MNK
#<UNK>, I will answer your question around ANDAs and then <UNK> will comment around the FTC issue and other litigation.
We have been working on ANDAs over the years.
We have not disclosed them generally, but I will tell you we have been active from a licensing perspective over the last year.
We see a number of players out there in the specialty generics landscape that are looking for organizations such as ourselves that have good commercial reach.
As you have seen, there has been significant channel consolidation, customer consolidation, if you will, in the marketplace.
And as a result of that I do think your portfolio has to resonate with these larger players that are looking for large volumes.
We are looking for ANDAs that do fit under the moniker of specialty generics.
They are hard to make.
They are complex.
They've got REMS programs.
And we are trying to balance kind of organic ANDA production with licensing in products that make good sense for our portfolio.
Right.
So with regards to litigation, regarding the FTC matter, we believe that's settled and behind us.
Obviously, we will continue to comply with the requirements of that settlement and we are in the process of doing that, although it's obviously very early days.
Again, if we look at the number of legacy litigation and other investigational issues that we inherited when we bought Acthar, we've resolved the majority of those things now.
The largest remaining issue is still an ongoing investigation that was initiated by the DOJ regarding past marketing practices that Questcor engaged in very early on in its life as an independent company.
That has been going for a number of years; there's nothing further to report on that.
But like we do with all of these investigations, we comply and cooperate completely with all government agencies to resolve these things to the best of our ability.
Operator, can you check ---+ <UNK> already asked a question.
Could you check the queue.
Just consistent with what we've said in prior quarters, if you look over the last year or two, we used to think about mix of business for Acthar being roughly 30% between neurology, nephrology, and rheumatology, with the remaining all other being predominately pulmonology.
What we now see is that actually rheumatology is growing, continues to grow relatively rapidly, so it's a bigger portion than 30%.
Neurology is probably a bit lower than 30% and nephrology is roughly in the same zone.
Pulmonology, though, has grown so that's it's a bit bigger than it was historically.
And I mentioned that we have a very early stage ophthalmology pilot.
That's still very, very small part of our business.
One of the things we continue to be very pleased by is that Acthar is now growing consistently really across the range of therapeutic areas that we just described.
Even within neurology, where we've had some challenges regarding MS, again the product is typically marketed for exacerbations of MS.
And, frankly, we just are seeing fewer of those going forward.
We are actually seeing stabilization of our MS business and we are continuing to see good gains in market share in the treatment of infantile spasms.
So neurology is an area that seems to be stabilizing while the other areas like rheumatology, pulmonology, and nephrology are exhibiting very good growth, along with the very early stages for ophthalmology.
As it relates to your question around gross to net, that's fully baked into the guidance that we have provided, a mid single to low double.
So you shouldn't expect to see significant volatility out of that.
Very happy to.
Again, this is another I think real strength of the brand is that not only are we seeing good growth across the range of therapeutic area indications, but we are also seeing very good growth across the payer mix.
Just to give you a little bit of perspective.
When we inherited Acthar, we also inherited some challenges in the commercial sector.
If you recall, we had a number of payers who had made some restrictions to their formularies regarding Acthar before we took possession of the drug.
And so between 2014 and 2015 we had some real work to do on the commercial side of the business and through our contracting and engagement strategy with commercial payers, we actually stabilized that situation and returned the situation to growth between 2015 and 2016.
So now we've got very good growth in both commercial as well as public payers.
Again, our mix ---+ our payer mix of business has been relatively consistent now for quite some time, certainly throughout 2016.
<UNK>, you were breaking up a lot there, so maybe we can repeat your question back a little bit.
You are asking about some of the concepts about big deals.
Is that correct.
Let me just talk about our concept of doing deals.
I will also speak a bit about our views on where we think tax reform may go.
And <UNK> may want to add on this.
Right now I think the consensus appears there's likely to be some form of tax reform, but beyond that the details of what that may look like are pretty murky at this point.
As you might imagine, we are staying pretty close to this, both at the government level as well as at the tax expert level.
So I think it really remains to be seen what the tax environment will be and I think, importantly, we don't know what the implementation timing will be for that.
What we are hearing is that there would likely be a significant transition period if and when tax reform does occur.
But I think with regards to deals, keep in mind that we have never done deals that were dependent on tax.
Tax was typically not a major consideration for any deal that we did.
We've typically looked for things that we believe are undervalued, that are typically assets that are highly durable, address patients that are relatively underserved, and the products themselves may be underinvested in.
This is our whole acquire-to-invest strategy and we believe there continue to be a number of those assets out there.
We have been very clear to say we have two fundamental platforms that we build around, autoimmune rare diseases and our hospital channel.
We believe those are very broad platforms to enable us to bring in additional assets that leverage the capabilities that we have as a company.
And I think we've developed a very good track record of not only being able to identify these undervalued assets, but to invest in them and to execute in ways that create shareholder value.
That's our fundamental philosophy for doing deals.
It has nothing to do with tax at the end of the day.
So when we look at opportunities going forward, we clearly want to continue to diversify our portfolio.
We want to build a broader and deeper pipeline and we would prefer, all else being equal, to do bigger deals that move us along those strategic objectives faster.
And as typically has been our history, when we have had to lever up to do larger deals, we have typically done so in a way that enables us to rapidly delever and that's the way we would think about it going forward.
And that's why we believe that with the assets that we are pursuing, we think we have a significant amount of capital and resource available to us and we don't feel capital-constrained to capture those assets and to further our strategic objectives.
Let me pause there and see if <UNK> wanted to add anything.
I think you covered it very well.
Operator, we are quickly coming up to the bottom of the hour.
Let's see if we can get one, maybe two more questions in, so let's please go to the next question.
Let me take that.
I think the pricing environment certainly is not really any different from a public policy perspective than what we've seen, certainly over the last year or so.
I think what you've seen us do is try to match our pricing strategy with value.
Again, one of the things that you have clearly seen us do is consistently publish information that supports the positioning and value of our products relative to the price that we charge.
And so we believe that the pricing actions that we've taken ---+ and you pointed out correctly we didn't take really any price on our major brands for our last 18 months, or even longer in the case of Ofirmev, for example.
But as we have continued to generate data to demonstrate the value that these products bring to the healthcare market, we believe that the pricing is appropriate given that relative value.
Again, I just go back to our original prepared comments and I think a question that was asked earlier regarding net gain.
If you look at our pricing policy typically, we're going to be something in the mid single-digits when we do take a pricing action, which is consistent with what you've seen with Ofirmev and Acthar.
Again, if we net out everything ---+ discounts, rebates, payments to governments, and so ---+ typically we reduce the net impact of that by about a third.
Again, we haven't given a lot of history here because recognize that a lot of this is still relatively new in our portfolio.
But, again, if you think about the fact for a product like Acthar, where there weren't discounts given before, now with our contracting strategy and our rebating strategy clearly we have 60% or almost 60% of commercial covered lives under some form of contract.
So there has been some increase in discounting and rebating.
But, again, we have built our contracts in a way that they are really volume-based.
And so while we may give a modest discount upfront, typically we're going to be realizing good value on these contracts if they perform, because we are getting the volume at the end that we expected.
Over time you could suggest that we are ---+ that there is a trend towards more gross-to-net difference, but again it has been relatively modest for us up to this point and we would expect that relatively modest trend to continue going forward.
The only thing I would add is I just want to make sure that third in the prepared remarks was specific to Acthar.
Thanks, <UNK>.
Operator, I know we have a bunch more questions queued up.
Let's see if we can sneak one more in before the bottom of the hour, then we will have to wrap up.
Thank you, <UNK>.
I do think that [2017] (corrected by company after the call), as evidenced by the guidance we provided, is tough and it's going to be tougher with the guidance we provided than we have historically said around Specialty Generics because the pressure on methylphenidate ER is going to be significant.
We already have competitive entrants out there in the marketplace, as you know.
Mylan is in the marketplace at this point.
We do anticipate other competitors coming in.
A couple things, though, I would say that we do see playing out in 2017 that may abate as we move into 2018 and beyond.
If you look at the market share of the three large players that dominate downstream the generics industry, it's been highly, highly, highly consolidated over the last couple of years.
And so I think the price harmonization that's been going on as these entities have been brought together, it's going to slow just by nature of there's less to consolidate to further reduce margins.
I do think 2017 is the year where methylphenidate ER will drop.
And, more than likely, this time next year we probably won't be getting asked too many questions about it because of its relative size when compared with the portfolio we have.
I don't think the price harmonization ---+ while it will always continue, I don't think it will be as extreme as we have seen in, say, the last six months and moving into the first half of this year in particular.
As it relates to your question around the pipeline and the ANDAs, it's hard to predict, principally because you have the ANDA approvals coming out of FDA that have accelerated pretty significantly over time.
Rest assured we are doing whatever we can to get those ANDAs queued up as early in the process as possible to maximize the value opportunity to drive ROIC.
We have not put that in the public domain.
Thanks, <UNK>.
With that, we are going to call it.
We are after ---+ we are past the 9:30 cutoff.
Again, I want to thank everybody for joining us.
A couple reminders for you.
First of all, this call will have a replay.
It will be available on our website later on today.
Secondly, Dan and I will be available throughout today to answer any questions that ---+ if you need any clarification on any of the things we talked about today.
Thanks for joining us on what I know is another busy day in spec pharma land with a lot of things going on.
Have a great week and we will talk to all of you soon, thanks.
