Forest Laboratories Inc., F3Q09 (Qtr End 12/31/08) Earnings Call Transcript

Executives

Frank J. Murdolo - Vice President, Investor Relations

Lawrence S. Olanoff, M.D. Ph.D - President and Chief Operating Officer

Francis I. Perier Jr. - Chief Financial Officer

Analysts

Gregory Gilbert - Bank of America-Merrill Lynch

Ian Sanderson - Cowen & Co.

Corey Davis - Natixis Bleichroeder

Jami Rubin - Goldman Sachs

David Buck - Buckingham Research

Gene Mack - Lazard Capital Markets

Gary Nachman - Leerink Swann

Ronny Gal - Sanford C. Bernstein & Co.

Timothy Chiang - FTN Midwest Securities Corp.

Richard Silver - Barclays Capital

David Amsellem - Piper Jaffray

David Windley - Jefferies & Co.

Forest Laboratories Inc. (FRX) F3Q09 Earnings Call January 20, 2008 10:00 AM ET

Operator

At this time, I would like welcome everyone to the Forest Laboratories third quarter and fiscal year 2009 Earnings Call. (Operator Instructions). I’ll now turn the call over to Frank Murdolo, Vice President, Investor Relations.

Frank J. Murdolo

Good morning everyone. Thank you for joining us today for the third quarter fiscal 2009 conference call. Joining me this morning is Larry Olanoff, our President and Chief Operating Officer, and Frank Perier, our Senior Vice President of Finance and Chief Financial Officer. By now, each of you should have seen the earnings release that we put on the wires around eight o'clock this morning. The release is also available at our website, www.frx.com.

By way of Safe Harbor statement, let me add that various remarks that we may make about future expectations, plans, and prospects for the company constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and actual results may be different. Let me now turn the call over to Larry, who will comment on the business during the quarter.

Lawrence S. Olanoff

Good morning everyone. I will start today's call by reviewing key company events for the quarter and then turn the call to Frank Perier who will review the financial details of the quarter.

Our underlying business continued to perform well during the quarter for our key marketed products, although Lexapro sales declined reflecting the modest decrease in market share that we experienced early in the year. In contrast, we saw solid prescription growth for Namenda and Bystolic. Reported earnings in the just completed quarter totaled $0.62 per share. Excluding the net of tax impact of two charges for new product licensing fees, diluted earnings per share for the quarter was $1.03. We were very pleased along with our partner Cypress Bioscience to announce last week the marketing approval for Savella following a first pass review from the FDA.

Including the approval of Bystolic about 13 months ago, Savella is now the second first pass FDA approval for Forest from the time we have managed the application for one of our products. Savella is the product of a unique clinical development program, one that considered a patient to be responder to therapy only if the patient demonstrated concurrent clinically significant changes in multiple aspects of their fibromyalgia conditions that include pain, patient global assessment, and physical function. Savella is the only product approval for the management of fibromyalgia that used this complete responder analysis prospectively as its primary endpoint and this information is uniquely reflected directly in our approved labelling.

I’ll also remind you that based on the approval and publicly released information, we and our partners have reported four positive phase III efficacy trials for Savella, two of which were completed after our application was submitted. We will start shipping Savella by the end of February, and Savella will be in retail pharmacies around the beginning of March. We will begin detailing in March with two of our primary care sales forces, two specialty sales forces including one from Cypress and our hospital sales force, over 1500 representatives in total. We plan to collaborate with patient advocacy groups and will be distributing product and disease information in physicians’ offices, pharmacies, and over the internet. Our program will raise awareness of fibromyalgia, educate patients about new treatment options such as Savella, and encourage treatment compliance.

We have successfully employed this type of an approach many times in the past including the launches of Lexapro and Namenda. Further details regarding the cause of the missed date has just become available upon the approval of Savella. As reflected in the FDA review summary, the last minute delay in the approval of Savella was related apparently to a whistleblower’s allegation of a clinical data question, a fact that we and Cypress were unaware of until the approval. As described in the review summary, during the interim period, Forest underwent a clinical data audit, the results of which demonstrated no issues regarding data integrity and were only made available to us also at the time of the approval. We remain on target for our previously announced Savella launch meeting in early February. In addition, we have completed two important product licensing agreements during the quarter that have added late stage assets to our expanding development pipeline.

In October, we announced a collaboration with Phenomix for the development and commercialization of Dutogliptin, a DPP IV inhibitor in development for the treatment for type 2 diabetes. Topline results for a 12-week phase IIb trial showed that Dutogliptin met all primary and secondary endpoints and by comparison to placebo demonstrated significant reduction in hemoglobin Alc and fasting plasma glucose. It also showed that Dutogliptin was well tolerated with a low incidence of adverse events. The first phase III trial for Dutogliptin began in July, and we are planning to initiate additional phase III trials through the middle of this calendar year. This will result in a phase III program similar in size and scope to the phase III programs reported for other DPP IV inhibitors.

A few weeks ago, we announced a collaboration with Pierre Fabre for the development of commercialization of F2695, which is levomilnacipran, a once daily administered selective norepinephrine and serotonin reuptake inhibitor for the treatment of depression. Pierre Fabre recently completed a phase II study in some 550 patients with major depressive disorder. F2695 was well tolerated, and compound demonstrated statistically significant improvement compared to placebo on the primary endpoint which was changed from baseline in the total score for the MADRS as well as in the total score change for HAMD-17 item and in response and remission rates using both of these measures. F2695 also demonstrated clinically relevant improvement compared to placebo within two weeks after treatment initiation.

We are pleased to have completed these agreements which add to a productive recent track record of product licensing acquisition activity. During the 5-year period from 2004 through 2008, we completed one co-marketing agreement, 13 product licenses or acquisitions and four drug discovery agreements. This list includes 12 products currently in development, Bystolic which was launched last year, and Sevella which was just recently approved. As we have previously stated, we believe our current late stage pipeline can in total ultimately deliver a future revenue stream greater than that we anticipate will be achieved by Lexapro and Namenda at their peaks. However, we remain extremely active in our global search for business development opportunities and expect to complete further agreements in the future.

Regarding our inline products, Lexapro sales in the quarter totaled $585 million, a decrease of 3% year over year. As we have previously mentioned, we put programs in place earlier in the current fiscal year that we believe are now working to preserve Lexapro market share at the right level considering the current competitive market conditions. Namenda sales were $240 million during the quarter, a growth of 10.1% year over year. Regarding Benicar, projected end-user net sales which are recorded by our partner Daiichi Sankyo were approximately $230.3 million in the quarter with our partnership pre-tax earnings for the quarter totaling $47.3 million.

For Bystolic, we were very pleased to report during the quarter that the US Patent and Trademark Office has confirmed the validity of the Bystolic patent and completed the reexamination procedures with a confirmation of the validity of all the previously granted claims. Bystolic sales in the quarter were $21 million, which is the third full quarter following its launch in 2008. Bystolic sales continue to track with expectations, and we continue to see an encouraging mix of patients including significant proportions of those switching from generic beta blockers, those new to beta blocker therapy, and those being maintained on Bystolic therapy.

Presently, nearly 80% of patients may be characterized as continuing patients which is indicative of early success with Bystolic therapy. Another positive measure of performance is the sustained high number, almost 1400, of new physicians writing their first prescriptions each week on top of a growing base of over 60,000 prescribers for Bystolic. Both primary care physicians and cardiologists are prescribing the product, and its share amongst cardiologist exceeds that of the national share for beta blockers as a class. This is important because like in many categories, primary care physicians who also rely on the opinions and recommendations of specialists.

Thus, we are seeing steady growth in prescription volume as we approach the first anniversary of the product launch with the majority of prescriptions being written for 5 mg a day. This indicates that most patients are achieving sufficient blood pressure reduction at our starting dose and that the product is performing as we expected. And recently, we have seen Bystolic share of mail order business increase more than retail business. This may be yet another indication of physician and patient satisfaction with Bystolic as more patients move to automatically refill their prescriptions through the mail order route.

We continue to make substantial progress relative to Bystolic’s managed care coverage goals. Overall, our access without any step at it or prior authorization restrictions covers over 85% of total beta blocker volume, and with recent tier-2 additions, Bystolic now has unrestricted tier-2 coverage on 12 of the major national health plans.

Overall, we are very pleased with the strong sales and earnings performance during the quarter and are excited about the progress that we’re making in further building our pipeline and bringing new therapies to the market.

I’ll now turn the call over to Frank, who will provide more details on the financial results.

Francis I. Perier

Fiscal third quarter total revenues which are inclusive of sale, pre-tax earnings from Benicar, interest and other income totaled $998 million, essentially unchanged compared with the year ago period. Revenues were comprised of $920 million of product sales versus $918.1 million last year; $47.3 million of contract revenue from the Benicar agreement, down 8.6% versus last year because we no longer are actively promoting other products, as well as $24.2 million of interest income. Other contract revenue and other income in the quarter totaled $6.4 million.

Gross margin in the quarter came in at 77.5%, slightly ahead of last year’s fiscal third quarter.

SG&A spending during the quarter was $290 million, up 1.5% from last year. In addition to our ongoing spending levels in support of in-line products, this quarter included significant investment spending to support the continuing launch of Bystolic as well as pre-launch activities for Savella.

Research and development spending was $279.1 million in the quarter as compared to $108.2 million in the year ago period. R&D spending in the quarter included $150 million in combined license fee payment in connection with product collaboration agreements with Phenomix and Pierre Fabre, and approximately $5.9 million in milestone development expenses. We now anticipate spending of approximately $70 million for milestone expenses for the year.

Our second tax rate in the quarter was 15.4%, and reflects both the reinstatement of the R&D tax credit and greater income from lower tax rate jurisdictions. We expect the annual effect of tax rate for the full fiscal year to be approximately 20.4%.

Actual shares outstanding as of December 31st were 301,613,000, a reduction of 9,752,000 from last year due mainly to the company’s share repurchase program. We did not repurchase any stock in the third quarter.

Our cash and marketable securities balance at December 31st was approximately $2.9 billion, an increase of $248 million from last quarter. Of this, $717 million or 25% of our cash and marketable securities are domiciled domestically with the remainder maintained by our international subsidiaries.

Moving to our financial guidance for fiscal 2009, we now expect a diluted earnings per share for the fiscal year ending March 31st excluding the $44 million one-time charge related to the termination of the AZOR co-promotion agreement in the first quarter and the $150 million of new product licensing fee payments made to Phenomix and Pierre Fabre in the third quarter, will be in the range of $3.35 to $3.45. We expect to expend approximately $70 million in development milestones in R&D.

With the reinstatement of the R&D tax credit and favorable earnings mix, we expect the annual effect of tax rate for the full fiscal year to be approximately 20.4%.

I will now turn the call back to Larry for a pipeline update.

Lawrence S. Olanoff

As we move into the final quarter of fiscal 2009, we continue to be in a busy period where we will be initiating phase III studies for Linaclotide IBS-C, launching Savella, and in March, we anticipate receiving an action letter from the FDA on our supplemental NDA for Lexapro in the treatment of major depressive disorder in adolescent patients.

We have requested a meeting with the FDA to review the aclidinium acclaimed I and II trial results and to discuss our filing and future development plans for the monotherapy product.

Pending FDA feedback, our plan is to file the aclidinium once daily NDA with the acclaimed data later this year or early in 2010.

I remind you that we view aclidinium as a broad franchise opportunity. So, in addition to the monotherapy once-a-day dose, we will be evaluating higher doses and/or more frequent dosing regimens. The tolerability experienced from the acclaimed studies suggest that higher doses are indeed possible. In addition, the acclaimed results facilitate and potentially accelerate our strategy to develop a twice daily aclidinium formoterol combination, and we also plan to develop a twice daily aclidinium inhaled corticosteroid combination.

Lastly, we believe that we have access to an unique dry powder inhaler device for aclidinium that will be convenient to use and easy to incorporate higher or more frequent dosages as well as other combination agents. The ease of use and functionality of the inhaler device is an important factor in delivering the correct dose to the lungs to ensure effective COPD treatment. With a dose counter and unique control window that tells the patient that the dose has been inhaled correctly, we believe that the aclidinium dry powder inhaler will add to the competitiveness of that franchise.

Also in the first half of 2009 we will prepare an NDA for the memantine extended release formulation for Alzheimer’s disease and file a supplemental NDA for the use of Bystolic in congestive heart failure as based on the seniors’ trial.

Regarding ceftaroline, the two phase III studies for community-acquired pneumonia are ongoing and we anticipate those results in the second quarter of 2009. Data from both the CAP studies is supportive along with the two complicated skin structure infection studies will serve as our planned late 2009 NDA submission for initial marketing approval of ceftaroline.

Working with our partner, Ironwood Pharmaceuticals, we have initiated a comprehensive phase III clinical program to evaluate Linaclotide safety and efficacy in patients with either IBS-C or chronic constipation. The chronic constipation studies were initiated in September and we expect to report topline results in the fourth quarter of 2009. The IBS-C trials will begin during this quarter.

Turning to cariprazine, we recently announced topline results from a phase II clinical trial in patients with acute mania associated with bipolar I disorder, which show that cariprazine produced significant symptom improvement compared to placebo within the first week of treatment and at each subsequent time-point study. This potential indication may present a significant opportunity for this compound in addition to the planned indication for schizophrenia.

For the schizophrenia indication, we have an ongoing phase IIB trial with our partner Gedeon Richter, which will examine in greater detail a range of lower doses based on the encouraged results of the first phase II proof of concept study in schizophrenia. This study is being performed in order to better determine an optimal dose range taken through the planned phase III studies. We expect to report the topline results of this study in the second half of 2009.

Lastly, Oglemilast, the PDE4 inhibitor program partnered with Glenmark is currently in a proof of concept study in COPD and we expect to report the Oglemilast data also in the second half of 2009.

As I stated earlier, while we continue to believe that our late stage product pipeline could collectively represent several billion dollars of potential product sales in the long-term sufficient to replace the revenues lost to the patent expiries for Lexapro and Namenda combined; however, we must operate with the assumption that not all of our late stage programs will ultimately result in approved products or approved products that achieve our peak sales projections.

Accordingly, last year we established a strategic goal to double the commercial value of our late stage product pipeline by 2012 through the addition of new product development opportunities both licensed or acquired and the advancement of our earlier stage pre proof-of-concept programs.

During the just completed quarter, we added the first two major installments towards this 2012 pipeline goal, i.e., dutogliptin and F2695, while continuing to advance every single product in the late stage pipeline.

We also achieve approval for Savella, our second product approval in just 13 months. Importantly, our business development team continues to seek interesting and commercially viable products in the market, and we have clearly demonstrated the ability to compete effectively and secure important products. Accordingly, we remain confident in our ability to achieve this 2012 product acquisition goal.

Francis I. Perier

I will now finish up by reading some sales figures for some of our smaller products.

AeroBid $3.8 million, AeroChamber $4.2 million, Campral $7.1, Celexa brand $3.1 million, Cervidil $14.2 million, Combunox $0.1 million, and Esgic $0.8 million, Europe $16.4 million, generic $0.4 million, Infasurf $3.0 million, Lorcet $2.2 million, Monurol $0.3, Tessalon $0.6, Thyroid $14.4, Tiazac brand $1.7, and Tiazac generic $2.8.

And now, we have finished our formal comments.

Question-And-Answer Session

Operator

(Operator Instructions). The first question comes from the line of Gregory Gilbert with Bank of America-Merrill Lynch.

Gregory Gilbert - Bank of America-Merrill Lynch

First for Frankie, discuss any changes in trade inventory levels for your key products and also for clarification on that $70 million and development milestone spending, how much has been spent through the third quarter? I’m talking apples to apples.

Francis I. Perier

First, the changes in wholesale inventory, from the second quarter and the third quarter, the changes were very very small in total, so we really didn’t even mention it, inventories held pretty static. As far as development milestone, expenses for the 9 months year-to-date is $42.6 million.

Gregory Gilbert - Bank of America-Merrill Lynch

And then for Larry, can you share with us what you can do to ensure that the commercial organization’s focus on Savella does not negatively impact the Lexapro and Bystolic in the short to medium term?

Lawrence S. Olanoff

I think the thing we’ve been planning throughout this pre-launch period for Savella is to make sure that we could cover the product with an adequate number of details while not diminishing the representation we have behind all our in-line products. So, we’re fairly comfortable that we can provide the necessary details and keep up the level that we’ve had, and the Lexapro which is sustaining, we believe, its sales as well as Bystolic which we still treat as if it’s in launch mode, so we’re comfortable in terms of our ability. We do bring on another sales force with Cypress joining us with approximately 110 additional reps.

Gregory Gilbert - Bank of America-Merrill Lynch

Larry, and one last aclidinium question. Device advantages aside, can you offer some support as to why you think the efficacy gap between aclidinium and Spiriva may not be as great as it appears to be on the surface?

Lawrence S. Olanoff

Yes, we talked about this a number of times, I’ll just repeat the comments we’ve made in the past and a number of things. One, we looked at four common parameters by way of looking at the efficacy of this product and have been used again commonly with Spiriva and other interventions and that included peak and trough FEV1 measures as well as measures of symptom improvement and exacerbations, and on three of those four measures, we’re right on top of what’s been reported in the older clinical trial data for Spiriva. The only measure where we were not comparable to Spiriva was on the trough FEV1, although the number we showed not only being statistically significant but clinically relevant and I would base that comment on the fact that products have been approved based on those types of differences against control agents.

Further, if you look back at the most recently released data which is the uplift trial, you can get a feeling for the fact that over time as more and more patients have been put on additional background therapies including inhaled corticosteroids and for other reasons have had their baseline FEV1 measures go off over time, that the ability to show the kinds of difference trough FEV1 that was shown for Spiriva in that type of trial design as well as the fact that now that we’re using centralized spirometry reading has been substantially diminished. So, we feel that the numbers we’ve been able to generate are reproducible and ones that we have some confidence in and I believe were clinically relevant for purposes of a filing. Having said that, as we said in the past, given the tolerability results which we think are excellent with this product, we still have a lot of room to move in terms of dosing. So, we do plan to look at higher doses and more frequent doses, which again, if one is focused only on trough FEV1, give us the opportunity to even potentially push up the results on that parameter as well.

Operator

Your next question comes from the line of Ian Sanderson with Cowen & Co.

Ian Sanderson - Cowen & Co.

First, the fiscal ’09 guidance implies a significant sequential decline in EPS in the current quarter, can you speak to the primary line items that might lead to that outlook, and specifically the milestone payments in Q4 sounds like they are somewhere around $27 million left there, maybe if you could talk about what triggers those in the quarter. Second question is, on the interest income in the December quarter and why that had such a significant sequential jump to it?

Francis I. Perier

The outlook for the milestone payments, you basically spot on, and again that’s just basically, we’ve got one more program, we’ve got a milestone payment we anticipate that that program will be the threshold during the fiscal fourth quarter. So, that’s one-time item that’s in there that won’t necessarily repeat. Also, you have to look at the effective tax rate. We got a big benefit in the effective tax rate from two things; the mix of earnings between higher and lower tax rate jurisdictions improved, and the reinstatement of the R&D tax credit which both had a very favorable impact on the tax rate which you have to reflect those changes and estimate all in the quarter that you realize it. And again, the research credit was not just for the first three fiscal quarters we’ve just completed but also included an adjustment for the fiscal fourth quarter of last year when it was effective back in January 1. Those are probably the major components, and also I would remind you that we are in full launch mode on Savella now. So, from an SG&A standpoint, you should see a significant investment behind the launch of Savella. I would put that akin to kind of the spend rate that we’ve got on Bystolic.

Ian Sanderson - Cowen & Co.

And then the interest income jump?

Francis I. Perier

In spite of the fact that the rates definitely have come down, we’ve also built up a significant cash balance, and also we had no share repurchase during the quarter.

Ian Sanderson - Cowen & Co.

And if I could also ask an aclidinium question, Larry you mentioned a b.i.d. combination program with formoterol where at one point are you considering a q.d. combination program, and if so, where does that stand?

Lawrence S. Olanoff

I think there were some early interests in that. I think realistically in the US that would’ve been tough given the formoterol as a b.i.d. product. There was some exploration of that relative to the potential European filing, but in the US, as I stated, it’s much more likely to be a b.i.d. administration independent of what dose we use on a q.d. basis of aclidinium, which means from a practical standpoint we’re going to have to go to an aclidinium b.i.d. dose for that opportunity any way.

Operator

Your next question comes from the line of Corey Davis with Natixis Bleichroeder.

Corey Davis - Natixis Bleichroeder

A couple of questions. The first is, I think there is a perception out there that Lyrica and Cymbalta haven’t done much in fibromyalgia since their launches. So, (a) do you believe that, and (b), I know you think milnacipran could be better or at least different than Cymbalta, but the label doesn’t really look that way. So, how are you going to promote it or at least how do you think it will get used in clinical practice that may be different than Cymbalta.

Francis I. Perier

Good question Corey. I think the first issue in terms of the size of the market and what the other companies have done in that regard; we look at the market as something north, at the current time, of a billion dollars, and in composite we think that two proprietary products are now around the $500 million mark, which means in a dollarized fashion there are still other products, primarily generic products, that are accounting for a little over $500 million in opportunity at brand price. So, looking forward, we think that market is going to grow. We look at it in the context of about a 6 million patient population out there that could potentially be candidates for fibromyalgia therapies, and not necessarily exclusive one therapy or another, we see combination use as a big driver here as well. Specifically, how we can compete against Cymbalta, which is a drug with a similar mechanism of action, remind you that we are pharmacologically a bit different than Cymbalta, that we have a little more emphasis on the noradrenergic reuptake component than the serotonergic; they have a different ratio than us, and this is a reversible ratio. I think, more importantly if you looked at the clinical data even as you suggested reflected in the package insert, there are a number of factors there that bowled well for us in terms of coming into the market. One is that on a simple basis we don’t have the same propensity for drug-drug interaction, which again, going back to the issue of this being a combination or a multi-therapy driven market, that’s going to be an important factor.

I think the other thing that makes us unique is the fact that we were the only company and a program that went out there and prospectively defined the need for a responder analysis based on multiple parameters. We really believe, based on our own testing and dialogue with physicians that that’s going to be an important factor in getting the message out to physicians in terms of how they see their patients and the importance of the therapy for their patients in terms of trying to deal with these multiple symptoms. And lastly, I would tell you that as opposed to or by contrast to our competitors who have other primary claims that they are promoting other than fibromyalgia for each of the products, Lyrica and Cymbalta, we’re going out there with one claim, with fibromyalgia, that’s the only focus we have, it’s a more focused effort, and yet we’re putting a very large sales presence behind that one effort. So, I think for all those reasons, we believe we’ll make substantial inroads with this product in this competitive marketplace.

Corey Davis - Natixis Bleichroeder

I don’t think you have announced pricing yet on this, and I am assuming you’ll come in with the traditional Forest discount, but are you thinking like 10% discount to Cymbalta or like 50% discount?

Francis I. Perier

You are correct in that we have not announced pricing, that we have yet to even talk to our wholesalers in that regard, but we will be competitively priced.

Corey Davis - Natixis Bleichroeder

The last question; does the design of the additional phase III trials on your dutogliptin depend on the outcome from the first phase III or should we just look at the design for all the others as a ballpark for what your program will look like?

Francis I. Perier

The latter applies; those studies will be initiated before we have the results on the first trial, and we’re really looking at a series of various combination trials, the first trial being a monotherapy trial, and if you look at the designs of the other programs in terms of how sponsorship tries to capture various types of combinations prevalent in the use of these agents or anticipate in the use of these agents, they’ll be along those lines.

Operator

Your next question comes from the line of Jami Rubin with Goldman Sachs.

Jami Rubin - Goldman Sachs

Just for some clarification; this year you are guiding to $3.35 to $3.45 which excludes the milestone payments from Phenomix and Pierre Fabre of about $140 million or $150 million…

Francis I. Perier

It also excludes the Azor payment of $44 million.

Jami Rubin - Goldman Sachs

…and excludes the Azor payment, that’s right; but if I looked back on my model, in the second quarter, your numbers included a $70 million milestone payment from what was then called Microbia or the Ironwood deal, and I am just trying to understand where you decide to include numbers as ongoing and when you exclude them as operational earnings, that’s my first question. And my second question is again to Frank; you got a couple of products, dutogliptin and the SNRI from Pierre Fabre that are entering phase III trials, if you can give us a sense for how we should think about ongoing R&D expenses.

Francis I. Perier

Normally when we give guidance we always give guidance and include our estimate of R&D spend for the clinical trial program as well as our estimate of when the milestones are going to hit, and that’s always been a bit of a moving target for us, and more often than not, it’s been more of a timing issue where we’ve been maybe a little bit more aggressive on the start of the program and the related milestone expense versus when they hit. We always exclude upfront license payment because they’re very difficult to predict and so we never put them into the guidance or the plan for the year. So far this year we had two upfront license payments, both of $75 million and both in this quarter, one to Phenomix and the other one to Pierre Fabre. In the last fiscal year, we also had two upfront license payments, one was for Microbia for Linaclotide and the other one was to Novexel for NXL104, and they were in two different quarters last year. So the milestones are in our guidance, the upfront license payments are not included.

Jami Rubin - Goldman Sachs

So, if I can ask you, the Microbia deal, last year second quarter ’09, was not included as your ongoing earnings?

Francis I. Perier

No, we called that out last year.

Jami Rubin - Goldman Sachs

The second question relates to base R&D growth going forward in light of the two opportunities moving into phase III.

Francis I. Perier

We have been running in the mid teens on R&D as a percent of sales for the last couple of years, and we’re not prepared to give guidance yet on fiscal ’10, but I think that the expectation should be that we’re going to stay in that range whereas we’ve just completed some big clinical work and gotten Savella approved and we’re very excited about that; we’ve got some other programs that are kicking in as you’ve referenced, both dutogliptin and the Pierre Fabre levomilnacipran. So, I think the mid upper teens is probably a good planning number.

Operator

Your next question comes from the line of David Buck with Buckingham Research.

David Buck - Buckingham Research

Just a couple on Savella; can you talk a little bit about the strategy for managed care and how you see that shaping up in terms of a launch, what some of your goals are for the first 6 to 9 months in terms of tier 2 or tier 3. And secondly, can you talk a little bit about whether you have any price increases during the quarter and do you still think there’s room in Lexapro particularly to keep that product stable with price.

Lawrence S. Olanoff

The answer to your second question first, no, we haven’t taken any additional price increases over the previous quarter. We’ve typically taken a price increase for each of our inline products roughly once a year, calendar year; we don’t forecast our price increases, that’s the only comment I can make in that regard. In terms of the managed care plans, we’ll probably provide more details on that as we get closer to the actual launch, but what I can tell you is that our goals and ambitions are on the range we’d be doing with Bystolic in terms of trying to get major formulary coverage in an unrestricted fashion over the first 12 months roughly.

Francis I. Perier

What I would say on price is that we’ve always been a responsible pricer, we’ve been taking mid single-digit price increases over the last several years and we expect to continue that trend. We still believe that we have room to get to that level of price increase importantly on Lexapro. So we think that between the commercial efforts that we put in place to help support and stabilize the share that we’ve got for Lexapro, you should also expect to see similar kind of price increase.

David Buck - Buckingham Research

The ambitions for Lexapro at this point, do you see it as more of a stable product, do you still think this is a product that you can actually grow in overall revenues.

Lawrence S. Olanoff

I think we have in the last year or so announced that our intent was to keep it as a stable product and we have a number of things going on and initiatives which continue on; we talked about in the past, in terms of sales force deployment, in terms of managed care coverage and patient couponing efforts, but the big next point coming up is the adolescent NDA opportunity and not only does that add a modest incremental sales opportunity, but more importantly it helps cement our relationships going forward with commercial managed care.

David Buck - Buckingham Research

Has the credit crisis and the lack of financing for smaller companies had any impact on where you’ve been looking at opportunities, you’ve been looking at anything more specialized or more biotech like in terms of bringing in and licensing or even acquiring smaller companies?

Lawrence S. Olanoff

That’s a good question. I think we would hope, and to some degree we have seen a little bit of this in that the credit situation where a number of startup companies, a good number of them, are really operating on one year or less cash at this point and have difficulty raising additional cash, does make people a little more realistic in terms of what they think is a workable licensing deal, but having said that, all our licensing and acquisition activities are predicated on the three legs of a stool which is really the IP position, the tactical regulatory pathway that, whether we think that’s realistic or not, obviously is the commercial potential of the product. If we take a product that was exorbitantly priced with poor potential attributes on any one of those legs, dropping it by half doesn’t make it more realistically priced. So, I think the pricing issue is a little less of an issue for us other than perhaps we can do more deals with the same amount of cash than the ultimately underlying value of the potential opportunities, and that’s what we continue to focus on.

Operator

Your next question comes from the line of Gene Mack with Lazard Capital Markets.

Gene Mack - Lazard Capital Markets

First on Savella, can you just talk a little bit about how long Forest will be funding Cypress’ portion of the sales force?

Francis I. Perier

That activity with Cypress in terms of them pursuing it in parallel with us will continue over the course of the contract as long as the product stays proprietary.

Gene Mack - Lazard Capital Markets

Okay. Is that going to be based on a detailed fee or something like that?

Francis I. Perier

Basically we’re paying them an activity charge. We’re paying them based on the cost per detail on a standardized basis against what we would charge internally for our own details of an equivalent nature.

Gene Mack - Lazard Capital Markets

This is question on Linaclotide; can you just update us on when you think that the phase III program will be completed and it would be ready for filing?

Lawrence S. Olanoff

The phase III chronic constipation topline results we anticipate having towards the end of this year. The IBS-C we’re just initiating this quarter, so we haven’t put out a projection on the timing on that, and depending how close the two come in we may choose to file a NDA for the combined indications or consider the option of pursuing them by way of separate filings.

Gene Mack - Lazard Capital Markets

Okay. So, then there might be a chronic constipation filing ahead of the IBS filing?

Lawrence S. Olanoff

It really depends on how far apart are the dates the two programs come in.

Operator

Your next question comes from the line of Gary Nachman with Leerink Swann.

Gary Nachman - Leerink Swann

Frank, SG&A seemed low to me in the quarter relative to the last few quarters in our expectation; was there any sort of cost cutting in certain areas or timing of expenses that you could elaborate on, anything would help there.

Francis I. Perier

I think the only timing item from an SG&A standpoint would pertain to Savella, we had experienced a couple-month delay in getting the approval of the product and there were certain controllable expenses that we did hold back on in anticipation of getting that approval; we got it now, and so you should expect to see those expenses come through in the fourth quarter.

Gary Nachman - Leerink Swann

Okay, but there were no cuts in other areas with respect to SG&A?

Francis I. Perier

No tacit cuts. We have always tried to be as efficient as possible, particularly with our investment dollars behind our key brands, but no tacit cuts in the program.

Gary Nachman - Leerink Swann

Okay. I know you are not giving guidance for next year, but just thinking about fiscal ’10 levels for SG&A, could you just comment on what might be the big swing factors that’s going to take it off the current run rate one way or the other in a big way?

Francis I. Perier

I can certainly comment on that when we have our next conference call in April when we’ll be ready to talk about fiscal ’10, but I would offer to just keep in mind that we’ve got a product that’s one year into its launch and a product that we’re just launching; so, that certainly puts pressure on your SG&A line, with no change in our sales force.

Gary Nachman - Leerink Swann

And Larry, any major changes in formulary status for Lexapro over the quarter, and what are you guys projecting for calendar 2009 for the depression market in terms of growth; it sounds like you feel confident that you could Lexapro’s share steady even with the Savella launch, just comments?

Lawrence S. Olanoff

We think we can hold Lexapro revenues steady and that’s a combination of a modest decrease in share going forward as well as continued modest growth in the market. We’re still looking at low single-digit growth in the market and we’ll provide more details at the time of our next earnings call. As far as the formulary status, we’ve actually improved our status over this previous calendar year, a lot of effort went in over the last six months to capture some remaining major formularies out there or to cement our status, and we’ve been able to do that without changing our average rebate rates in any significant manner. So, I don’t know if there are many more opportunities out there to gain, but obviously there are contracts to be renegotiated as we go forward.

Gary Nachman - Leerink Swann

Okay, and then last question on Savella; how aggressive will sampling be, how should we think about the prescription ramp, when are we going to start to really see the bump, and what do you think the low hanging fruit is in this market; is it going to be more new patients that haven’t been on previous therapy or patients failing other treatments, specifically Cymbalta?

Lawrence S. Olanoff

We’ll be very aggressive as we have in the past with our sampling, both the early sampling program that you alluded to as well as traditional sampling that will be following in parallel with the launch. In terms of the numbers, we’ll give more guidance as we get closer to that time, probably in our April earnings discussion, but yes, there’ll be some months of activity on the early sampling program which will perhaps nest with the real share changes are going on based on traditional retail sales, similar to Bystolic and the experience we’ve had there. In terms of the therapeutic opportunities, I think, you did a good job in describing where they are going to come from. There will be new patients, there’ll be patients who are switch patients as you see in traditional pain medications, but there are also patients who will be going from another therapy, be it a generic therapy or a Lyrica-based therapy, who will be now seeking combination with an SNRI, and again, I think if you look at what the thought is or what we talked about in preparation for our entry into the market, both specific to Savella and in general to the SNRI class, there are a lot of opportunities to gain patient usage out there and we’ll be looking at all of them.

Operator

Your next question comes from the line of Ronny Gal with Sanford C. Bernstein & Co.

Ronny Gal - Sanford C. Bernstein & Co.

A couple of questions on levomilnacipran; can you help us understand a little bit how you designed the clinical program so it will allow you to penetrate what is otherwise a pretty genericized market, and if you can comment on your decision to use levomilnacipran as opposed to milnacipran itself?

Lawrence S. Olanoff

I think the first question relates to fibromyalgia or to depression?

Ronny Gal - Sanford C. Bernstein & Co.

Depression.

Lawrence S. Olanoff

Depression, our intent here is to pursue levomilnacipran in a way that we pursued escitalopram. We looked to make escitalopram the most attractive and the most useful SSRI out there. We believe we have the kind of attributes with levomilnacipran to charter a similar course and direction in terms of characterizing that product as essentially the best option for SNRIs out there. Having said that, we understand and will work with the concept that the SNRI and the SSRI market is very different, and so our expectations are adjusted accordingly in terms of how we’re going to study the product as well as where we see the product performing in the marketplace. That said, the SNRI market is still a substantial market and one that we can gain access into very well with this product and compete very well with this product. Even a few percent share in this market is a big dollar figure and the price spread there also helps us in terms of the revenues. We haven’t said much and don’t plan to say much at this point in terms of the actual design of the program, but in the end to get a product approved, you still have to go through the traditional mechanism of showing an advantage versus placebo in the standard MDD type patients as well as other opportunities to look at individual product characteristics that may reveal this product to have additional opportunities out there. So, we’ll talk more about that as we get into the phase III program, but not at this time.

Ronny Gal - Sanford C. Bernstein & Co.

Okay, and a quick followup on the milnacipran, any plans to potentially take this into an extended release product to reduce side effects and turn into an acuity product.

Lawrence S. Olanoff

The product that was tested in phase II is a once daily product and a modified release formulation.

Ronny Gal - Sanford C. Bernstein & Co.

Okay. And the last question on a separate matter, I noticed that there were not any share repurchases this quarter although the stock price was relatively lower than it was in previous quarters. Should we start thinking about share repurchase as something that is off the table for now given the new investments in the pipeline?

Francis I. Perier

We look at all our strategies in terms of how to use our cash and it’s really driven by a quarter to quarter basis in terms of what we think we need cash on hand to either do deals or to secure other activities. So, we really don’t project in terms of what our share repurchase activities will be. We have an over 5 million share opportunity out there as blessed by the board, so you can expect at any given time we may be in and out of purchasing shares, that’s as much as I can say.

Operator

Your next question comes from the line of Timothy Chiang with FTN Midwest Securities Corp.

Timothy Chiang - FTN Midwest Securities Corp.

On the Bystolic, now that you’ve been marketing the product for three quarters now, what sort of expectations do you have for a CHF indication; I know you are going back up to the FDA to discuss the senior’s trial; I guess, one, what are your expectations of a successful outcome from that discussion with the FDA, and two, if you do get an indication ultimately for CHF, when do you think that would be, would it be some time next year, is there a real opportunity you see with Bystolic in the CHF indication?

Lawrence S. Olanoff

It’s a good question Tim. I guess I’ll start with the dating first. As we’ve said, we plan to submit a supplemental NDA based on the senior. We’ve had that discussion with the agency and the concept, they’ve given us their green light, and we will submit that in the first half of this year, which means if we’re successful and we are able to get approval on a first pass through the agency we would be launching the product for congestive heart failure in calendar year 2010. Having said that, our market has always been for Bystolic and the primary market has always been in hypertension, we’ve priced it accordingly. We believe that 80% plus of the market based on share is in hypertension going forward. Congestive heart failure will be a nice incremental bounce on top of that, but I think also relative to securing a second indication would have a morbidity and mortality assessment aligned with it. So, there are a number of value points there in addition to financial. There is some strategic value, but again, I come back to the point we’ve made from the very beginning with this product that the lion share of this product revenues going forward, we still anticipate, will be driven by the hypertension claim.

Timothy Chiang - FTN Midwest Securities Corp.

Will there be any opportunity to increase the price of Bystolic assuming you do get a CHF indication?

Francis I. Perier

Really can’t comment on that or won’t comment on that at this time. I think we look at pricing of this product in a very genericized market and will maintain what we think is a reasonable and competitive price, and I don’t know if congestive heart failure in itself will affect that kind of forecasting.

Lawrence S. Olanoff

That’s really never been our expectation. We’ve always licensed this product. We license a product and build all of our expectations around the product based upon the hypertension indication and have looked at CHF more as a label expansion to fill the potential value of the overall hypertension franchise.

Timothy Chiang - FTN Midwest Securities Corp.

Just switching gears to Namenda; when can we expect you to file a once daily version of that product?

Francis I. Perier

We’re timing that filing very much along the lines of what we think will be the timing outcome of our patent litigation activity. So, we’re really not talking about that. It’s something we’re watching very closely, we believe we’ll have sufficient time to consider that filing within the window that’s been determined by the 30-month stayout to the potential term extension which is substantially longer than that, and we should have enough insight in the timeframe we needed to make that decision. And you will hear about on that one when we file probably.

Operator

Your next question comes from the line of Richard Silver with Barclays Capital.

Richard Silver - Barclays Capital

You certainly discussed the SG&A outlook from a qualitative standpoint in terms of the launch of Savella. Can you tell us whether the $1.3 billion for the full year ’09 is still in fact a good number to be using?

Francis I. Perier

Yes. Directionally, Rich, that’s probably still a good number.

Richard Silver - Barclays Capital

Just so we’re clear, the Bystolic for CHF, you said was an SNDA and not an NDA, can you just confirm that that’s the case, and if so, is the time table for FDA action six months?

Lawrence S. Olanoff

Yes. All I can confirm is that’s a supplemental NDA. It’s not an amendment. I can’t speak specifically what the FDA action is going to be. I think what we can tell you is that we’re likely to launch the product if approved in 2010.

Richard Silver - Barclays Capital

But it’s definitely not a full NDA?

Lawrence S. Olanoff

It’s not our intent.

Operator

Your next question comes from the line of David Amsellem with Piper Jaffray.

David Amsellem - Piper Jaffray

On F2695, can you provide any color on how the drug is different if at all from conventional milnacipran in terms of relative activity on serotonin and norepinephrine?

Francis I. Perier

At this point I don’t know that anything has been put out there in terms of the specific pharmacological attributes, that’s something we’re developing and then we’ll comment over time. It is a single enantiomer, beyond that I don’t think Pierre Fabre has described it in any further detail.

David Amsellem - Piper Jaffray

On Bystolic, to what extent are you already seeing usage of the drug in patients with coexisting CHF?

Lawrence S. Olanoff

I would tell you that the vast majority was in patients with hypertension. Some of those patients may have some congestive heart failure symptoms, but we clearly limit our promotion and activities to support the product only to hypertension.

David Amsellem - Piper Jaffray

One last question, if I may, on Savella; in terms of market expansion indications that you may look to pursue, should we expect that you’re going to focus on areas for which we have patents, I guess, namely chronic fatigue syndrome and/or chronic pain?

Lawrence S. Olanoff

Really not commenting at this time in terms of any potential indications that we might pursue in addition to fibromyalgia, our whole focus into the launch and for the foreseeable future will be on fibromyalgia.

Francis I. Perier

Operator, we have time for one more question.

Operator

Yes sir. Today’s final question will come from the line of David Windley with Jefferies & Co.