Allergan Plc (AGN) Brenton L. Saunders on Q2 2016 Results - Earnings Call Transcript

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Allergan Plc (NYSE:AGN)

Q2 2016 Earnings Call

August 08, 2016 8:30 am ET

Executives

Lisa M. DeFrancesco - Vice President-Investor Relations

Brenton L. Saunders - President, Chief Executive Officer & Director

William J. Meury - Chief Commercial Officer

C. David Nicholson - Chief R&D Officer

Maria Teresa Hilado - EVP & Chief Financial Officer

Analysts

Gregg Gilbert - Deutsche Bank Securities, Inc.

David R. Risinger - Morgan Stanley & Co. LLC

Vamil K. Divan - Credit Suisse Securities (NYSE:USA) LLC (Broker)

Jami Rubin - Goldman Sachs & Co.

Andrew Finkelstein - Susquehanna Financial Group LLLP

Aaron Gal - Sanford C. Bernstein & Co. LLC

Sumant S. Kulkarni - Bank of America Merrill Lynch

Christopher Schott - JPMorgan Securities LLC

Marc Goodman - UBS Securities LLC

Ken Cacciatore - Cowen & Co. LLC

David Maris - Wells Fargo Securities LLC

Liav Abraham - Citigroup Global Markets, Inc. (Broker)

Umer Raffat - Evercore Group LLC

Irina R. Koffler - Mizuho Securities USA, Inc.

Operator

Good morning. My name is Dorothy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Allergan second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

Thank you. I would now like to turn the conference over to Lisa DeFrancesco, Vice President of Investor Relations. Ma'am, you may begin your conference.

Lisa M. DeFrancesco - Vice President-Investor Relations

Thank you, Dorothy, and good morning, everyone. I'd like to welcome you to the Allergan second quarter 2016 earnings conference call.

Earlier this morning, we issued a press release reporting Allergan earnings from continuing operations for the quarter ended June 30, 2016. The press release and our slide deck which we are presenting this morning are available on our corporate website at www.allergan.com. We're conducting a live webcast of this call, a replay of which will be available on our website after its conclusion. Please note that today's call is copyrighted material of Allergan and cannot be rebroadcast without the company's express written consent.

Turning to slide two, I'd also like to remind you that during the course of this call management will make projections or other forward-looking remarks regarding future events or the future financial performance of the company. It's important to note that such statements and events are forward-looking statements and reflect our current perspective of the business trends and information as of today's date. Actual results may differ materially from current expectations and projections depending on a number of factors affecting the Allergan business. These factors are detailed in our periodic public filings with the Securities and Exchange Commission. Allergan disclaims any intent or obligation to update these forward-looking statements except as expressly required by law.

Turning to slide three and our agenda this morning, with us on today's call are: Brent Saunders, our CEO and President, who will provide an overview of our second quarter business highlights; Bill Meury, our Chief Commercial Officer, who will provide an overview of our commercial performance in the quarter; David Nicholson, our chief R&D officer, who will provide select highlights from our pipeline achievements in 2016 and select 2017 upcoming milestones; and Tessa Hilado, our Chief Financial Officer, who will then discuss the Allergan second quarter continuing operations results in more detail. Also on the call and available during the Q&A are: Paul Bisaro, our Executive Chairman; Rob Stewart, our Chief Operating Officer; and Bob Bailey, our Chief Legal Officer.

With that, I'll turn the call over to Brent. Brent?

Brenton L. Saunders - President, Chief Executive Officer & Director

Great, thank you, Lisa, and good morning, everyone. We had a big week last week that was highlighted by the completion of the divestiture of our Global Generics business to Teva. With its completion and announcement of our plans to sell our Anda Distribution business, Allergan has taken major steps toward our goal of being a branded Growth Pharma leader. I'm proud of the people who worked so hard for 12 months to make this divestiture a reality, but I'm even more proud that the Allergan team has remained so focused on execution during this time. You can see proof of that focus in the results we are announcing today.

Turning to slide five, 2016 has been a year of tremendous positive transition for Allergan, and we are well positioned to continue to deliver strong results, powered by our Growth Pharma model. This model is built around five key elements: top line growth, with the goal of double-digit growth; category leadership in each of our seven therapeutic areas; customer intimacy; Open Science R&D to fuel innovation; and operational excellence. And our team is successfully executing on each of these elements.

Turning to slide six, top line sales of the branded business came in at $3.7 billion, up more than 9% compared to prior year excluding Namenda IR, divestitures, and FX. And the performance was broad-based, with strong results from all aspects of our business. Six of our most important brands grew double digits globally excluding FX, including Botox up 16%, Restasis up 21%, Linzess up 37%, our family of fillers up 18%, Ozurdex up 33%, and Lo Loestrin up 28%. I'm very pleased and impressed with this performance.

A key attribute of our team is launch excellence, as demonstrated by the strong start for Viberzi, Vraylar, and Kybella. We are also building on our therapeutic areas and four of the seven grew by more than 50% this quarter. For example, GI was up 19%. Women's health was up 34%. Meanwhile, eye care, our largest therapeutic area, was up 10%, and medical aesthetics excluding medical dermatology was up 14%. I am very impressed with what our commercial teams continue to do every day to make Allergan the most dynamic and exciting company in our industry. Bill will talk more about the brand performance, recent launches, and our international business in just a moment.

On slide seven, strong top line performance and our continued focus on operational excellence and business simplification resulted in non-GAAP EPS of $3.35, which now excludes the results of Anda, our distribution business.

For us, operational excellence is all about focusing on doing the little things very well to enable the organization to become more efficient, more productive, and more profitable. With the creation of Rob Stewart's role as Chief Operating Officer, we have renewed energy on harmonizing systems and processes throughout the company and making targeted investments to upgrade critical capabilities.

And our Open Science R&D model is working to drive innovation across each of our seven therapeutic areas. Just this year, our R&D team has succeeded in gaining approval for 13 major pharma and device products and nine major submissions. David will provide more details later in the presentation.

Open Science provides us with a compelling competitive strategic advantage, as evidenced by our 65-plus mid to late-stage development programs, many of which could be game-changing treatments.

Turning to capital allocation on slide eight, our reloaded balance sheet provides us with significant flexibility to deploy capital to shareholders, including investing in our share repurchase program, debt repayment, and additional investment in growth opportunities. We'll start with about $5 billion in share repurchase program during the rest of 2016, buying as much as prudently possible in the open market. As we have said before, if favorable market conditions persist, we have the capacity to consider buying the additional $5 billion under the $10 billion authorization provided by our Board of Directors.

In addition to the share repurchase program, we have paid down debt, which should reinforce our investment-grade credit ratings. Tessa will provide additional detail during her presentation. Even with those plans, we've preserved capacity of more than $20 billion to invest for growth and acquire additional steppingstone assets to keep our pipeline full and provide fuel for sustainable top line growth in our therapeutic areas. Our goal is to maximize shareholder value over the long term.

Now let me turn the call over to Bill Meury, our Chief Commercial Officer.

William J. Meury - Chief Commercial Officer

Thanks, Brent. Good morning, everyone. Turning to slide 10, we had a strong quarter, and our focus on category leadership is producing results. Overall demand for our products is strong and implementation metrics on launch plans are high, which is a credit to our sales and marketing teams domestically and internationally. Sales for six of seven therapeutic areas increased at a high single-digit or double-digit rate versus prior year in the second quarter excluding the impact of foreign exchange and divestitures.

In eye care, sales increased by 10%, powered by continued strength from Restasis and Ozurdex. Sales for Restasis increased by 21% based on strong physician and consumer promotion and widespread formulary coverage. Ozurdex continued to deliver strong results globally, with 30% growth in the United States and 34% growth in international markets, driven by its expanded diabetic macular edema label.

In aesthetics, sales increased by 14%, driven by continued strong performance from Botox and fillers. In fact, Botox had its strongest quarter in the United States in the last two years. Additionally, we've laid a strong foundation to drive demand in the second half of the year and in 2017 as well. The prospects for this business and the market dynamics in the future are excellent, more on that shortly.

In GI, Linzess, our flagship product, continued to produce outstanding results, up 37% year over year. And importantly, Viberzi is off to a strong start. Now in its second full quarter post-launch, prescriptions and riders are climbing at a high rate consistently week over week.

And finally, we continue to see strong growth in our women's health, urology, and anti-infective businesses.

On slide 11, you can see that demand for Linzess and Viberzi is very strong. For both products, growth has and will continue to be fueled by conversion of the OTC market, increased use by both gastroenterologists and primary care physicians, and market-leading promotion formulary coverage. For Viberzi, our newest GI product, the number of prescribers doubled in the second quarter, and physician feedback has been positive. Based on sales, Viberzi is trending at approximately 90% of Linzess during the same time period post-launch.

Turning to slide 12 and Kybella, which is indicated for submental fat reduction or double chin, strategically Kybella expands our facial injectable product line, which includes Botox and our fillers. Kybella pioneers a new category of facial injectables. It will serve as a gateway to the lower face and will open up an entirely new market of consumers, including males. And finally, Kybella will serve as a true practice builder for our customers, including dermatologists and plastic surgeons.

We've organized the launch into two phases. We successfully completed the first phase, training more than 9,000 or 90% of the key injector base in the United States. We're exactly where we need to be in terms of physician education and training. We're now in the process of kicking off Phase 2, where we are creating awareness and demand among consumers, which will be boosted by our DTC campaign beginning this month.

This product is an important growth driver and will fortify our leadership position in aesthetic medicine. Our R&D team is working on developing additional new aesthetic and therapeutic indications for Kybella, which when added to the submental fat indication could make Kybella as large as Botox Cosmetic over time.

Turning to slide 13 and Vraylar, Vraylar was launched in mid-March in the United States for schizophrenia and mania. Interest by psychiatrists and select primary care physicians is very high. We've had multiple educational events where the attendance reached approximately 100 physicians. We're very encouraged by what we're seeing and hearing right now. Approximately 4,000 psychiatrists have used Vraylar, and we expect that number to climb to 10,000 by year end. Based on solid performance so far, we're expanding our sales force coverage of hospitals and mental health facilities. As you can see on the slide, prescription levels for Vraylar are comparable to two recent and successfully launched atypical antipsychotics, Latuda and Rexulti. We do see a changing of the guard over time in this market with new atypicals replacing the older ones. The future of Vraylar can be described as nothing but very promising.

Turning to slide 14 and our eye care franchise, we're continuing to add to our position as a leading eye care company with innovative products for dry eye and glaucoma. We expect to launch Restasis MDPF in the fourth quarter, and then True Tear, which is a nasal neurostimulator, in the first quarter of 2017. So we have two new products for dry eye to complement Restasis and our marketed artificial tear product line. Both launches will be supported by a larger sales force effort to ophthalmologists and optometrists and extensive consumer advertising and education.

The prospects for growth in the dry eye market are excellent. The condition is receiving more attention due to its impact on vision, post-op outcomes, and quality of life. It's widely recognized that whether it's mild or sight threatening, dry eye should be treated more aggressively. Allergan is fully committed to this area and with multiple products on the market and in development.

In terms of glaucoma, we have our XEN Gel Stent, which is a minimally invasive procedure to lower IOP. In fact, it may turn out to be the most effective new pressure-lowering agent on the market. Glaucoma is on the verge of a transformation. For decades, eye drop therapy has been the standard of care. Looking forward, minimally invasive filtering or surgical procedures will reduce or eliminate the need for eye drops, which are effective but are of course associated with low compliance rates. XEN was recently launched in 10 international markets, and we look forward to its potential approval and launch in the United States next year.

Turning to slide 15 and our international business, sales in our international business totaled more than $750 million in the second quarter, a 10% increase versus prior year. Western Europe is our largest region, and we expect Asia-Pacific will be our leading international growth contributor. Medical aesthetics and eye care anchor our business internationally. Sales for our medical aesthetics business increased at a double-digit rate in every international region. Sales for Botox and our filler line specifically were up 13% and 23% respectively.

The medical aesthetics market is poised for a major expansion over the next several years for a number of reasons. First, attitudes towards aesthetics are changing around the world. Awareness and demand is rising from Europe to Asia-Pacific to Latin America. Second, more physicians are practicing aesthetic medicine every day. In fact, I was in Shanghai last month meeting with our Asia-Pacific country managers and customers, and the interest and enthusiasm for our products was remarkable. And finally, disposable incomes and purchasing power are climbing. Aspirationally, our global business, our medical aesthetics business could double over time.

In terms of eye care, glaucoma is our largest product line, and retina is the fastest growing. In glaucoma, we are launching a multi-dose preservative formulation of Ganfort. And our new surgical procedure, XEN, will be launched in more than 20 countries over the next two years.

In retina, sales for Ozurdex, which is a dexamethasone implant, were up 34% in the second quarter. This product has been a big commercial success internationally and is being used as an alternative to anti-VEGF therapy for diabetic macular edema. Ozurdex has a very strong following in Western Europe, and in 2017 we will expand geographically with launches in Brazil and Australia.

On slide 16, we look ahead to our commercial business. Our strategy is sound. New launches are our focus and will continue to drive growth across our therapeutic areas. In 2016, we'll continue to focus our efforts on supporting the launches of Viberzi, Vraylar, and Kybella, which we talked about. Additionally in the fourth quarter, we will launch not only Restasis MDPF, which I mentioned earlier, but also Byvalson, which is a fixed-dose combination of Bystolic and valsartan. Linzess 72mcg, a low-dose formulation of Linzess, which is designed to accelerate conversion of the OTC category, and a new indication for Namzaric, which is designed to increase the use of combination therapy and the Alzheimer's category.

Finally, early commercialization activities are underway to support our 2017 launches, XEN, True Tear, formerly known as Oculeve, and oxymetazoline for rosacea, which we're now calling Rhofade. Internationally, we're creating a GI foothold in Europe with the launches of Constella and Truberzi, which is Viberzi in the United States. We'll continue to invest behind and leverage our platform of capabilities, which includes highly effective physician and consumer e-commerce programs and our well trained and customized field force.

With that, I'll turn the call over to David.

C. David Nicholson - Chief R&D Officer

Thanks, Bill. Good morning, everyone. Turning to slide 18 and our near-term development pipeline, we have continued to deliver on our strong track record of productivity. Year to date we have achieved 13 major pharma and device approvals. We've also achieved nine major regulatory submissions, with three major submissions in Q2, a very strong first half of 2016 delivered by our great R&D team at Allergan. I'm not going to talk about everything on this slide, but I would like to talk about a few of our Q2 highlights.

Approvals, we obtained approvals globally that further enhance our medical aesthetics franchise, including Juvéderm/Volbella for lift augmentation and correction of perioral lines in adults in the U.S. The Japanese regulatory authorities approved the use of Botox Vista for crow's feet lines. We also received a CE Mark in the European Union for Juvéderm Volite, containing lidocaine.

For our cardiovascular franchise, we received FDA approval for Byvalson, a combination of nebivolol and valsartan, for the treatment of hypertension.

In CNS, along with our partner Adamas Pharmaceuticals, we received approval for a new expanded label for Namzaric. This expanded label with lower dose combinations allows patients with moderate to severe Alzheimer's who are currently stabilized on Aricept to start combination therapy directly with Namzaric.

Regarding submissions, the FDA accepted for review our SNDA for the 72mcg dose of linaclotide for use in the treatment of adults with chronic idiopathic constipation. The FDA accepted our 510(k) notification for the XEN glaucoma stent that Bill mentioned in his presentation. And we filed an application with the FDA for True Tear to increase natural tear production in patients with dry eye disease. Our ultimate goal is to show improvements in both the signs and symptoms of dry eye disease with this device. We initiated a Phase 2a proof-of-concept study for setipiprant, our CRTH2 antagonist, for enhancement of scalp hair growth.

Turning to slide 19 and looking ahead toward near-term pipeline highlights, we have a robust stream of approvals, submissions, and development milestones for the remainder of 2016 and 2017. Again, I won't cover everything on this slide, but I do want to mention a few highlights. First, upcoming approvals. In medical aesthetics, we expect to receive approval in many countries in the EU for Kybella, known as Belkyra internationally, in the second half of this year. This is one of several international approvals expected in 2016 and 2017 for this agent.

Following FDA acceptance of our NDA for oxymetazoline, Rhofade, for the topical treatment of rosacea in adults, we anticipate approval early next year.

In eye care, we have addressed questions from the FDA and resubmitted our NDA for Restasis MDPF, and we anticipate approval in the fourth quarter of 2016. As a reminder, the Restasis MDPF bottle utilizes a first-of-its- kind container with patented unidirectional valves and air filter technology. Following acceptance of our submission by the FDA, we also expect to receive approval for True Tear and XEN in early 2017, as Bill mentioned earlier.

And in GI, we expect to receive approval for our 72mcg formulation of Linzess for CIC patients.

Submissions. In medical aesthetics, we will continue to submit additional applications worldwide for Botox and Kybella. Also, we expect to announce top line Phase 3 results and submit an NDA for sarecycline, our next-generation oral tetracycline for acne, in 2017. Remember that this program will put us into a new acne category, oral antibiotics, and may offer patients a lower GI side effect profile and more flexible dosing than other products currently on the market.

In CNS, we plan to submit an NDA for Semprana, an inhalable dihydroergotamine treatment for acute migraine, later this year. We have a great team working on this project, and they have resolved the issues raised by the FDA during their previous review. We now have to tackle issues related to scale-up and manufacturability.

Development milestones. In medical aesthetics, we are set to begin a Phase 3 study for latanoprost in suborbital fat in 2017. In eye care, enrollment in our Phase 3 programs for abicipar is going very well. It is on track for completion in the second half of 2017. Excitement is high regarding our bimatoprost SR program, but challenges remain regarding the timing of enrollment of our Phase 3 studies utilizing both drops and an implant. We now expect to complete enrollment for this study in late 2017.

In CNS, we have a number of updates for our development programs. Allergan and Gedeon Richter recently provided an update on our cariprazine program. The top line results from our latest Phase 3 study evaluating the safety and efficacy of cariprazine as adjunctive therapy to antidepressants in major depressive disorder did not meet the primary endpoint. It's not uncommon for these type of trials to be negative or to fail. Antidepressants on the market today have failed one or more clinical trials in the quest to get the requisite two positive clinical studies required for approval. Remember, we have already completed one positive trial in this indication. Both companies have agreed to move forward with additional Phase 3 evaluation in MDD to support a potential indication.

We have also continued positive discussions with the FDA on an SNDA submission for an indication of prevention of recurrence in patients with schizophrenia, where we have the necessary positive study. And we continue to work with the FDA on the regulatory path forward for a potential indication for negative symptoms of schizophrenia. All in all, this represents important progress towards additional indications for cariprazine for the treatment of patients with these conditions.

Regarding our muscarinic receptor agonist development program with Heptares, we expect to enter Phase 1 clinical studies in 2017. These compounds are novel, subtype selective muscarinic receptor agonists in development for the treatment of a range of CNS disorders, with the potential upside of better tolerability and a more pronounced effect compared with available agents.

Finally, our oral CGRP program, as promised, we have initiated a Phase 3 trial for our lead compound, ubrogepant, for the acute treatment of migraine. Ubrogepant, the second compound for migraine prophylactic, will enter Phase 2b trial in the second half of this year.

As I have outlined, the first half of 2016 was marked by tremendous results for our R&D team. We have many more milestones ahead of us for the remainder of the year and into 2017. The breadth of our pipeline matched with our therapeutic area leadership validates our Open Science approach to innovation.

As always, I thank our global R&D team for their outstanding work and dedication in driving innovation, in achieving these results, and for their commitment to the work ahead for the patients we serve.

Now I will turn the call over to Tessa.

Maria Teresa Hilado - EVP & Chief Financial Officer

Thanks, David. Good morning, everyone. Please note that this discussion of financial results reflects continuing operations which now excludes both the Global Generics business, which was sold to Teva on August 2, as well as the Anda Distribution business, of which we announced the sale to Teva on August 3. All prior periods in this presentation reflect the exclusion of Anda and the Generics business as well.

Turning to our overall results for the second quarter of 2016 on slide 21, in the second quarter we delivered strong year-over-year performance. On a GAAP basis, continuing operations net revenues, which now exclude Anda Distribution, were $3.7 billion, a 2% increase versus prior year, reflecting strong growth of key products and the impact of the loss of exclusivity for Namenda IR in July 2015. Excluding Namenda IR, divestitures, and FX, revenues increased 9.3%.

Gross margin for the second quarter was very strong at 88%. Operating margins were also very strong, exceeding 50%. Operating margins declined versus last year as a result of an increase in R&D reflecting the increased number of Phase 3 programs underway and an increase in SG&A. The increase in SG&A was primarily driven by higher selling and marketing expenses related to the three major ongoing launches this year of Viberzi, Kybella, and Vraylar. Non-GAAP earnings per diluted share forecast of $3.35 reflect the loss of exclusivity of Namenda IR when compared with the second quarter of 2015.

Our non-GAAP tax rate was 7.1% in the quarter. This rate remains low as a result of our entire interest expense being allocated to continuing operations earnings. The divestiture of Anda, which is a U.S. company, also further reduced the tax rate for continuing operations.

Cash flow from operations for the second quarter was $1.4 billion. Excluding adjustments, primarily recent R&D acquisitions and integration expenses, cash flow from operations was $1.85 billion. The GAAP equivalents to our forecast metrics can be found in our earnings release issued this morning and posted on our website.

Turning now to our U.S. Specialized Therapeutics results on slide 22, the business continued to deliver strong performance year over year. U.S. Specialized Therapeutics revenue was $1.5 billion for the quarter, up 11% versus the prior-year period, driven by strong growth across medical aesthetics of 15%, eye care of 10%, and strong growth in Botox Therapeutic of 17%. Key products performed well, with Botox, Restasis, fillers, and the launch of Kybella as key contributors to the strong performance. Gross margin remained high at approximately 95%. SG&A increased as a result of an increase in promotion efforts, including sales force expansion and launch costs related to Kybella.

Turning to slide 23, our U.S. General Medicine business second quarter revenue was $1.45 billion, reflecting the loss of $229 million of sales of Namenda IR, which lost exclusivity last year. Adjusting for this impact, sales grew 5%, driven by strength in our key products, including Linzess and Lo Loestrin and new product launches of Viberzi and Vraylar. Second quarter gross margins continued to be stable at approximately 85%. Sequentially, SG&A increased slightly as a result of Viberzi and Vraylar promotional spend and sales force expansion related to these launches.

Turning to slide 24 and our international brands results, second quarter revenues were $757 million versus $717 million in the prior-year period. Excluding FX, international revenues in the second quarter grew 10%, driven by continued strong growth of Botox, fillers, and eye care driven by strong sales of Ozurdex. Gross margins were 84.8% in the second quarter. Segment SG&A was $238 million, up 3% versus prior year, driven by new product launches, including Belkyra or Kybella in the U.S., XEN, Earfold, and Constella. Contribution margins improved versus prior-year quarter from 52.2% to 53.4%, reflecting continued strong sales growth.

Turning to slide 25, which details our debt capitalization, we have strengthened our balance sheet significantly with the continued paydown of debt following the close of the Teva transaction. Since Q1 and following the close of the sale of our Generics business to Teva, we reduced our total debt position by approximately $9 billion, in line with our previous commitment. As a result, all of our outstanding term loans have been fully paid off. We also terminated our $1 billion revolving credit facility, and we expect to renew this facility in the next few weeks.

We continue to believe that there is no better investment than in our own fast-growing company. We plan to commence our share repurchase very shortly, and we plan to execute $5 billion by the end of the year, buying as much as prudently possible in open-market purchases subject to favorable market conditions. Note that the Allergan board has authorized up to $10 billion in share repurchases, and we expect to provide an update on our share repurchases in our next earnings release.

Turning to slide 26, let me make a few comments on our 2016 full-year guidance. We are refining our guidance to now include EPS as well as removing Anda. We expect full-year 2016 branded revenues to be $14.75 billion to $15 billion. Note that reported net revenues will be lower by approximately $100 million, reflecting the impact of our branded products which are sold through Anda and are required to be accounted for in discontinued operations. Note that revenues will be back-half weighted as a result of contribution from launches being greater in the second half and typical pharma seasonality. Our gross margins will remain strong at approximately 88.5%. We expect non-GAAP SG&A – actually, our gross margins will remain strong at approximately 89%.

We expect non-GAAP SG&A of approximately $4 billion, reflecting our investment in new product launches and continued prudent G&A spend.

Non-GAAP R&D spend is expected to be approximately $1.5 billion as a result of the many important late-stage programs advancing in our pipeline, including the commencement of Phase 3 programs of rapastinel and ubrogepant. We anticipate interest expense in the range of $1.3 billion or even slightly lower. Our tax rate for the full year is anticipated to be approximately 9%. Our tax rate should begin to trend upward toward normalized levels in 2017. Our share count of 413 million shares includes approximately $5 billion in share repurchases that we plan to execute throughout the remainder of the year.

Turning to slide 27, I am proud of our accomplishments as a growth-oriented pure branded company. The actions that we have taken this year to simplify our business combined with strong revenue performance have truly uncovered our industry-leading profitability, as shown in the chart. We will continue to focus on strong top line growth as we look to the future.

Besides revenue growth and cash generation, the two additional financial metrics that we watch very closely are gross margins and operating margins. Our goal is to remain among the leaders in the industry in both gross margin in the 88% range and in operating margins which are trending in the range of 53%. Our operating margins will continue to expand as we fully realize the potential of our growing revenues while investing in selling and marketing and maintaining an efficient G&A base. This should translate into strong cash flow generation which will further maximize shareholder value.

With that, I'll turn the call over to Brent for closing remarks.

Brenton L. Saunders - President, Chief Executive Officer & Director

Thank you, Tessa. In closing, this quarter further demonstrates that Allergan is clearly not dependent on the performance of one brand, one market, or one R&D program. With our positive transition to a branded focused Rx company, Allergan is the most dynamic and exciting company in our industry. We have multiple drivers, seven growing therapeutic areas, leading growth in the U.S. and a strong international business with expansion opportunities, multiple product launches, a fantastic R&D engine, a team focused on operational excellence, and a reloaded balance sheet.

Allergan is in great shape for a strong finish to 2016 and prepared for a bold future as a branded, focused Growth Pharma leader.

Now I'll turn it back over to Lisa and we can start the Q&A.

Lisa M. DeFrancesco - Vice President-Investor Relations

Dorothy, I think we're ready to start the Q&A. The one thing I would ask is, if you could please limit yourself to one question so we can get through everybody. Thank you.

Question-and-Answer Session

Operator

Your first question comes from the line of Gregg Gilbert with Deutsche Bank.

Gregg Gilbert - Deutsche Bank Securities, Inc.

Thank you, good morning. Since it's one, I'll go with this one. Brent, you've been very clear I think since the PfizerGan transaction failed that you're focused on tuck-ins more so than big deals, and we've only heard from the media on speculations. Can you share your latest thoughts on whether you were or are or could be interested in Biogen or something like it? I suspect your answer will be the same, but I'm hoping for some additional color. Thanks.

Brenton L. Saunders - President, Chief Executive Officer & Director

Thanks, Gregg. Look, I said this at our last quarter call. I reiterated it in the script. I'll say it again now. Allergan doesn't need to do any big M&A. We have a very strong commercial business around the world with great growth prospects and lots of durability. We have a strong pipeline, many of which are late-stage and game-changing potential programs. And we are building leadership in every area, the seven in which we compete. So our focus is on stepping-stones. We are going to look to continue to bolster our therapeutic leadership and to continue to look for true innovation through our Open Science model. We are not looking at and we are not focused on any large transformational M&A. We are focused on stepping-stones.

Gregg Gilbert - Deutsche Bank Securities, Inc.

Thanks a lot.

Operator

Your next question comes from the line of David Risinger with Morgan Stanley.

David R. Risinger - Morgan Stanley & Co. LLC

Thanks very much. I wanted to ask about the Botox and related pipeline. You had a write-off this quarter. I was hoping that you could comment on that and then maybe transition to the key Botox pipeline opportunities that you see ahead that investors should be focused on.

And then it would also be helpful for you update us on Medytox and the topical toxin that you acquired. You've been pretty quiet on Medytox the last couple of years. And on the topical toxin, I guess it's in Phase 2, but wanted to get a sense for your level of conviction on that asset. Thank you.

Brenton L. Saunders - President, Chief Executive Officer & Director

Sure, I'll ask David to answer the development questions. I'll just open with one thought on Botox. We are, without a doubt, the leader in both science and in commercial capabilities when it comes to neurotoxin development and manufacturing. So we understand this group of biologics better than anybody in the world. And I would tell you that – and I think Bill has said this in the past as well – we're only halfway through, maybe even less than halfway through the life and growth of Botox both aesthetically and therapeutically. So we see this, as, as I think David Pyott used to say, a pipeline and a product. We see that going for the next decade or more as a key growth driver for Allergan.

David, you want to comment specifically on the pipeline, Medytox, and the topical program?

C. David Nicholson - Chief R&D Officer

Yes, sure, happy to do that. Clearly during my presentation, I walked you through the recent and the forthcoming approvals and submissions for Botox, particularly in medical aesthetics, which includes Botox for head lines in U.S. and Europe, Botox for crow's feet lines in China. So we're expanding geographically medical aesthetics, and we're expanding the number of indications that we have in medical aesthetics in Europe and the U.S.

Of course, we're also looking at additional therapeutic uses of Botox. And we have the depression study ongoing, which will report out early next year, the Phase 2 data. And as we've announced recently, we are initiating studies for Botox in platysma, completing the Phase 2 study in masseter. And we're evaluating the potential use of toxins in preventing some of the consequence – atrial fibrillation following open heart surgery.

You asked about the topical toxin. We recently acquired the technology from Anterios. The technology is really useful to get large molecules potentially across the dermal barrier. And indeed, one use of that is potentially for Botox or for toxins like Botox. And we're presently finalizing our work on the formulation for use in some medical aesthetics studies. And the hyperhidrosis study that Anterios performed was finalized.

You also asked about Medytox. Medytox will be submitting an IND before the end of this year, and we anticipate being able to perform clinical studies with the Medytox toxin early next year.

David R. Risinger - Morgan Stanley & Co. LLC

Thank you.

Operator

Your next question comes from the line of Vamil Divan with Credit Suisse.

Vamil K. Divan - Credit Suisse Securities (USA) LLC (Broker)

Great, thanks so much for taking my question. I guess I just wanted to maybe get a little bit more insight on the Namenda franchise. So one comment you made in your release was just that the revenues are impacted by higher levels of investment. So I'm assuming that has to do with co-pay cards or something along those lines that's bringing down the net sales. If you can just confirm that.

And then obviously, you talked about the Namenda IR generics impact going forward here. But just how should we think about this franchise I guess as we've looked at the uptake of Namenda XR and then Namzaric so far? I know you have the new approval for Namzaric. But is this something that you see as a real growth franchise going forward, or is it going to stay in the level that it is right now? Thanks so much.

Brenton L. Saunders - President, Chief Executive Officer & Director

It's a great question, and I'll ask Bill to answer. But I would just comment that I think what our team has done to continue to provide innovation and focus in this category is really outstanding, and we're looking forward to really getting behind the promotion of Namzaric now that we have the full indication. But I'll ask Bill to talk more about the franchise.

William J. Meury - Chief Commercial Officer

On a demand level, Namenda XR and Namzaric versus prior year are relatively stable in terms of the second quarter results versus 2015. The variance was largely due to the cost of obtaining formulary coverage both for 2016 and for 2017. I would think about it as a one-time cost, not something that is going to escalate or read through to the next year.

I do think that the indication for Namzaric for new patients is going to make a difference. I also believe that the sequencing of Namenda IR to Namenda XR to Namzaric is important, and some time has passed since we transitioned from Namenda IR to Namenda XR, which I think is important.

And in terms of looking forward, I think Namzaric could expand the use of combination therapy in the Alzheimer's category because it's superior to Namenda XR. We're going to launch a DTC campaign. That's the aim. I would say at minimum, though, it's going to shore up this business for the next several years so that we have something that's solidly trading in this $750 million to $800 million a year range.

Vamil K. Divan - Credit Suisse Securities (USA) LLC (Broker)

Okay, thanks.

Operator

Your next question comes from the line of Jami Rubin with Goldman Sachs.

Jami Rubin - Goldman Sachs & Co.

Thank you. Brent, a question for you, now that your company has been through multiple iterations over the last few years and just massive change this year, we've seen numbers come down across the board on revenues and earnings, and that's largely due to the divestitures. But I'm wondering if you can take a step back and help us to think about where revenues and where earnings might go over the next three to four years or so. I recognize you're not prepared to give us point estimates guidance today, but there are some stale numbers out there, the $25 billion number from 2017, for example. And so it just seems that $25 billion is a long way away from $14 billion this year. So if you can help us to think about how this company is going to evolve from a revenue and earnings standpoint over the next few years, that would be really helpful. Thanks very much.

Brenton L. Saunders - President, Chief Executive Officer & Director

Thanks, Jami. Look, we have very positively I think transformed our company over the last few years into what it now is, and I think we've finally hit the point that we've been trying to get to over that period of time to a focused branded Growth Pharma innovative company, and we're very excited that we've gotten here. We just have to complete the final sale of the Anda business – or the final sale, which is the Anda business to Teva, and then we've gotten this two years of incredible transformation essentially behind us.

As a result, I think that has changed the numbers. Obviously, when you sell a business, it is dilutive to both top and bottom line, and we've done a few of those things, and that's always difficult for companies to do. But for us strategically and I think prudently it was the right move at the right time, and I think we did very good deals to get us there.

I think with respect to future, our goal, our aspiration is to continue to lead in top line growth. We are I think putting up arguably among the best, if not the best, top line growth. That growth is broad-based. That growth is across all of our product lines. All of our most important products are growing faster than the top line average. And so we are in an incredibly strong position from a sales perspective.

Obviously, on an EPS basis, we look to see leverage on the bottom line. We've continued to lead, as Tessa said, in both gross margin and operating margins. You see that bleed through to the bottom line. You'll see that strengthen as we do things like buy back $5 billion to $10 billion worth of stock, as we continue to do deals that are growth oriented, both accretive deals and some pipeline deals to make sure that we do it. But let's face it, the bottom line as our goal is difficult but quite simple, which is to maximize shareholder value over the long term. And I think we're absolutely focused on it and I think we have all the ingredients in place now to do that better than most of our peer group.

Jami Rubin - Goldman Sachs & Co.

Can I just ask a follow-up?

Brenton L. Saunders - President, Chief Executive Officer & Director

Yes.

Jami Rubin - Goldman Sachs & Co.

Okay. Just on the margins, SG&A – obviously, you are in launch mode right now, and SG&A as a percentage of sales is up to 28%. Can you give us a sense for what the simplest – now that you have achieved a much more simplified business structure, what will that mean in terms of your operating margins? Is there room for a significant improvement over time? I know there was a time you had talked about a cost-cutting opportunity as the businesses have become more simplified. What exactly would that look like?

Brenton L. Saunders - President, Chief Executive Officer & Director

Before Tessa answers, I would just say one thing, Jami, a great area to focus on. But I think the other thing is to drive that leading top line growth, we need to invest behind our brands. So we are very focused on prudently and with good strong ROI business cases supporting the launches and the brands. Even our old brands like Botox, if you want to call it that, had its best quarter in the last few years or two years. So we're not going to shy away from that, but we are going to manage our G&A very tight. So, Tessa, do you want add some color?

Maria Teresa Hilado - EVP & Chief Financial Officer

Yes. So, Jami, the 28% excludes Anda. Actually, if you strip out Anda, we're really back to the 25% guidance we provided last quarter. So G&A obviously this quarter hasn't really increased. If you strip out Anda, we're actually back to the same place and even slightly lower.

Note that for SG&A, 80% of that cost is really selling and marketing. And we'll continue to invest in that given the fact that we obviously have very important launches not only in 2016 and 2017, which makes a lot of sense. G&A will probably remain relatively flat and there's definitely opportunity there, and you will see obviously SG&A as a percentage of revenue decline over time. But there is no plan to increase G&A significantly at all. And if anything, as we've already streamlined infrastructure and with Rob's efforts obviously in operational excellence, we'll see more opportunities from a cost standpoint going forward.

Lisa M. DeFrancesco - Vice President-Investor Relations

Next question?

Operator

Your next question comes from the line of Andrew Finkelstein from Susquehanna.

Andrew Finkelstein - Susquehanna Financial Group LLLP

Good morning, thanks very much for taking the question. I was hoping you could talk a bit more about the commercial execution priorities for the second half of the year. How important – or where do the efforts go on an incremental basis? Are there products where you're looking to put on more detail and in marketing support? Are there areas where you think things are more stable and where greater margins can be derived? I'm thinking both in ophthalmology, where you'll have a new competitor and even some of the more mature franchises as well. Thanks.

Brenton L. Saunders - President, Chief Executive Officer & Director

Bill, do you want to?

William J. Meury - Chief Commercial Officer

Before I talk with the launch products, I'll start with I think the most important one right now when you think about the second half of the year, and that's Restasis. We increased the size of our sales force by 20%, essentially adding 60 more representatives. We increased the investment in direct-to-consumer advertising. The sampling program both on Restasis as well as in our artificial tears has been increased. Our coverage of ophthalmology and optometry will be greater in the second half of the year than it was in the first half of the year. We've shored up formulary coverage at virtually every health plan across the country both on the commercial and the Part D side. And those steps were taken to successfully launch Restasis MDPF. Of course, we're going to have an active company in the category in Shire. We're also going to launch True Tear, which is a nasal neurostimulator for dry eye.

And so I like the way the second half of the year is going to look for Restasis, particularly given the incremental level of investment. As you know, we have a very highly trained, experienced sales force with great relationships in both areas of eye care, which is ophthalmology and optometry.

Of course, in addition to Restasis, is there's a big focus on Viberzi, Vraylar, and Kybella. And Viberzi looks and feels just like Linzess. That's an OTC conversion play. Vraylar is exceeding our expectations. The response that we've gotten from psychiatrists is exceptional. We're getting use across a broad range of patients. The prescriber base is climbing.

And then of course, we have Kybella, and we spent the first six months training injectors. It's very different than a pharmaceutical like Viberzi or Vraylar. I would describe the first day of launch for Kybella as September 1. We'll turn on consumer advertising. All of our e-commerce programs are now covering Kybella, and I would expect a significant step up in sales on a quarterly basis for Kybella in the second half of the year. It's a great expansion of our injectable product line. It gets us into the lower face. It opens up to a certain extent the male market.

Those are really the priorities. Of course, Botox Therapeutic is growing at a double-digit rate, driven by migraine. We've only penetrated 6% of that market. I think long term it's going to be a growth driver, even in 2018 when the CGRPs launch. I hope that answers your question.

Operator

Your next question comes from the line of Ronny Gal with Bernstein.

Aaron Gal - Sanford C. Bernstein & Co. LLC

Good morning, congratulations for the good quarter and to Bob [Bailey] for being the czar of everything internal. I have two questions, first for Tessa, just a housekeeping question. You mentioned that on a pro forma basis you get about $1.85 billion of free cash flow, of operating cash flow. That's almost 50% of revenue. If we think long term, is this actually a sustainable operating free cash flow margin? And then...

Maria Teresa Hilado - EVP & Chief Financial Officer

So, Ronny – go ahead.

Aaron Gal - Sanford C. Bernstein & Co. LLC

And then just for David, tavilermide, the dry eye product, you have mentioned it as reporting first Phase 3 I guess before the end of this year, but you don't seem to have it on your submission plans for 2017. And I was wondering if you can give us a timeline for that drug, and more generally discuss how do you see the pipeline in dry eye featuring for the next couple of years.

Maria Teresa Hilado - EVP & Chief Financial Officer

So on cash flow running, let me clarify. So the $1.85 billion excludes one-time non-recurring cash flow items and also includes Generics. So on an ongoing basis, if you exclude Generics, which provides about $200 million to $400 million in cash flow, branded, pure branded excluding one-time items would generate about $1.5 billion per quarter. Does that clarify the question?

Lisa M. DeFrancesco - Vice President-Investor Relations

David?

C. David Nicholson - Chief R&D Officer

Sure. So tavilermide, we will get the results of the first two Phase 3 trials later this year, as we reported, and everything is totally on track. And following successful completion of those first two Phase 3 trials, we can exercise our option and then perform two more Phase 3 studies.

Regarding our dry eye pipeline and Restasis with that, we discussed Restasis MDPF rather extensively during our comments. We will be filing Restasis in the EU later this year. Of course, we continue to roll out new artificial tears, and we will be rolling out a True Tear device early in 2017. So I think from having Restasis out there rather half-lonely as a product, all of a sudden we're going to be delivering quite an extensive pipeline in the dry eye space.

Brenton L. Saunders - President, Chief Executive Officer & Director

Yes, I would also add. Remember, we are a dry eye company. We're not just a dry eye product, so we have not just this pipeline but a sincere commitment to continuing to lead in innovation. I don't know, Bill, if you had any thoughts.

William J. Meury - Chief Commercial Officer

If you look out into the future, we could have an anti-inflammatory, a cortisol analog for flare-ups, a mucin secretagogue, a nasal neurostimulator, and an artificial tear. And there are even more business development opportunities out there.

As it relates to what's happening with our mucin secretagogue or tavilermide, it takes time to do dry eye studies. As you know, it's not different than working with an antidepressant. You have to do sometimes two or three studies to get one. Shire experienced that with their own program with lifitegrast. The results from one study to the next can be variable and somewhat unpredictable. It's a difficult disease to study. And I think ultimately for any new product, it comes down to how a drug stands up in a real-world setting, not what's uncovered in clinical trials. And as Brent said, ocular surface disease in eye care is getting a lot of attention. It's a big part of both pre-operative and post-operative care. I hear it and see it at virtually every meeting. And I think the more products we can bring into the market, the stronger this business is going to be.

Lisa M. DeFrancesco - Vice President-Investor Relations

Thanks. Next question?

Operator

Your next question comes the line of Sumant Kulkarni from Bank of America Merrill Lynch.

Sumant S. Kulkarni - Bank of America Merrill Lynch

Good morning, thanks for taking my question. We know that as an organization you don't seem to need to do large transactions. But if you wanted to do them as an inverted company, is there specifically anything that is a structural financial or logistical impediment given the new U.S. Treasury rules?

Brenton L. Saunders - President, Chief Executive Officer & Director

So again, we are absolutely focused on our steppingstone strategy. That being said, the new rules provide some things you have to work through, but there's eventually complete flexibility to do what needs to be done. You just have to structure appropriately and in compliance with the rules. But no, we don't see obstacles if we decided to do that.

Operator

Your next question comes from the line of Chris Schott with JPMorgan.

Christopher Schott - JPMorgan Securities LLC

Great, thanks very much, just another question on capital deployment. As we look at the $27 billion of cash on the balance sheet right now and a lot of cash flow generation going forward, and that coupled with this focus on stepping-stone deals, you obviously have some plans for repo over the next six to 12 months. But should we think about the majority of capital on the balance sheet being put to work or returned to shareholders over the next 12 to 18 months, or could this be a more gradual deployment of capital just given the landscape of what you're looking at, et cetera? I'm just trying to understand. It seems like it's pretty low return on that cash right now. And how you think about translating that to shareholder value over time?

Brenton L. Saunders - President, Chief Executive Officer & Director

So look, that's a great question, Chris. As I mentioned earlier, our focus is absolute on long-term shareholder return and leading our peer group in that metric. Obviously, we have done a dilutive transaction but with strong strategic and industrial logic in selling our business to Teva. We're in a very strong position today. We are not going to rush to do a deal for the sake of doing a deal. We're going to stay disciplined. We're going to stay focused on doing deals that we think are growth-oriented and provide innovation and leadership therapeutically. And we think the opportunity is vast to choose from. So we have no shortage of opportunities to evaluate. Our teams are working hard all the time looking at many different opportunities, but we'll do the right deals at the right time to support that.

The other thing I would say on stock buyback, obviously I said in the script and Tessa I think reiterated, we'll do the $5 billion largely this year. If market conditions persist, we will do the full $10 billion or an additional $5 billion that the board has authorized, but I don't think you'll see us as a chronic stock repurchaser. We will only do that when we see a distortion or opportunity in the market. We are a growth-oriented company and we'll continue to invest our cash flow to either maintain or improve our credit ratings by paying down debt or invest for growth.

Operator

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

Marc Goodman - UBS Securities LLC

Yes, David, can you talk about this hair growth program a little bit more? Where are we in this? Historically, what happened and what kind of studies are you running now and how we should think about it?

And then just one follow-up on Restasis, I didn't understand some of the comments. Was there anything one-time in the quarter? Thank you.

Brenton L. Saunders - President, Chief Executive Officer & Director

So maybe just on hair growth before David starts. Obviously in medical aesthetics and our strategy of owning the face, Kybella, as Bill said, is a gateway to the lower face. Obviously, hair will be a gateway to the top of the head. We think it's a multiple shot-on-goal type of situation, and we're looking at a variety of different programs. But, David, you want to talk about some of the ones we're most interested or excited about?

C. David Nicholson - Chief R&D Officer

Yes, sure. So we actually have two hair growth programs. One is bimatoprost, where we're looking at a Phase 1 local PK [pharmacokinetics] study with bimatoprost for hair growth, and we'll get the results for that later this year.

And we also have setipiprant, which is the CRTh2 antagonist, where we plan to start Phase 2 studies later this year. The CRTh2 program came out of some academic work showing changes in prostaglandin D2 expression in male pattern baldness, and the CRTh2 receptor is the receptor for prostaglandin D2. So we have genetic validation of the target in male pattern baldness. And it's that genetic validation that we're exploiting with the compound that we acquired from Kythera along with Kybella.

William J. Meury - Chief Commercial Officer

Marc, this is Bill. As it relates to Restasis, there were no one-time items impacting sales positively or negatively. We had a great quarter, so there was nothing impacting sales positively on Restasis. It's wasn't a one-time item. It's just pure demand. We're seeing it across the board. We have a larger field force in place. We're also seeing bigger prescriptions, people getting 90-day fills. As they get more comfortable with the drug, that's not uncommon to see with a product.

Lisa M. DeFrancesco - Vice President-Investor Relations

Next question?

Operator

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

Ken Cacciatore - Cowen & Co. LLC

Thanks. Brent, don't want to irritate you with this question, which is probably a bad segue into asking it, and you've been very clear about wanting to do stepping-stone acquisitions. And I know you can't talk about every hypothetical. But something you really can't control is when something comes for sale. So I just wondering, is there just nothing out there that's larger that's interesting at all, or just something larger out there that of course is just not for sale, and just wondering how that could alter if an asset did become available that was unexpected.

Brenton L. Saunders - President, Chief Executive Officer & Director

Good question, Ken. Look, the only time in the last two years we've done a major transformational deal was when we bought legacy Allergan, and that was put in play and we got to act as a white knight. For the last few years, we have been very focused on stepping-stone deals. So it's not like it's a new strategy despite our image perhaps or reputation in the market. We have been very focused on that, only acting on one transformational deal because it was a once in a corporate lifetime situation. I guess to the extent we look at the large-cap universe or the transformational set, we ran that analysis vis-à-vis doing our stock buyback and believe that our stock is the most compelling investment we can make versus doing those types of deals.

Now we've always been a flexible, nimble team. If some extraordinary situation presented itself, we would obviously evaluate it very closely. And if we felt it was in our shareholders' best interest long term, it's conceivable we can do that. But to be clear and, Ken, I know you know this. Our strategy is stepping-stones. We are not out looking for big transform M&A. The odds of something compelling becoming clear are exceptionally low but they're not zero, and so you never say never. That would be silly in our situation to be close-minded and close off all avenues. But I can tell you that we don't need a big deal. We're not looking at big deals, and we're going to continue our strategy of stepping-stones.

Lisa M. DeFrancesco - Vice President-Investor Relations

Next question?

Operator

Your next question comes from the line of David Maris from Wells Fargo.

David Maris - Wells Fargo Securities LLC

Good morning, Brent. On the overall pricing environment, as you look to 2017 and the payer contracts – and I think Bill, you had mentioned that those were wrapping up the last time we spoke – are you see any changes in particular? A couple of your peers are saying they're seeing greater rebating and discounts. Are you seeing that, or is your book of business slightly different?

Brenton L. Saunders - President, Chief Executive Officer & Director

It's a good question, David. I think we've seen relative stability. I think what's happened in this environment with all the media and noise coming from the political season and everything else is that payers are definitely emboldened a little bit, and so they're being more aggressive. I think where they're having their biggest success is where there is great competition or low innovation. And as you know, we have transitioned to a very different model with our recent launches and our pipeline, and I think we have said this many times. We think pricing our pipeline is going to be infinitely easier than pricing our current products, and we've done very well pricing our current products.

So would I characterize the environment as tougher in the me-too or highly competitive spaces? If there are four drugs launching with relatively similar mechanisms and indications over a 12-month period, pricing dynamics are more challenging than they have been. If you're launching something like even Viberzi, where we can get price that's almost three times the price of Linzess because it's a one-of-one and novel mechanism, it's still pretty straightforward. Is that fair, Bill?

William J. Meury - Chief Commercial Officer

There's nothing, David, I see in terms of pricing in the second half of 2016 or even in 2017, and pretty soon we're going to talk about 2018, that isn't manageable. I don't even detect a major tone – change – a tone change in terms of the interactions that we're having with health plans. That's not to say it's zero, but I would describe it as manageable. And I would second what Brent said about our pipeline. It's going to be easier to price than our marketed products.

And I would make one final comment. Keep in mind our business has got good balance. Forty percent of the $15 billion I wouldn't even describe as subject to the pricing pressures that we're talking about right now. When it comes to our commercial and Part D mix, it's well balanced. And just generally speaking, we have exclusivity periods on our products that extend well into the 2020s, which means our pricing approach is aimed at garnering market share and real estate, so to speak. And we price for the long term, not the short term. And I do think that has a positive impact on the partnerships that we have with health plans.

Lisa M. DeFrancesco - Vice President-Investor Relations

Next question?

Operator

Your next question comes from the line of Liav Abraham with Citi.

Liav Abraham - Citigroup Global Markets, Inc. (Broker)

Good morning. Brent, a few weeks ago you mentioned in an interview that you were contemplating if and how to expand internationally and particularly in emerging markets. I'd be interested in where you stand in this regard, which franchises could potentially be involved, and any potential investment required. Thank you.

Brenton L. Saunders - President, Chief Executive Officer & Director

It's a great question, Liav. Our international business has been executing exceptionally well over the last few years. It continues to put up company-leading growth numbers inside of Allergan, largely on the back of medical aesthetics and eye care. We are emerging as a GI player in parts of the world as well. And so I think our focus of – Bill mentioned in his script, he and I were in China together visiting with our Asia-Pacific regional managers and then visiting customers and our offices in Shanghai. And we both I think strongly believe that the opportunity in a market like China for a cash-pay medical aesthetics business is massive. Now we're growing incredibly strong but off a relatively modest base. So we need to look at, is there something more bold we can do there?

Now the investment I think will be manageable. I don't think you'll see it make huge fluctuations in the numbers if we decide to do it, and the payback will be strong. So I don't think that should change any way you think about – the investment shouldn't change any way you think about it, but rather we want to make sure that we continue to put up that growth and ultimately, instead of being 20% of our overall business, get it to be closer to 30% or 30%-plus of our business over the long term.

Lisa M. DeFrancesco - Vice President-Investor Relations

Next question?

Operator

Your next question comes from the line of Umer Raffat from Evercore ISI.

Umer Raffat - Evercore Group LLC

Hi, guys. Thanks for taking my question. Bill, on Restasis, how much gross-to-net and widening do you expect with lifitegrast priced at parity on a WAC [Wholesale Acquisition Cost] basis now?

And then, David, so on NRX-1074, the oral ketamine, it seems like there has been no trial initiated on it in almost 18 months now. And considering how important it is as a pipeline product, I just wanted to understand what's the status.

And, Tessa, just to clarify a prior comment you made, you said $1.8 billion in cash flow from operations, but the cash flow statement has about $1.3 billion to $1.4 billion on average for the last few quarters from cash flow from operations, which includes Generic. I just wanted to understand how you were thinking it through.

William J. Meury - Chief Commercial Officer

Umer, this is Bill. In terms of gross-to-net widening, as you can appreciate, for competitive reasons, that information is confidential. What I can say though is that we have a pretty good handle on our discount rate for the second half of 2016 and for all of 2017. It's hard to predict what's going to happen in 2018. I would just say that I believe growth for Restasis will moderate to a certain extent because Shire is going to of course be sampling the product heavily. But ultimately we can maintain growth for this business over the long term even if there's a moderation for couple quarters.

C. David Nicholson - Chief R&D Officer

And for rapastinel, as we've been targeting ever since we acquired the compound, we will start our Phase 3 studies in the second half of the year. We felt it was really important for such a novel agent to go to the regulatory authorities and make certain that we have absolutely the right trial design for such a novel antidepressant because clearly we need a somewhat different and novel trial design than has been utilized in the past for studies in MDD. But we will, as we said, start Phase 3 in the second half of this year as adjunctive therapy to standard antidepressants.

Brenton L. Saunders - President, Chief Executive Officer & Director

I think to be fair, as the expertise in our R&D team on particularly antidepressants is perhaps industry-leading, it's about getting it right the first time than starting a quick study and then not satisfying the regulatory requirements and two years from now having a big setback.

Maria Teresa Hilado - EVP & Chief Financial Officer

So, Umer, to clarify on cash flow, you're right. Cash flow for the quarter was about $1.4 billion including Generics. If you add back one-time items, including restructuring and milestones, we get to $1.85 billion. And what I clarified earlier is if you strip out Generics and you exclude one-time items, think about our cash flow as roughly $1.5 billion per quarter.

Lisa M. DeFrancesco - Vice President-Investor Relations

Next question?

Operator

Our final question comes from the line of Irina Koffler with Mizuho.

Irina R. Koffler - Mizuho Securities USA, Inc.

Thanks for taking the questions. I'm just wondering about M&A priorities with respect to existing franchises. It looks like medical dermatology could be a little stronger, potentially even the hospital segment. So are those priorities, or are you thinking more about strengthening areas where you're already very strong like CNS, ophthalmology, or medical aesthetics? Thanks.

Brenton L. Saunders - President, Chief Executive Officer & Director

It's a big question. I think to be fair, the way we think about it is how do we maintain our leadership position in the therapeutic areas? So where do we have opportunities to leverage both our R&D capabilities and most importantly our commercial capabilities? But also where is there true innovation for all the pricing and other reasons we discussed earlier? So those are the two screens that we tend to look at. It doesn't necessarily mean we prioritize one over the other.

I think the one thing I would say, and I think Bill would agree, one of the best ways to keep a growth company rejuvenated and focused is product flow. And so where we see – we have a lot of product flow, and our sales force is constantly – the new normal at Allergan is launch excellence in launching products. But we tend to also look at building out our pipeline and our shots on goal a bit like a bond portfolio, where we can both ladder out the launches as well as the exclusivity periods of our products to keep that constant growth rate. But look, face it, at the end of the day, if there is a real opportunity to add growth or innovation in any one of our therapeutic categories, it rises to the top of the priority list.

Lisa M. DeFrancesco - Vice President-Investor Relations

Would you like to make any closing remarks?

Brenton L. Saunders - President, Chief Executive Officer & Director

Yes, so I'd just thank everyone for joining us. Obviously, 2016 has been a year of tremendous positive transformation. We have worked very hard over the last couple years to basically change the landing gear on a jet while it was in flight. I think we've successfully navigated doing that. We're very excited about our now focused innovative Growth Pharma business. I think we're in an enviable and strong position to lead our therapeutic areas and to lead our peer group in growth.

So thank you for joining us and we look forward to continuing updating you over time.

Lisa M. DeFrancesco - Vice President-Investor Relations

Thanks, everyone.

Operator

Thank you, ladies and gentlemen. This does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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