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Endo Health Solutions Inc. (NASDAQ:ENDP)

Update Conference

June 05, 2013 5:30 pm ET

Executives

Blaine T. Davis - Vice President of Investor Relations & Corporate Communications

Rajiv De Silva - Chief Executive Officer, President and Director

Alan G. Levin - Chief Financial Officer and Executive Vice President

Analysts

Christopher T. Schott - JP Morgan Chase & Co, Research Division

Annabel Samimy - Stifel, Nicolaus & Co., Inc., Research Division

Marc Goodman - UBS Investment Bank, Research Division

Shibani Malhotra - RBC Capital Markets, LLC, Research Division

Corey B. Davis - Jefferies & Company, Inc., Research Division

Tim Lugo - William Blair & Company L.L.C., Research Division

James F. Molloy - Janney Montgomery Scott LLC, Research Division

David G. Buck - The Buckingham Research Group Incorporated

Gregory D. Fraser - BofA Merrill Lynch, Research Division

Irina Rivkind - Cantor Fitzgerald & Co., Research Division

Timothy Chiang - CRT Capital Group LLC, Research Division

Kevin Kedra - Gabelli & Company, Inc.

Ken Cacciatore - Cowen and Company, LLC, Research Division

Andrew Finkelstein - Susquehanna Financial Group, LLLP, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Endo Health Solutions Update Conference Call. My name is Patrick, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Blaine Davis, Senior Vice President, Corporate Affairs. Please proceed, sir.

Blaine T. Davis

Good evening, everyone. We appreciate you joining us today to talk about the restructuring announcement that we issued just a short time ago. With me on today's call are Rajiv De Silva, President and CEO of Endo; and Alan Levin, Chief Financial Officer. On today's call, we'll go through the details of our restructuring plans with some prepared remarks accompanied by slides and then take your questions. The slides for today's call have been posted on our website and filed on an 8-K with the SEC.

Before we begin the prepared remarks, I'd like to remind you that any forward-looking statements by management are covered under the Private Securities Litigation Reform Act of 1995 and subject to change, risks and uncertainties described in today's press release and in our filings with the SEC. In addition, during the course of this call, we may refer to non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in the United States, and that may differ from non-GAAP financial measures used by other companies. Investors are encouraged to review Endo's current report on Form 8-K filed with the SEC for Endo's reasons for including those non-GAAP financial measures in its announcement. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is contained in our press release issued prior to today's call. With that, I'd like to turn the call over to Rajiv.

Rajiv De Silva

Thank you, Blaine, and good evening, everyone. Let me begin by providing you with some background on what we have been focused on over the past few months. When I joined Endo in March, we initiated a comprehensive assessment of all aspects of the company's business, including our strategy, structure, operating model, cost base and leadership. The objective was to determine how best to position Endo to drive cash flow and earnings growth within an evolving health care landscape, given the reality of the company's current strengths and challenges. That assessment included spending time with a wide variety of Endo's stakeholders to identify our most compelling opportunities for growth and areas where we needed to improve.

As I have stated previously, creating value for Endo shareholders is our top priority, and we believe the actions we are taking today to streamline the business, reduce our cost base and be more efficient and effective with our decision-making will benefit all of our stakeholders by establishing a strong foundation for sustainable growth. As you will see on Slide 4, we aspire to be a top-tier performing specialty health care company. Reflecting on Endo's experiences over the last few years, this means moving away from an integrated solutions model and instead focusing on optimizing our most promising assets and expanding in areas that offer above average growth characteristics and attractive margins. We will, of course, continue our commitment to serving patients and customers, but we must evolve our model in order to do so.

On Slide 5, we have listed the implications of this shift. I will go through each of these in a detail in a bit, but let me briefly highlight them here: first, we intend to reinvigorate organic growth to a more focused and disciplined execution; second, we will explore options for assets that do not fit within our new model, including exploring strategic alternatives for our HealthTronics business and early-stage pharmaceutical discovery platform; third, we are implementing a new lean operating model designed to generate significant cost savings, drive great accountability and allow us to focus more effectively on key priorities; fourth, we will improve R&D efficiency by concentrating our spend on lower-risk, near-term, revenue-generating projects; fifth, we will pursue select accretive and strategic external growth opportunities where we can identify a clear path to cost and revenue synergies; sixth, we will continue to optimize our capital structure; and seventh, we intend to continue to strengthening our talent and organizational capabilities.

The next 3 slides walk through our organic growth opportunities within branded pharma, Qualitest and AMS.

Turning to Slide 6. Within branded pharmaceuticals, Endo currently has a compelling set of specialized assets. Products like Voltaren Gel, FORTESTA and SUPPRELIN LA are important drivers for this business, which I believe will continue to grow and meaningfully contribute to its profitability. At the same time, we have 2 drug development candidates in late stage: AVEED and BEMA Buprenorphine, which if approved, could generate commercial sales beginning in 2014 and early 2015, respectively.

As you are all well aware, we will lose exclusivity on LIDODERM in 2013, and have been dealt a regulatory setback on OPANA ER. And as a result, OPANA ER will likely face additional generic competition in 2013. Our intention is to maximize the cash flow from both these brands over the next 12 to 18 months. In addition, in the case of OPANA ER, we continue to believe that the abuse-deterrent formulation provides important protection against abuse of the product. We will continue to engage the FDA in a dialogue to understand if there's a path forward through the existing regulatory framework. And in parallel, we have -- fully intend to vigorously defend our patents with respect to the brand.

While the changes to our cost base will impact our field sales force, we have adopted a specialized promotional model for product commercialization, which enhances the lines of accountability within this division and provides what we believe to be a more effective sales model. This new model gives us flexibility to add additional products into our sales network without additional headcount. We will continue to maintain a focused playing field force as part of this model.

Our branded business will experience a decline in 2014, but I remain optimistic that we can enhance a relative profit contribution of this division, execute more effectively and drive organic growth within key existing brands. We will also aggressively pursue business development options that will give us the means to enable organic growth in the future.

Let us now move on to Qualitest on Slide 7. Qualitest has been a key growth driver for Endo over the past 2 years, and I am confident that the growth from this business will continue. The demand trends for Qualitest's unique product lines, specifically controlled substances and liquids, create multiple growth opportunities within our current product portfolio. In addition to the commercial portfolio at Qualitest, we also have an attractive portfolio of already filed ANDAs that will enhance our organic growth. Our recent ANDA approvals and subsequent launches have supplemented the growth of Qualitest and we expect that trend to continue.

We also plan investments in our generics R&D capabilities to deliver additional ANDAs with the focus on high barrier-to-entry categories like controlled substances, extended-release products and semisolids. And finally, we believe that our updated capital investment plan for Qualitest will enhance our ability to produce additional volume within our existing footprint while expanding margins. We expect to deliver on our growth targets for 2013 and with the implementation of a new capital investment plan, we have reduced capital expenses this year from $120 million to approximately $80 million for the company overall. As we look out over the longer-term for Qualitest, we expect to continue to improve gross margins for this business by making targeted capital investments as part of our master plan that we have just put in place.

Now let me talk about AMS. As you all know, AMS is in the state of turnaround. We remain committed to the AMS business and we believe with this leadership in the field of urology devices, there are real growth opportunities as we move forward. Specifically, within AMS' Men's Health business, we see an opportunity to improve execution and grow the marketplace for implants while maintaining the profitability of this important value driver. Within AMS' Women's Health business, we are focused on limiting the decline of the products as the market continues to erode by continuing to focus on physician education. While the future remains uncertain with regard to the demands for AMS' products, there are few alternatives available today for patients who suffer from pelvic prolapse and/or stressed urinary incontinence. And we are hopeful that we will see a stabilization of this business in 2014.

In the BPH business, AMS just announced the results from its Goliath trial, which showed in a head-to-head study the treatment of BPH with GreenLight XPS laser therapy instead of transurethral resection of the prostate results in significantly shorter hospitalization, catheterization and recovery times of patients, while maintaining equivalent safety and efficacy. We intend to utilize the results of this study to encourage utilization of GreenLight therapy as an attractive option for those appropriate patients suffering from BPH. And finally, we have seen solid growth from our international business within AMS. Overall, we believe AMS is positioned as a leader in the field of urological devices, AMS' commitment to its physicians, as well as the changes we have made to its leadership over the last 6 months will result in a successful turnaround of this business.

Turning now to Slide 9, as we stated in the press release, we have initiated a process to explore strategic alternatives for our HealthTronics business and our early-stage pharmaceutical drug discovery platform. HealthTronics is one of the leading mobile service providers in the field of urology, a provider of clinical pathology services and is also a leading provider of an electronic health records platform specifically for urologists. Our early-stage pharmaceutical discovery platform has been built up over the last 5 years and represents a number of attractive preclinical drug development candidate that span a variety of therapeutic areas, including pain, urology and oncology. While HealthTronics and our pharmaceutical drug discovery platform have attractive characteristics, they have limited fit within our new strategy. We're optimistic that we can create value for our shareholders by exploring alternatives for these businesses and we'll update you on our progress as appropriate. We will remain fully committed to our customers and partners while this process moves forward.

Moving now to Slide 10. We are streamlining the organization and implementing a new lean operating model. As we have detailed on this slide, we expect to generate $325 million of annual run rate operating expense reductions by mid-2014. We expect $150 million of these savings will be achieved in the current calendar year. Please note that these savings targets are both in comparison to the full year 2012 actual results. Overall, this represents a 32% reduction in our operating cost base and individual actions include a 15% reduction in overall global headcount, rationalizing spend in our general and administrative areas, optimizing our commercial spend in accordance with our product portfolio and refocusing R&D investments onto lower risk, nearer-term projects.

On Slide 11, you can see more details regarding our sharpened focus on R&D. To allow us to continue efficiently and effectively moving promising assets through the pipeline, we will retain our critical capabilities in key drug and device development. I have already mentioned the efforts around late-stage opportunities, such as BEMA Buprenorphine and AVEED and the opportunities in Qualitest. We also intend to explore opportunities to partner on non-core programs, such as ODM-201, an exciting Phase II product that treats prostate cancer. And lastly, we believe that we can better utilize our scale to deliver further efficiencies by sharing R&D capabilities across business units.

As I mentioned a few minutes ago, Slide 12 explains our thinking around acquisitions, which will be a key part of our growth moving forward. We will pursue accretive, value-creating business development opportunities to accelerate sales and earnings growth while delivering stronger and more sustainable cash flows. We will remain disciplined and target deals that exceed our hurdle rates and deliver meaningful value to shareholders based on cost synergies and revenue upsides. We are exploring a range of options and do not feel constrained by our current therapeutic footprint. Initially, our focus will be on smaller tuck-in acquisitions, but we fully intend to remain opportunistic and open to larger, more transformative deals if they fit our returns criteria.

As we see on Slide 13, we plan to further optimize our capital structure and redeploy cost savings to create more financial flexibility to invest and grow in the business. We will also look for ways to better manage our working capital over time. We believe that the debt markets right now, together with our strong cash flow, will be the most important, most attractive mechanism to support our business development efforts. As a result, we will look for ways to benefit from the current very attractive debt markets as needs arise, subject, of course, to market conditions.

Finally, I want to share some thoughts in talent, leadership and organizational structure which are on Slide 14. Over my career, I have the opportunity to work with organizations of different sizes and scale, focus on a variety of therapeutic areas and help successfully drive organizational change. Drawing on this experience, I believe the recruitment, retention and development of top leadership and talent is critical to the success of Endo's evolve strategy. We need leaders with clear accountability and experience delivering solid execution to effectively deploy a lean and nimble operating structure. Consequently, we are moving to integrate and empower business units to decentralized decision-making and well-defined accountabilities. Our goal is to retain, augment and develop top talent with both strategic and operational expertise. In keeping with this, we will continue to emphasize an incentive structure that rewards performance and fosters a culture of ownership.

The last few slides of the presentation are focused on our strategic priorities over the next 12 to 18 months, as well as how we plan to measure and communicate our performance. On Slide 15, you will see a set of key priorities, all of which I have discussed throughout these materials. While I don't want to spend a lot of time on this slide, I think it's important for you to know that we will hold ourselves accountable for executing on this priorities and updating you regularly on our progress. To be clear, we are not offering these specific points of guidance, but rather as a roadmap of priorities we intend to pursue.

On Slide 16, I also felt it's important to lay out how we plan to measure our performance against the strategic priorities we have laid out. As we move forward from here, you can expect us to highlight these metrics and measures to help you follow our progress.

And then finally, on Slide 17, you can see our updated financial guidance. As a result of the FDA decision on OPANA ER and other factors, we now expect 2013 revenues of $2.65 billion to $2.8 billion. We expect our adjusted diluted earnings per share to be in the range of $4.10 to $4.40 per share. And as a result of updates to certain liabilities, we now expected -- now expect reported GAAP earnings per share to be in the range of $1.49 to $1.79 per share. For additional details on our 2013 financial projections, please review our press release.

To sum up, I am encouraged by what I have found so far at Endo. We have some sound assets and a real opportunity to generate value. As I said at the start of my remarks, we believe the steps we are announcing today will lay the foundation for maintaining sustainable cash flow and earnings growth and we are excited to get going. While our work is really just beginning, I am convinced that with a sharper focus on our strategic priorities, the right cost structure and disciplined execution, Endo can deliver on its commitments to customers, employees and shareholders while continuing to innovate products that make a difference in the lives of our patients.

With that, I would now like to turn the call back over to Blaine and open it up for questions. Blaine?

Blaine T. Davis

Okay. Thanks, Rajiv. Operator, if we can go ahead and open the line to start the Q&A session that will be great.

Question-and-Answer Session

Operator

[Operator Instructions] Gentlemen, your first question comes from the line of Chris Schott with JPMorgan.

Christopher T. Schott - JP Morgan Chase & Co, Research Division

Great. Just 2 questions for you guys. First, on business development. Can you elaborate a little bit more on the areas outside of your current scope that have the characteristics that might fit with the new corporate structure? And as we're thinking about business development, can you just update us on any ceilings or ways we should think about the type of leverage the company could take? My second question was the move to this decentralized structure is obviously an important piece of the new strategy. It seems very different than the current model. Do you believe the company has the right leadership team in place in the business units to execute in this new strategy or should we be expecting maybe additional leadership changes in the organization as you put the strategy into place?

Rajiv De Silva

Thank you, Chris. Let me take your 3 questions. In terms of business development, I think our intention is to remain opportunistic. Clearly, if there are companies and assets that have an overlap either with the existing generics footprint or pharmaceutical footprint, it will be easier for us to extract cost synergies. So certainly, that will be the most logical place for us to look. That being said, given our approach for a lean operating model, if you find assets in related or adjacent areas where there's no direct overlap, but we feel there's real opportunity for us to extract that cost to add value to the assets, we will certainly do that.

And in terms of the types of areas, I'm not going to give you specifics other than to say that we like specialty areas where we can reach a focused customer base with a small focused sales and marketing efforts and where the development efforts can be incremental. So that will certainly guide us towards certain areas, but this probably means that we will not be rushing into major primary care assets or areas which are very risky for an R&D standpoint. In terms of leverage, we are confident that we can continue to reach the debt markets as we need. Some of the actions that we are taking in terms of reducing costs will increase, not only our cash flows, but also ultimately our borrowing capacity as well. We currently have in our debt covenants enough room for us to finance the types of acquisitions we are talking about, so we are pretty confident in our ability to do that. In terms of your question on the decentralized structure, this mostly impacts the pharmaceutical and the generics business. Our AMS business was already set up as a decentralized business unit, as was HealthTronics. And so we are taking some important steps in creating decentralized business units in the pharmaceuticals and generics space. We expect over time to enhance leadership in these areas, but I'm also quite confident in our existing talent in terms of the ability to move forward at a rapid pace from the starting point that we have today.

Operator

Your next question comes from the line of Annabel Samimy with Stifel.

Annabel Samimy - Stifel, Nicolaus & Co., Inc., Research Division

Just to continue on the line of capital allocation, clearly you have a leverage ratio about, I guess, 3.75x. So what kind of size deal are you really thinking about and when you're considering your targets and in what timeframe are we talking about? And how do you balance the potential liability that you may have from the mesh litigation? What you're thinking about how you can size these deals? And if I could just follow on that, how do you prioritize tax platforms or specific areas of like disease areas? Is there anything that you're thinking about as a priority?

Rajiv De Silva

In terms of -- let me take a couple of the questions and I'll allow Alan to comment. So in terms of deal size, we would like to do small- to medium-sized deals, which I would classify in the $250 million to $500 million range, probably in the low end of that range, and those are the types of transactions we're looking at. In terms of timing, we have not stood still. We have continued to evaluate business development opportunities while we went through our assessment of company strategy in the business, and will be guided in terms of timing around opportunities that come up, so it could certainly happen over the next few months. And certainly, over the course of the next 12 to 18, we would hope to do at least 2 to 3 transactions of that size.

In terms of the mesh litigation, we colored this during the first quarter call. This is a liability that we expect to unfold over a period of time. We have a reserve on our books that represent our current view of what the liability could look like. Certainly, the number could go up, but we are vigorously defending ourselves on these cases, and we will seek from time to time when there are good business opportunities to settle cases, but beyond, we're not going to rush to judgment on this process. And fundamentally, we believe in these products and we believe in the difference that they make in the lives of our patients. On the last question on tax, certainly, over time we would be very interested in looking for ways to reduce and optimize our tax structure. But it is not something that we need to rush to do immediately. We believe that there's substantial value to be created based on the things that we are just unfolding today, which is extracting cost from our company by refocusing execution on organic growth drivers and doing the kind of smaller, tuck-in acquisitions that we saw that I am talk about. Alan, do you want talk about the leverage ratio a little bit?

Alan G. Levin

Sure. Just a couple of considerations on this. Our current debt-to-EBITDA ratio coverage around 2.5x. And to your point, Annabel, the maximum under our credit facility is 3.75x. That, in and of itself, gives us meaningful capacity to pursue the business development goals that we've set out for ourselves, and when you add to that the impact of $325 million in cost reductions that helps to give us additional financial flexibility and cash flow. We do, as a company, have a history of putting that cash flow to work to rapidly pay down debt, and so I think that we are prudent in a way that we manage our balance sheet with respect to business development. With respect to tax, the only other thing I would add in that regard, we are looking at an adjusted tax rate, that's about 7 percentage points lower than the statutory rate for what is essentially a mostly U.S. set of business operations. That is, in large measure, driven by various tax attributes and benefits that have come with the acquisitions that we have already put in place, and we certainly have found attractive opportunities as we continue to exploit the BD space to find tax efficiencies as part of those deals as well.

Operator

Your next question comes from the line of Marc Goodman with UBS.

Marc Goodman - UBS Investment Bank, Research Division

Rajiv, when you think about product deals, are you looking to create specialty pharma franchises and build around those or you're looking to buy products that's just really create value because they're just undervalued someplace else and it makes sense for you to take them and do something with them? And then second question is on the sales force, can you give us an idea of what you're thinking about for the size of the pharma sales force?

Rajiv De Silva

So in terms of deals, the short answer to your question is it's going to be both. We're going to be certainly opportunistic in terms of the types of products and businesses we look for, so it could be think that add to an existing franchise like a urology franchise or pain or pediatric endocrinology, which are our existing franchises, but certainly, it could be new ones as well. And that's one of the central tenants of our strategy moving forward, which is that we will remain very open, and the way that we have structured our pharma business is scalable in that regard. And I'm sorry, what is your -- the second question again?

Marc Goodman - UBS Investment Bank, Research Division

On the sales force, just give us an idea what it's going to look like.

Rajiv De Silva

Yes, so I'm not going to give you specific numbers for competitive reasons, but we are maintaining our pediatric endocrinology field force which is roughly about the same footprint as we have before. We have actually increased the size of our urology field force, which going to reflect 2 things: one is that -- one, is the success that FORTESTA has had this year, which has actually been a very welcome turn of events for us; and then secondly, based on our recent dialogue with FDA on AVEED [ph] , we still remain optimistic that we might be able to bring that product to market. So that franchise actually has enhanced field force and we have moved to a more targeted specialty-oriented pain field force that will continue to promote OPANA ER as long as it remains viable, as well as our Voltaren Gel.

Operator

Your next question comes from the line of Shibani Malhotra with RBC Capital.

Shibani Malhotra - RBC Capital Markets, LLC, Research Division

So just to your point right now, Rajiv, on Voltaren Gel, can you just talk about your assumptions for how long you intend to have this product, given the contract with Novartis ends in 2014. And then could you just expand a bit on your decision not to divest or consider a strategic options for AMS business, given what the -- when it was bought, it was positioned as sitting with Endo because of HealthTronics, so they kind of went together in many reasons. I just wanted to understand how you are looking at that business?

Rajiv De Silva

Sure. So on Voltaren Gel, we have our agreement with Novartis goes through mid-2014. The brand is actually doing quite well at the moment. And clearly the area of pain is one where we will be looking to add assets over the course of the next little while. And basically what it does, it gives us a sufficient runway to optimize this business, enough time for us to evaluate different options. Clearly, if there are ways for us to extend our partnership with Novartis, we would be open to that, but obviously, that's a 2-way conversation. And clearly, we are continuing to look for other pain assets that we could bring into the portfolio. As you know, we have BEMA Buprenorphine that we are quite excited about. It is in late-stage development and will come to market hopefully, if approved, in 2015. And what we are looking for the bridge to get us there because we do believe that we have a longer-term future in pain. And with respect to AMS, I think the answer is quite simple, which is we actually believe in the fundamentals of AMS. It is in -- notwithstanding the market issues in Women's Health, which are results of the FDA advisory going back some time, this business is in areas with clear medical need. They are -- it's a high margin business and these are diseases where we would expect the demographics to favor growth in the longer term. And in most cases, we compete with only a few players in the segments where we operate, so -- which all lend themselves to the kind of business that we would like to operate. Clearly, the business turnaround, the business's performance over the course of the next 6 to 12 months will be important driver of how we think about it in a longer-term sense but we are certainly committed to making that business successful. In terms of the connection between HealthTronics and AMS, while certainly both in the urology arena, these actually are quite very different businesses. For the most part, HealthTronics services are independent urologists with the mobile service business, whereas AMS services surgical urology, which are usually different settings. And our belief is that our service business, which is HealthTronics, would best serve by being in the hands of a different owner whereas AMS, which is the product-oriented business, is -- can certainly thrive within our business footprint. And we will continue to enjoy the diversity that a device business brings to us alongside a pharmaceutical and generics business.

Operator

The next question comes from the line of Corey Davis with Jefferies.

Corey B. Davis - Jefferies & Company, Inc., Research Division

I just have one question regarding your guidance and aspirational targets longer term. And how reasonable is it for us to think about the midpoint of this new guidance both in revenue and the $4.25 in EPS as the floor from which you could grow off of in 2014 and beyond? Or with the expected decline in revenue in '14, is that just too much for even your expense cuts to overcome to show EPS growth in '14?

Rajiv De Silva

Thank you, Corey. So in terms of this year's guidance, we have a range, right? And obviously, as you might imagine, there has been quite a few challenges with our track record on guidance over the course of the last 12 months, and we want to make sure that we have a reasonable range, which is represented by the $4.10 to $4.40 range. We have a lot of moving parts in the back half of this year. We certainly expect the Actavis generic for LIDODERM to launch in September but obviously, we are not in September yet. We expect generic competition for OPANA just to begin in July, but we don't see additional competition yet until that time. So we have a lot of moving parts, so I want to hesitate to give you a specific guidance within that range but obviously, we like to beat our numbers, so we'd like to be at the top end of that range if we can, but that the full range represents where we believe the realistic outcome could be. In terms of your question on 2014, I frankly think it's too early for us to give you guidance in 2014 and the years beyond. There's a lot of work that is going on to reset the base and ensure that we have a workable set of numbers for 2013. And my next priority is to make sure that we have a solid foundation going into 2014 and as some of the events unfold in the back half of the year around LIDODERM and OPANA, we will be in a better position to talk about what the future looks like in terms of EPS and cash growth.

Operator

Your next question comes from the line of David Buck with a Buckingham Research.

[Technical Difficulty]

Your next question comes from the line of Tim Lugo with William Blair.

Tim Lugo - William Blair & Company L.L.C., Research Division

Maybe you can outline the early phase R&D platform, which you will be spinning off, in terms of people. You did mention the disease states where there are compounds, but also a number of compounds, as well as headcount?

Rajiv De Silva

Sure. So the -- let me describe to you, but not in perhaps the detail that you want for one reason, which is that our early-stage discovery effort is the subject of several partnerships, and we owe it to our partners to have this dialogue with them before we disclose this in any great detail. But suffice it to say that we've had a core group of scientists in Melbourne who had some very productive partnerships with parties around the world that came up with a pretty low-cost way to develop discovery-stage candidates. They are in a range of areas as we described in our press release, in our document in pain, urology, in cancer and many of these are some of the more novel and hot [ph] mechanisms of action. For competitive reasons, we have not disclosed what those targets are and we will not do so. We will certainly disclose it under confidentiality to parties that we are discussing a potential spin out or partnership with, but that's probably about the sum total of detail I can give you at this time.

Tim Lugo - William Blair & Company L.L.C., Research Division

That's fine. Can you maybe also describe the timing of this announcement? I believe you had previously guided towards a strategic review before the end of summer?

Rajiv De Silva

Well, this is before the end of summer.

Tim Lugo - William Blair & Company L.L.C., Research Division

Before the beginning of summer as well.

Rajiv De Silva

Also before the end of the summer. No, I mean, the -- but certainly my aspiration on all of these things, we should do things as quickly as possible. We want to the leave ourselves time to make sure that we did a thorough review and we managed to get everything done in a very short period of time. We had a very supportive team working on this and also, very supportive board that encouraged us to do this very quickly, hence, the timing.

Operator

Your next question comes from the line of James Molloy with Janney.

James F. Molloy - Janney Montgomery Scott LLC, Research Division

I was just wondering, what are the expectations for what you might be receive for HealthTronics on a sum? I know you paid -- prior measure and I should say, paid $260 million back in 2010 for this. Is it a profitable business? Do you think you can get around that range? And I know that you highlighted that clearly you have some room to go up on your debt, but -- well, why wouldn't it make sense, I mean, going back to your earlier question about AMS, where you paid $2.9 billion for that a couple of years ago, why wouldn't you sell that to get the debt down a 0 to kind of clean the slate and start on a new direction?

Rajiv De Silva

The -- first to answer the question on HealthTronics, given that we're going to be entering into a sales process, I'm not going to speculate on the price that we expect. You are correct in terms of the price point that we paid for the business. Beyond that, we actually did also acquire some smaller assets that we added to HealthTronics over time, particularly to a electronic health records company, so the total evaluation of what we bought is actually a little bit higher than the number you put forward there. And obviously, over time, we have written some of those things down if you look at our financial reports going back over the next -- last several quarters. However, to answer your question, yes, it is a profitable business and some of the cost reductions that we've talked about and the $325 million cost target also impacts the HealthTronics business, so we believe that we will have a pretty viable business that we will be looking for, for strategic alternatives and hopefully, we will get a good price rate and that's probably all I can say in terms of price. In terms of AMS, it's a business that is still in the middle of a turnaround. And as I said, for all of the reasons I said before, there are many reasons why one would believe that it is a business that is viable and sustainable from a long-term growth standpoint. And frankly, we want to see that turnaround through. And if we are successful with that, it will be a business that is great for the shareholders in the longer term. Some of these delayed [ph] franchises have much longer life cycles than pharmaceutical life cycles. So given all the efforts that have gone through to turn the business around, we would like to see that through. Debt pay-down is not our primary priority. Obviously, we would choose to do that if we don't have better use for our cash. But our primary goal is to find growth asset for the longer-term that will benefit our shareholders.

Operator

The next question comes from the line of David Buck with the Buckingham Research.

David G. Buck - The Buckingham Research Group Incorporated

So Rajiv, if I take a look at the cost savings target, $325 million and it looks like that's about $2 a share, roughly in terms of EPS and I would -- I guess, in terms of the 2014 outlook, I know you're not giving guidance yet, but can you give maybe some sense of what your worst-case bake in revenue declines might be? And then just looking at the targeted $250 million to $500 million of acquisitions that you look to do as range, what type of revenue should we be expecting that to buy these days in terms of the type of deals you've been looking at or potentially you've been looking at?

Rajiv De Silva

Sure. So in terms of your question around our expectations and revenues, again, I'm not going to give you long-term guidance because there's so many moving parts, as you can imagine. Our guidance reflects an outcome for OPANA, which has -- which should have multiple generics on the market, which will lead to a much, much smaller residual band than we have today. We expect, over time, to maintain a reasonable tail of LIDODERM, but that again is a function of how many generics and when that competition would come. We certainly expect one in September, but there could be others in 2014. So there are too many moving parts for me to speculate on the size of that revenue decline. In terms of deal multiples, we're in a lot of different types of businesses, the multiples that you're expected to pay and generics will be higher -- sorry, different than in pharmaceuticals, than in devices. What I can tell you that it is not so much the multiple that are going to will be driven by, but rather a view on what kind of IRR I can generate. I want to be substantially above our cost of capital. Cash payback period will be an important metric for us and we'll also like to do deals that are immediately accretive. So those are going to the criteria that are going to be important for us.

Alan G. Levin

And I think that generally implies deals that have some attractive additional revenues that help to diversify our top line and our cash flows, and as we've said before, opportunities where we could see our shareholders benefit from synergies either on the cost base or upside in revenues.

Operator

Your next question comes from the line of Greg Fraser with Bank of America.

Gregory D. Fraser - BofA Merrill Lynch, Research Division

It's Greg Fraser for Greg Gilbert. How much of the change to the revenue guidance is attributable to OPANA ER versus the other factors that you mentioned. And then just on OPANA ER, since the FDA decision on the CP, have you experienced a reduction on customer orders and have you seen any initiatives in the trade that are designed to increase utilization of the old generics?

Rajiv De Silva

Sure. So in terms of the revenue adjustment to the guidance, that is primarily OPANA because we are taking a view of having multiple generics in the market. We've also baked in some reduction of our expectation on AMS simply because the turnaround is going to take a little bit longer than we had anticipated going into 2014. But those are the 2 key factors that drive that number.

Operator

Your next question comes from the line of Irina Rivkind with Cantor Fitzgerald.

Irina Rivkind - Cantor Fitzgerald & Co., Research Division

I just wanted to explore your willingness to change strategy going forward later in the next, let's say, 12 to 18 months if you find an asset that you find attractive or another vertical. I mean, would you consider adding sales force or do you feel like you have everyone that you need there, in-house?

Rajiv De Silva

I'm going to driven [ph] by what's accretive both in terms of earnings per share as well as value to our shareholders. So if I get an opportunity that's outside our therapeutic area, that will bring us near-term value and we need to add a field force; we'll be very open to doing that. So in that regard, we are not constrained by what we have today.

Operator

Your next question comes from the line of Tim Chiang with the CRT Capital.

Timothy Chiang - CRT Capital Group LLC, Research Division

Rajiv, given the target acquisition size that you mentioned. I mean, it is clear that right now, you're not looking for a major deal in the next 12 to 18 months, nothing similar to what Actavis has done or even Valeant has done. That doesn't sort of spark your interest at this point?

Rajiv De Silva

What I would say is that anything that adds value to my shareholders sparks my interest. That being said, I'm not proactively out there looking for large transaction. We don't need to do a large transaction to add value, but we always remain open to opportunities.

Timothy Chiang - CRT Capital Group LLC, Research Division

And Rajiv, just one follow-up. Given your view of AMS, how confident are you that you can achieve a turnaround in that business?

Rajiv De Silva

Like I said, the businesses have all the characteristics that will lend -- that would lead me to believe in the longer-term future. We have made a lot of changes. We brought in new a leader for the business late last year. He, in turn, has turned over a substantial proportion of leadership team as part of this change, as well as the previous change we made. In the first quarter, we've changed the sales footprint in all of our businesses, including some adjustments to our international businesses. So based on all of those things, I believe we have a reasonable plan. Obviously, time will tell if I'm right or wrong. But certainly, the things that we have done all point to the direction of a reasonable turnaround plan.

Operator

Your next question comes from the line of Kevin Kedra with Gabelli & Company.

Kevin Kedra - Gabelli & Company, Inc.

Just a follow-up on AMS, when you talk about a turnaround there. Can we think about that business returning to sort of the level of margins that we saw 2, 3 years ago granted that we know the revenue for the Women's Health is going to be down, but can the margin structure look similar to what we have seen in the past?

Rajiv De Silva

Well, what I can tell you is that our general aspiration with that business and some of the changes that we have just made, we will certainly expect to see margins increase from where they were in 2012. I think an aspiration of the high 20s, low 30s in terms of margins is what we would be shooting for. And, Alan, if you know the historical facts, maybe you can comment as well?

Alan G. Levin

Yes, I think this is a business that has historically enjoyed a very high gross margin and we would expect that to continue. And I think that as part of the restructuring effort, we've certainly been mindful of the margins for other device businesses and we think that the restructuring activities certainly moves us in the right direction of, not only of building upon the improvement in margin that's implicit in the 2013 plan as we move out of '13 and into '14 to see even further expansion.

Operator

Your next question comes from the line of Ken Cacciatore with Cowen and Company.

Ken Cacciatore - Cowen and Company, LLC, Research Division

Rajiv, just wanted to know what exactly over the last few months that you've been there in terms of vaginal mesh gives you comfort that either the clinicians are now doing it right or the sales forces, marketing the product correctly, so you're not further damaging yourself by leaving this product in the market when I believe one of your competitors decided to exit the market?

Rajiv De Silva

So first of all, as I've said a couple of different times over the course of my presentation as well as in answering Q&A, we believe the product makes a difference in the lives of patients. Women, by the time that they come to needing an intervention like this, for pelvic prolapse or stress urinary incontinence don't have that many options, and we believe it's very important to continue to do the right thing for our patients. We continue to educate physicians. And since the FDA advisory, there has been a lot of education in the marketplace that makes the patients very informed by the time they undergo our procedure. Our sales representatives have been extremely well trained. And for those reasons, we are comfortable in keeping the product on the market. Obviously, the product complaints and litigation that we deal with is an overhang on the business, but given the value that it brings to our patients, we believe it's important to continue to make them available in the market.

Operator

The next question comes from the line of Andrew Finkelstein with Susquehanna.

Andrew Finkelstein - Susquehanna Financial Group, LLLP, Research Division

Just on the guidance itself, the expectations for the cost cuts impact the revenue forecast at all? And then specifically with some of the cost cuts, just if you can talk about how you handled the HealthTronics business and the early-stage discovery, how do they impact the cost savings that you're expecting?

Rajiv De Silva

Sure. So first of all, on the -- in terms of the revenue range and the restructuring, obviously, as we restructure the company, we would expect some disruption in the field force and we have captured that uncertainty within the range. And I'm sorry, your second question?

Alan G. Levin

Cost. So I think was...

Rajiv De Silva

I mean, I just forgot the second question.

Alan G. Levin

So with respect to cost structure company as it relates to HealthTronics, part of the $325 million and the $150 million reduction does contemplate the contribution from the HealthTronics business and enhancement in the profitability of that business going forward over the second half of this year.

Operator

There are no additional audio questions at this time, I would now like to turn the call back over to Mr. Blaine Davis for closing remarks.

Blaine T. Davis

Okay. Well, I just want to thank everybody for joining us on the call today to discuss the announcement. Jonathan Neely and myself would be available this evening, as well as over the next few days, to answer additional questions. So thanks very much, I appreciate the time and interest in Endo.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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