King Pharmaceuticals Inc. Q3 2008 Earnings Call Transcript

King Pharmaceuticals, Inc. (KG)

Q3 FY08 Earnings Call

November 6, 2008, 11:00 AM ET

Executives

James E. Green - EVP, Corporate Affairs

Brian A. Markison - Chairman of the Board, President and CEO

Joseph Squicciarino - CFO

Eric G. Carter - Chief Science Officer

Stephen J. Andrzejewski - Chief Commercial Officer

Analysts

Gary Nachman - Leerink Swann & Company

Corey Davis - Natixis Bleichroeder

Angela Larson - Susquehanna Financial Group

Marc Goodman - Credit Suisse

Ian Sanderson - Cowen and Company

Adam Greene - Stanford Group Company

Gregory Gilbert - Merrill Lynch

Michael Tong - Wachovia Capital Markets LLC

Presentation

Operator

Good morning. Thank you for joining today's King Pharmaceuticals Third Quarter 2008 Financial Results. Please welcome James Green, Executive Vice President of Corporate Affairs of King Pharmaceuticals.

James E. Green - Executive Vice President, Corporate Affairs

Thank you, operator, and good morning, ladies and gentlemen. Thank you for joining us today to discuss our financial results for the third quarter ended September 30th, 2008.

Joining me today are Brian Markison, Chairman, President and Chief Executive Officer of King; Joe Squicciarino, King's Chief Financial Officer; and other members of our management team.

Initially, I will note that today's call is copyrighted material of King Pharmaceuticals and no portion of this call may be rebroadcast, published or otherwise disseminated without the company's prior express written consent. Also, reports and discussions during this conference call may contain forward-looking statements that reflect management's current view of future events and operations, including, but not limited to, statements pertaining to expectations regarding our product development pipeline, our plan to maximize the potential of our existing products, our future financial results and our strategy for long-term growth.

Forward-looking statements involve certain significant risks and uncertainties, and actual results may differ materially. Certain factors that may cause actual results to differ materially from the forward-looking statements are discussed in the company's press release issued this morning, November 6th, 2008, and in the Risk Factors section and other sections of the company's Form 10-K for the year ended December 31, 2007, and Form 10-Q for the quarter ended June 30, 2008, which are on file with the SEC.

King does not undertake to publicly update or revise any of its forward-looking statements, even if experience or future changes show that the indicated results or events will not be realized.

Under Generally Accepted Accounting Principles, known as GAAP, net earnings and diluted earnings per share include special items. In addition to our financial results determined in accordance with GAAP, King provides its net earnings and diluted earnings per share results excluding special items. These non-GAAP financial measures exclude special items, which our management considers to be those items that do not relate to the company's ongoing underlying business, are non-recurring or are not generally predictable. Examples of these are listed in the About Special Items section of our press release issued this morning.

We believe the identification of special items enhances the analysis of our company's ongoing underlying business and of our company's financial results when comparing results to those of a previous or subsequent like period. However, it should be noted that the determination of whether to classify an item as a special item involves judgments by our management.

The specifics of special items affecting the third quarter and reconciliation of non-GAAP financial measures to GAAP can be found in this morning's press release.

During the Q&A session which will follow our prepared remarks, we request that you limit your questions to our ongoing business, as we will not be taking any questions today with respect to the Alpharma tender offer.

Now, I will turn the call over to Brian Markison, Chairman, President and Chief Executive Officer of King. Brian?

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

Good morning, ladies and gentlemen, and thank you for joining us today.

We are pleased to report that during the quarter, our promoted branded products and our Meridian Auto-Injector business generated solid revenue and contributed strong cash flow. Additionally, we further advanced key research and development programs and launched our initiative to acquire Alpharma in order to substantially improve our prospects for long-term growth.

In August, the NDA for REMOXY was accepted and granted priority review by the FDA. We and our partner, Pain Therapeutics, are looking forward to reviewing the REMOXY NDA with the FDA Advisory Committee next Thursday. We're also diligently preparing to begin marketing REMOXY in early 2009, pending approval of the new drug application.

With respect to our short-acting opioid platform, last month, we and our partner, Acura Pharmaceuticals, reported encouraging data from a Phase II assessment of the abuse liability potential of ACUROX tablets. This complements the pivotal Phase III clinical trial that earlier this year met its primary endpoint as set forth in the Special Protocol Assessment with the FDA. As a result, we're on track to submit the ACUROX tablets NDA to the FDA by the end of this year.

The issue of misuse, abuse and diversion of opioid analgesics is recognized as a significant public health problem. Given this, we continue to believe that the market will shift to formulations that resist and/or deter common methods of abuse.

REMOXY and ACUROX represent important potential advances in meeting the pain management needs of patients and prescribers concerned with addressing the risks of prescription pain medicine misuse and abuse within our communities. As a result, we believe REMOXY, ACUROX and other potential products arising from our collaborations with Pain Therapeutics and Acura represent significant near-term and long-term revenue opportunities for our company.

As a reminder, we have the right to develop up to four long-acting products under the Pain Therapeutics collaboration and are currently developing three short-acting products under our agreement with Acura.

Our market research show that's a 5% share of the immediate and extended-release opioid market could translate into annual revenues of approximately $700 million at branded pricing.

Also, on September 12th, we commenced our tender offer for all of the outstanding common shares of Alpharma. As announced on October 6th, we have entered into a confidentiality agreement with Alpharma so we are limited in what we can say at this point in time. We continue to believe that combining Alpharma with our company would create a strong platform for sustainable long-term growth and we remain excited about the prospects of this potential transaction.

Now, I would like to turn the call over to Joe Squicciarino, our Chief Financial Officer for the purpose of reviewing our financial results for the third quarter in greater detail.

Joseph Squicciarino - Chief Financial Officer

Thank you, Brian and good morning everyone. Based on our third quarter results, we're on track to meet key financial goals that we established at the beginning of this year, particularly cash flow from operations of $400 million to $450 million and SG&A savings of $75 million to $90 million compared to last year.

With revenues totaling $388 million during the quarter, our cash flow from operations was $112 million during the quarter for a total of $350 million for the first nine months of this year. Net revenue from our branded pharmaceuticals segment totaled $302 million during the quarter, compared to $472 million in the same quarter of last year.

This decrease as you know was primarily due to the market entry of the first generic substitute for Altace in December 2007. However, we continue to see consistent performance from our key promoted products including Skelaxin, Thrombin-JMI and Avinza. In fact, Avinza total prescriptions increased in excess of 8% during the third quarter of 2008 compared to the third quarter of last year.

Total revenues during the quarter also include $68 million from our Meridian Auto-Injector business and Adenoscan royalties of $18 million. Revenue from our Meridian business benefited from higher unit sales of EpiPen and higher unit sales of other products to various government agencies.

Note that there is seasonality in EpiPen demand and as always variability from quarter to quarter in the timing of orders from various government agencies for our other auto-injector products. Accordingly, we did not expect our Meridian business to contribute revenue at this level in the fourth quarter.

Our gross margin excluding special items was approximately 74% in the third quarter and we continue to expect a full year gross margin of 75%. Total selling general and administrative expense excluding special items and our co-promotion fee for Altace was $100 million in the third quarter of 2008 compared to $135 million last year.

Depreciation and amortization excluding special items totaled $29 million in the third quarter. Research and development expense equaled $34 million. We are currently estimating that our full year 2008 R&D investment will approximate that of last year. Our effective tax rate for the third quarter was approximately 34%.

Moving to diluted earnings per share for the third quarter GAAP EPS was $0.34 while EPS excluding special items was $0.33.

In closing it is important to note that our unrestricted cash and cash equivalents totaled approximately $1.2 billion as of September 30, 2008 as cash from continuing operations for the third quarter totaled $112 million.

Now, I would like to turn the call back over to the operator for question and answers session. As Jim indicated at the start of this call, we will not be taking any questions today with respect to our proposed transaction with Alpharma and request that you limit your questions to our ongoing business. Operator?

Question and Answer

Operator

Thank you, Mr. Squicciarino. The floor is now open for questions. [Operator Instructions]. Our first question is from Corey Davis from Natixis. Please go ahead.

Corey Davis - Natixis Bleichroeder

Thanks very much. I just wanted to ask a couple of questions about the Alpharma acquisition. Just kidding. I wanted to ask about REMOXY, two things. First is, if you were to get final approval on your PDUFA date, how soon after that could you launch considering things like sales force preparation and especially thinking about manufacturing supply?

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

Corey that was one question. Was there a second as well?

Corey Davis - Natixis Bleichroeder

It concerns the risk management program.

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

Okay.

Corey Davis - Natixis Bleichroeder

Do you have one developed; have you developed it within interaction of the FDA? Do you expect to need one at all for REMOXY?

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

That's four questions. But we'll… I'll let Eric Carter to talk a little bit about the risk map and then I'll come back to the launch planning that we have for REMOXY. And by the way we were going to answer your first questions.

Joseph Squicciarino - Chief Financial Officer

Only kidding. Eric?

Eric G. Carter - Chief Science Officer

Yes, the expectation is that REMOXY will be approved under REMS, Risk Evaluation and Mitigation Strategy. And indeed we have explored the work that's been done by others and what we anticipate is required to put together a comprehensive appropriate REMS which we are presenting to the advisory committee next week and has been presented of course as part of the… filing of the NDA to FDA. It is a proposed REMS at this point in time. FDA will need to approve it. But we are confident that we have in the REMS addressed all of the key issues that are important to assure the safe use of REMOXY.

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

And Corey, with regard to launch preparedness, should we get approval on our PDUFA date, we're going through a number of scenarios now where we certainly expect to launch as early as possible in the first quarter of 2009, if not even a tiny bit sooner. But we're tightening up all of those plans as we speak.

Corey Davis - Natixis Bleichroeder

Great. I'll refrain from asking a fifth question.

Operator

Our next question is from Gary Nachman from Leerink Swann. Please go ahead.

Gary Nachman - Leerink Swann & Company

Hi, good morning. First, just a follow-up on the sales force question. So, it sounds like you guys would be prepared to launch without an expanded sales force, correct?

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

We will be ready to launch as soon as we have approval. The sales force and sales training is really not an issue for us. Having the benefit of being in the opioid space now, all of the basic training is accomplished. So, we're very much ready to go.

Gary Nachman - Leerink Swann & Company

Okay. And then Brian, can you just comment generally you received the briefing documents for next week, did you notice anything unusual any surprises that you may not have anticipated?

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

Yeah… no Gary, I appreciate the question and regrettably these documents are not public yet. They should be made available just prior to the committee, but we did not come across anything unusual or anything that would give us any great concern with respect to all the communications we've been having with the agency.

Gary Nachman - Leerink Swann & Company

Okay. And then last question just on Meridian. I mean it was at an all-time high. I know there is seasonality there. But is there something that could have caused unusually high demands for EpiPen and it sounds like obviously it's not sustainable for the fourth quarter but should we think maybe that it is more sustainable going out into next year? Thanks.

Joseph Squicciarino - Chief Financial Officer

Hi Gary, it's Joe Squicciarino. As you know, there is a high degree of seasonality to EpiPen sales and in addition to that we are the manufacturer for Dey and so that we do not have a lot of insight into actual real demand and push and pull in the marketplace. But the last comment that you made is spot on and that is we are not anticipating that level of sales in the fourth quarter. And we also benefited as I mentioned in the prepared remarks from a higher than normal level of orders from government agencies.

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

Specifically homeland security.

Gary Nachman - Leerink Swann & Company

Okay. Thanks.

Operator

Our next question is from Michael Tong from Wachovia Capital. Please go ahead.

Michael Tong - Wachovia Capital Markets LLC

Hi, good morning. Just a couple of quick ones. With respect to Altace, it seems like the reported revenue was a lot higher than what we would have thought looking at the prescription trend. So, was there anything unusual there? And then secondly, was there any meaningful or any sales at all of Sonata in the quarter?

Joseph Squicciarino - Chief Financial Officer

Okay. As far as Altace goes, we commented on the last call and we're very happy with the fact we've been able to hang on to as of the end of the third quarter a little over 8% of total prescriptions for branded Altace which is highly unusual particularly with an ACE inhibitor once you have multiple generic competitors in the marketplace. So, that's one factor.

Although we do anticipate that Altace sales will continue to decline and we're anticipating a… in relative terms a significant step down in the fourth quarter of this year, there was some benefit in the gross to net calculations as a result of truing up rebates as sales have declined, we have to true that up. And then as far as Sonata sales go, they were minimal. They were $4 million in the third quarter.

Michael Tong - Wachovia Capital Markets LLC

Thank you.

Operator

Next question is from Greg Gilbert from Merrill Lynch. Please go ahead.

Gregory Gilbert - Merrill Lynch

Thanks, good morning. Brian, I won't ask about the transaction but would you offer any color on the timeline of the process?

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

Greg, we said we would not comment. What I said in the prepared remarks is that we're in diligence and therefore really can't say anything other than that we would hope to complete this by the end of the year.

Gregory Gilbert - Merrill Lynch

Okay. And Joe, again not related to the transaction but can you review the terms, the financing commitments that the company has previously disclosed whether there have been any changes based on the environment?

Joseph Squicciarino - Chief Financial Officer

Greg, that's a good question. We… we back in the latter part of August we mentioned that we had financing all lined up. As you know, the market… the credit markets have been horrible. However, our financing is still in place and there has not been any change to our financing terms.

Gregory Gilbert - Merrill Lynch

And lastly Brian going back to the opioid market, the regular boring old non-abuse turn part of that market, are you seeing any significant changes in the contracting environment or otherwise as OxyContin re-brands itself and as the generics work out of the system?

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

Honestly, nothing unusual. It's all there in the monthlies and weeklies and quite frankly, I can't tell you there is any unusual pattern that we're seeing.

Gregory Gilbert - Merrill Lynch

Okay, thanks.

Operator

Our next question is from Adam Greene from the Stanford Group. Please go ahead.

Adam Greene - Stanford Group Company

Thanks, good morning. Three quick questions. First, any update on the EpiPen citizens petition? Second on CorVue, if you've made any decision on the marketing strategy for that product and then finally on Thrombin update on the competitive… what are you seeing in the competitive landscape there?

Joseph Squicciarino - Chief Financial Officer

Okay. On EpiPen, there has been no new news on the citizen's petition whatsoever. On CorVue, we have a modest educational program going on, but we're really just focused on filing the NDA before the end of this calendar year. We will make a decision as to whether or not we want to market it ourselves or partner the product after we make the filing with the NDA.

And as we're looking at the data and it's being assembled we're very comfortable that we have a good submission here. And with Thrombin the update on the competitive landscape is we're doing very well. Price continues to erode due to competition. We're going to be as competitive as we need to be to keep the business and the market is pretty much going as we predicted because there is no huge unmet medical need for a recombinant product that has no safety advantage.

Adam Greene - Stanford Group Company

Okay. Thank you.

Operator

Our next question is from Ian Sanderson from Cowen and Company.

Ian Sanderson - Cowen and Company

Hi, good morning. Thanks for taking the questions. First, a follow-up on REMOXY. Have you had any labeling negotiations at this point with the FDA and related to that what type of label differentiation from OxyContin if any should we be anticipating there? Second, can you discuss the other abuse resistant immediate release opioids in your pipeline and where those currently stand in development and then finally there appear to be a quarter-over-quarter reduction in the auction rate securities as far as I can tell and can you just update us on that?

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

Okay. I think I've got all the questions Ian. By the way we enjoyed listening in on the conference call yesterday, so thank you for that. With regard to our discussions with the agency around labeling, there is really not much I can tell you at this time. Simply because we wouldn't really reveal those discussions until we have an appropriate label that both us and the agency were satisfied with.

With regard to our immediate release portfolio, our data on ACUROX with our partner Acura continues to come in. All signs are extremely positive. We mentioned that we are going to file the NDA by the end of this year and that's still on track and we have not disclosed the other molecules that are in this platform at this time because of competitive reasons. And Eric, do you want to add any color on Acura?

Eric G. Carter - Chief Science Officer

No, except that the file will be submitted by the end of the year. That it… it looks very good at this point, and we're very pleased with our collaboration with Acura and we fully anticipate the success of it.

Ian Sanderson - Cowen and Company

Okay.

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

And Ian can you just restate your last question on the auction rate security?

Ian Sanderson - Cowen and Company

Yeah just, can you update us on where that stands? It looks to me like there was a bit of reduction in what you booked as long-term investments in the quarter.

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

Okay. Great. Joe.

Joseph Squicciarino - Chief Financial Officer

Hi, Ian. Yes, in fact, we did see some further liquidation in the third quarter of this year just under $30 million compared to the end of June. So, it's been slow. I'd like to say it's been steady. I think the best way to describe it is that liquidation has been episodic. We went for about three weeks with very little activity and then last… within the past nine days last nine trading days or auction days if you will, we've had 10 million clear. So, there has been activity and we're looking forward to further liquidation as we move forward.

Ian Sanderson - Cowen and Company

Thank you very much.

Operator

Our next question is from Marc Goodman from Credit Suisse. Please go ahead.

Marc Goodman - Credit Suisse

A couple of questions. Number one, can you just give us an update on pipeline products that you haven't talked about already. Second thing is any update on what's going on with Skelaxin and given the Sandos manufacturing issues, do you assume that that's going to prevent them from launching and getting approved for that…getting approved for that product regardless of the legal issues?

And then the third one, I just want to make sure I understand on R&D you said R&D would be the same as it was last year and I'm just confused by one thing. I thought there was supposed to be a bunch of pipe… I'm sorry, a milestone payments this year and did this quarter include the milestone payments back to Paine or is it next quarter or just help me understand what is going on there. Thanks.

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

Okay, Marc. I think Joe will start with your third question first on R&D expenses.

Joseph Squicciarino - Chief Financial Officer

Okay Marc. Yes, we anticipate that for the full year R&D will be in line with last year. Through the first nine months, we have paid a total of $26 million of milestone payments. $16 million to PTI for… well actually PTI and Direct for the acceptance to file REMOXY. We had a $5 million payment to Acura for the completion of Phase III of ACUROX and then we had another $5 million payment to PTI for the I&D for Hydrocodone.

Last year through the first nine months, we did have any milestone payments. As you recall at the beginning of this year, we were anticipating a higher level of R&D spend for this year. And as time… through the first nine months of this year, we've modulated that down obviously. But the key point to make is that all of our key programs are on track. We've not lost… nothing has slipped and so we're on track with all of our important development programs.

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

Okay. Marc on Skelaxin, the manufacturing plant that Sandos received a warning letter does have a lot of our attention. Mostly because we need to understand what affect that warning letter would have on their entire network. So, that's a very interesting development and unfortunate possibly for them but we're not really completely sure.

With regard to the Skelaxin litigation, not a whole lot new there. We were projecting to be in court by the end of this year. We don't think that's going to happen at all now. But administratively, there's a lot of paper flying around between the two companies and their counsel, so I think the case is proceeding at a strange but slow pace.

Now with regard to our pipeline update, I'll let Dr. Carter take it from here and he can give you some brief insight into some of our programs.

Eric G. Carter - Chief Science Officer

Yeah, hi Marc. We've talked a little lit about CorVue, so obviously we're filing that by the end of this year. T-62 which is the investigational drug for the treatment of neuropathic pain it's the allosteric A1 enhancer. We anticipate to initiate that the proof of concept study again before the end of the year and so we're pleased with the progress that we're making there.

Sonodenoson, which is the adenosine A2 receptor agonist for the treatment of chronic diabetic neuropathic foot ulcers; you may remember that the Phase II proof of concept study didn't meet its primary endpoint and although the drug was safe and well tolerated, we're still in the process of trying to determine exactly what the best next steps forward are for Sonodenoson. And then Vanquix is in Phase III. We're continuing to recruit into that particular program.

Joseph Squicciarino - Chief Financial Officer

And Marc let me just come back to your R&D question because I didn't answer it completely. We did in fact have a $5 million payment in the third quarter to Pain Therapeutics for the I&D for hydrocodone.

Marc Goodman - Credit Suisse

And that was the only payment in the quarter?

Joseph Squicciarino - Chief Financial Officer

Yes, that was the only milestone.

Marc Goodman - Credit Suisse

Milestone payment. Okay, got you. So, the big one is next quarter for REMOXY?

Joseph Squicciarino - Chief Financial Officer

Yes.

Marc Goodman - Credit Suisse

Okay. Thanks.

[inaudible]

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

Corey, if that was you, you might be on a cell phone. We did not get the question. [inaudible] I'm sorry it's coming through awfully garbled, but we're going to hang in there. Why don't you try again?

Operator

Yes, Corey if you do have a question your line is now live.

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

Operator, let's go on to the next question please.

Operator

Sure. [Operator Instructions]. Looks like we now have Angela Larson from Susquehanna Financial Group. Please go ahead.

Angela Larson - Susquehanna Financial Group

Good morning. I was hoping you could give us a little color on Skelaxin and counter promotional activities out there in the market, how aggressive the marketing is in that market and also if you could update us on your sales count… or I'm sorry your sales reps how many you have and how many are specifically devoted to the pain portfolio.

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

Hi, Angela. I'll let Steve Andrzejewsk, our Head of Commercial Ops give you some more color on Skelaxin and the competition we're seeing.

Stephen J. Andrzejewski - Chief Commercial Officer

Yes. In terms of the number of reps I'll answer that first. We have 515 reps that focus on the pain portfolio. We also have our hospital division which is over 100 people. Their focus is on Thrombin right now and in terms of competitive situations as it relates to Skelaxin, obviously Amorex has been out there in full force so our share of voice has gone down some.

We feel as though we continue to be successful at differentiating especially on sedation issues to Amorex and there has been competition as it relates to managed care in this market segment. There are some plans that are evaluating the class as a whole and making decisions on which products to go forward with.

Angela Larson - Susquehanna Financial Group

Thank you for that color and one additional question. I know the company historically hasn't given revenue or EPS guidance because of the changing dynamics in the model. Is there any chance that you might reconsider that going forward?

Joseph Squicciarino - Chief Financial Officer

Hi, Angela. It's Joe here. Hope all was well with you. It is our strong preference not to give top and bottom line guidance for a whole variety of reasons. However, over the past two years, what we have done is provide insight into how to model the key lines in the P&L particularly for R&D, SG&A e cetera. So, I really do not envision us changing that point of view and giving top and bottom line guidance.

Angela Larson - Susquehanna Financial Group

Okay. Thank you.

Operator

And this is Corey Davis from Netixis. Please go ahead.

Corey Davis - Natixis Bleichroeder

I'm not sure what happened there. My line wasn't open and I'm not on the cell phone, but I want to ask a follow-up with regards to REMOXY. Based on your review of the briefing documents and your knowledge of the data, can you compare what a lot of people in the market and Wall Street are concerned with compare that to what actually going to come out on the panel and I'm specifically thinking of say three things.

The first is the statistical analysis plan and the imputation of missing data. There seems to be some conflict over what the FDA wants versus what REMOXY study did. Secondly, the PK profile for the drug, is that going to come out on the panel obviously with respect to whether or not you're going to infringe the new patents, and thirdly the alleged food effect on REMOXY, is that likely to be discussed? Thanks..

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

Yeah Corey, I'm trying to think about how to respond to this because I think what everyone can expect at this upcoming advisory committee at least for the REMOXY session is a venue that will be set up quite similarly to how the Purdue-Frederick session went. We're not in any dialogue of substance around our statistical analysis plan and our PK profile will be only highlighted to the extent it's part of the clinical information that we present along with the information that we also show on how difficult it is to mistreat the formulation and extract the opioid on an accelerated basis. The product should be taken with food and that's going to be recommended and that's really all there is to it. I think… I think you ought to dial in whether in person or on the Internet and I think you'll see some very good information.

Corey Davis - Natixis Bleichroeder

Great. Thanks Brian.

Operator

Our next question is from Gary Nachman from Leerink Swann.

Gary Nachman - Leerink Swann & Company

Hi. Thanks for the follow-up. Could you quantify roughly how much of the SG&A is related to the Alpharma deal in the quarter? I'm trying to get a sense of underlying SG&A at this point and directionally how should we think about incremental spend for REMOXY I guess for this quarter and then going forward. Thanks.

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

Gary, both two good questions. There is nothing in this quarter's P&L for any expenses that have been incurred pertaining to the Alpharma transactions. We have recorded those as prepaid expenses. And as far as SG&A goes, we will definitely see a ramp-up in the fourth quarter as we have been very busy and will remain very busy with pre-launch activities pertaining to REMOXY.

Gary Nachman - Leerink Swann & Company

Okay. And then obviously that should continue into next year because of REMOXY, that ramp?

Brian A. Markison - Chairman of the Board, President and Chief Executive Officer

Hopefully on an accelerated rate.

Gary Nachman - Leerink Swann & Company

Right. Okay.

Operator

Sir, there appear to be no further questions at this time.

James E. Green - Executive Vice President, Corporate Affairs

Well, we want to thank everyone for joining us today and we really look forward to our next opportunity to talk with you. Thank you very much and have a good day. .

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