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Actavis, Inc. (NYSE:ACT)

Barclays Global Healthcare Conference

March 12, 2013 10:15 am ET

Executives

Paul M. Bisaro - Chief Executive Officer, President and Director

Robert A. Stewart - President of Global Operations

Analysts

Douglas D. Tsao - Barclays Capital, Research Division

Douglas D. Tsao - Barclays Capital, Research Division

Up next, we have Actavis. I'm still getting used to not saying Watson, as well as not saying Actavis. But we have the dream team with us. We have CEO, Paul Bisaro, as well as Bob Stewart, President of Global Operations, to provide an update on the company.

So with that, before we sort of jump into some more questions, perhaps Paul, I thought maybe give you an opportunity to sort of provide an update on the business because there's been so much change and sort of an introduction on where you see Actavis today and perspective looking forward to 2013 and potentially looking beyond.

Paul M. Bisaro

Okay, great. Well, thanks, Doug. First of all, thanks for having us. Great venue. We always love to be here. It's really a pleasure.

Well, we're very excited about the new Actavis. We've got a lot of things going on as, I think, most of you are aware. Within our Actavis Pharma division, we've got a lot of exciting patent challenges in the U.S., lots of things happening as we see ourselves moving through 2013 into 2014, lots of opportunities to hopefully monetize some of those assets, as well as international markets. Internationally, we're in 62 countries now around the world, growing very rapidly in key markets in Southeast Asia as well as Russia, Central and Eastern Europe. So again, very exciting -- getting to use the assets of the combined company to drive value.

Lots of activity on our Actavis specialty brand side, with the acquisition of Uteron a month ago. I'm very excited about the 6 projects that they brought to the table. We're learning more and more about the asset that we acquired, and we just continue to be more and more pleased. In addition to making some great headway in women's health in the U.S., we also have these products for global use, and that's going to make our markets around the world even more valuable. Our sales forces in Russia and again, Southeast Asia are going to be put to use -- put to work selling some of these products. So very exciting there as well.

And then finally, on the Actavis operations side that Bob runs, in addition to capturing the synergies we want to capture, driving our cost of goods down, keeping highest-quality good customer service, we also have our ANDA division, and our ANDA division has been doing quite well. Very pleased with the way it's been driving value for its customers as well as for the Actavis products.

So all in all, very exciting time, and looking forward to driving through the rest of '13.

Question-and-Answer Session

Douglas D. Tsao - Barclays Capital, Research Division

And so you highlighted some sort of upcoming patent challenges. Are there any, in particular, as we sort of -- obviously, last year, the focus at the beginning of the year was on the Lidoderm challenge, which you've successfully executed on, both in terms of getting settlement as well as approval of the product. When you look forward today, are there any particular product that you would try to point investors to that you think as unique opportunities that perhaps haven't gotten as much attention as you might think or want?

Paul M. Bisaro

Yes, I think -- well, I think there's a few. I think the difference probably between last year and this year is the sheer magnitude of the opportunities. We're up to somewhere above 30 new -- 30 First-to-File -- true First-to-File opportunities. We have multiple, even more, 45 or better First-to-File opportunities. But the single situation where we're alone with 180 days of exclusivity, we got up over 30, and I think it's the magnitude that people haven't quite come to realize yet. And there's some very interesting opportunities in there. There was patch opportunities, there's gel opportunities. And then most people have been focused more on the short-term opportunities, like Intuniv. Certainly, the Crestor zinc opportunity that people have been talking about. So there are short-term, and then over the next 3 years, we see a lot of these products coming through monetizing those assets, either through bringing them to market hopefully, with a win or finding a way to get them to market through a settlement.

Douglas D. Tsao - Barclays Capital, Research Division

And are there any in particular that you think are interesting? You referenced Intuniv. Just given the potential for the size of the opportunity as well as the duration of the asset given sort of a limited competition situation?

Paul M. Bisaro

Yes, I think all of the, what I would call, the patch and shell products are probably the ones I'm most excited about. Exelon patch, we just announced the First-to-File in the second strength of the patch. But that product is going to take -- is going to have a long life to it because there won't be a lot of players in the patch business there isn't today. Another product, although not necessarily a First-to-File opportunity but Testim, the product -- the testosterone replacement product. Those gel products have a lot of value. You have to do clinical endpoint studies on the gel products now. And so it costs a lot of money to get them, and not a lot of people have the technology. So those have just enormous value, I think.

Douglas D. Tsao - Barclays Capital, Research Division

And then, I think it was a couple of weeks ago, almost exactly, you got approval for Suboxone. Just early read in terms of how that launch is going as well as some of the market dynamics in terms of Amneal and as well as the sort of efforts by Reckitt's to convert patients from the tablet to the pill and -- which contrast with your effort to bring patients back from the film to the tablet version?

Paul M. Bisaro

Right. First of all, that was a great opportunity for us. It certainly was one of those upsides we had talked about for 2013 that would fill any gaps that people -- that we'd always talked about using Pulmicort as sort of a placeholder for value for '13 in our forecast. I think we don't have to worry about that anymore. We have -- the Suboxone opportunities has made that not necessarily a forecast issue now. If we do get the Pulmicort, we would look that as an upside. But as to Suboxone itself, the launch went very, very well. We've begun sort of a soft counter detailing campaign to make sure doctors and pharmacists are aware that the tablets are again available, and that they are generically available so that the price point is better. We also have been working directly with the clinics. This is a high clinic use product. And frankly, clinics are easier to convert. So we've been focusing on those, and I think we're seeing a lot of value from that. We also had less competition coming out the door than we expected, with just Amneal and Actavis being there, so that's a good thing. And as that continues, we'll have to see over the next 3 months how successful we are at switching people back from the thin film to the tablets and how well received there. But right now, I feel pretty comfortable the products are going to do well.

Douglas D. Tsao - Barclays Capital, Research Division

Okay. And then, since we're lucky enough to have Bob, perhaps provide an overview of where the integration with the Actavis business was, given the fact that it represented a very meaningful expansion of the company's footprint, as well as some of the sort of achievements of the cost synergies that were initially promised?

Robert A. Stewart

Well, the integration is going incredibly well. We were able to do a lot of preplanning before the close, and that's what really enabled us to hit the ground running right on day 1. One of the things that we've said that was very important to us is to make sure that we didn't have any disruption to customers, and so we've been able to keep all of our manufacturing facilities running. The supply chain continued to drive efficiency and making sure that we'll get products out to our customers. In terms of synergy capture, we're well on the way. We're seeing opportunities on the procurement side. And so we're driving some good savings reductions that are part of our overall commitment of $300 million in synergies over the 3 years. So we're well on track in terms of delivering those synergies for not only this year, but setting ourselves up for continued delivery of synergies going forward. We've also started with the recent announcement out in Corona, California, one of our manufacturing facilities, started the footprint rationalization of combining the 2 infrastructures together from a manufacturing standpoint. That won't necessarily drive synergies in the short term, but sets us up to continue to drive synergies beyond the 3 years.

Douglas D. Tsao - Barclays Capital, Research Division

And this is a question perhaps for both of you. But Actavis brought with it very good capabilities and some complex formulation, something that Watson already had. Just curious in terms of were there any particular technologies that you did not do that well that they brought in, that perhaps opened up new opportunities in terms of your ability to look at new product categories or ways that you see your already strong capability perhaps getting enhanced further?

Paul M. Bisaro

Well, actually, there are 2 things I would talk about. One is, there were very synergistic acquisitions from this perspective. On the semi-solid and liquid and injectable side, to the extent that legacy Watson was doing development, we had to go outside, we had to do that development through third parties, we had to find people to do that work for us. Where today, we now have that capability with the legacy Actavis team. And certainly, on the injectable side, I think you saw Sagent's announcement, I think that now makes it probably a lot clear for folks that we would expect to be a player in the injectables space in the U.S. by the end of 2014 with getting back those Sagent products as well as the products we have filed. x-U.S., we're currently a player today with those assets. On the semisolids and liquid side, that's the other thing. And then -- but there was also a synergy going the other way with the legacy Actavis team doing a lot of patch development work, but they had to farm that out. And so with our capability in Salt Lake City, we have again another synergy where we can manage that activity internally now, and so we picked up synergies on both sides with the technology.

Robert A. Stewart

Yes. And I would just add to it that we are both very strong in modified release, controlled release type of technologies. And in essence, by putting the 2 groups together, we became a stronger and more powerful player around that, so this is where we really had the ability to combine the strengths of both organizations and put the best of the best together and increases our probability of bringing those type of products to market.

Douglas D. Tsao - Barclays Capital, Research Division

And Bob, with that in terms of bringing things together, was it that they had complementary technologies in terms of modified release that you weren't as developed in or didn't have as much capacity in, or was it simply a human capital issue that you're bringing more formulators and people with unique experience and capabilities?

Robert A. Stewart

I guess what I would say is, it's not necessarily any new dimension of that technology. What I would say is that we now have more efficiency by spreading projects over multiple areas and capacity. So I would say that we've got now resource capacity because now we're not working against each other in terms of project development. Now we're working collaboratively on some of this. So it really becomes more efficient in terms of how we're getting the R&D spend in those centers of excellence.

Douglas D. Tsao - Barclays Capital, Research Division

And then, Paul, you referenced the injectables market. Obviously, one of your competitors made a very significant acquisition a couple of weeks ago or announced an acquisition couple of weeks ago. Just curious in terms of how you're seeing this market, your appetite for potentially expanding your own capabilities, especially as you sort of work down the debt from the Actavis deal to potentially do something more meaningful in that segment of the market as well?

Paul M. Bisaro

Well, as I said, with the announcement of the Sagent transaction, we will have a significant capacity for injectables space. We have 2 plants, 1 in Nerviano, Italy, the other 1 in Romania?

Robert A. Stewart

Romania.

Paul M. Bisaro

And we do have some capacity, but it could be augmented. So I think we would approach any potential acquisition of an injectable capacity with what synergistic activity value are we driving based on how much work and money we've already spent on developing our own capability. So -- while I would never say never, I think we'll take a look at the assets become available. We'll have to give some serious thought to it. I think it's without -- it's fairly true, I think, that the injectable assets are going for high premiums, so we have to also balance that as well. We've stated, we also would like to spend a lot of our capital at least in the moderate medium-term on additional brand assets. So we're going to have to balance generic assets and brand assets and see where we think it makes sense.

Douglas D. Tsao - Barclays Capital, Research Division

And then I did want to touch on, I'm curious on your perspective in terms of emerging markets and how you're seeing that opportunity today given both the Actavis acquisition, as well as going back to the beginning of last year, and I think a lot of people have forgotten the Ascent deal and the progress you've made.

Paul M. Bisaro

Look, I think we certainly haven't forgotten about the Ascent deal. It was a great deal for us. It really gave us released value in Australia for us with some assets that we had there. We didn't have really a marketing tool. Today, we have that marketing tool. We're capturing some of that value. In fact, Actavis Australia just won the Crestor case in Australia earlier this week. So we'll have to figure out how we're going to manage that asset. But also, in addition to Australia, we've got markets in Southeast Asia that were very important markets. 600 million people, I've said it before, 600 million people with a lot of buying power now available and not necessarily covered by insurance. There's no governmental insurance programs in many of these markets, so people have to come out of pocket for their medicine. So when we come in, we come in as a pharmaceutical company offering medicines at a price point that people can afford. It's very valuable market for us. We use our sales forces to drive generics, brand to generics and legacy brands, and I see that as a long-term strategy for us to drive growth, not just in Southeast Asia but also Russia, as well as many of the CIS countries, where people are starting to get the disposable income to make medicines a priority in their life.

Douglas D. Tsao - Barclays Capital, Research Division

And then you referenced the deployment of capital for brand assets. I think it was last year, you perhaps hit a little bit of a head fake on much of The Street. In terms of one particular interview where you talked -- referenced the potential transformative acquisition in which we ultimately got the Actavis deal, just curious in terms of -- and you subsequently did the Uteron deal, is that how you're thinking about the brand business today in terms of deployment of capital in that sort of order of magnitude?

Paul M. Bisaro

Well, I think in the short term, yes, the appointment of being in the sort of the Uteron size types of transaction. As we bring down our debt to probably below 3.5x, we've stated over and over again we want to do that. But I think our debt load going forward will remain around 3 -- between 2 and 3, probably where I see us being at for the long term, which means we have a lever of investment for growth. And I don't think people realize we have a pretty significant lever for growth if that's the leverage ratio we can stay at. And so, with that in mind, we will continue to look for, in the short term, Uteron type transactions, and then a larger transaction would either come in the form of a add-on generic transaction, which gave us assets that we don't have build out yet, maybe injectable space is possible; or a larger brand asset, which I think we'd all love to do. The problem is finding the assets. Those assets are not very plentiful and very challenging to execute on. So it's kind of have to have 2 things at the same time. And by the way, I didn't mean to head fake people. It was just going to happen.

Douglas D. Tsao - Barclays Capital, Research Division

And then, some generic companies have sort of tried to make this transition into a sort of hybrid model, some of us had sort of stumbling blocks. So how was it when you look at what some of your competitors have done versus what you're thinking about in terms of avoiding some of the mistakes and challenges as generic companies sort of try to capture opportunities in brands?

Paul M. Bisaro

Yes, I think there is probably 2 things I learned over the years. One is on the brand side, you have to learn patience. As generic folks by nature, we're not terribly patient. Things happen very quickly and we go quick but you need patience. And I think the other thing you need in the brand franchise is sustainable focus. So you have to be willing to commit to therapeutic categories and then submit to the R&D spend. A lot of folks have started projects and then delayed them or postponed them. We've not done that. If we have a project and it's a development project, we're going to spend the money to the end. We've obviously been able to drive growth in spite of that. But it's a commitment we have to our brand team and to our brand sales force that we are going to be major players here and we're going to drive these projects to conclusion. We just filed a progestin-only patch just last month, and I think people haven't given that a new value yet. I think we need, as a company, to continue to get our investment community to spend some time learning about the brand assets that we have because I think they're pretty special.

Douglas D. Tsao - Barclays Capital, Research Division

And then you sort of made a reference to the Uteron transaction and sort of uncovering some things that were better than you perhaps thought initially. Just curious what you are referring to there?

Paul M. Bisaro

Well, we had focused on the 3 short-term opportunities and very pleased, by the way. We've already started to get some approvals for Levosert and I think we got an approval in the U.K. We also got approval in Serbia. So we're starting to collect some of the countries that we are hoping to get a little bit earlier than we actually even expected. The Diafert product is -- the data is very compelling. The Phase II data was very compelling. If we can carry that data through to conclusion, I think we've got a great product for our infertility business which, by the way, is growing now with Diafert and Crinone, we're starting to get a nice infertility franchise we're starting to build. But the other thing I think we found out was sort of the later stage products are also very intriguing. The smaller IUD opportunity is very intriguing. We could be sort of second to market with that product around the world. That would be a fantastic little opportunity for us. Not so little, it's a big opportunity for us, as well as the 2 other products. And then again, so the third thing was sort of the depth of the clinical capability at Uteron, as well as the relationship with the university in Belgium there. I think that has long-term value for us that's yet untapped because we haven't spent the time really getting to know all the folks at the university and finding out what they're doing. So I think that's the value creation that we haven't really tapped into yet.

Douglas D. Tsao - Barclays Capital, Research Division

And then I did want to sort of get an update in terms of your thinking in terms of the biosimilar opportunity. You obviously have the Amgen partnership, although that is limited to sort of a select number of molecules and monoclonals focused on oncology, and you're sort of view more broadly -- you obviously also have the FSH product, which is when you think more broadly about the category and the opportunity for other biosimilar products and how you're going to potentially go after those segments in the market, if you're interested at all.

Paul M. Bisaro

Well, I think we are interested. I think the challenge for us is to be -- again, this particular investment requires some discipline. You really got to be careful not to try to be all things to all people in biosimilars for a whole host of reasons. One is and the single biggest one is the cost of development. So you need to be selective about how you approach this. If we can find creative ways to participate in other products without having to spend the full $100 million or whatever it turns out to be, obviously, we get less of the upside. But if we can participate and have that value, we are more than happy to do that. And I do think we'll see more -- you'll see from us more partnerships on biosimilars, more creative solutions to this problem of the cost of development. Over time, as these products become more accepted and people start to understand how the model gets -- the economic model works, I think we'll be in a different situation, but that's probably 5 to 10 years away.

Douglas D. Tsao - Barclays Capital, Research Division

And then I think it's in a little less than 2 weeks, the Supreme Court is going to be hearing arguments in the AndroGel case. Just perhaps your initial thoughts on the oral arguments, as well as what you hope to get in terms of resolution and what this could mean for your business, as well as potential risks that the court does not go your way, and what the implication could be?

Paul M. Bisaro

Doug, I'm sure you're shocked that they won't let me argue this case because of the passion involved here. I -- we are only 2 weeks away from the argument. We obviously are preparing vigorously for it. We firmly believe that the scope of the patent test, the test that makes sense, not just for patents outside of the pharmaceutical industry but all patents, including ours. And I think the most recent kind of comment then just trying to get people to focus on is, don't get sucked into the pay for delay moniker because that's not what this is. It sounds great and of course, everybody hates pay for delay. If you say it that way, of course, you hate it. But that's not what's going on here. It's about patents that protect products that we have to deal with as a generic industry. And one way for us to bring value to consumers is to settle these cases in a way that gets products to market years before the patent expires. And I don't understand -- I still, to this day, can't quite figure out why this is a negative. It's actually quite positive. And for our government agency to take a position that for whatever reason that's a bad thing, I just don't get it. Now when we get to the Supreme Court, the argument is going to be about scope of the patent test versus the FTC test, which wants to change the burden of proof, make it this sort of a quick test review. And obviously, I believe our brief. We don't understand why this is something that should be in place. Certainly, it isn't in place for technology patents. It's not in place for petroleum patents. Why not? If it's bad for us, why isn't it bad for everybody else? And so I think as more reasons that people have started to think about this issue and have looked at the cases and have looked at what this case is really about, you start seeing people weighing in saying, "Wait a minute, this is a very slippery slope for the government to go down. It's not the way that makes sense for innovation and it doesn't really help the country."

Douglas D. Tsao - Barclays Capital, Research Division

And do you have an anticipation that if you get resolution, this could lead to an increase in the number of settlements? Or if the Court goes against you, what will be the consequence in terms of...

Paul M. Bisaro

Well, if the court does go against this and we ultimately lose, then we have to deal with this new test. I think it's going to have a negative impact on settlements going forward. And I think that's a bad thing for everybody because that means we have to litigate -- one of the outcomes will be litigating these patents to the end. And when we do that, we lose 50% of the time. The FTC, by the way, never tells you that. So if they can guarantee us victory every time, we'd litigate them all to then end. But they can't. And so if we have resolution in a positive way, I think it will be very good for the industry because it will remove an overhang that has sort of plagued the number of cases. We've had situations where we wanted to settle. We probably could've gotten a few years off the patent. We knew that we were going to have a tough patent fight. And when we had to fight it out, we lost the case, and consumers lose in that case. So I hope the court does the right thing, gets us -- get some clarity around this issue, and we can go forward with our business.

Douglas D. Tsao - Barclays Capital, Research Division

Okay, great. Well, I think we're out of time, so we will head over to the breakout session, which I believe is in the New Yorker/Sands across the way.

Paul M. Bisaro

Great. Thank you.

Douglas D. Tsao - Barclays Capital, Research Division

Thank you.

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