Endo International plc

Good day and welcome to the first quarter 2022 Endo International PLC earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your touchtone telephone. If anyone should require assistance during the call, please press star then zero to reach an operator. As a reminder, this call is being recorded. I would like to turn the call over to Lori Park, Senior Vice President, Investment Relations and Corporate Affairs. You may begin.

Thank you. Good morning and thank you all for joining us to discuss our first quarter 2022 financial results. Joining me on today's call are Blaise Coleman, Endo's President and CEO, Mark Bradley, Executive Vice President and CFO, and Patrick Berry, our President, Global Commercial Operations. We have prepared a slide presentation to accompany today's webcast, and that presentation is as well as other materials are posted online in the investor section at endo.com. Additionally, later this morning, a copy of our prepared comments will also be posted online in the investor section at endo.com. I would like to remind you that any forward-looking statements made by management are covered under the U.S. Private Securities Litigation Reform Act of 1995 and the applicable Canadian securities laws and are subject to the changes, risks, and uncertainties described in the press release and in our U.S. and Canadian securities filings. In addition, during the course of this call, we may refer to non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in the United States, and that may be different from non-GAAP financial measures used by other companies. Investors are encouraged to review Endo's current report on Form 8K furnished with the SEC for Endo's reasons for including those non-GAAP financial measures in its earnings release and presentations. The reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are contained in our earnings press release issued yesterday, unless otherwise noted therein. I would now like to turn the call over to Blaze. Blaze?

Thank you, Laurie. Good morning, everyone, and thank you for joining us. Turning to slide three, as we've previously discussed, our strategic priorities guide all that we do as we work to transform our company. Our first strategic priority, to expand and enhance our portfolio, is essential to fueling our company's future growth and will be achieved through a combination of internal and external investments. This week, we announced advancements for our sterile injectables and medical aesthetics portfolios. Starting with sterile injectables, on Monday, we announced the acquisition of a portfolio of six product candidates from Nevicar. These products are in various stages of development, with the first launch expected in 2025. Endo will control all remaining development, regulatory, manufacturing, commercialization activities for these assets. This acquisition further bolsters and expands our pipeline of differentiated, ready-to-use sterile injectables. Additionally, yesterday, we announced that later this quarter, we plan to launch a new multi-cohort, open-label study, referred to as Aphrodite 1, focused on reducing bruising associated with the utilization of Quo. The study will test different interventions to assess their potential impact on the reduction of bruising and is part of our investment to achieve Quo's full potential. Our second strategic priority, to reinvent how we work, permeates our entire organization and everything we do. A key element of this priority is to optimize our manufacturing network, invest in new capabilities in support of our future portfolio, and maximize supply chain flexibility and resiliency. Last month, the U.S. FDA completed its first inspection of our new manufacturing facility in Indore, India, resulting in no major Form 483 inspection observations. We've already received FDA approvals for several solid oral dose products that will be manufactured at the new site. Additionally, we continue to identify actions to simplify our ways of working across our business. We expect these actions to generate cost savings in the second half of 2022, with a portion of the savings expected to be utilized to fund certain high priority new initiatives, such as our new quo clinical study. Our third strategic priority, to be a force for good, embodies our commitment to create sustainable value that benefits all of our stakeholders. It also drives our environmental, social, and governance strategy. Last week, we published our 2021 corporate responsibility report, which serves as an annual accounting of our performance and our progress to integrate ESG into our company. I'm pleased with our progress, which includes the measurement of Scope 1 and Scope 2 greenhouse gas emissions data. I want to thank all of our team members for their continued commitment to our vision and for their efforts to advance our strategic priorities. Moving to slide four, This is a snapshot of our segmented consolidated revenues and our adjusted EBITDA for the quarter. First quarter enterprise revenues of $652 million were better than expected due to slightly higher revenues across each of our business segments. Compared to prior year, revenues decreased by approximately 9%, primarily due to decreased revenues from our sterile injectable segment, partially offset by increased revenues from our generic pharmaceutical segment. First quarter of 2022, adjusted EBITDA of $311 million was better than expected due to higher revenue, favorable product mix, and lower adjusted operating expenses. Compared to prior year, adjusted EBITDA decreased by approximately 15 percent, primarily due to lower total VASA strict revenues, lower adjusted gross margin, and higher adjusted operating expenses due to increased commercial investments. Turning to slide five, first quarter revenues from our branded pharmaceutical segment were better than expected, primarily driven by higher growth in Xiflex and other office-administered products. Compared to prior year, segment revenues decreased by approximately 1%. This reflects a 12% decrease in our established products portfolio and a 4% increase from our specialty products portfolio. Although Xiflex's performance in January and February was unfavorably impacted by ongoing medical administrative staff shortages in physician offices and lower numbers of in-person patient office visits, we saw improving market conditions and a recovery in demand starting in March. We remain optimistic that market conditions will continue to steadily improve throughout the rest of the second quarter and the second half of the year. First quarter revenues from our sterile injectable segment were consistent with our expectations. Compared to prior year, segment revenues decreased by approximately 22% due to decreased vasostrict revenues, primarily related to generic competition, as well as lower overall market demand as COVID-19 related hospitalization utilization declined. Turning to slide six, the vasopressin market is currently very dynamic and evolving. beginning late last year and continuing early into the first quarter of this year, hospital purchasing of vasostrict vials continue to be elevated, driven by COVID-19-related hospitalization utilization and projected future needs. This was followed by the entry of multiple generic vasopressin vial competitors, triggered by Eagle's January launch at risk, which substantially reduced market pricing in our vasostrict vial market share. As we move through the first quarter and COVID-19-related hospital utilization began to decline, overall vasopressin market volumes also began to significantly decline. The convergence of aggressive competition and overall declining market volumes on vasostrict vial demand has resulted in a current high level of vasostrict vial channel inventory in terms of week on hand. Based on this, we anticipate experiencing a prolonged period of vasostrict vial destocking through the remainder of the second quarter. Accordingly, we expect to see a material unfavorable impact on revenues from VASER strict in the second quarter, inclusive of a one-time negative destocking impact of approximately $25 million. Additionally, as we approach the end of EGLE's 180-day exclusivity period in mid-July, we are preparing for potential additional market entrants. With regards to our vasostrict ready-to-use bottle, while early in the launch, we are encouraged by the market conversion to the bottle and the positive feedback we have received from our customers to date. Many of our customers have noted the potential for efficiency and convenience, particularly as it relates to room temperature storage of the bottle, as well as the flexibility of having the bottle at the site of care. Moving to slide seven, first quarter revenues from our generic pharmaceutical segment exceeded expectations due to better than planned Vereniclean revenues. Compared to prior year, first quarter segment revenues increased by 3%, mainly due to revenues from Vereniclean, partially offset by competitive pressure on certain other generic products. I'll share more about the Vereniclean opportunity on the next slide. Finally, international segment revenues for the first quarter were in line with expectations and essentially flat compared to prior year. Moving to our Varenicline product opportunity on slide eight, we're extremely proud of our team members' efforts to successfully expand our capacity during the quarter, which now is fully equipped to supply the market pre-Chantix withdrawal levels. This is critical to our ability to fulfill the current unmet product demand. Based on recent IQVIA data, we have approximately 85 percent share of the current market for the molecule. We believe Varenicline has the potential to be a significant opportunity for us this year. However, we currently have no visibility into when competition might materialize for this product. Therefore, it's difficult to estimate the full-year outlook at this time. What we can say with confidence is that we are working to fully capitalize on the opportunity. This includes investments in omnichannel marketing to create awareness of generic Veret & Clean availability in support of increasing overall Veret & Clean market volumes. Moving to slide nine, maximizing Xiflex for long-term growth is a critical element of our strategic priority to expand and enhance our portfolio. We believe that Xiflex has the potential to satisfy the large unmet needs that continue to exist for non-surgical options to treat both Peyronie's disease and Dupuytren's contracture. We're encouraged by the strong interest by patients seeking treatment which is fueling underlying demand across both indications. as measured by consumer traffic to our website and physician locator sites. It's a good early indicator of patient interest and initial consumer activation. To realize the potential of these indications and drive meaningful adoption and sustainable long-term growth, we are committed to consistent investment in condition awareness and consumer activation. For Peyronie's disease, our branded campaign is intended to motivate men to visit a specially trained urologist, and to request Diaflex. To help assist with diagnosis, we are also developing a digital app to give men who have a curvature the ability to screen themselves for Peyronie's disease and securely share that information with a urologic professional, all from the privacy of their own homes. We plan to launch this app later this year. For Dupuytren's contracture, we're very encouraged by the consumer response from our new condition awareness campaign featuring real patients. Our Watching Education Unfold commercials are driving strong digital traffic from patients searching for information regarding their condition. In addition to optimizing our on-market indications, our Xiflex maximization plan also includes continued investment in the development of potential future new indications. The current Xiflex indications in clinical development include plantar fibromatosis, and adhesive capsulitis. We believe these potential orthopedic-focused indications represent the opportunity to potentially bring an innovative treatment option to address a large unmet need for patients who are seeking a non-surgical approach. In addition, these potential indications represent attractive market opportunities, are highly synergistic with our current orthopedic selling footprint and commercial capabilities, and represent highly efficient adjacencies for our Xyoflex franchise. From a timeline perspective, we anticipate last patient to be enrolled in the phase two study for plantar fibromatosis by the end of the year. For adhesive capsulitis study, we expect final phase two results early in the third quarter of this year. Turning to slide 10, as we indicated last quarter, as a company, we are very focused on listening and learning from the medical aesthetics community. and becoming a trusted and enduring partner in the space. In response to their feedback, we are committed to identifying potential solutions that prevent and or mitigate bruising and potential subsequent skin discoloration following the use of Quo. Accordingly, we are advancing a multi-cohort, open-label, self-controlled study referred to as Aphrodite 1 later this quarter. Taking into account real-world learnings, observations, and historical clinical study findings, Aphrodite 1 will test different interventions to assess the potential impact on the reduction of bruising following the treatment with Quill, as we believe bruising is the likely precursor to the occasional incidence of skin discoloration. Additionally, the study has been created with the flexibility to add cohorts in order to test additional interventions over time if desired. Next week, we will be presenting a poster on the study designed at the Symposium for Cosmetic Advances and Laser Education in Nashville, Tennessee. Currently, we're estimating completion of the study in mid-2023. On the commercial side, we have adjusted our commercial resource levels, and we'll have a focused approach on HCP outreach, successful practice integration, and our targeted consumer activation. We believe this approach continues to give us a meaningful commercial presence in the medical aesthetic space and better meets today's needs. It also enables us to redeploy funding to the Quo Aphrodite study. Turning to slide 11, we continue to evolve our R&D pipeline and manufacturing capabilities to support the introduction of an increasing number of sterile products that focus on our customers' evolving needs. With the recent acquisition of the sixth ready-to-use development stage product candidates from Nevicar, we have approximately 40 projects in our pipeline, with sterile injectable products now representing approximately 90%. Year-to-date, across our sterile injectables and generic segments, we've launched five products and expect to launch approximately 10 new products during 2022. In addition to our organic efforts to expand and enhance our portfolio, we intend to remain active on the business development front, We continue to be focused on opportunities such as the recent NevaCar acquisition, which are in our core areas of growth and which we believe will enable us to further leverage our existing capabilities. We've taken and will continue to take a disciplined approach to deploying capital on business development opportunities that align with our strategy. With that, let me now turn the call over to Mark to further discuss the company's financial results and our financial guidance. Mark.

Thank you, Blaise, and good morning, everyone. On slide 12, you will see a snapshot of our first quarter GAAP and non-GAAP financial results. On a GAAP basis, loss from continuing operations was approximately $65 million or 28 cents per share on a diluted basis in the first quarter of 2022 compared to income from continuing operations of approximately $47 million or 20 cents per share on a diluted basis in the first quarter of 2021. This decrease was primarily due to decreased revenues and increased operating expenses, primarily related to our investment in consumer marketing efforts to support Xiflex, as well as higher litigation-related costs and asset impairment charges. On an adjusted basis, income from continuing operations was approximately $156 million, or 66 cents per share, on a diluted basis in the first quarter of 2022, compared to income from continuing operations of approximately $175 million, or 73 cents per share on a diluted basis in the first quarter of 2021. This was primarily attributable to a decrease in revenues that was partially offset by a decrease in adjusted taxes due to lower pre-tax income and a lower adjusted effective tax rate. As a result of the actions intended to simplify our ways of working that Blaise mentioned earlier, we expect to realize between $55 million and $65 million of annualized pre-tax cash savings by the end of the second quarter of 2023. While we expect to begin realizing some of these savings in the second half of 2022, we also expect to reinvest a portion of the savings back into the business, including to fund the Quo Aphrodite 1 study. In connection with these actions, we expect to incur between $40 million and $55 million in total pre-tax restructuring-related expenses, which includes approximately $25 million to $35 million of cash charges. In the first quarter of 2022, we recorded a pre-tax charge of approximately $30 million, which included approximately $20 million of cash charges. Turning to slide 13, consistent with our approach for the first quarter, we are only providing financial guidance for the second quarter of 2022 at this time, due to continued uncertainties in certain key assumptions that are expected to impact the full year. For the second quarter of 2022, we expect total revenues to be between $500 million and $525 million, adjusted EBITDA to be between $110 million and $125 million, and adjusted loss from continuing operations to be between 15 cents and 17 cents per share on a diluted basis. As we previously disclosed, Beginning with the first quarter of 2022, we no longer exclude acquired, in-process R&D from the non-GAAP performance measures we use in connection with our quarterly financial reporting and forward-looking guidance. This change was made in response to views expressed by the SEC and is consistent with broad adoption by others in the industry. Accordingly, our second quarter adjusted EBITDA and adjusted earnings per share guidance includes the non-recurring, $35 million payment related to the previously announced NevaCar portfolio acquisition that will be expensed as acquired in-process R&D in the second quarter. However, it is important to note that our credit agreement and bond indentures continue to permit acquired in-process R&D, which includes upfront and milestone payments expensed as R&D, to be added back for purposes of calculating certain leverage ratios and other metrics within those agreements. With respect to second quarter 2022 total revenues, compared to the first quarter of 2022, our guidance range primarily reflects significant erosion in both vasostric vial price and underlying demand due to competition, lower overall vasopressin market volumes, and the estimated one-time destocking impact of approximately $25 million. It also reflects slightly improving market conditions for Xiflex and the continued impact of competitive events in our generics business. Our second quarter 2022 guidance assumes an adjusted gross margin of approximately 67 percent, which is lower than the first quarter of 2022 due to product mix. We further assume that second quarter 2022 adjusted operating expenses as a percentage of revenue will be approximately 46.5 percent. This assumption reflects our continued commitment to invest in our core areas of growth. This includes investing in both on-market and potential future new Xiflex indications, funding the Quo Aphrodite 1 clinical study, and investing in the development of new sterile injectable products. It also includes the non-recurring $35 million investment related to the Nebucar portfolio acquisition. We believe these strategic investments in our portfolio will generate long-term value for Endo. Relative to the second quarter, we expect operating expenses to decline in the second half of the year as a result of the cost efficiency actions intended to simplify our ways of working that we previously mentioned. Finally, for the second quarter of 2022, we are assuming interest expense of approximately $143 million and an adjusted effective tax rate of approximately 1%. Please keep in mind that neither our first quarter actual results nor our second quarter guidance ranges may be indicative of future period results. As I mentioned earlier, we are not providing full-year 2022 guidance as there continues to be significant near-term uncertainties associated with certain key assumptions that are expected to impact our full-year adjusted results. The assumptions with the highest degree of near-term uncertainty relate to vasostrict, varenicline, and our specialty office-administered products, particularly Zyaflex. These key near-term uncertainties could serve as either a considerable headwind or tailwind in the second half of 2022 relative to our projected second quarter guidance ranges, depending on how actual events materialize throughout the remainder of the year. For vasostrict, the key uncertainties primarily include the level and rate of vasostrict vial erosion, including the impact of future vial competition following the 180-day period of exclusivity. and the level and rate of vasopressin vial conversion to the ready-to-use vasostrict bottle. A potential resurgence in COVID-19-related hospitalizations also creates some uncertainty for overall vasopressin demand. For Varenicline, the key uncertainties include the timing and number of future competitive entrants, as well as the rate and extent of recovery in the total Varenicline market volume to pre-Chantix withdrawal levels. For our specialty office-administered products, the key uncertainties relate to the ongoing medical and administrative staff shortages in physician offices and the corresponding impact on the number of in-person patient office visits. Although we have recently seen improving market conditions for our specialty office-administered products, the rate and extent of the recovery will have a material impact on the performance of this portfolio of products, particularly Xiflex, over the remainder of the year. Switching to slide 14, this is a summary of second quarter 2022 segment revenue assumptions, as well as product-specific assumptions for Xiflex and VisaStrikt. Advancing to slide 15 and wrapping up the financial discussion, unrestricted cash flow prior to debt payments was $91 million for first quarter 2022 compared to $250 million in the prior year. This decrease was primarily due to lower adjusted EBITDA coupled with higher opioid-related legal expenses and settlements. We ended the first quarter of 2022 with approximately $1.4 billion of unrestricted cash and a net debt to adjusted EBITDA ratio of approximately 4.7 times. These amounts reflect the repayment of approximately $180 million of maturing debt that we made in January. We expect second quarter 2022 unrestricted cash outflow prior to debt payments to be between $280 million and $295 million. This range reflects expected payments of approximately $165 million for opioid-related legal expenses and accrued liabilities. It also includes the $35 million payment that has been made for the acquisition of the NeverCard portfolio. Let me now turn the call back over to Blaise.

Blaise? Thank you, Mark. Prior to turning the call over to Lori to manage our questions and answer period, I want to provide a brief update regarding the opioid litigation. With respect to the opioid litigation as a whole, we continue to be focused on our primary goal of achieving a broad-based resolution of the remaining opioid claims. At the same time, we'll continue to actively defend the company in court when necessary, and we will pursue individual settlements when we believe they are in the best interest of the company. Additionally, we are actively exploring other strategic alternatives, both in support of achieving a broad-based resolution in the event we're unable to achieve such resolution. As with any thorough analysis of a complex situation, the path to resolution will continue to take time, and we cannot speculate on the likelihood, nature, or timing of any outcome. More importantly, while we continue to address the opioid litigation, our endo team members remain highly focused on our day-to-day business execution, advancing our strategic priorities, and delivering our portfolio of life-enhancing products to our customers and the patients they serve. I want to thank each of our team members for their strong execution during the first quarter and continued commitment as we move forward in 2022 to helping us to continue to transform the company for the long term. Let me now turn the call back over to Lori. Lori?

Thank you, Blake. Michelle, can we have our first question, please?

Our first question comes from Chris Schott with JPMorgan. Your line is open.

Great. Thanks so much. Just the first one is I was trying to get a little bit more color on Visa Strict and how to think about the go-forward business as we look beyond 2Q. I know it's a volatile environment, but I guess if I take the 85 to upper 80s erosion this quarter and adjust for the D-stock, it seems like it implies the underlying business is around $60 million in the quarter. I guess is that a reasonable run rate? And then as we look out to 3Q and beyond, should we expect further erosion of that let's call it $60 million business as additional competition comes in, or is it too early to call on that? And I just had a follow-up after that.

Sure. Thanks, Chris, for that question. Now, as we've stated here, we're not providing guidance beyond Q2, but in terms of the math that you just did in terms of the impact of the destocking in Q1 as we size is about $25 million. So absent that, your math is correct. As we move forward into Q3, as we mentioned, there is the day 181 loss of exclusivity period for Eagle will happen at that time. And so it's uncertain, you know, what that will look like in terms of additional competition. And if there is additional competition, what that will mean in terms of impact to our Visa strict business.

Okay. And then just a kind of bigger picture question, I guess, just given the step down in revenues and Just elaborate a little bit more about how you're thinking about OpEx. I know you've done a lot to optimize the P&L over the last few years, but if we're in a situation where VisaStrict remains depressed, do you need to think about, I guess, deeper cost cuts in the business? I'm just trying to get my hands around when I look at kind of the two key EBITDA numbers and just kind of think about the go-forward business. Just help me understand a little bit about how you're thinking about expense management.

Yeah. Yeah. Sure. Thanks, Chris. A couple things. One, as we think about the business longer term, clearly our first priority is about expanding and enhancing our portfolio. So we are going to remain committed to investing in our growth drivers going forward. Our second strategic priority is to reinvent how we work, and that is all about us driving efficiencies and productivity across the business. It's just part of our DNA. And so as we move forward, we will continue to to look for opportunities to meaningfully drive efficiencies and productivity. Over the long term, though, our path back to EBITDA growth and getting to levels that we want to be at is going to be through the portfolio. So we are committed to making sure we're going to continue to invest behind our growth drivers appropriately.

Okay, great. Thank you so much.

Thanks, Chris.

Next question, please.

Our next question comes from David M. Sellum with Piper Sandler. Your line is open.

Thanks. So I had a couple. Just first, just elaborating more on the cost structure. Given that quote is obviously promotion intensive and given that you're essentially trying to build a brand, can you talk about your ability to really invest in that product given the the pressure on the top line and all the dynamics associated with that suppression? In other words, is that an area where you think significant further investment makes sense? Certainly your remarks are not lost on me regarding investment flow, but how do you think about its role going forward given the realities of the business So that's number one. And then number two is, can you talk about the potential for asset divestitures and how that could, you know, potentially free up some capital or address the cost structure to the extent that, you know, the cash flow from Vastastrict or a lot of the cash flow from Vastastrict is going away? How do you think about that? Thank you.

Yeah, thanks, David, for those two questions. I'll comment on both and then also let Patrick comment on the quote question. Maybe on the second one in terms of divestitures, our focus right now is driving EBITDA and EBITDA growth. And in terms of divestitures, the way we think about that and have always thought about it is, hey, does this product, does this part of our business make sense to us going forward from a strategic perspective? And that's how we take those decisions. But right now, we're not going to be selling assets from a liquidity standpoint that's at the expense of EBITDA because our focus, again, is on driving long-term EBITDA growth. In terms of quo, as you heard in the prepared comments, we did make some adjustments to our commercial operating model given where we are with quo and the opportunity we have currently around that. We are absolutely investing for the long-term success of quo, and that was why later this quarter we'll be initiating the Aphrodite 1 study which is really focused in on identifying potential prevention and or mitigation of bruising, which ultimately we believe is the precursor to the occasional incidence of skin discoloration that's happening in the market today. In terms of investment levels, we think the model we have in place right now with the changes we made is the right model for us and is a sustainable model as we move forward. And if and when we have success with Aphrodite, will be in a very good position to drive the type of growth around quo that we believe is appropriate for that opportunity.

Next question, please.

Our next question comes from Gary Nassman with BMO Capital Markets. Your line is open.

Hi, good morning. First, just a follow-up on the Aphrodite study for quo. So that won't be completed until mid-next year, do you expect physicians will be comfortable using the product really at all until you have that data if there are such concerns of bruising and discoloration? So how do you see the use of the product over the next year, at least until you have the data? And then, you know, with the new additions to the sterile injectable pipeline from Nevicar, how big are those opportunities and are there a lot of these types of assets out there that you're looking at, and how much flexibility do you have on the balance sheet to actually bring those types of assets in to bolster the pipeline further? Thank you.

Great. Hey, thanks, Gary, for those questions. I'll let Patrick comment on our approach currently with Quo, and then I'll take the second question on the sterile injectables.

Yeah, Blaise, thanks for the question. Yeah, we definitely do believe there is a market today What we've learned thus far in the early stages of launches is that that quo works. It is effective in the right patient, that moderate cellulite patient without skin laxity. We're seeing a good result. And so importantly, though, it is what we also have learned. Importantly, it is very strategic and relevant to set the proper expectation for the experience of bruising. And as Blaise talked about, in a small percentage of patients, the risk of discoloration. And so it's about expectation setting in the practice so that the patient expectation can be set. But there is a core of physicians that understand quo and understand the opportunity to address cellulite. And I think we've demonstrated that there is a market there based on our ability to be able to onboard 2,000 accounts. Those are accounts that we're willing to trial And so job one in 2022, while the Aphrodite work is being done to improve the patient experience and the account experience with Quo, we still have this market and opportunity to move towards adoption. So we're going to continue to focus in on those accounts that want to engage with us, that want to offer Quo in their practice and integrate Quo into their practice. So we'll be focused on education around patient selection, product education, setting expectations, and having a very focused approach around creating noise in the marketplace from a consumer perspective, mainly through social channels and digital platforms.

Thanks, Gary. In terms of your question on the NEVACAR opportunities, the different products that we acquired are in various stages of development. I'm not going to comment on any specific opportunity other than to say that that they're ready to use products and they target opportunities that currently range from modest to large addressable markets. In terms of the question on future opportunities, what I would tell you is that both internally and externally, there are opportunities that we're very excited about to be able to bring the type of products we want that are really going to meet the evolving needs of our customers going forward. In terms of flexibility to invest, we obviously have financial constraints. However, between our internal capabilities and then maybe bringing in opportunities that are going to probably admittedly be a little bit earlier in stage of development, we can really take those opportunities and use our capabilities to develop those and really bring value to the market through the value add we'll have in terms of the products we'll be able to launch in the future. Next question, please.

Our next question comes from Nathan Rich with Goldman Sachs. Your line is open.

Hi. Good morning. Thanks for the question. Maybe following up on VisaStrict and looking at the guidance for 2Q and trying to adjust for the COVID impact and inventory destocking, I guess looking at that, the guidance seems to imply a more significant sales erosion. And I think what we would typically expect when seeing – you know, a couple of competitors on the market. I guess, Blaise, any thoughts on why that might be the case? And then any initial, you know, progress or thoughts on the ready-to-use formulation and the uptake that might see in the market?

Sure. I'm going to give Patrick the peaking comment on what we're seeing in the marketplace for ready-to-use. On the first question, in terms of what we saw from a decline perspective and what we're expecting in Q2, Nathan. What I would say is a couple things, and it's in our script. We talked about the convergence of a number of events. So we did have, obviously, the impact of competition, and we have multiple generics coming to market at one time. So we are seeing an impact on share and price. The other thing that's happening, though, is overall market volumes, right? We had a pretty significant spike in market volumes, particularly in the first part of the first quarter due to elevated COVID-19 related hospitalizations and ultimately vasostrict utilization. So you have that element of where market volumes are coming down pretty significantly in our guidance from Q1 to Q2 from an overall market standpoint. The other element that we mentioned was for us, just given where the product was, early on in the first quarter in terms of the purchasing by the wholesalers because of COVID-19, we're now also seeing a period of significant destocking. So the convergence of all of those factors are really leading to the guidance number used to you for Q2. I'll let Patrick take the RTU question.

Thanks. Yeah, as it relates to the RTU for VESA, we're very encouraged by the level of interest and excited about the receptivity that we've seen Obviously, in Q1, it was very early in the launch. And so the data, it's early days. You can certainly, you know, take a look at the April IQVAD to see how we're doing. But overall, we're very pleased by the uptake, the trends in terms of market share. We've seen positive feedback overall from the accounts that we've introduced, the VASO ready-to-use presentation. Hospitals are recognizing that a ready-to-use product provides a lot of I think a lot of benefits to them. Hospitals are under pretty extreme labor pressure. So, you know, a ready-to-use product that takes the pressure off pharmacy, particularly those who have to offer, you know, 24-hour pharmacy services, takes a lot of pressure off pharmacy mixing rooms. And having a ready-to-use at site of care, I think everyone's recognizing that that's a benefit. And just the cold chain flexibility, having that at site of care without some of the limitations of around cold chain are some of the early reasons why we're seeing a lot of interest and we're seeing conversion. So we anticipate that we're going to continue to convert. You know, I think we feel like the conversion opportunity is a good one for us, and we're very excited about what we're seeing early on. Next question, please.

This concludes the question and answer session. I'd like to turn the call over to Blaise Coleman for closing remarks.

Thank you, Operator, and thank you, everyone, for joining us this morning, and we look forward to providing you with updates as we move forward, and we hope everyone has a great weekend.

This concludes the program. You may now disconnect. Everyone, have a great day.