Good afternoon, everyone, and welcome to Depomed Reports Third Quarter Fiscal Year 2014 Financial Results Conference Call. [Operator Instructions] Please also note today's event is being recorded. This time I'd like to turn the conference call over to Mr. August Moretti, CFO. Sir, please go ahead.

Thank you, operator. Good afternoon, and welcome to our Third Quarter 2014 Financial Results Conference Call. With me today are Jim Schoeneck, President and Chief Executive Officer of Depomed; Matt Gosling, Senior Vice President and General Counsel; and Jack Anders, Vice President, Finance. I'd like to remind you that the matters discussed on the call will contain forward-looking statements that involve risks and uncertainties, including those relating to the commercialization of Gralise, CAMBIA, Lazanda and Zipsor and achievement of our financial guidance for 2014. Actual results may differ materially from the results predicted, and recorded results should not be considered an indication of future performance. These and other risk factors are more fully discussed in the Risk Factors section and other sections of our Annual Report on Form 10-K for the year ended December 31, 2013, and of our quarterly report on Form 10-Q that we expect to file tomorrow with the SEC. Depomed disclaims any obligation to update or revise any forward-looking statement made on this call as a result of new information or future developments. Depomed's policy is to only provide financial guidance and guidance on corporate goals for the current fiscal year, and to provide, update or reconfirm its guidance only by issuing a press release or filing updated guidance with the SEC in a publicly accessible document. References to current cash, cash equivalents and investments are based upon balances as of September 30, 2014. All guidance, including that relating to the company's expected product revenues, total revenues, EPS and adjusted non-GAAP EPS and cash usage, is as of today, November 05, 2014. I'll now turn the call over to Jim Schoeneck.

Thanks, Augie, and thank you, all, for joining us today. For today's call, I'll start with a discussion of key accomplishments since our last earnings call. Then I'll turn the call over to Augie to discuss our finances, and finally I'll provide a few closing remarks after which we'll open the call to questions. The third quarter of 2014 was a remarkable quarter for Depomed on several fronts. First and foremost, we set another record for product sales in the quarter. We sold $30.6 million of our products for the quarter, which is up 88% compared to the third quarter of last year. We also prevailed in 2 major court cases extending the expected market exclusivity for Gralise until 2024. CAMBIA and Lazanda, the products we acquired during the second half of last year, achieved 16% and 64% growth respectively, compared to the prior quarter, and were key drivers of our third quarter revenue increase. As expected, our expenses dropped down in the third quarter compared to the first half of the year resulting in non-GAAP earnings of $2.1 million for the quarter or $0.03 per share. Finally, we topped off the quarter with an upsized $345 million convertible note offering, adding significant cash to our balance sheet. We ended the quarter with $560 million in cash and marketable securities, which is available to support future product or company acquisitions that fit our strategy. I'd like to take a few minutes to touch on these point in more detail. Gralise continues to be our largest revenue driver. Gralise is our once daily Gabapen formulation using our active form delivery technology for the treatment of after shingles pain. Gralise sales for the third quarter were $16.3 million, an increase of 67% compared to $9.8 million for the third quarter in 2013,…

Thank you, Jim. Before I summarize our financial results for the third quarter and the first 9 months of the year, I want to take a moment to remind folks about the impact of the accounting for the PDL biopharma transaction. As most of you will recall in October 2013, we sold interest in future royalty and milestone payments in the type 2 diabetes therapeutic area to PDL for $240.5 million, which we received at the closing of the transaction in October 2013. Depomed is accounting for the transaction under the debt accounting method. The debt accounting method requires us to recognize as revenue the underlying royalties and milestones that we sold to PDL. To record the proceeds of $240.5 million as a liability and to impute an ongoing interest charge against the amount of the liability that is deemed to be unpaid. As we have discussed in our earlier earnings calls this year, in addition to GAAP presentations, we have presented non-GAAP financials in today's earnings release, along with an appropriate reconciliation to give our investors and other readers of our financials a view of our operations that among other things eliminates the PDL noncash royalty income and the noncash interest charge. In the third quarter of 2014, we recognized $19.8 million of PDL noncash royalty income and $4.4 million of PDL noncash interest expense. In the first 9 months of 2014, we've recognized $95.9 million of PDL noncash royalty income and $14.6 million of PDL noncash interest expense. We have recently amended various agreements relating to our continuing obligations relating to production of Glumetza. Sales of Glumetza give rise to the vast majority of the PDL noncash royalty income, and we are reviewing the impact of these amendments on our accounting for the PDL transaction. I would now…

Thanks, Augie. Depomed is closing out 2014 with a full head of steam, ready for what we believe will be a great 2015. We've now seen 3 full quarters with all 4 products integrated into our commercial infrastructure. Augie and I have provided commentary on the record setting quarters in terms of product sales, as well as our outlook for a record setting year for Depomed in terms of product sales and total revenues. During the quarter, we prevailed in 2 court cases that we believe extend exclusivity for Gralise well into the next decade. We also recently expanded our leadership team, adding Srini Rao as our new Chief Medical Officer and Scott Shively as our Chief Commercial Officer. Srini brings to Depomed deep experience in pain and neurology, along with a key eye for product opportunities. Scott has extensive commercial leadership experience in the sales and marketing of pain and neurology products both for specialty and larger pharmaceutical companies, including Pfizer, Endo and Alpharma. Before we open the call to questions, I know many of you are wondering what we're going to do with over $500 million in cash. Our team has honed its skills on the CAMBIA, Lazanda and Zipsor deals, and has demonstrated our ability to integrate new products and to create value from those deals. We're eager to pursue larger details that can accelerate the growth and further transform the company. Our cash balance puts us in a position to pursue those larger opportunities. We've been clear in outlining the types of deals that fit within our strategic focus. Specifically, growth products in pain and other nervous system disorders and adjacencies. Second, products with annual revenues between $20 million and $200 million or late stage assets already through Phase III that can produce revenue within 18 months. And finally, a preference for assets with lengthy periods of exclusivity and peak sales still ahead. Our business development team is actively pursuing deals that fit these criteria. As we've shown in our recent transactions, we'll be diligent and we will strike when the right opportunity emerges. I want to thank the entire team at Depomed for the tremendous progress we've made in 2014 and for dedicating their time, talent and energy to making Depomed a great company. We look forward to updating you on our continued progress, and we want to thank you for your support. That concludes our formal comments. And at this point, we'll open the call to question.

[Operator Instructions] Our first question comes from Jason Butler from JMP Securities.

Just starting off maybe with inventory changes. Can you mention if there were any meaningful changes for any of the 4 key products during the quarter?

This is Jack. Inventory levels at our wholesalers were relatively flat. There were a few days down for Zipsor, but for the other 3 products, they were flat versus June 30.

Okay. And then for CAMBIA, you showed good growth quarter-over-quarter, but maybe could you talk about what you think the ultimate potential for this -- sales potential for this drug is given this is a large indication and you still have a lot of room to go. But realistically, where is the ceiling for this product?

Jason, we haven't given guidance on what we think the ultimate peak sales for the drug are. But certainly we believe at a substantial growth from where it is. And I think the question will be do we get it into the 9-digit territory or not. And so that really is what we would hope to do with it, but at this point we haven't given any guidance around that.

Okay, great. And then just last question for me, in the context of your guidance, can you talk about the prescription trends you've seen so far in October and now into November, and how you're thinking about the product -- the continued growth of the product lines?

So far in October, we've seen good and continued growth with Gralise. We've seen our first months over 6,000 scripts over the last 4 weeks. We've been setting records almost every week on CAMBIA. Just continues to jump up, and so we've seen really good growth there. And on Zipsor, we see basically a stabilization on Zipsor, the scripts, which we're happy to see. And then finally on Lazanda, I mean, there we continue to see a lot of things going up. It's interesting, though, because you don't see it fully reflected in the SHA data. I think because you've got a number of the prescriptions that go through channels that don't report or alternative channels in that TIRF REMS class, that fentanyl class. A lot of it just doesn't necessarily get reflected in the SHA scripts.

[Operator Instructions] Our next question comes from Brian Jeep from WallachBeth Capital.

First on Zipsor on the volume. From here, would you expect it to be roughly flattish and we're going to see growth from price increases? Is that kind of the thinking?

I think it's a good way to think about it, Brian. I think that's -- clearly even as we've positioned on this call, it's fourth in the hierarchy of products that we have. I mean, a great product from a standpoint of the revenue and the dropdown on it. But we think that the other products have really got a bit more differentiation and really a bit more upside in terms of the growth.

Okay. And you mentioned an increase in the Lazanda salesforce. Can you remind us how the salesforce is structured -- how many reps you have?

This will put us at about 25 people still in Lazanda as of the 1st of the year.

Okay. And I wonder if you could talk a little bit, forgive me if you mentioned it, but you lowered product revenue guidance. I wondered if there was specific reasons behind that, something that changed between last quarter and this quarter.

No, I think it's just a matter of looking at where we've been the last couple of months and where we see the trends through the end of the year, and so that really is what we do. We really -- that's, as he says -- Augie said, we're just really centering it around that low end of that range.

Okay. And one last question. Are you seeing good development options out there? Do you think you'd be able to do something by the end of, say, 2015?

Yes. I think there's 2 parts there. One is we do see a awful lot of opportunity out there that is interesting to us. These deals, particularly the larger deals, take longer to get done. Sumant had asked me a while back if we were going to get something done by the end of this year and I told him pretty clearly, that was very unlikely since we obviously weren't in the position of disclosing a deal when we did the convert and just how long this deals take to do. So I think you're exactly right by looking at it as a 2015 event and we're continuing to pursue a number of things here.

[Operator Instructions] Our next question comes from Chiara Russo from Janney.

Just kind of a quick bit of house -- well question I want to ask about the acquisition. Sort of piggyback off of what Brian said, with the biz developments, in terms of -- you said there are definite options out there. Is -- with the hypothetical deal, do you see that yes, there are available assets and are the economics just not kind of falling into place there sort of -- like you said that these take time. Is it assets or is it economics that sort of aren't meshing at this point?

I don't know that I would characterize it as not meshing, I think it's a matter of us being very focused on what we want that can leverage our infrastructure and really focused on those deals. And sometimes the deals are ones where somebody is decided to divest something. But more often, you're trying to actually convince someone that you can make it worth their while to have them in your hands instead of theirs. And those tend to take a bit more time. So I think I would really characterize it more that way. I have said on calls previously -- people have asked about the multiples that we paid for products. I think clearly, as you get into bigger products, I mean anything that starts to round toward $100 million, you're going to, depending on the length of exclusivity, you're going to see multiples that are 4 plus or minus versus what we've paid on some of the deals so far that have all been subbed 3x last [ph] 12 months revenue. I do think as we get up farther into that revenue stream that we're going to see some multiples that go higher. But again I don't think it's necessarily price or availability, it really is just the time it takes to get them done.

Okay, okay. Great. And just sort of 2 other sort of quicker questions, actually maybe 3. With Gralise going into Orphan Drug status, what does that sort of mean in terms of your pricing strategy?

Oh, I mean pricing, we don't proactively talk about pricing strategy. I think I don't -- see the granting of the Orphan Drug exclusivity as a large factor on the pricing simply because we're in a competitive market. But, Matt, if you want to make any more specific comment about the Orphan Drug, go ahead.

Yes, the other thing that the Orphan Drug status does is it certainly guarantees exclusivity up through the 7 years that end in January 2018. Obviously, we expect to get out to '24 based on the patent litigation, but that's the other nice added benefit from the Orphan Drug exclusivity.

Okay. Got you. And just a refresher on Lazanda. How many reps do you currently have on that product?

We've got just under -- we've got 16 people now, and we'll be going to about 25 people as of the 1st of the year. And again we see that product growing very well. And I really think this opportunity to Express Scripts is a big one. I mean, the fact that you've got other drugs that are literally just going to be rejected at the pharmacy in 25 million -- population of 25 million if they're on the drug, I think gives us one heck of an opportunity, and we want to make sure we're ready to leverage that.

Okay. And sort of a last question. I was kind of poking around the other day. And I found -- and I was curious if you could perhaps educate us a little bit on -- I know that there was a recent ruling on the interparts issue that you guys were having with Endo and I was just kind of curious sort of what your take on those types of patent reviews is as it's just going to start picking up.

I'm going to turn it over to Matt. Because this is related to our suits that we filed against Purdue and Endo for infringement of our patents. And so I'll let Matt talk about both the effect on the litigation against Purdue and Endo but also specifically about the interparties review.

Yes, please.

Yes, you're probably referring to the -- Patent Trial and Appeal board did pick up 3 of Endo's petitions related that -- that are related to the litigation we have ongoing with them. So we're now headed toward a short kind of half-day trial with the PTAB with Purdue in March and then with Endo in June. We'll have decisions in the kind of July timeframe and September timeframe for Purdue and Endo after which, all going well, we would pick the litigation back up. It's certainly -- I think these IPR proceedings are becoming more common, and I think we'll start to see more of them. Good news as far as these go, is not all of the claims were picked up in either case. Two claims of the -- of each of the 2 patents we have asserted against Purdue weren't picked up. So long as we get -- as little as kind of one or a handful of these -- of additional claims will be well positioned to continue against Purdue and likewise in the case of Endo, there are 7, 8 of the claims -- 8 or 9 of the claims total that were not picked up, and we feel like we're certainly in good shape there moving forward with maybe 1 or 2 more claims. So point being, where we'll be out kind of into the middle Q3 and -- Q3 of next year before we know kind of how well we're positioned moving forward. But we continue to think of those lawsuits as kind of good investments and we certainly expect to do well there as we have elsewhere.

And at this time I'm showing no additional questions. I'd like to turn the conference call back over for closing remarks.

So again I'd like to thank everybody for the interest in Depomed. I believe we really have had a terrific quarter, and I'm excited about our growth trajectory for the rest of this year and beyond. I think we've shown the ability to execute on product acquisitions and turn them into growth generators. We're building on those successes now and we have set our sights on bigger opportunities. Our business development strategy for finding, acquiring, growing products in pain and neurology, I think, is at this point well-established. And our path is set for creating value over the long term. And I think our success on the court side has also been demonstrated this last few months and again it was several years of work that came to fruition with those 2 verdicts in the third quarter. So again I thank you for your support, and I invite you, if you're not a shareholder, to join with us, or if you are, to stay with us as we continue the transformation of Depomed.