, thanks for taking my questions. I only have just I think two at this point.

I’m kind of curious at the - that the milligrams per day piece, because I know that’s part of your marketing pitch NUCYNTA, it’s proper dosing, and that the original thought was that physicians were under-dosing patients, and are a little bit concerned that these dosages are kind of ticked off the way that they have.

I’m just wondering if you could give me just a little bit more color on that..

Yes, there are really two effects going on here. I think one is as we get more new patients on to the drug they start on the 50 milligram dose and then move up to the 100. And a number of them are not needing to move past that physicians are telling us in the research that patients are seeing relief at that level. So that has some to do with it.

That we’ve got new patients coming into the flow as we reaccelerated the brand. I think, the other part is that there is a kind of broad concern, I think by physicians on making sure that they are using indeed the lowest effective dose for opioid. And that’s one that as I mentioned earlier, corporately we broadly support that.

And so it’s one where, we’ve seen growth in the brand, we continue to see growth throughout the strengths of it, the growth is slightly higher in the lower strengths of the brand. And so that’s how we end up with that change in mix around it.

And the other one, I think, is important is when I mentioned, where literally they’re telling us that she is on other drugs, the patients tolerate and I have to then increase the dose.

And what they are saying is on NUCYNTA, I really don’t see that, and that’s likely mechanistic, that’s likely a combination of the norepinephrine and the μ receptor antagonism. And those two together, rather than just hitting μ is really what’s allowing them to see that with NUCYNTA..

Okay, okay, great. And just sort of the last one here, I mean, I know you guys always get asked about minimizing your taxes. What are the latest thoughts on inversion in this - is that a priority for you guys? Thank you..

We continue to look at ways to reduce our effective tax rate going forward, as I mentioned. Continues to be a priority for us, we do have the benefit of bit of time, in terms of what our effective tax rate is for this year and as we move out over the next several years.

There has been a lot of attention to the inversion issue in the wake of the proposed Pfizer inversion. I think, that an inversion is still available to us, it’s something that we continue to look at, and along with other strategies to reduce our effective tax rate going forward..

I think overall, Chiara, we just look at it very comprehensively and how do we control for tax rate and there are different elements to it now simply the inversion around..

Sure. All right, great. Thank you, guys..

Thanks, Chiara..

And your next question comes from Jason Gerberry of Leerink Partners..

I just have one question just on NUCYNTA pricing. So assuming, you guys don’t take another price increase this year that 10% tailwind from cumulative year-on-year pricing for the drug.

How much of that would you expect to flow through into the number, especially in light of this growth to net improvement kind of curious if the full benefit of that 10% will flow through the number or even an excess of that 10%?.

Well, so Jason, just to make sure we’re all start with - we have actually not taken a price increase this year. We did take on late last year, but we have not taken any price this year..

Yes..

And with that, I mean, typically we would see - in all depending on what time of the year it happens and where the resets are compared to the timing of that price increase. Where you would see somewhat - my normal number would be around 50%, 60%, 70% depending on the brand and the exact timing is what you would see flow through.

Products like Cambia, you tend to see more flow through, because it tends to be a primarily commercial focus drug with very little of it in the government programs. And since the government programs are all tied to CPI increases, particularly if anything of the Medicaid program, that’s really the one where you end up rebidding much of it back.

So anything that’s higher than Medicaid, you end up with a higher percent rebated back and with that less realized..

Okay.

And then, so NUCYNTA then something that’s above or below that - I’m sorry I’ve kind of lost track of what you said within that example?.

Yes, NUCYNTA is a fairly low Medicaid. If there does, there is some in Medicare, but those are contracted. So really it’s more commercial followed by a slice of Medicare and a small slice of Medicaid. So I would put it towards the mid to higher of that range that I gave..

Okay.

And just my follow-up question, with the Teva deal closing you get this favorable IPR, I’m just kind of curious, were these in any way impediments to settlement discussions given that the ANDA was changing hands, just curious if you can comment on that?.

Not, not specifically, Jason. But certainly any time a lot of companies acquire there is this direction and there are consequences from this direction. So I mean, I really won’t say any more than that..

Yes. I mean, Jason, what we can say is that that the team was going pretty much intact from Allergan to Teva. And so, we didn’t really see a disturbance in the team, when it was switching over. So I don’t think there was any large issue on it..

Okay, great. Well, thanks for taking my question..

Thanks, Jason..

And your next question comes from David Buck of Northland Capital..

Yes. Thanks for taking the question.

Just on NUCYNTA in the quarter, the sequential growth just for clarification, did you see any change in gross to net that may have impacted the reported revenues for that product? And just in terms of the timing of the impact from changes to your co-pay program, is that really just a fourth quarter event? And what does that depend upon in terms of being able to realize that gross to net benefit? And how do you incorporate that in the new guidance? Thanks..

David, so with regards to NUCYNTA growth, it was relatively flat from Q1. I would say maybe very, very modestly down, but nothing substantial with regards to sequentially Q1 to Q2..

Down meaning an improvement?.

No, sorry, down meaning a reduction of revenues associated with gross to net, but very modestly down..

And in terms of the provisions on the co-pay program, that actually would affect the back-half of third quarter and fourth quarter..

Is that improvement - is that dependent upon actions that you need to still take or is it an action that you’re taking already?.

It’s some of both actually. We’ve made one change and we’re going to be making a couple of others over the next couple of weeks..

Okay.

And then one final quick one, the change in reps and compensation for Gralise, when would you expect to see the first impact in that?.

Really during the second-half of the year we haven’t defined any more than that, but it generally takes reps. There was definitely a need for additional training and putting it in the first position for their sales calls, and also more importantly, as half their bonus compensation. There was really a need to ramp up our knowledge base there.

And so, we’ve done that. They’re out now selling with that knowledge. We’re about two months into that and we expect that we start to see it as we get into the end of third quarter and into fourth..

Okay. Thanks..

Hey, David, thanks..

And your next question comes from David Amsellem of Piper Jaffray..

Thanks. So on the managed care landscape for NUCYNTA ER, can you just remind us what percentage of commercial libs have unrestricted access these days and how should we set our expectations for contracting in 2017. And then, secondly, you’ve said in the past that your longer-term aspirational target for NUCYNTA peek sales is around $1 billion.

Is that still something that you’re thinking about as an aspirational goal? Thanks..

So both pieces of that; David, the first, we current have approximately 76% unrestricted commercial coverage for NUCYNTA ER. And there is another 15% or so that has some sort of a prior authorization or step added with it, and a very small percentage that’s actually not covered.

So it’s actually very, very good and equivalent to the market leaders in the category. We don’t see any substantial change there. We continue to look for our managed care wins. But when you got that higher percentage already, it’s tough to push it a whole lot higher.

As I mentioned earlier, we know as of this week and we’ve been able to release that for both CVS Caremark and Express Script, so we retain Tier 2 preferred on their national formularies for both NUCYNTA and NUCYNTA ER. So a very good position there. And in terms of the aspirational piece, we do.

We still see NUCYNTA as really providing a solution in the marketplace that no other drug provides. And we see as the traction continues to grow that we can continue to grow. And we believe that before the end of exclusivity, we can get at that $1 billion dollar level..

If I may follow-up, I mean, if you don’t get a favorable legal outcome, does that change your view on peak sales?.

Certainly, the year that that would happen would matter. As you heard from Matt earlier, we’re bullish on both the patents and our case against the ANDA filers. And so, certainly that comes into our equation on it..

Okay. Thank you..

Thanks, David..

Your next question comes from the Ken Trbovich of Janney..

Thanks for taking the time for the questions.

A couple of strategic ones, Jim, I was wondering if you could talk about turnover with your new sales force and whether you’ve seen anything associated with some of the efforts that you had to make with Horizon last year, whether or not you’re doing things like that now to try to retain the sales force, obviously knowing that they’ve been on a year and the benefit of the expanded sales force should really start to accrue through that experience that they’ve gained in the last 12-months?.

Yes, if you think of the last year, I mean, with as you mentioned, Horizon just over a year ago and now the more recent activity. We cranked up the communication both internally at the office and at the sales force during that time. And I think pretty remarkable that we had hired 130 sales people shortly before the hostile was initiated last year.

And by the end of the year, we had lost a handful of people that we didn’t want to lose in the sales force out of over 300. So we had extremely low turnover rate in that sales force. We’ve continued to see that as well.

I mean, you always lose a few people that you don’t want to lose, but it really is people that where we think we can get even better, and get better results out of those territories.

I mentioned in the past that as you do a large expansion typically about a year later, you are able to sort some of that out to really see the people that are really making a difference and out there selling and people that maybe aren’t as effective, and right around a year, which is kind of what we just passed as we start to see there.

So we may see a little bit more turnover, but it may be some turnover that’s actually good for us rather than the other way..

Sure.

And then, just with regard to the opportunity on business development is the Starboard overhang creates a situation where the board and management would be reluctant to take advantage of M&A opportunities until that’s resolved or do you feel as though there is a clear mandate?.

If we see an opportunity we would not be bashful on executing on it. And when you consider the situation over the last year or so, I mean it’s one where we’ve continued to look. Now, the great news on this is that we have just - as that all that activity started, had just re-launched NUCYNTA and NUCYNTA ER.

And so, I think both the opportunity to grow the current portfolio with the length of time that we have on it, along with delevering allows us to still provide a lot of value right now, while we continue to be very selective in what we look at the license end..

Was the target still primarily to be focused to CNS? And could you give us a sense on size or scale? Would you limit yourself on size or would you be willing to look at a comparable size company and do a merger of equals?.

We would look at a merger of equals. We would look at - if anything over the last year, perhaps the bottom-end of what we would look at has moved up some. To do another deal the size that we did with either Lazanda or Cambia, it probably wouldn’t make a lot of sense right now.

Where one was doing $4 million before we bought it and - or excuse me, about $1 million before we bought it. And the other was doing about $13 million. So those may not make quite as much sense anymore. But in terms of the upper end of it, we would see that as possible and would continue to look at those larger opportunities..

Great, and then, last question, just with regard to debt repayment, I know last year you guys was very upfront about your plans and your intentions to repay that debt on the anniversary.

Can you give us a sense as to what your comfort level is on similar plans either to restructure or repay for next April? And if you can’t do that now, how long do you think it will take before, you’d have the comfort to kind of talk about strategy around that aspect?.

Ken, we are very intent on repaying and refinancing the debt in April of 2017. And so we mentioned on the call, we ended the quarter with $119 million of cash on the balance sheet. We expect to be strongly cash flow positive in the second-half of the year.

Given the size of the business we have to retain some of that cash in April of next year for working capital purposes. But we have - in my view we’d have the ability to use a portion of our cash-on-hand to repay a portion of the debt. And we think refinancing what would be left would be a very manageable proposition.

Again, debt to - secured debt to EBITDA ratios would be very strong at that time and we think that we could refinance whatever balance was still there..

So, Augie, is it too early to give us a sense for what you think the difference in terms might look like in terms of the marketplace on what the current level of debt is versus - or not the level of debt, but the actual cost of debt relative to what you think you might be able to attract, given the fact that you had NUCYNTA and are showing the strong growth there both in terms of revenue and cash flow?.

Ken, I want to jump in on this. I think that our belief is that it will be a much better credit than we were 18 months ago, when we bought NUCYNTA. But predicting exactly where the credit markets are going to be six months from now or eight months from now. I’m not sure that I’m comfortable doing that.

And if I could, I’d probably be doing some bond trading..

Well, I don’t think any of us expect the rates right now. So the risk there doesn’t seem too high, but I understand you’re reluctant. So I appreciate you taking the time. Thank you..

Thanks, Ken..

And your next question comes from Irina Koffler..

Hi, thanks for taking the question. It sounds like you guys feel pretty good about your NUCYNTA Litigation and the brand’s durability.

So I was just wondering if you do prevail, if you would consider other market expansion opportunities like conducting trials or creating more publications for specialists, especially given the fact that you have really good managed care coverage..

We always looked at that Irina. And look at what we can do to both give us data in the marketplace, and as importantly, modifications of the label on the product. So we certainly will continue to look at those things. And there are some things where there is data already there that we may be able to make some label modification.

So those are things that we’ll continue to evaluate and the publication piece is always an ongoing piece. We’ll have a number of abstracts coming up pain meetings over the next year or so..

Okay, great. And then on - the second question I had is about the Purdue litigation.

Can you may be just give us an overview as to what’s going on timelines and, potentially, some of the scenarios that we could see, just help us understand that a bit more?.

Yes. Let Matt take that and I’ll maybe make a comment when he finishes..

Yes, Irina. We are back up in running in that litigation. We’re headed toward a trial. They haven’t been specified, but would expect about a year from now, maybe little bit more potentially. So we’re actually not too terribly far away from getting to a trial on that.

Obviously, the scenarios are either we go to trial and get a verdict or we settle in advance. Certainly here as elsewhere, we’re open to reasonable settlement possibilities..

And any color as to how big that settlement could be or any calculations around that?.

Well, let me give you some broad parameters. If you look at by the time we would get to the date that Matt talked about in a decision, the total amount sold for that version of OxyContin would be approaching $15 billion in aggregate, since 2010.

We at - on the same patterns, we had received a small royalty that we described as low-single-digit from J&J on NUCYNTA ER. And so each percentage of that type of numbers are 150 million bucks. And so you can decide what we meant is low-single-digit, but if it’s $200 million versus $300 million, if it’s 3%, it’s $450 million.

So we’re talking about some very large numbers..

Great. Thank you very much..

And you next question comes from David Risinger of Morgan Stanley..

Thanks very much. Sorry about that. So I have a couple of financial questions. I guess, first, it would be helpful to just understand Augie, how we should think about the September quarter sequentially relative to the June quarter that you just reported, anything else that you like to call out for us.

And then, at a higher level, if you could just tell us, if there are price increases in the second-half of the year in current guidance. Thank you..

So first, I would say that historically the third and fourth quarter should been a strongest quarters in the pain market and traditionally it’s the fourth quarter has been strongly than the third, we would anticipate that we would see that pattern in the second-half of the year that is that the fourth quarter would be stronger than the third.

And that sequentially the third quarter would be stronger than the second quarter..

And then in terms of the price increase state, the fact that as I mentioned, we haven’t taken price increases here certainly gives us the opportunity to continue to asses that. And I would say that, that would be unusual for us not to take a price increase over the course of full year..

Okay. Thank you, Jim. And then, in terms of the portfolio, it seems like you should have the opportunity to take price up across the portfolio, but maybe that’s a wrong assumption.

Any other color you can provide on that?.

Yes, we did take a price increase on Cambia, Zipsor and Lazanda in June. But we have not yet taken a price this year increase on either the NUCYNTA products or on Gralise, which obviously has the great majority of our turnover.

So I would say that we may not be as likely to do it on the products where we’ve taken it more recently, but the opportunity would exist on those that we haven’t yet taken this year..

Got it. Thanks very much. I appreciate it..

And Dave, thank you. And I want to thank all of you as we come to the - to the close of the hour. And as we head into the second-half of the year, all of us here at Depomed remain focused on advancing our portfolio, advancing the business and all with the goal of building value for everyone we serve, including our shareholders.

We thank you for the support at Depomed and we look forward to updating you on our progress over the course of the year..

And ladies and gentlemen, this concludes today’s conference call. You may now disconnect..