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Executives

Justin R. Victoria - VP, IR

Bernard Poussot - Chairman, President and CEO

Gregory Norden - Sr. VP and CFO

Joseph M. Mahady - Sr. VP and President

Cavan M. Redmond - President, Consumer Healthcare

Analysts

Catherine Arnold - Credit Suisse

Tim Anderson - Sanford Bernstein

Tony Butler - Barclays

David Risinger - Merrill Lynch

Roopesh Patel - UBS

Seamus Fernandez - Leerink Swann

David Moskowitz - Caris & Company

John Boris - Citigroup

Steve Scala - Cowan

Robert Hazlett - BMO Capital Markets

Wyeth (WYE) Q3 FY08 Earnings Call October 22, 2008 8:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Wyeth Third Quarter Earnings Conference Call. At this time, all lines are in a listen-only mode. Later there will be a question and answer session, and instruction will be given at that time. [Operator Instructions]. As a reminder, today's call is being recorded.

At this time, then, I would like to turn the conference over to Justin Victoria, Vice President, Investor Relations. Please go ahead.

Justin R. Victoria - Vice President, Investor Relations

Thank you operator. Good morning everyone. And thank you for joining us on the call. We are here to review Wyeth third quarter 2008 performance and offer some thoughts for our vision of the future at Wyeth.

On the call with me today are Bernard Poussot, Chairman, President and Chief Executive Officer of Wyeth; Greg Norden, Chief Financial Officer; and Joe Mahady, President of Wyeth Pharmaceuticals.

As a reminder, certain statements that are made today, that are not historical facts are by their nature forward-looking and involve risks and uncertainties. Actual results may differ materially from such forward-looking information. This has been more fully disclosed in our press release and in our periodic SEC reports, including quarterly reports on Form 10-Q and the annual report on Form 10-K including the caption Risk Factors.

Now let me turn the call over to Bernard Poussot.

Bernard Poussot - Chairman, President and Chief Executive Officer

Thank you Justin and good morning. And thank you for joining us. While we find ourselves in times of unprecedented global economic turmoil and uncertainty that affect the future of the world economy, I am pleased to be able to start our comments by reporting that our pro forma results for the third quarter are on target and in line with consensus.

Sales were up 4% this quarter, IBT up 4% and EPS was $0.90. I will also note that year-to-date we are indeed ahead of our initial time for the year in both revenue and income. Year-to-date revenue is up 5%, IBT up 3% and EPS reached $2.75.

The plan we set in place in the early days of 2008 to respond to the at-risk launch of generic pantoprazole is delivering its promise. We are executing on that plan and our performance to date for 2008 is on or ahead of target for revenue generation, spending reduction and overall financial achievements.

So let me spend a few minutes to review for you why in the face of significant economic uncertainty and industry and company-specific challenges of generic competition, we believe that we have a number of strategies and assets to help us succeed. Those include first, products with high growth potential; second, diversification in our business platforms; three, opportunities for geographic expansion; four, productivity and cost control initiatives; and last but not least, innovative R&D efforts.

Let me explain in some greater detail. First, our core franchises, Enbrel, Prevnar and our nutritional business, all continue to grow fast and globally. Together, they represented sales of $2.1 billion for the quarter, up 21%.

Year-to-date, the amount of $6.3 billion, that's 36% of our total revenues and up 22% versus last year.

We believe Enbrel has significant growth yet ahead. And let me illustrate. Between now and 2012, we estimate that the market categories in which Enbrel competes have the potential to expand by another $10 billion of sales.

We expect that this growth will come from earlier and wider usage of biologics in rheumatoid arthritis and psoriasis, in existing geographies and expansion into un-penetrated market.

We expect Enbrel to maintain its number 1 position in the category owing to its unique safety and efficacy profile, established over 16 years now of clinical experience.

Prevnar is also poised to deliver on future strong performance. We continue to really find the potential of Prevnar and vaccines in general. Every quarter, we make progress with Prevnar, including the initiation of more national immunization programs in more and more geographies across various economic levels. We now have reached 28 national immunization programs worldwide.

Production this year is exceeding plan with 60 million doses being manufactured. We are expanding our capabilities at the Grange Castle and Sanford production sites to accommodate the future manufacturing needs for Prevnar. And we are on target for making regular filings for the future on new standard for pneumococcal vaccines Prevnar-13 for use in infants by the first quarter of 2009 or even earlier.

We plan to file the adult indication in 2010, that would be a whole new usage in an entirely new population, a whole new paradigm in the fight against pneumococcal diseases in the elderly population. And we expect this to be an exciting commercial opportunity for Prevnar.

Our nutritionals business remains a primary growth asset. This business is growing up nearly 20% year-to-date. Our infant formula products are among the most essential of products critical to a number of emerging economies where quality nutrition is needed.

China is today our largest nutritionals market, up 40% versus last year. The market recognizes the value of Wyeth's nutritional products as premium brands with premium quality.

As a leading pharma company, our application of high quality standards is paying dividends in today's more cautious, discriminating environment. We had expectations for continued solid growth in this business for the foreseeable future.

The second element of our plan for growth is the launch of new products. New products like Tygacil, Torisel, Pristiq and Relistor are beginning to contribute. They are on track to provide collectively between $0.4 billion and $0.5 billion of revenue in 2008. We believe these products can deliver several billion dollars of revenue in the coming years. And Joe Mahady will comment more on these important new products in a few minutes.

Let me also mention two other notable growth franchises. First, BMP-2 which we partner with Medtronic is the generating $0.75 billion of in-market sales.

We are conducting clinical trials with an injectable form of BMP-2 in close factor setting and planning additional studies with the current formulation for different uses in spine surgery setting.

Second, our hemophilia franchise is approaching $1 billion in revenue this year. We've just launched Xyntha which has a completely albumin free manufacturing process and it is the only recombinant factor of eight products with an entirely synthetic purification process. This should raise confidence in valve safety with this advanced generation recombinant factor of eight products.

We are continuing with our efforts behind these growth opportunities, and this is how we plan to address the generic competition to Protonix, Effexor and Zosyn. We are already facing generic competition to all three to some degree right now. By optimizing the franchises I noted, we will work toward growing albeit modestly for the period of Protonix, Zosyn and Effexor generic erosion.

Like everyone else, we are faced with significant uncertainties in the global economic environment that makes forecasting all the more challenging. Nonetheless at this time, it is not Wyeth's plan to reset the base prior to returning to stronger growth post generic erosion, post 2011 when we hope to see additional contributions from our pipeline products like bapineuzumab, or our pneumococcal B-vaccine and our new oncology products.

Let me now talk to Wyeth's diversification. Today, Wyeth is already more diversified than most large pharma companies with biotech and vaccines, representing already 37% of our revenue in the quarter.

When you add our nutrionals, consumer and animal health care businesses, that represents 60% of our total revenue. And while we've had a difficult quarter with the U.S. consumer business, key brands like Advil and Centrum continued to grow in the international market.

Our animal health business, we continued to be a leader in developing and marketing, innovative biological therapies and vaccines for a broad range of animals. We believe our diversification is an asset as it will allow Wyeth to bring innovative solutions using biotechnology and vaccines to address difficult diseases.

We believe the diversity of nutrionals, consumer and animal health broadens the base of our business for a more dependable growth over time and makes us less subject to the impact of patent expirations.

It is worth noting that by 2012, we expect more than 75% of our revenue will be generated by biotechnology, vaccines, nutritionals, consumer health and animal health products. Not many companies in our industry, not even the largest, are able to line up such a diversified line of technologies, businesses or customers.

Further geographic diversity will also be characteristic of the future of Wyeth. We now report more than 54% of our year-to-date revenue from ex-U.S. sources and our international regions continue to lead our growth.

International growth in the quarter in human pharma was 17%, in consumer health it was 9%, and in animal health, the international growth was 24%. We are seeking to amplify this performance with our accelerated growth market strategy. We are concentrating more attention, resources and talent in our businesses in China, Russia and the Middle East to change their trajectories and accelerate their growth.

Even if the world economy slows down temporarily, we believe these regions are for our long-term opportunities for future growth. Our plan also calls for productivity improvements. We will continue our efforts to generate cost efficiencies to improve the return on our assets.

Wyeth has always maintained a strong focus on cost management. For example, between 2000 and today, our SG&A expense, as a percent of revenue, has steadily declined from 37% to below 29%. More is ahead with our Project Impact. I confirm our prior commitment that Project Impact will look to deliver annual cost savings in the range of $1 billion to $1.5 billion over the next several years. So, you can expect cost efficiency and flexibility to continue to be hallmarks of Wyeth going forward.

And finally, let me remind you of our strong commitment to bring new innovative products to market. Under the leadership of Dr. Dawson [ph], our R&D organization is sharpening its focus to deliver those innovations.

We also recognize that we need to pursue licensing and acquisition efforts to complement our own research. Our cash position allows us to pursue these opportunities today, and collectively, these efforts will shape the continued evolution of Wyeth to create an even greater focus on biotechnology, vaccines, and innovative therapies in areas of unmet medical need.

Our research is concentrated in various fields, let me illustrate a few. Alzheimer's disease with bapineuzumab in our portfolio of projects that includes no less than 10 projects in various stages of development. Oncology, where we have three projects in advanced clinical development, those are SKI-606, CMC-544, and HKI-272 or neratinib, a project for breast cancer. We hope to begin Phase III trials with HKI-272 late this year or in early 2009.

Musculoskeletal tissue repair where we have innovative programs to expand our BMP family of compounds. We've also a new generation of compounds in rheumatoid arthritis in a variety of inflationary conditions. And of course our vaccines where our pneumococcal B vaccine is in Phase II, and we have a series of exciting early vaccine opportunities to build upon Prevnar and Prevnar-13 to enable Wyeth to contribute further to preventative healthcare.

This next generation of R&D project at Wyeth clearly reflects our changing nature. You'll hear more from us on these high potential projects and our efforts to sharpen our R&D focus and deliver on goals. So, these are some of the key characteristics of Wyeth today and Wyeth in the very near future that create much of the value that we see. I hope these comments help you see some of that same value.

And let me now turn the call to Greg to review our third quarter financial results.

Gregory Norden - Senior Vice President and Chief Financial Officer

Okay. Thanks Bernard. Let me now comment on our financial results for the third quarter and this year.

Diluted earnings per share on a pro forma basis for the 2008 third quarter was $0.19 comparable with last year. For the nine months year-to-date, pro forma diluted earnings per share was $2.75, slightly ahead of last year.

I'll refer you to our press release for detail according the pro forma adjustments, and my comments this morning will refer to the as adjusted P&L included at the end of our press release.

Worldwide net revenue increased 4% to $5.8 million for the 2008 third quarter and 5% to $17.5 billion for first nine months of 2008. Excluding the favorable impact of foreign exchange, worldwide net revenue increased 2% for the 2008 third quarter and 1% for the 2008 first nine months.

Pharmaceutical revenue for the quarter increased 5% and 3%, excluding the effects of foreign exchange. With the exception of Protonix, we saw a good growth across most of our portfolio of marketed products. Excluding Protonix, worldwide pharmaceutical revenue increased 10% in the quarter.

Core franchises, such as Enbrel, Prevnar and Nutritionals showed strong growth, and we expect those businesses to continue to grow consistent with our guidance given earlier in the year.

Consumer healthcare revenue decreased 5% in the quarter and 6%, excluding currency changes. U.S. consumer revenues decreased 17% during the quarter, reflecting a significant drop in our cough cold business. The cough cold market is changing considerably as illustrated by the recent FDA and industry announcements regarding the use of these products in children. We expect this business to turn around as we and the industry respond to the changing environment.

The weaker U.S. economy also had an impact as consumer shifted buying patterns to non-branded products. While we are disappointed with the quarterly performance of the U.S. consumer business, we saw a strong growth in our businesses outside the U.S. with an increase of 9% in the third quarter and 7% excluding the impact of currency with all of our core consumer brands posting increases in these markets.

Our expectation for the full year performance of our consumers worldwide business is to grow in the low single digits.

Revenue for animal health business increased 11% in the quarter and 9% excluding the impact of foreign exchange. This increase was driven primarily by the performance in our international markets.

And while we have been disappointed with the performance of Premaris, our flea and tick product for cats and dogs, we have been pleased with the strong growth of our Zulvac vaccine for bluetongue disease.

We expect mid-to-high single digit revenue growth for our worldwide animal health business for the full year.

Gross margin for the third quarter and nine months year-to-date was 73.8% and 73.3% respectively. The slight improvement in gross margin in the quarter was due primarily to two things: one, a favorable product mix; and two, a slightly lower level of manufacturing variances and inventory adjustments.

For the full year, we continue to expect gross margin to be within our 72% to 74% guidance range. SG&A for the third quarter decreased 6% versus the prior year and 7% excluding the effects of foreign exchange. SG&A for nine months year-to-date increased 2% but it is down 2% after adjusting for currency.

We are on track to achieve our SG&A guidance of down 2% in constant dollars for the full year. This reflects our continuing efforts to manage costs while at the same time providing the necessary investments behind key businesses and markets that are important for future growth.

R&D spending decreased 1% for the quarter and increased 3% for the nine months year-to-date versus the prior periods. As I have previously stated, we expect pro forma R&D expense for the full year to be below to mid-single digit versus 2007. We currently have several Phase III projects that began in late 2007 or early 2008 with increasing clinical trial costs including Prevnar 13-valent for adults, bapineuzumab and several new oncology programs.

Our investment in R&D is key to our future growth, and we're committed to funding the promising projects in our pipeline. Nevertheless, we intend to offset this investment wherever possible with saving from our ongoing efficiency initiative.

Net interest was expensed of approximately $13 million in the quarter versus the income of $40 million last year. This is consistent with our guidance and primarily reflects the impact of the declining interest rate environments on our cash balances.

I'll note here that year-to-date we have purchased approximately 11 million Wyeth shares. Additionally, we recently announced an increase in our dividend of 7.1% reflecting the confidence we have in the future cash flows of the business and our strong financial position. Our dividend yield as of today is 3.5% versus 3.2% dividend yield for the S&P 500.

Net other income for the quarter is $102 million of expense versus $61 million of income last year. The primary drivers of this swing were a write-down off two holdings in our investment portfolio, which I will discuss in a moment, lower royalty income and increased costs related to our foreign exchange hedging program.

I would like to take a moment here to provide more color on the investment assets on Wyeth's balance sheet, given the questions we and other companies have received on this subject in the last several weeks.

Let me start by affirming that our investment assets are managed in a conservative fashion and we believe that any losses that we may ultimately incur would be relatively small.

As of September 30th we've had approximately $11.1 billion in cash and cash equivalents and $3.1 billion in marketable securities for a total of $14.2 billion. Cash and cash equivalents consist primarily of commercial paper, U.S. treasury and agency securities, fixed term deposits, securities under repurchase agreements and other short-term high quality securities with maturities of less than 90 days.

Marketable securities include corporate debt obligations, U.S. treasury and agency securities and also mortgage-backed and asset-backed securities. In addition to some smaller losses, we also had losses from our holdings in both Lehman Brothers and Washington Mutual Corporate Debt as of September 30th.

As a result, we took an impairment charge for those securities of $68 million before tax in the third quarter. Our overall investment guidelines are conservative, and we aim to invest in high quality securities with strong ratings. In these extraordinary financial markets, there is, of course, always a potential for future write-downs. However, our overall investment portfolio is strong, and we believe the amount of any write-down is likely to be small relative to the size of our investment balances.

Turning to the tax rate. Our tax rate for the quarter was 33.2%. We continue, however, to expect our 2008 full yet tax rate to be between 29% and 31%. The rate rose this quarter due to some one-time charges in lower tax jurisdictions where we did not get a U.S. tax benefit.

We also did not have any benefit from the R&D tax credit in the third quarter. The R&D tax credit was renewed in October, and the full year effect of the credit will be reflected in the fourth quarter.

Finally, we're narrowing our pro forma diluted earnings per share guidance to a range of $3.49 to $3.55. This is better performance than we originally signaled at the beginning of the year and reflects our confidence in our businesses' ability to perform well throughout the remainder of the year. This guidance reflects the most recent foreign exchange rates as well as our latest assumptions regarding Effexor XR and Zosyn, which Joe will discuss in a moment. The 2008 guidance is pro forma as it excludes any potential restructuring charges resulting from the company's productivity initiatives.

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

Joseph M. Mahady - Senior Vice President and President

Thanks Greg. Our worldwide pharmaceutical revenue is up 5% in the quarter and 5% year-to-date, the increase of about $700 million over the comparable 2007 period.

Collectively our core franchises, Enbrel, Prevnar and the Nutritionals were up $1.1 billion year-to-date. These same franchises are engines of future growth. Additionally our products, Tygacil, Torisel, Pristiq and Relistor are beginning to make contributions. Collectively they are on course to provide between $400 million and $0.5 billion of revenue in 2008.

We're also delivering on our efforts to transform the middle of the P&L, a must to do in today's environment. We have managed to increase our investments in our high potential, accelerated growth markets, while reducing costs in other areas.

Let me illustrate the strength and potential of our pharma business a little further by turning to a few of our core franchises. Enbrel is on track to generate more than $6 billion in worldwide product sales this year, and it has already contributed nearly $3 billion in revenue to Wyeth through the first nine months of '08.

Our revenue reflects both our international net revenue based on sales booked by Wyeth and our share of U.S. and Canadian gross profit reported as alliance revenue. Combined, that represents a growth of more than 30% over the comparable 2007 period.

We continue to believe in both the short and long-term growth prospects for Enbrel and the market in which it competes. First, there were significant opportunities to treat additional patients who already need established treatment guidelines for biologic therapies. Second, we believe there is room to expand those treatment guidelines to include patients that currently are not eligible. And we will continue to bring Enbrel into markets that are yet relatively un-penetrated by such biologic therapies.

While we expect the mix of product use to evolve, Enbrel should continue as the market leader based on its long-term efficacy and safety profile. Enbrel has had 16 years of clinical experience and over 1.5 million patient years of in-market experience. That safety profile supports both longer term use, as well as earlier intervention in these serious conditions.

We see Enbrel continuing as the premier biologic in rheumatoid arthritis. In psoriasis, while we recognize that emerging competition will highlight the short-term efficacy data, Enbrel presents a profile of solid long-term efficacy and proven safety, and safety is the critical factor influencing adoption in dermatology.

Prevnar revenues are now approaching $3 billion, and we continue to add new national immunization programs that will carry this momentum into 2009. This past month, we also dosed our first instant with commercial Prevnar in China. While we aren't projecting a near-term national immunization program in China, we believe there is significant potential in regional, local, city, and private markets.

While current performance is quite exciting, we will be presenting some of the pivotal data for our next generation product Prevnar-13 in just a few days at the ICAAC meeting. And we continue to move forward towards filing Prevnar-13 for infants in many markets by the beginning of 2009 or earlier. Beyond that, the next major opportunity for Prevnar-13 will begin with our planned registration filings in adults in 2010.

Our confidence in the adult opportunity for Prevnar-13 is reflected in our recent initiation of an 85,000 patient study to characterize its impact in the prevention of pneumococcal pneumonia in adults. Prevnar's value in terms of improved lives worldwide is quite dramatic, and it is the basis for Prevnar being one of the most powerful engines of our growth.

Our infant nutritional business grew 19% year-to-date and is on track to exceed $1.5 billion this year. We're planning for future growth as evidenced by our expansion of nutritional manufacturing capacities in existing plants in the Philippines and Singapore and through the addition of a new manufacturing site in China.

Now what keeps these strong performances from being more directly reflected in our current P&L is the existence of modest to very significant generic competition of some form through Protonix, Effexor and Zosyn. While the situation is different for each of them all three remain on track or ahead of the expectations we outlined for them in our beginning of the year guidance for 2008.

Protonix has already been impacted throughout 2008 by the at-risk generic launches by Teva and Sun but we have responded with our own generic helping to manage a very difficult year for Protonix.

Effexor XR is likely to see generic entrance expand into European market at the end of 2008. We also project one or more non-AB rated generics in the U.S. in the near term. We will, of course, reinforce our message that such products are not AB rated and should not be considered a substitute for Effexor XR. And we expect that Teva, by agreement, will come to the market with the first U.S AB rated generic competition for XR in July of 2010.

With Zosyn, international approvals of generics have been noted but impact to date on our business has been minimal. We expect that impact will increase over time. As of today, there are no U.S. generic approvals.

When we responded to the pharma appeal of [ph] demands for revised formulations for Zosyn, we created a new standard with our Zosyn EF. It has offered additional flexibility to the use of Zosyn in serious hospitalized patients. But we cannot predict what the FDA may ultimately do or the timing of their actions. However, the new standard for Zosyn raises significant scientific, medical and regulatory issues regarding the approval of a generic non-equivalent to EF. Our guidance for the balance of 2008 now assumes there will be no generics in the U.S in 2008.

Our Zosyn and Tygacil business continues to benefit from this new formulation advance that is now distributed in all of our global markets. Our new products, Tygacil and Torisel continue to show strong uptick. Tygacil reported over $150 million in year-to-date sales and Torisel has achieved the sales level of $87 million in the first three quarters.

We modeled the potential of Tygacil on the history of Zosyn and project that peak-year sales can offer $1 billion potential. Torisel is presently on course with respect to where we expect it to see used in renal cell carcinoma. Should our ongoing combination study with Avastin prove to be successful and added to labeling, Torisel has the potential to contribute greater than $1.5 dollars in peak sales in renal cell carcinoma.

Now, Pristiq performance is not yet where we would like it to be, but we are encouraged by the progress we are making. Managed care has proven to be challenging, and while we had always projected third tier coverage, we've had to work very hard in some of the largest plans to gain that coverage in the face of the broad range of generic and branded choices.

We are pleased that in early September, the top three healthcare plans in the U.S. with more than 46 million members, added coverage for Pristiq. Additionally, having achieved our targeted levels of physician exposure and awareness of Pristiq, we have begun a variety of consumer education activities.

Progress in the rest of our world has been mixed. While we have chosen to withdraw from the central approval process in Europe for NDD, we have obtained approvals, of course, in the U.S., Australia and Brazil and have dossiers under review in 22 other markets. We will continue to explore other approaches including national application to expand the potential markets for Pristiq in depression.

We continue with our confirmatory study to provide supportive data to the global regulators to consider Pristiq as a non-hormonal therapy to treat menopausal symptoms. We expect that study to complete in 2010 and plan to re-file for regulatory review at that time. We also expect that the end market experience with Pristiq for depression will further support those filings.

With Relistor, we're just getting out of the blocks as the subcutaneous product has now been launched in the U.S., Canada, Venezuela, and Europe. That's for opioid induced constipation in patients with advanced illness who are receiving palliative care.

Now, while I will not spend any time on the late stage pipeline, I would like to provide a few comments on the bapineuzumab trials.

Ivan [ph] commented at a healthcare conference last week about the progress of the Phase III enrollment in the North American studies, so I will not speak to that here.

To remind you, Wyeth began enrolling patients in the international studies in June just prior to the availability of the full Phase II data. We are now in the process of providing information to and meeting with regulatory authorities in countries who have asked to review the full Phase II data, the Phase III protocols and amendments and Phase III safety experience to date before permitting enrollment and/or continued dosing.

So, let me close here. In the face of the loss of more than $800 million of Protonix revenue in the first nine months due to generic competition, we have been able to execute the plan we put in place at the beginning of 2008. And we are pleased that the core strength and diversity within the pharma business enables us to exceed our goals and deliver year-to-date revenue growth of 5%.

Now, let me turn the call back to Justin, so he may take your questions.

Justin R. Victoria - Vice President, Investor Relations

Thanks Joe. We understand there may have been a few audio problems during the call today, and I'm going to say thanks for your patience in that regard. So, let's move on to the questions.

We have covered a good deal of ground this morning and hopefully expanded somewhat your horizons on Wyeth. Thus we do expect a good number of questions. Therefore, to allow as many listeners as possible to participate in the Q&A and recognizing that we need to have a hard stop before 9 o'clock, please limit yourself to one question.

Operator, let's open the line for questions now.

Question And Answer

Operator

Thank you. [Operator Instructions]. And our first question comes from the line of Catherine Arnold with Credit Suisse, please go ahead.

Catherine Arnold - Credit Suisse

Good morning. I was wondering if you could talk about Project Impact for a moment. It seems to me that your target has changed for Project Impact in the past. I believe you gave us headcount target reductions rather than an absolute cost saving number. And if that's true, I guess, I am wondering it seems like unless you guys pay your people a lot more than the average sort of headcount fully loaded, it seems like that target has gone up. So if you could comment on that. And then if you could also highlight where we might see some improvements in regards to working capital from some of the productivity work you are doing. Thanks

Bernard Poussot - Chairman, President and Chief Executive Officer

Thanks Catherine. I am going to ask Greg to pick that up and I don't think we've had any change in plan, but let Greg elaborate on that.

Gregory Norden - Senior Vice President and Chief Financial Officer

Okay, Catherine. Hi. On the headcount, what we said earlier in the year was that we expected 4% to 6% headcount reduction by the end of this year. We are on track to certainly do that. We set up to 10% over the next couple of years depending upon the rollout of some of the initiatives.

On the dollar side, we ultimately expect annual savings of between $1 billion and $1.5 billion to be realized, basically an increasing amounts over the next several of years. The ramp up of that is depended upon certain key items including the timing and the extent of our site efficiency and rationalization efforts.

Savings are identified by projects and role versus what our expenses would have been without these initiatives. And as Bernard mentioned earlier on the SG&A side, we started at around 36%, 37% in 2000, we're down to around 29%. You can see our SG&A results nine months year-to-date and for the third quarter, we're on track to hit those. So right now, Project Impact is on track to achieve the savings that we set for.

On the working capital front, I will tell you that I think we've got some improvement to make there as does the rest of the industry and it's certainly a priority of ours and an initiative as we go forward into the next couple of years.

Justin R. Victoria - Vice President, Investor Relations

Thanks Greg. Operator, we'll move to next question please.

Operator

Thank you. Your next question comes from the line of Tim Anderson with Sanford Bernstein, please go ahead.

Tim Anderson - Sanford Bernstein

Thank you. I have a question on a pipeline drug that you don't mention very often, which is your Meningitis B vaccine. And I am wondering when do you expect to take any interim looks at the Phase II data, Novartis does similar interim looks, they periodically those to the financial community. And I'm wondering if we can expect similar updates from you and if not then when in 2009 would we see the full Phase II data set?

Joseph M. Mahady - Senior Vice President and President

Yes Tim, I think we are looking at Phase II data next year on that and really would have more information. And I am not aware that we have any interim looks that we are planning to have. So, that's what we stand on Mening B.

Justin R. Victoria - Vice President, Investor Relations

Thanks Joe. Operator, we will move to next question please.

Operator

Thank you. Our next question comes from the line of Tony Butler with Barclays, please go ahead.

Tony Butler - Barclays

Thanks very much. A question revolves around Prevnar-13 and as you position that relative to seven, does that imply that babies vaccinated with seven, and let's assume they get all four doses are actually going to come back and get another series of 13? I'm really trying to get at the heart of catch up cohorts certainly in the U.S. and maybe those countries which you've done a very good job in marketing Prevnar-7. Thanks.

Bernard Poussot - Chairman, President and Chief Executive Officer

Thanks Tony. We are looking at that issue to some degree, we're doing some studies with infant switching from 7 to 13 during the course of the initial program, as well as the potential of infants who had the received the full course of seven coming back for a subsequent vaccination sort of a catch-up during the age of anywhere from 2 to 5, or even up to 9 years of age. We're doing additional clinical work in that regard and we'll have discussions with the regulators, exactly how strong a recommendation might be from the policymakers or the regulators on that will be a point of discussion that we need more information before it can advance.

So, it's an important issue. We're working on with some clinical work now as well as additional studies to be done. But right now we don't have a frank recommendation.

Tony Butler - Barclays

Thanks Joe.

Justin R. Victoria - Vice President, Investor Relations

Thanks operator. We'll take the next question.

Operator

Thank you. Your next question comes from the line of the David Risinger with Merrill Lynch. Please go ahead.

David Risinger - Merrill Lynch

Yes thanks very much. You had mentioned that with respect to bapineuzumab in Europe you're engaging in meetings with regulatory authorities before they permit enrolment and/or permit continued dosing. Can you explain what changed to slow enrolment relative to your original expectations several months ago? And then just a quick second question that I'd like to slide in, can you just explain the FX benefit to EPS? Thank you.

Bernard Poussot - Chairman, President and Chief Executive Officer

Alright let me ask Joe to start on the bapineuzumab and Greg will comment on FX.

Joseph M. Mahady - Senior Vice President and President

David,very, very short, bapineuzumab in Europe was always projected to be running behind in terms of the U.S. study start date and June was when we just began to enroll certain centers and certain countries with the information that broke with the Phase II data and publicity around it in the ensuing weeks and months we began to get request from individual countries to review the full Phase II data, to review the Phase III protocols, any protocol amendments that had been implemented and then that has been going on for the past few weeks.

The... as a consequence in places where and in many places we had yet to begin enrolment, they had asked that enrolment not begin until they completed that review, in a couple countries where enrolment had just begun, they had asked us to hold until they finished this review. Those meetings and those submissions are ongoing as we speak and hope to have better understanding of where we are. But I think your insight is correct. We really are little behind where we would like to be in getting the full European program up and running. Thanks. And Greg on the FX.

Gregory Norden - Senior Vice President and Chief Financial Officer

Yes on the FX... the FX effect on revenues was about $100 million in the quarter. And on earnings per share it was about a penny after considering all related hedge costs et cetera.

Justin R. Victoria - Vice President, Investor Relations

Thanks Greg. Operator, we'll take the next question please.

Operator

Thank you. Yes, our next question comes from the line of Roopesh Patel with UBS. Please go ahead.

Roopesh Patel - UBS

Thanks for taking my question. It's on the consumer products business. When do you expect the cough cold business to turn around? And if you could just elaborate on what exactly are the challenges. And then more broadly on the consumer products business, can you just discuss the outlook beyond this year in the face of a potential global economic slowdown?

Bernard Poussot - Chairman, President and Chief Executive Officer

Thank you Roopesh for that question. Actually to help us on in that is our head of our consumer business, Cavan Redmond. So, I am going to ask Cavan to comment on that.

Cavan M. Redmond - President, Consumer Healthcare

All right, for your first question on cough cold, we have been modifying the label and that product is currently shipping. We have also launched a new product called Robitussin DM to take advantage of the adult market where we have a strong heritage. So, we expect that to begin to grow in the four quarter of this year and beyond that we believe that's a very important market.

In terms of your second question on what does the economic outlook look for consumer products, we think of it this way, rather it's been a tough quarter for the industry overall. We're very positive about the consumer products because they have a long life cycle. And with consumers through innovation, through good marketing and positioning of products there's a great chance for growth. So, overall we think that we're in good position as things go forward in the future, but we'll have to take a look at what consumer needs are and adjust the portfolio as needed.

Justin R. Victoria - Vice President, Investor Relations

Thanks Cavan. Operator we'll take the next question please.

Operator

Thank you. Yes sir, your next question comes from the line of Jamie Rubin [ph] with Goldman Sachs. Please go head.

Unidentified Analyst

Thank you. Just for a final clarification, Joe you talked about how you felt that Tygacil should be able to reach sales about $1 billion, similar to Zosyn. But based on my notes, Tygacil loses its patent in August 2012. So do you expect to achieve those level of sales before then, or do you have plans to extend the patent somehow?

Joseph M. Mahady - Senior Vice President and President

YesI don't think we get there fully by 12. Obviously we're doing a lot of work with Tygacil to extend its life cycle, different doses as well as significant life cycle in Europe. But you are correct in the patent expiration.

Bernard Poussot - Chairman, President and Chief Executive Officer

But actually Joe the patent... we have an extension on that patent for another four years up to 2016 now in place, listed as such in the orange book. So the 12 was the original base patent, which has now been extended to 16 giving us another four years of coverage.

Joseph M. Mahady - Senior Vice President and President

Yes and the other thing Jamie I think it's important is while we use Zosyn as a model where we are in terms of our trajectory relative to Zosyn's take-off is remarkably more advanced. So we feel very good, we're hoping that the pneumonia is as the next course and then diabetic foot we think will be also very, very significant advance in terms of the set of indications and the organisms they bring with it.

Justin R. Victoria - Vice President, Investor Relations

Thank Joe. Operator we will take the next question please.

Operator

Thank you. Yes your next question comes from the line of Seamus Fernandez with Leerink Swann. Please go ahead.

Seamus Fernandez - Leerink Swann

Oh! Thanks very much. Can you hear me?

Bernard Poussot - Chairman, President and Chief Executive Officer

Yes, we can.

Seamus Fernandez - Leerink Swann

Okay, great. So, in terms of just the nutritionals opportunity in China, can you just talk about it about this opportunity in the context of the recent recall? And maybe give us a little bit of color on where your market share is for F-26 and where Wyeth brand stands relative to other products, is it number 1, 5, 10? Thanks.

Joseph M. Mahady - Senior Vice President and President

Sure Seamus. We are the number one premium product in the market in China. The recent recall has had obviously a very significant impact on the overall nutritional market in China. The good fortune for us is that the underlying issue of melanin and study milk that they use in the production, we source our product because they're completely offshore from Australia. So we have been and continue to be unaffected by the recall.

We are indeed starting to receive benefit from being a product that is on the shelf and recognize as being free of melanin that is by government information releases to the consumer. So we're very excited that we are benefiting in this and establishing our mark even more. And although there may be some overall impact to the overall nutritional market in China, the high quality product profile that we have brought to the Chinese market we think positions us to certainly continue to maintain and hopefully expand our leadership position there.

Justin R. Victoria - Vice President, Investor Relations

Thanks Joe. Operator we'll take the next question please.

Operator

Thank you. Our next question comes from the line of David Moskowitz with Caris & Company. Please go head.

David Moskowitz - Caris & Company

Yes thanks very much. Just couple of questions on the financials, it looks like you guys are continuing to buy shares back and that was part of the opening remarks that were a little bit muffled. Can you update us on again what you bought back and what the plans are going forward, number one?

Number two, did you guys give other income guidance for this year? Would you please refresh us on that as well? And I guess last question would be on the Zosyn EF medical challenges that you mentioned if there is a... I guess non-AB rated or the regular formulation of Zosyn comes in as a generic. Can you just elaborate on what some of those medical challenges are on switching over the products? Thanks.

Bernard Poussot - Chairman, President and Chief Executive Officer

All right thanks David. Let me ask Joe to start on the Zosyn EF, and then we'll come back with the financials.

Joseph M. Mahady - Senior Vice President and President

Perhaps the biggest one that you would be concerned about would be incompatibilities in the administration with certain aminoglycosides. Those would be other commonly used anti-infective for serious infections. There are other implications for use in terms of shelf stability, once reconstituted. Indeed the labeling we believe would have to be different labeling for such a product, which raises the issue of how can products with different labeling be considered to be substitutes for each other. So we think there are important issues, and we believe this is presenting real challenges for the agency as to how to consider these generics.

Justin R. Victoria - Vice President, Investor Relations

AndDavid, we never offered any specific guidance for this year in other income other than to see some declines reflecting royalty income. But let me ask Greg to comment further about your questions on financials.

Gregory Norden - Senior Vice President and Chief Financial Officer

Okay. On share repurchases, we put a program in place last year to give us additional options to deliver value to shareholders. We said we would buy back up to $5 billion worth of shares over an undefined period of time. Through September 30th 2008, we bought back about $1.7 billion worth of stock under the program. We've also chosen to increase our dividend during the past several years, and we just announced an increase of over 7% just last month.

But I've said in the past, we also want to pursue in licensing small to mid sized acquisition opportunities to augment our internal efforts. We're certainly in a good position to do that, and we want to be able to capitalize on our strong cash position and participate in these markets to deliver long-term value to shareholders. We're trying to find a balance that will withstand the test of time and I think we can do that.

Just a little more color on Justin's comment, you'll see a swing this year to more expense certainly than you saw in 2007, it's driven predominantly by three things. It is driven by a write-down in some of the investment assets that I spoke about earlier on the call. There's also some hedging costs in that line that relate to, to the extent that rates around the world strengthen above a ceiling that we've put in place. There are from time-to-time some income that we leave on the table and that's recorded as expense in that line item. And then, there's also royalty income in that line, there's less royalty income in 2008 than 2007. Those are the three major components in that line item.

Justin R. Victoria - Vice President, Investor Relations

Thanks Greg. Operator, we'll take the next question please.

Operator

Thank you. Your next question comes from the line of John Boris with Citi. Please go ahead.

John Boris - Citigroup

Thanks for taking the question. Just a question for Greg on marketable securities, I think you outlined about $3.1 billion. Can you just give an estimate of what percent might be mortgage or asset-backed securities of that amount? And then on Prevnar of the 28 national immunization programs that you talked about, can you just help us understand what percent of those are using three dose versus a four dose regimen? And then on Pristiq, based on the withdrawal of the application in the EU, are you still pursuing in the U.S. the vasomotor symptoms indication and have you or are you continuing or are you enrolling in that VMS indication? Thanks.

Gregory Norden - Senior Vice President and Chief Financial Officer

Okay, John it's Greg. I'll start with the question on marketable securities. As I mentioned, that's made up of corporate bond obligations, U.S. treasury securities et cetera and there is some mortgage backed and asset backed exposure in there.

As of September 30th, the mortgage backed and asset backed exposure, the non-agency mortgage backed and asset backed is less than $500 million or about 3% in the portfolio. And it's in those portfolios that we've seen... we have taken some impairment charges during the course of the year that haven't been terribly significant, but it's predominantly marking those securities down to market for the losses that we deem to be other than temporary.

Joe, I guess you will take the next question.

Joseph M. Mahady - Senior Vice President and President

Yes. There is two, I think John, very quickly, on the NIPs they still vary. We have some very large new ones coming on at 3 plus 1 and we have some existing ones that have actually in individual countries converted to 2 plus 1, so there is a mix there and we see that going forward.

And I think your other question was on Pristiq vasomotor, whether we want to pursue that in the U.S. for vasomotor symptoms, the answer is clearly yes. The trial, I think, is very well enrolled and we would, as I said, plan to submit that in 2010. So, we are looking very much forward to that submission.

Justin R. Victoria - Vice President, Investor Relations

Thanks Joe. Operator, we are approaching the top of the hour, so we'll take maybe one or two more questions. So let's take the next one at this time.

Operator

All right. Next question comes from the line of Steven Scala with Cowan, please go ahead.

Steve Scala - Cowan

I have a question for Bernard. How do you believe the operating environment for the industry overall will change if the Supreme Court upholds the lower court verdict in Wyeth versus Levine when it's heard on November 3rd? Thank you.

Bernard Poussot - Chairman, President and Chief Executive Officer

I think it's hard to predict. I think it won't, in my opinion, change much. It's something that we believe is important recognizing the complexity that we would be into having to deal with each state on the issues. So, I think it certainly would be encouraging for the industry to have a positive outcome. But I think in case of a contrary, we don't see an impact of that decision.

Justin R. Victoria - Vice President, Investor Relations

Thank you Bernard. Operator, I think we will take this one last question and then allow us to wrap up prior to the start of the next company call, so our next question please.

Operator

Very good. And the last question that comes from the line of Burt Hazlett with BMO Capital Markets, please go ahead.

Robert Hazlett - BMO Capital Markets

Thank you very much for taking the question. Could you comment on the underlying demand for Enbrel? And in the international markets we estimated at just north of 20%. And then very quickly just on the bapi comment, are you still fully committed to the bapi Phase III trial? Just would like a firm answer there. Thanks.

Joseph M. Mahady - Senior Vice President and President

Two good closing questions. Yes, we are absolutely fully committed to the bap trials. We have some timing issues here that are very significant with questions that are important from these regulators for such an important trial. And as I said, these are important questions, we are attempting to resolve and that resolution is getting high priority and ongoing as we speak. So, we indeed are committed and committed to both indications for Alzheimer's. Any other question?

Robert Hazlett - BMO Capital Markets

Thanks. The Enbrel European market share?

Joseph M. Mahady - Senior Vice President and President

Yes, Enbrel's demand continues to be a very, very strong in Europe. And as I said earlier, we expect the underlying demand both for Enbrel and for the market to continue to be strong given the two main indicators that's room within the existing treatment guidelines in Europe for biologics and in very important countries in Europe the opportunity to see that we can actually expand those treatment guidelines based on the evolving clinical data and the demonstrated benefit within the existing patient population being treated.

Justin R. Victoria - Vice President, Investor Relations

Thanks, Joe. Bernard has some closing comments he wishes to share before we wrap the call up.

Bernard Poussot - Chairman, President and Chief Executive Officer

All right, thank you Justin. I just want to thank everybody for joining us on the call and thank you for your questions. I hope we've been able to help you realize the breadth of Wyeth today and the vision for the future that we see on the very near term horizon.

Just to summarize, I think we have a diversity of product franchises as we provide the growth to help us manage for our generic challenges. Second, I think we're moving towards a profile of an even more diversified biopharmaceutical company than ever, and third, we're executing on our plan and are surpassing our early targets and meeting our goals to deliver in 2008.

So again thanks for joining today.

Justin R. Victoria - Vice President, Investor Relations

Thanks. And operator if you could provide the replay information at this time?

Operator

Certainly, it'll be my pleasure. And ladies and gentlemen, this conference will be available for replay starting today, Wednesday, October 27 at 10.00 a.m. Eastern Time and it will be available through Wednesday, October 29 at midnight Eastern Time. And those... I should say that number will be available at 1-800-475-6701 both in the United States or Canada or from outside the United States or Canada, please dial 320-365-3844 and then enter the access code of 960240. Those numbers once again 1800-475-6701 both in the U.S or Canada or 320-365-3844 from outside the U.S or Canada and again enter the access code of 960240.

And that does conclude our conference for today. Thank you for your participation and for using AT&T's executive teleconference. You may now disconnect. .

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