Good afternoon. And welcome to the Depomed Fiscal Year 2014 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to August Moretti, Chief Financial Officer. Please go ahead.

Thank you, Operator. Good afternoon. And welcome to our investor conference call to discuss the Fourth Quarter and Full Year 2014 Financial Results announced earlier today. With me today are Jim Schoeneck, President and Chief Executive Officer of Depomed; Matt Gosling, Senior Vice President and General Counsel; Scott Shively, Chief Commercial Officer; Srini Rao, Chief Medical Officer; and Jack Anders, Vice President of Finance. I would like to remind you that the matters discussed on this call contain forward-looking statements that involve risks and uncertainties, including those relating to commercialization of Gralise, CAMBIA, Zipsor and Lazanda, the company’s financial outlook for 2015, the company’s anticipated consummation of the acquisition of the NUCYNTA franchise in the United States, the timing and benefits of the acquisition and the company’s post-acquisition strategy, plans, objective, expectations, financial and otherwise, and intension, future financial results and other statement that are not historical facts. Actual results and the timing of the events could differ materially from those anticipated in such forward-looking statements 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, 2014, that we expect to file later this week. 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. All references to guidance are as of today, February 23, 2015. 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 the key accomplishments over the past year. I will review our sales highlight and we will look forward to the future of Depomed. Then I'll turn the call over to Augie to discuss our finances, and finally, I'll provide a few closing remarks, we will then open the call to questions. Over the past three years, Depomed has transformed into a leading specialty pharmaceutical company focused on pain and neurology, and we believe that we have substantial growth opportunities extending well into the next decade. We have produced tremendous growth in our product revenue. The combined sales of Gralise, CAMBIA, Lazanda and Zipsor in 2014 were $114.2 million, almost doubling our 2013 product revenue and are more than four-fold increase from 2012. We have executed our strategy of growth by addition, with CAMBIA, Lazanda and Zipsor added to Depomed line of differentiated products and now most importantly, the pending transaction to acquire NUCYNTA. We have also taken steps to ensure that this growth is sustainable, focusing on securing lengthy periods of exclusivity for our products. 2014 was an outstanding year for the company. Let me list just a few of the major accomplishments since the beginning of 2014. We received two major court victories versus Actavis in our Gralise patent suite and versus the FDA in our orphan drug exclusivity litigation. We now expect Gralise market exclusivity until 2024. We re-launched CAMBIA in February, with new prescriptions up 36% in just nine months. We earned a $10 million milestone for the FDA approval of Mallinckrodt's XARTEMIS XR, which uses our advanced Acuform delivery system. We strengthened our leadership team with the appointment of Srini Rao, as Chief Medical Officer and Scott…

Thank you, Jim. There are three areas I will cover today; first, the change in accounting for our PDL royalty transaction; second, a review of our fourth quarter and full year results and finally, our guidance for 2015. With respect to the accounting for our PDL transaction, as most of you on the call know in October 2013, we sold interests in future royalty and milestone payments in the type II diabetes therapeutic area to PDL for $240.5 million, which we received in cash at the closing of the transaction in October 2013. As we have discussed our previous calls, we submitted this matter to the office of the Chief Accountant of the SEC in 2013. And the data accounting method was determined to be most appropriate under our particular facts and circumstances. This accounting conclusion was principally based on the ongoing responsibilities that we had with respect to the 1000 milligrams Glumetza tablets manufactured by Valeant and sold by Salix. The debt accounting method required 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 deemed to be unpaid. The revenue was recognized within the line item non-cash PDL royalty revenue in our statement of operations. As we mentioned on our earnings call in November effective October 1, 2014, we modified our agreements with Valeant and Salix to eliminate any further obligations on our part with respect to the supply of 1000 milligram Glumetza from Valeant or Salix. As a result of the termination of these obligations, we again took this matter up with the SEC office of Chief Accountant. We reconsidered the way we account for the PDL transaction and…

Thanks, Augie. 2014 continued the transformation of Depomed that began three years ago. At the time I joined the company in 2011, we didn’t have a single product in the marketplace and then finished that year with about $1 million of product revenue and our market cap under $300 million. Upon the close of the NUCYNTA transaction, Depomed will have five proprietary marketed products with long-term high-growth opportunities. Each of those products fits within our marketing expertise in pain and neurology. In 2015, we are guiding to $152 million to $162 million in current product sales without the impact of NUCYNTA. We’ve surpassed the $1 billion market cap a full year ahead of internal goal and continue to look up. We believe that we have come a long way and we are proud and excited about the progress. We are now being looked at by many of the high growth company and a major player in pain and neurology. And this is just the beginning. With the product portfolio of differentiated assets, lengthy periods of exclusivity, and untapped market potential, we see our best years ahead. That concludes the formal comments. So let’s now open the call for questions.

[Operator Instructions] And our first question today comes from David Risinger of Morgan Stanley.

Thanks very much. Hi, Jim and Augie. Congrats on the results.

Thanks, David.

Thanks, David.

So I have a couple of questions I guess. So I will sort of go one by one rather than rattling them all off. I guess, Jim, maybe you could just put the forthcoming S-4 filing in context. And how we should be interpreting the forthcoming profit disclosures for 2014 by J&J?

Dave, we are kind of looking each other here and going exactly what you’re looking for on the S-4 piece. Are you thinking about the financials that we will get from them?

Yeah, sorry. So when S-4 is filed, we’re going to see the J&J business profit disclosure with the expenses associated with running that business inside of J&J. Just trying to get an understanding of what expenses you will be taking on, how we should think about the various cost line items in terms of interpreting that for your company?

Yeah. So the obligation -- I will let Augie or Matt jump in with anything here as well. We will assume certain obligations from their license from Grunenthal, so we will certainly have the royalty on that sales, but also some obligations in terms of supporting clinical programs that will guide to once we close the transaction. From a standpoint of the manufacturing side, we will initially buy from J&J, but eventually we will move that elsewhere, so we will have some things here that we will be doing. But in terms of the business itself on the commercial side, that we really are looking at a build up within Depomed rather than crossing anything over from the J&J side.

Got it.

We may use CSO just for a short period of time until we have our sales force build and relaunch.

Got it. Thank you. And then just some additional questions here. So with respect to forthcoming formulary negotiations for Part D for your products, obviously those occur usually in the second quarter of the calendar year. Could you just talk about whether you have any expectations for any changes in your key product formulary positions for January of 2016?

I mean, at this point, David, as you’ve said, I mean, the submissions are all in at this point, are virtually all in at this point and met the -- generally the discussions really start up in about the May time period or so on Med D. So at this point, we have nothing to report in terms of expected changes on it. And in terms of NUCYNTA, we’re working very closely with J&J to ensure the continuity on the product.

Got it. And then two minor questions for Augie. Augie, could you just tell us what the number of weeks of inventory were in the channel at the end of December? And then separately, you mentioned inter partes review proceedings, could you just provide some more detail on that, including timing for next steps?

Sure. First, with respect to days on hand in the channel was approximately 28 days of inventory on hand.

And this is Matt. On the inter partes review proceedings, those related to our offensive patent litigation against Purdue and Endo. We will have hearings in front of the patent office in March and June. We would decisions in the April and July timeframe on those. But again, those are offensive patent litigation for damages.

Great. Thank you very much.

And the next question comes from Randall Stanicky of RBC Capital Markets.

Great. Thanks, guys. I just have a couple. Jim, first for you on the guidance. When we look at the midpoint of the new guidance, it’s about 16% above the annualized 4Q revenue result. I know you said that maybe stepping down a bit in Q1. But when I look at just the run rate of Lazanda, it was combined with some of the pricing increases. It kind of gets you that pretty quickly. So my question is, is this just conservatism built-in? Or is there anything else in with respect to moving parts in those numbers we should be thinking about?

No, Randall, I don’t think there’s anything unusual in the moving parts at all on it. I think we have -- I think traditionally tried to be somewhat conservative on our guidance. And I think you're seeing that reflected here as well.

Got it. Okay. And then a related question, I think this might be for Scott. As you build into those numbers and you’re thinking about the revenue look for this year, obviously you’re making assumptions around the sales force and some of the changes that are going to occur. You're adding reps, 80 or 85 reps there. You can make some changes I would think to frontline detail on with certain of those reps as well. So, two-part question. Number one, how do you think that is going to impact the legacy products? And then number two, when you bring on these new reps, can they start detailing these products -- excuse me, on day one? Or would this occur with the relaunch of NUCYNTA, which probably, I would guess be a six to eight weeks post closing of the deal?

Sure. Let me address your questions. And so obviously, a major priority for us is to minimize disruption as we make the transition want relaunch of NUCYNTA. The ramp up that we’re going to do and we probably said we’re going to go up to 250 reps total, so adding 85, incorporates our best efforts to optimize for all the products. So it’s not just to maximize NUCYNTA sales but also to optimize effort against Gralise and CAMBIA, in particular, as well as at Lazanda, which is kind of the standalone where we operate. So we think we got a approach that we are putting the finishing touches on right now that will enable us do that and keeps on track the numbers that Jim and Augie were talking about on the legacy products. With the new reps coming aboard, it’s all about training and so we got a very rigorous plan in place to train up all the new hires ASAP and they will receive in-depth training on all the products and be fully equipped to sell them, as we deploy them in the launch and we hope to do that as soon as possible after closing the deal. So yeah, we’re not just training on NUCYNTA, we’re going to try to optimize all the products.

So Randall, maybe just couple of clarifications. One is, we have said at least 250, so be at least 85 more reps in that primary sales force. And in terms of timing, I think your question somewhat infers that we go ahead and bring them on board and have them sell the other products first. I mean, our intent is that we will bring those folks on board shortly after the closing on the sales reps side. And so we will then immediately put them into training and then relaunch as quickly after that point as we can.

Okay. Got it. And then if I can sneak one more on Lazanda, obviously it’s tracking quite well. And this is a product where you don't have to reach a lot of docks really to move the needle on this one. So two things have happened. Obviously, the formulary, the express change to preferred and then also you brought in some additional reps there. So maybe Jim, I mean what do you think is driving that out-of-the-box? And where do you think you can get the most of that push from going forward? Thanks.

Yeah. I think there’s a couple of dynamics here. One is the new reps have really had no impact yet. I know the data that we’ve seen to the audit. So that still to come. In terms of the Express Scripts piece, I mean one, we are seeing doctors writing the drug that have never written it before, so the writing was on and now they never written it before. We’ve also seen the market share within the Express Scripts universal up on Lazanda from just under 2% to 12.9% in two months. So basically, from November to January, we've increased over 10 share points and Insys and Fentora are down more than 10 share points.

And it’s actually the runs data that you’re seeing?

No, that’s too actually the SHA data that snaps it back to managed care.

Got it. Okay. That’s great. Thanks, guys.

Okay. Thanks.

And the next question comes from Jason Butler of JMP Securities.

Hi. Thanks for taking the questions. Just a quick one clarification for Augie. Can you just -- sorry if I missed this, but the $13 million in license revenue for Glumetza in fourth quarter, can you just give us some more color on that please?

That was up -- those were upfront payments that we had received in connection with the [indiscernible] and Santarus agreements. They were booked as deferred revenue when we’re being amortized through the income statement on a quarterly basis. The change in the agreements that was the predicate for changing accounting on the PDL transaction that same logic apply to that deferred revenue. We no longer had any continuing obligations there. And on the accounting rules, the appropriate response was to run that, essentially recognize that revenue in Q4.

Okay. That’s helpful. Thanks. And then just I guess, a bigger picture question, thinking forward. You mentioned in the prepared comments, this is the beginning. There are more acquisitions that you would plan over the next few years? Just thinking about, you said that the fact that you plan find a lot of the NUCYNTA acquisition out of debt. Thinking forward overtime, how should we think about the appropriate level of leverage that you expect to have on the balance sheet? And do you expect the company to be fully levered once the NUCYNTA transaction closes?

Jason, I think, the -- to take in the order, which you pose them. I would assume going forward that our leverage ratios will revert to essentially the norm in our industry. I wouldn’t expect those to be outlined as we incorporate NUCYNTA and move forward. I think at the closing of the NUCYNTA transaction, our leverage ratios will be high -- how high it is a function of how much debt we raise and how much equity we may have to issue in connection with closing the transaction. But, certainly, our goal in the transaction is to delever quickly. We think that the transaction in our model generates very strong cash flow and we think that overtime we will absolutely be within the norm in terms of operating leverage ratios.

And Jason, to the other part of your question, I think part of that is referencing in terms of the excitement about the future. Where we are now with the product that can be the scope and scale of NUCYNTA and then what that allows us to do is we start to delever and continue to look for other product acquisitions. I mean, any of those front acquisitions take a long time to do particularly as the product gets larger. I mean, it’s not untypical as you know to see, over a year ago by from when you start discussions to when something maybe closing or even longer. So keeping ourselves in that game not knowing that it can take awhile to get it done.

Okay. Great. That’s helpful. Thanks for taking the question and congrats again on all the progress.

Thanks, Jason.

Thanks, Jason.

And next we have a question from Scott Henry of Roth Capital.

Thanks, guys. I think you covered most of my strategic questions in the prepared remarks. I thought that was well done, a couple nuts and bolts questions. For starters, Augie, shares outstanding 79.4 million? Is that how we should think about diluted shares going forward and I guess, along the same line should we be adding back 3.4 million every quarter as well?

Here the most current numbers that I have, Scott, so common shares outstanding 59.3, options outstanding 7.3, the full number of shares underlying the convertible debt 17.9 and so on a fully diluted basis that’s 84.5. If you do the treasuring method, the average exercise price on the options is $8.46. So that obviously reduces the calculation with respect to the shares issued on exercise of the options.

Okay. So Q4 was a normalized quarter?

In terms of the calculation…

In terms of shares outstanding.

… shares outstanding, right. Exactly right.

Okay. And then net add back will be on a recurring basis as well for 3.4?

That’s correct, Scott. That’s going to move a little bit. The non-cash interest expense piece on the debt is going to grow slightly higher, but not significantly higher. But I think that’s -- looking at our Q4 interest expense that’s a good starting point and it should slightly move up north from there.

Okay. And when we think about license and milestone revenue going forward, given you -- you did that one-time event with Glumetza this quarter? How much is left in that line?

Scott, there is going to be nothing left over, that is deferred and that is going to be going through there, which you’ll see on a go forward basis is any of that -- the future milestones that we may see with respect to our malachite arrangements and as well as, our Ironwood arrangements.

Okay. Perfect. And then, leading into that discussion, MNK-155, have you heard anything about that or did I miss it?

We have not and we have not heard anything and we are doing the same thing you are doing. We are just watching to see when our press release comes across on it.

Okay. I appreciate that. As well, first quarter 2015, I am just curious you take -- how is this weather affecting it? I mean, is it the significant hindrance and by the weather, I would be referring to the snow storms on the East Coast?

Scott, you maybe the fact that you are based in Boston, is that…

Certainly impacting me.

I think at this point we actually are off on the prescription -- weekly prescription side to a better start than we were last year. Last year in January we dropped about 9% from December to January. This year it was down about 3, 3.5%. So at least through the end of January data, Scott, we are not seeing as much of a drop, I know you guys are continue to get hammered every about seven days here. So we’ll continue to monitor that as we get into the February data.

Okay. Great. And just, I guess, the final question, obviously, the closing of the NUCYNTA transaction is the primary event right now to focus on? Do you have any kind of sense of the range of when that could happen? I know you said, Q2, I mean, any color within Q2, you had mentioned there was the possibility of expediting it? And as well, would you wait for that transaction to close prior to raising any of the finances?

No. We’ll need to raise the money prior to closing. I don’t think we’ll see any type of hang up at all for the HSR review. I think that will resolve itself fairly quickly. So, I mean, at this point, it’s like as when you ask that, Matt, is over here, shaking his head going no second quarter. So we are expecting to close in second quarter.

Okay. Fair enough. Well, thanks a lot guys. Appreciate you are taking the questions.

Thank you, Scott.

And our next question will come from Jason Napodano of Zacks.

Hi guys congrats on great year.

Hi Jason. Thank you.

So I’m just curious I wonder if you could talk for a little bit, Jim, about why the market in Europe is so much more open for long-acting opioids, you said greater than 10% share versus 1.5% in the U.S.? And I’m wondering if that’s a scheduling thing, I m wondering if it’s a perception thing. If it’s a scheduling thing, is there any opportunity, I know, NUCYNTA is scheduled or Class II now. Schedule II, I wonder if there’s opportunity to move it to III, I just -- if you would entertain us for a little bit on the differences between U.S. and Europe and where the ultimately the U.S. could head?

Jason, I am actually going to take a half step back, which is at -- we’ve know the Grunenthal people for a long time. And so we actually have a good relationship with them even prior to this transaction and with the rope, either they get on the product they are obviously very motivated to see us be successful and to be putting a lot more effort around the center. So we’ve already opened up dialogue with them and we’ll continue to build on that over the next few weeks as we prepare for a relaunch and beyond. With that they actually -- they have positioned the product differently there. So some of what we’ve talked about in terms of looking at the dual mechanism of the action of the drug, the fact that it does have different way that it works then the rest of the opioids have and the mixed pain state. So that's really what they’ve gone after to differentiate themselves that if -- that this really should be the first choice opioid for anything with a neuropathic component, which is a lot of pain patients and that different I think is made tremendous difference in the receptivity in the way and the product has been received by a healthcare providers in Europe.

Okay. And so the opportunity to -- J&J never really promoted for the DPN indications, so the opportunity for you guys to go out and promote for DPN you think could be significant opportunity for growth in 2015?

Yeah I think its DPN….

Beyond.

It’s also the overall positioning of the drug and we’ve seen this throughout in the two, four rounds of marketing research we’ve completed already that they promoted the product more as a strong but gentle. And their campaign was a lion with a rose in its mouth and still is to this day rather than playing off, of the dual mechanism. And so we are going to reposition that and we've done -- it’s a quite a bit months of market research already around us to give us confidence heading forward in that path.

And last question just on the IP 2022, 2023, you guys have plans to work to extend that, file new applications, I wonder if you could talk a little bit about what, what the opportunity is to get beyond 2023?

Its Matt, Jason, there is a patent deferred related to that specific crystalline form that goes after 2025. So there’s certainly some possibility there. In terms of additional prosecution that certainly always a possibility in particular in conjunction with the new clinical work, but we are not modeling for kind of well out past the paths that are already out there.

All right guys. Thanks a lot.

Thank you Jason.

Thanks Jason.

[Operator Instructions] and our next question will come from Chiara Russo of Janney.

Hey guys, I’ll be real quick since most of my questions have been asked and answered already. Just for a quick clarity in terms of the mix on the raise, you said that we will sort of know more clarity about that before the deal closes in the second quarter. Do I have that correct?

Right. We have to complete the financing and it’s the proceeds from the financing that allow us to close the transactions.

Would you be issuing sort of a separate press release for once you get the finances set?

I think as we would secure the financing or head to market, we certainly would be announcing that.

Okay. So there is something to track.

So you’ll see that it comes out.

Okay. Great. And my second question is basically I’ve seen some other companies sort of start to poke around the PDN space and I was wondering if you had any comments on thoughts on possible competition coming in?

Just to be clear, do you mean the PHM space or the DPN or…

The diabetic neuropathy?

Scott or Srini …

From a market perspective, not in the immediate future nothing that competes directly with the several product we have. I think there is people developing things back. For the pipeline, maybe Srini can give us a bit of an insight.

Yeah, exactly. I mean there is a number of compounds that have been looked at or are being looked at currently from basically [indiscernible] like compounds as well as calcium channel antagonists and things. There are quite a few compounds are being looked at. The attrition rate going from phase II to phase III is very high DPNP studies are very difficult to run and ultimately this products position will be differ particularly as it does have the strong opioid characteristics that clearly differentiates a lot of other compound. DPNP is very much a mixed state. There a clearly no pain. There is clearly neuropathic pain element as well. It’s probably going to take more than one piece of pharmacology to adequately address the benefits associated with it.

Okay. Great. That was all the questions I had guys. Thank you and congrats.

Thank you.

Thank you, Chiara.

So with that, I’d like to thank you everybody for your continuing interest in DepoMed. We believe that we are in a great position to continue to build on the dynamic growth that we've created over the last few years and to carry the momentum forward. I can tell you the level of excitement here within the company has never been higher. We hope you’ll join us during the case of our existing shareholders, stay with us as we believe it’s going to be quite a ride. Thank you for your support.