Schering-Plough Q4 2008 Earnings Call Transcript

Schering-Plough Corporation (SGP)

Q4 2008 Earnings Call

February 03, 2009 08:00 AM ET

Executives

Janet M. Barth - Vice President of Investor Relations

Fred Hassan - Chairman of the Board and Chief Executive Officer

Robert J. Bertolini - Executive Vice President and Chief Financial Officer

Carrie S. Cox - Executive Vice President and President, Global Pharmaceuticals

Thomas P. Koestler - Executive Vice President and President, Schering-Plough Research Institute

Analysts

Tim Anderson - Sanford Bernstein

Roopesh Patel - UBS

Anthony Butler - Barclays Capital

David Risinger - Merrill Lynch

Seamus Fernandez - Leerink Swann Llc

Jami Rubin - Goldman Sachs

Robert Hazlett - BMO Capital Markets

John Boris - Citigroup

Chris Schott - J.P. Morgan

Catherine Arnold - Credit Suisse

Presentation

Operator

Good morning. My name is Jennifer and I will be your conference operator today. At this time I would like to welcome everyone to the Schering-Plough 2008 Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer session. (Operator Instructions). Thank you. Janet Barth, you may begin your conference.

Janet M. Barth

Good morning everyone. It's Janet Barth. Thank you for joining us to review our fourth quarter and the full year 2008 results.

Before we begin, let me run through our disclosures. Some of the statements made on our call today may be considered forward-looking statements. The company's SEC filings including our 10-Q for the 2008 third quarter which identifies certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made this morning.

The company's SEC filings as well as today's earnings release and tables are available at schering-plough.com. I would also note that during the call we may refer to non-GAAP measures including adjusted net sales or adjusted top-line sales, which is a non-GAAP measure that we define as our GAAP sales plus an assumed 50% sales contribution from our cholesterol JV.

We will also refer to as reconciled amounts or amount on a reconciled basis. As reconciled amount exclude purchase accounting adjustments, acquisition related items and other specified items.

Please refer to the non-U.S. GAAP reconciliation tables for our reconciliation of these adjusted figures to our reported GAAP results. These can be found under Financial Highlights in the Investor Relations section of our website.

This morning, I am joined by Fred Hassan, our Chairman and Chief Executive Officer; Rob Bertolini, our Chief Financial Officer and Carrie Cox, the Head of our Global Pharmaceuticals. We also have other members of management available here for Q&A.

Now I would like to turn the call over to Fred Hassan.

Fred Hassan

Thank you, Janet and welcome to our call. We are pleased that we've delivered another solid quarter concluding a very strong year. We can see that through our transformational action agenda we have built a strong and diverse company.

This morning I will cover two topics. First, what we have accomplished in '08 and over the past five years. Second, I will give you my perspective on the challenges ahead and why we have confidence.

So, first about '08. '08 saw extraordinary challenges at the macro level. This affected all industries including ours. Meantime, Schering-Plough was responding to two additional challenges. We had the challenge of the complex global integration of Organon BioSciences and we went through the challenge with the Merck Schering-Plough cholesterol joint venture in the United States.

In the face of all these challenges, our people delivered. Our reconciled EPS growth for '08 of 28% over '07 was a huge accomplishment. We surprised many people with that. Across the organization, we continued to execute well on the core strategy that's been driving the transformation of our company. We have been growing the top-line, we have been growing the pipeline, we've been reducing costs while investing wisely.

Rx drivers of our top-line included REMICADE, TEMODAR, NASONEX and our Women's Health Franchise including FOLLISTIM and our innovative contraceptive NUVARING. We also drove growth in our cholesterol franchise outside the U.S. Our combined Animal Health unit, which is now the global industry leader, delivered strong performance on a full year basis with sales of nearly $3 billion.

Our Consumer Health Care unit continues to drive important innovations. For example, with the strong growth of MiraLAX and the launch of CLARITIN Liqui-Gels this month, we now have a full year of our OBS combination. We can say that the strategic fit, the science fit and the financial fit that we talked about when we announced the deal in March '07 are coming through beautifully.

This happened because our people converged and aligned led by a management team with experience in managing complex integrations and our team has come through with a very successful integration.

Financially, our OBS combination delivered in '08. When many acquisitions are dilutive in year one and beyond, we delivered accretion early in year one and we generated good cash flow. And we started to pay down the debt taken on to finance the OBS acquisition as part of our financial management strategy.

Strategically, the acquisition has delivered on its promise of further building our strength and diversity. We gained further strength and diversity through our combined Animal Health unit. We continue to executive successfully on our geographic expansion strategy with strong growth in Russia, Brazil, China and other newer markets.

While this kind of newer market strategy is now in bow, we have been executing on ours for more than four years. We have now exceeded $2 billion in annual sales in these newer markets. Scientifically, we created a strong R&D engine through the combination. We advanced our strong late-stage pipeline, including approval of Sugammadex or VYTORIN in Europe and progress on our asenapine filing with the FDA. And we are on track to file asenapine in Europe this year. We've built, increased R&D strength in our combined Animal Health business and we also work to build more operational excellence into our company.

During '08, we started our Productivity Transformation Program or PTP for short. We had said we would take tough actions, if tough actions were needed and we did that with PTP. We reduced cost. We took actions to become stronger, leaner and more productive around the world. So we accomplished a lot in '08.

'08 also marked five full years since our current management team joined Schering-Plough. Those five years saw a dramatic transformation on many fronts. Adjusted sales more than doubled from $8.9 billion in '04 to $20.8 billion in '08. In '04, we had just one product with sales over $1 billion. In '08, we had five products with sales over $1 billion. We increased reconciled EPS from roughly break-even in '04 to $1.75 in '08. We went from large, negative cash flows in '04 to generating strong positive free cash flows in '06, '07 and '08. In fact, for '08, we are in the $2 billion zone. And over that five year period, we transformed one of the weakest late-stage pipelines in our peer group into one of the strongest. Our industry leading late-stage pipeline now contains twelve new entities.

Now, let me turn to the future. The political landscape in Washington is going through a sea change. Also in the current economic climate, government peers around the including the U.S. now face enormous budgetary pressures. In the face of those and other challenges, let me say why we have confidence in our future.

Financially, our balance sheet is strong. We have a five year record of operational dynamism. We expect our PTP actions to continue to bring additive cost savings and productivity improvements. We have tested, resilient people, led by a very experienced management team. This is especially important in this period of turmoil and change and we have the strength of our innovation.

Innovation will make the decisive difference. We've built a strong innovation engine at Schering-Plough. We are excited about our pipeline in all three of our units. We have a strong innovation flow in Consumer Health Care unit, with many new products of line extension plans this year.

Our Animal Health innovation is also very strong. And we are very excited about our ex-pipeline which includes strength in Biologicals. Our late-stage compounds include the five stars we told you about at our R&D Day in November. TRA, SIMPONI or golimunab, SAPHRIS or asenapine, Boceprevir for Hepatitis C and BRIDION. We believe we are in the sweet spot on product flow and expected exclusivity. This gives Schering-Plough a special edge.

As health care reform becomes a focus in the U.S., we will be strong advocates of biomedical innovation with a new administration and a new congress. Chronic diseases account for around 75% of healthcare costs. They result in 7 out of 10 deaths in the United States. Prevention and wellness are key to containing costs and improving lives.

Biomedical innovation is important to achieving the goals of improving lives, cost effectively. The U.S. is fortunate to continue to be preeminent in biomedical innovation at a time when the locus of so many other industries has moved offshore. So, we will be explaining to policymakers why biomedical innovation must be nurtured and supported because of the competitive innovation edge it gives the United States.

Finally, I can tell you that we have the confidence because of our people. We were tested when we began our action agenda in '03, '04. We transformed and delivered. We were tested again in '08, again our people came through. Again they showed their resilience.

In recent months I attended many meetings with our people at many locations. I saw that our people are strong and confident in their resolve. That is why we feel confident as we see the challenges facing our industry.

And now, let me turn over to Bob Bertolini.

Robert J. Bertolini

Thanks Fred and good morning. Before I begin to review our fourth quarter financial results, I want to take a minute to highlight our very strong performance for the full year 2008.

Throughout this past year, we have executed on a broad front to drive growth and build diversity in our business. At the same time, we have exercised strong financial discipline. We've controlled cost while continuing to invest in R&D. As Fred said, our full year earnings per share grew 28% to $1.75 on a reconciled basis.

We are also pleased with our results in the fourth quarter, despite tough market conditions. On a reconciled basis, we earned $0.39 per share. These amounts exclude purchase accounting adjustments, special and acquisition related items and income from the termination of our respiratory joint venture with Merck.

Let me now review the key drivers of our quarter results including sales, operating performance and our Productivity Transformation Programs. Then I'll finish up with some comments about our financial position.

On a GAAP basis, our net sales in the fourth quarter increased to $4.3 billion and include about $1.3 billion in sales of products from OBS. Recall there are sales in the fourth quarter of 2007 included about six weeks of sales from OBS products, totaling about 600 million. So starting in the first quarter of 2009, our results will be comparable on an apples-to-apples basis.

Foreign currency unfavorably impacted our sales growth by approximately 6% in the quarter. At current rates, we would expect some headwind going into 2009. And just as we have in 2008, we remain flexible and nimble in working hard to control costs in the face of this headwind.

Sales of our Prescription business increased 17% to $3.5 billion this quarter including a 6% unfavorable impact from currency. Sales benefited from more than $800 million in sales of products from Organon compared to about 400 million in the partial period last year.

We also saw higher sales of REMICADE, NASONEX, PROVENTIL and TEMODAR. Offsetting this growth, were sales declines for CLARINEX, AVELOX and PEGINTRON. Global sales of the cholesterol franchise in the fourth quarter were down 24% compared to the prior year period. In U.S., sales of VYTORIN and ZETIA were down 35% while international sales grew 6%.

Excluding the impact of exchange, international sales grew 17%. Carrie will talk more about our Prescription Products in a few minutes.

As you know, we have a lot of diversity in our business with our leading Animal Health business and an innovative Consumer Health Care business. Keep in mind, that these businesses are less impacted by public policy issues than the Prescription business. Sales of Animal Health products increased 33% in the fourth quarter to $674 million including a 9% unfavorable impact from currency. Sales this quarter include more than $400 million from the acquired Animal Health business, compared to about 200 million in the partial period last year.

In addition of foreign exchange, our Animal Health sales during the fourth quarter were primarily impacted by a couple of things; the divestment of certain products related to the acquisition of OBS and by factors resulting from current credit conditions, including inventory reductions by customers.

Turing now to Consumer Health; sales this quarter were $219 million, down 14%. The decrease was mainly due to OTC CLARITIN which was impacted by inventory reductions by some of our retail customers, private label competition and a timing of shipments in 2007. Offsetting these impacts were higher sales of MiraLAX, which grew 66% in the quarter to $30 million.

We've had strong performance of MiraLAX and we've recently surpassed Metamucil as the market leading brand in this category. And we continue to have a strong innovation cycle in Consumer Health. In fact, we anticipate launching more than a dozen new products in 2009. As Fred just mentioned, we recently launched CLARITIN Liqui-Gels, this was the first and non-drowsy liquid gel in this category.

Let me now review our fourth quarter operating performance. On a reconciled basis, our gross margin was 68.9% in the quarter. The gross margin was high this quarter, primarily due to a benefit from foreign exchange. Going forward, we would expect the primary driver of the gross margin to be product mix.

Before turning to SG&A, let me remind you that we would be making steady progress to achieving our $1.5 billion target for PTP.

For the full year 2008, we've achieved more than $600 million in PTP savings. So you can see we're well on our way. And we are seeing the affects of these savings across all of our business units. In the fourth quarter, SG&A expenses were $1.6 billion, roughly flat quarter-over-quarter.

PTP savings and favorable currency partially offset expenses from OBS. On a reconciled basis, our SG&A ratio improved to about 37% in the fourth quarter from about 44% in the prior year. So as we control cost, we're seeing a benefit in our cost base.

Moving to R&D. On a reconciled basis our R&D expenses totaled about $850 million consistent with the fourth quarter of 2007. Sequentially, R&D expenses were lower, primarily due to foreign exchange and PTP savings. While we continue to invest in our late-stage R&D projects, we believe the rate of growth in R&D spending will be lower than in the past few years. As you know, R&D spending varies quarter-to-quarter and is always subject to the timing of clinical trials and related activities. For the full year 2009, we currently expect R&D spending to grow in the mid-single digit range.

We've also strengthened our financial position in 2008. As of year end, we had about $3.4 billion of cash on hand. This is about $1 billion more than we had at the end of 2007. And with our positive cash flow, we paid down more than $1 billion of debt in 2008.

As a reminder, we have no scheduled debt maturities until 2010 when we have about €500 million coming through. And from a cash perspective, we remain invested in highly liquid and highly weighted securities. So as you can see, we continue to have a solid financial position.

In closing, you can see that our strategy is working. Despite the challenges in our business this year, we have grown the top line, grown the bottom-line and controlled cost while continuing to invest in R&D. Our investments in R&D have resulted in a rich late-stage pipeline with five stars that are progressing well. We believe our strategy positions us well for the long-term.

With that, let me turn it over to Carrie.

Carrie S. Cox

Thanks Bob. Good morning. Today I want to discuss the five brands that have each delivered more than $1 billion in the full year sales and also provide some additional perspective on the five stars in our late-stage pipeline that Fred and Bob have mentioned.

We are absolutely delighted that REMICADE reached another important milestone with full year sales exceeding $2.1 billion. To put this performance in perspective, REMICADE sales have more than doubled since 2005. Each of REMICADE's six indications delivered double-digit growth despite increase in competition.

REMICADE has continued to capture market share and has played an important role in changing how biologic therapies are used today. We have developed important strength and expertise in this category. REMICADE provides power and speed which is especially important for rapidly progressing patients with rheumatoid arthritis. REMICADE also has a particularly strong clinical profile in Crohn's disease and ulcerative colitis where it holds a leading market share position.

In the future, we believe SIMPONI can offer a unique proposition compelling efficacy and a clear competitive advantage with once monthly dosing and a state-of-the-art delivery device. As you know, other subcutaneous therapies require weekly or bi-weekly injections. SIMPONI will compete in a different segment of the market than REMICADE and will provide new opportunity to penetrate the larger office space segment.

We believe REMICADE and SIMPONI can both to be quite successful and are well positioned to deliver continued growth for this franchise.

Turning to Cholesterol, global franchise sales declined 11% to $4.6 billion. Q4 sales were down 24% to $1.1 billion. Outside the U.S., our Cholestrol franchise continued to deliver double-digit growth excluding the impact of foreign exchange.

In Japan, we are pleased with the continued uptick of ZETIA with its market share now approaching 7%. In the U.S., franchise sales were down 35% reflecting difficult comparisons versus the prior year. Sequentially, franchise sales were in line with the third quarter.

In 2009, we expect by VYTORIN and ZETIA to have competitive second tier managed care access, in line with other branded cholesterol lowering medicines. The FDA's recent statement on their review of ENHANCE has again reinforced what we have believed for quite some time. Lowering LDL cholesterol and getting patients to goal is the corner stone of lipid management.

With more and more patients needing to reach a treatment goal of 70 or below, only VYTORIN provides more than a 50% LDL reduction at the usual starting dose and gets more patients to goal across the dosing range.

In allergy, NASONEX delivered more than $1.1 billion in full-year sales driven by strong double-digit growth outside the U.S. NASONEX has truly become a global brand delivering its second straight year $1 billion plus performance. In Q4, NASONEX sales increased 3%.

We're very pleased that our teams around the world have defended their leadership in spite of new competition. And in Japan, NASONEX has recently been launched with good early progress.

In Oncology, global TEMODAR sales surpassed the $1 billion mark for the first time. During the quarter, TEMODAR sales increased 4%. Last week, we received European approval for TEMODAR I.V. as well as for an oral sachet. As you know, an IV delivery form can be a really important option for patients undergoing cancer therapy.

Our Women's Healthcare portfolio delivered more than $2 billion in full-year sales. We made good progress this year with unique and innovative brands including NUVARING, IMPLANON and CERAZETTE. Each delivered double-digit growth in 2008 and collectively grew 24% based on recent INS sales data.

At our R&D Day, we highlighted the 5 stars in our pipeline that we believe offer the greatest near-term potential. In addition, we had the chance to discuss 14 other projects that we believe can be first-in-class and/or best-in-class. With many of our core brands having long periods of expected exclusivity, our upcoming cycle of new product launches can build from a solid base.

Last month, we received a complete response letter from the FDA for SAPHRIS, including proposed labeling for both the acute treatment of schizophrenia and bipolar mania. No new clinical trials were requested and we anticipate providing a full response to the FDA this quarter. We're also pleased that SAPHRIS met its primary end-point in a long-term schizophrenia relapse prevention trial, which is the foundation for the European filing planned for later this year.

We believe SAPHRIS has a very attractive clinical profile that combines good efficacy with attractive metabolic safety. There is significant unmet need in this market and we believe SAPHRIS may provide sufficient and important medicine to treat new and existing patients, particularly given the high switch rate with current treatments.

In respiratory, MFF is a combination product in development for asthma and COPD. As you know, combination products are the fastest growing brands in this space and are the preferred agents for moderate to severe patients. As we discussed at the R&D Day, there is mounting clinical data supporting our belief that MFF can be an important treatment option for many patients. MFF is on-track for regulatory filing this year for asthma.

Lastly, I'd like to comment on Japan, where our full year sales have more than doubled since 2003. We are in an exciting cycle of new product introductions. Our success with the recent launches of PEGINTRON, TEMODAR, ZETIA and NASONEX has helped to drive strong growth and can help set the stage for future opportunities in Japan including REMERON, ASMANEX and Sugammadex each already under regulatory review.

In closing, we continue to execute on our core strategy of driving top-line growth, advancing the pipeline, reducing costs and investing wisely. We thank all of our Schering-Plough colleagues for their commitment and performance and we look forward to continuing our important work in building a high performance company for the long-term.

Now let me turn the call back to Janet.

Janet M. Barth

Thank you, Carrie. Jennifer, I think it's time that we open up the call for questions. And before we do that, let me just remind everyone of you to just limit yourself to one or two questions we'd appreciate that. Thank you. Jennifer, are you there?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Tim Anderson.

Tim Anderson - Sanford Bernstein

Thank you. Couple of questions. On golimunab, if I look at average European approval timelines it suggests you would get a decision in the first half of '09. Is that what we should assume and should we view this as a low risk regulatory review? Second question is on international sales, VYTORIN and ZETIA going forward. Ignoring the effects of foreign exchange, do you expect that both drugs will continue to grow for the foreseeable future? I am trying to gauge your latest thinking about... of ex-U.S. impact of ENHANCE coverage (ph)?

Fred Hassan

Thank you, Tim. I will ask Tom Koestler to respond to the first question and Carrie to the second.

Thomas Koestler

Yeah, hi Tim. Thanks for the question. It's always difficult to be absolutely precise when a regulatory authority is going to provide the final decision for approval. But, in this particular case, the timing scenario is generally between 12 and 18 months and golimunab in very late phase registration. So, I think we can look forward to hearing something positive coming out of the European Union, certainly this year.

Fred Hassan

Thank you, Tom. Carrie?

Carrie Cox

We have seen very good growth during 2008 for VYTORIN and ZETIA outside the U.S. That's made up of a very nice performance for the launch of ZETIA in Japan as well as continued strong performance in established and emerging markets for VYTORIN and ZETIA both. And we see the opportunity for our projects to continue to do very well. They are well positioned and we have seen very, very little impact of any of the ENHANCE coverage outside the United States.

Fred Hassan

I think Carrie, it's fair to say that the guidelines in Europe are now becoming more visible to their medical profession and their guidelines are not that different from the U.S. guidelines and there is a huge map of unlisted (ph) patients who need to be brought to goal. So long-term, the outlook should good for us.

Carrie Cox

And that remains true around the world. There are still at least half of the patients even in developed country where cholesterol management is well established, who don't reach their target LDL goal. And as the goals continue to go lower and lower we believe that a medicine, particularly like VYTORIN has a very, very key role to play.

Fred Hassan

Thank you. And next question please?

Operator

So, our next question comes from Roopesh Patel.

Roopesh Patel - UBS

Thank you. I have a couple of questions. First, for Bob, just wondering on the PTP Program, $1.25 billion are targeted to be achieved by 2010, 600 million, I believe, are achieved already. My question is what are the prospects of achieving the balance sooner than the 2010 target? What should we expect in 2009?

And then, separately, in terms of the SG&A and R&D growth reported this quarter, what would it have been excluding foreign exchange? I'm curious as to whether or not this rate of spend can be sustained through 2009, there's almost a flat spend that was achieved in the fourth quarter? Thanks.

Fred Hassan

Very good questions, Roopesh. Bob?

Robert Bertolini

Thanks Roopesh. So on PTP, I think we are very pleased on how we are performing on this. We are seeing savings across all of our business. Roopesh, I would think about it, we are on track with 1.5, I think we are comfortable with that number, we are not increasing it, but with the 600 million we've done today, we've accelerated that. We've pushed that up.

In 2009, you will see some of that annualize and it will increase, but we are working hard to kind of do what we can on the cost base, clearly in the face of FX as I said in some of my comments. So we are working hard on that cost base going forward.

On the pieces for SG&A and PTP, FX did benefit the quarter. If I looked at R&D sequentially, I think it was about $40 million benefit we had from Q3 to Q4 in R&D to give you some sense. And on the SG&A, I don't have it in front of me, but it was by order of magnitude, maybe in the 70 to $80 million range, it's kind of by order of magnitude as what I recall. Hope that answers your questions, Roopesh?

Fred Hassan

Thank you, Roopesh. And next question please?

Operator

Your next question comes from the line of Tony Butler.

Anthony Butler - Barclays Capital

Thanks very much. While, you have done an excellent job with respect to cost control in the quarter. I am curious, Fred, how you think about your infrastructure as you consider launching golimunab in Europe? Are the same individuals who carry REMICADE in their bag, will they carry golimunab or is this just a separate group?

And the second can be said for asenapine in the U.S. for it to launch later this year. How do you think about your current infrastructure in the U.S.; clearly I am interested in how SG&A changes? Thanks.

Fred Hassan

Very good questions, Tony. I'll give you my own perspective and then I'll ask Carrie to supplement what is said. I was on the ground in Germany a few months ago. There is a clearly separate office space market there, separate from the hospital market where REMICADE is the primary product and that's a big expansion opportunity for us.

But in order to co-position the products properly, at least in that particular country, they are planning to use a similar approach so that the products are properly co-positioned. As far as asenapine is concerned, it's a very good opportunity for us. I personally had experienced with Effexor at Wyeth, where Wyeth was not in that space before Effexor came along and it can be done very carefully and sequentially. First, penetrating the high ROI space which are the sites and then expanding to the high ROI primary care doctors and finally taking it to the broader audience.

And with those comments, Carrie, why don't you respond on golimunab and asenapine?

Carrie Cox

Thank you. I believe very strongly that we can successfully co-position both REMICADE and SIMPONI and therefore continued to grow the franchise. So it's important that we develop the products in such a way that the reps can carry both products. So as Fred was suggesting, we anticipate that each of our sales reps well be able to support both brands and help the physicians understand why the products are in fact so appropriate for different target patients. We have had some minor expansion of the sales forces in Europe to anticipate entering a different segment of the market where golimunab SIMPONI will be competing. But it's being held largely in the existing infrastructure in Europe.

Turning to SAPHRIS, we are excited about planning for that launch and we do anticipate as Fred said, coming forward with our own psychiatry sales force and having the initial rollout be very much targeted to psychiatrists for the potential launch of acute schizophrenia and bipolar disease.

Fred Hassan

So overall Tony, we can assure you, we are very PTP sensitive in our company and we are going to use right resources at the right time to maximize the value of our pipeline. Thank you, thank you Tony. And next question please?

Operator

Our next question comes from the line of David Risinger.

Fred Hassan

David?

David Risinger - Merrill Lynch

Yes, thank you very much. I have two questions. First Bob, I was hoping that you could please quantify the FX benefit to gross profits in the quarter and also the EPS in the fourth quarter? And then talk a little bit about how foreign exchange might impact the gross margin differently in future quarters even if exchange rates happen to be the exact same as they were in the fourth quarter of '08? And then second, this is for Carrie, can you discuss your taste-masking technology and how you plan to apply that to asenapine? Thank you.

Fred Hassan

Thank you, David. Bob?

Robert Bertolini

Okay David, good questions. Let's... there was about few things going on with foreign exchange, so let me try to walk you through it, to give you little sense of color with it. First as I said, currency went against us this quarter. It had about negative 6% impact on the top line that was about $240 million or so. Of that amount, we would estimate, because it varies by quarter, we'd estimate that about 35 to 40% dropped to the bottom-line or about $0.05 negative and that would include the impact in equity income in the JV.

Now as I said before, that impact could vary by quarter-to-quarter based on our mix of expenses outside the U.S. and inside the U.S. Additionally this quarter, we had a favorable impact in the gross margin of about 2 percentage points and that was a positive impact in the $0.05 to $0.06 range. So generally offset that translation impact. And then we had some impact with respect to just normal, I would say transaction exposures given the volatility of the currency in the quarter. That was about $0.02 and that's reflected in our other income or so. So if you boil it all down, FX was roughly flat, if we take the translation impact offsetting that positive impact that I mentioned in gross margin for the quarter.

Fred Hassan

And Bob, you may want to mention about the future that there are some natural hedges and also the shareholder economic value based on our balance sheet.

Robert Bertolini

Yes. So I think when you think... we think about currency, we think... we look at our mix of expenses around the world and as Fred just mentioned we have some natural offsets. And I would also say from an economic standpoint, keep in mind that about 2.5 million euros of our debt, we have it in euros acts as a natural hedge for us to some extent from an economic standpoint, not from a P&L standpoint, but from an economic standpoint.

And I think David the last part of your question, I think at the current rates, we would not anticipate such a large benefit in gross margin recurring in the first quarter at current rates to-date, maybe a small amount but not such a large amount in that quarter.

David Risinger - Merrill Lynch

Thank you, Bob. And Carrie on the taste-masking?

Carrie Cox

The tablet that we currently have for SAPHRIS is a very, very rapidly dissolving tablet. And in the clinical studies, we see that there is actually a very minor impact of the taste and very few complaints. In the spirit of continue its improvement on life cycle management, we are working on another formulation with flavoring which is in development but will be a few years in the future.

Fred Hassan

Thank you very much, David. And next question please?

Operator

Your next question comes from Seamus Fernandez.

Seamus Fernandez - Leerink Swann Llc

Thanks very much. Just a quick question you had a strong performance on the PROVENTIL/ALBUTEROL CFC side, we have the conversion in the marketplace going on today. I'm just wondering if you can talk about how pricing is actually acting in that market. Is pricing actually improving in that market now that there are no longer CFCs available?

And then again, separately, just to follow up a little bit more on the gross margin question. Bob, can you talk a little bit more about how your foreign exchange works with regard to the inventory? You mentioned that you wouldn't see a benefit or as much of a benefit in the first quarter. I am just wondering if we would see actually some potentially detrimental trends in the second quarter as the inventory flows through and the exchange rates look a little bit different in that time frame. So those are my few questions, thank you.

Fred Hassan

Carrie?

Carrie Cox

As you mentioned, the federally mandate conversion of the CFC containing products to HFA, the deadline did pass in December of 2008. So in fourth quarter, we saw quite a bit of activity with the CFC products being converted to HFA. The overall value in the market has been affected to some degree, but we don't comment on pricing or individual actions in that area. But I will say we are pleased with the share that we have obtained with PROVENTIL HFA, but I don't anticipate that we will see ongoing conversion activity much past first quarter.

Fred Hassan

Thank you, Carrie. And Bob?

Robert Bertolini

Yeah Seamus, I think on the FX, I think the way to think about it is, what actually happens is that it relates to the inventory movements we have to our global network. And as you may know, we have roughly 140 entities around the world. So in effect what's happening is... what's happening in this period is our foreign subsidiaries have purchased their inventory a few months ago when their currencies were stronger. So when it sells through, it's basically selling through when the inventory comes to a lower. So it's really going forward, it's a function of the volatility. We try to watch it closely. We are estimating. We don't think we'll have as huge of an impact that we had in this quarter, recurring in Q1. But going forward in Q2, it would really be a function of the volatility of the currencies.

Fred Hassan

Thank you, Seamus. And next question please?

Operator

Your next question comes from the line of Jami Rubin.

Jami Rubin - Goldman Sachs

Thank you. I have two questions. First question relates to Boceprevir, just was wondering why if you are completing Phase III enrollment, why the aspirational filing date is not until 2011 to 2012. And my second question for you Bob, it relates to reconciling U.S. prescription drug sales. My sense and I may not have seen all the foot notes, was that U.S. sales were up about 2, 3%. Can you tell me what U.S. sales were up in the fourth quarter?

And if you could provide more color around the mix effect in 2009 for the gross margin leaving foreign exchange aside? How we should think about the different factors? Because historically, REMICADE and what will be launched, hopefully if golimunab is launched in 2009, would likely have... or at least historically have been negative drivers on a gross margin whereas U.S. sales have been a positive factor, but just trying to understand all the different elements around the gross margin. Thanks.

Fred Hassan

Very good and very penetrating question Jami. So, Tom?

Thomas Koestler

Good morning Jami. We have now completed full enrollment in the Boceprevir Phase III trial. So as you know, in order to achieve SVR which is the FDA requirement, you need 48 weeks of study with a 24 week follow up. Since, we completed enrollment in our pivotal trials in January that places us in mid 2010 to have the SVR date and the pivotal trials complete. And from a conservative point of view, we would be then in a position to make our submission. So, in that mid 2010 timeframe.

Jami Rubin - Goldman Sachs

But the 2011, 2012 is probably quite conservative.

Thomas Koestler

We tend to be conservative in these things Jami.

Jami Rubin - Goldman Sachs

Okay thanks.

Fred Hassan

Bob?

Robert Bertolini

And Jami, let me try to give you a little bit of sense on the U.S. sales. So if you look at it. We came in roughly about 981 on the prescription sales for the U.S. versus 855. If you back out OBS, that growth was about 2%. If you look at it.

Jami Rubin - Goldman Sachs

Is that... what quarter? Fourth quarter or full year?

Robert Bertolini

Q4.

Jami Rubin - Goldman Sachs

Okay thanks.

Robert Bertolini

Q4. And on the gross margin Jami, I think, based on the tone of your question, I think if you are thinking of it the right way. REMICADE is going to put some downward pressure on the rate as that grows and golimunab will be the same with respect to that.

Animal Health is also a product margin that has generally a lower product margin and we are very excited about that business. But I would think about that margin in the 60, low 60% kind of range. The legacy Organon price (ph) to tell you a little bit, offsetting that but generally with REMICADE and Animal Health growth, it will put downward pressure on that margin going forward.

Now as you know, we are working hard on our PTP program. Part of that includes, the rationalization looking at our plans. That does take a little bit longer. But we are hopeful to see some of that come in offsetting some of that negative downward pressure resulting from REMICADE and Animal Health.

Fred Hassan

Yeah.

Jami Rubin - Goldman Sachs

Thank you.

Fred Hassan

Yeah, we're absolutely committed Jami to getting savings out of our supply chain and we are just doing it in a very careful manner. We had said last year it was going to take a little longer time with the supply chains. But the people we have in charge of that have done a lot of work in other companies. So we are going to do this the right way and you can expect a lot of basis points coming out of the cost structure as a result of the supply chain rationalization. And thank you Jami. And next question please?

Operator

Your next question comes from the line of Bert Hazlett.

Robert Hazlett - BMO Capital Markets

Yes, good morning thank you for taking the questions. My question is also a little bit on Animal Health. As that business becomes more significant to your overall operations, can you give us an understanding of the outlook specifically for that business as you have the different economic pushes and pulls counteracted by your pipeline. And how much of a focus PTP is on that business? And then secondly, regarding the cholesterol JV in the U.S., is that business right size in the U.S. and particular right now? Thanks.

Fred Hassan

Thank you, Bert, both are very, very good questions. I can tell you that the Animal Health has been an internal merger since the legacy for that (ph) business was larger than the Schering-Plough Animal Health business. We've approached that with some care. There is also a cultural integration going on in that regard. So some of the savings might take a little longer and there are opportunities there. And the most important opportunity is the very, very good pipeline in R&D. And the recent launches that have already occurred in Animal Health which make us feel pretty good, especially in the U.S. which is a growth corridor. Bob, would you like to add anything on Animal Health.

Robert Bertolini

Just a couple of points, Fred. Clearly as I said in my remarks there was some impact from the economic crisis we had in Q4, primarily in a couple of areas. We saw a reduction in some of the distributor inventories as they look in to conserve cash and also a lack of credit from some of the producers. So, we have seen some of that.

But I will also say we are starting to see some of that demand come back in January. And we have a very full product portfolio with respect to Animal Health. And the only other point what I would remind you on this business, roughly 75% of this business is outside the U.S. So while some the credit issues were in the U.S. specifically this quarter, it's a very broad based, diversified throughout many, many markets. So keep that in mind as you go forward.

Fred Hassan

And I think it's fair to say that protein consumption per capita is unlikely to be affected because of a recession.

Robert Hazlett - BMO Capital Markets

Overall.

Fred Hassan

Overall. Yeah, did we answer all the questions?

Robert Hazlett - BMO Capital Markets

The question on JV.

Fred Hassan

Cholesterol... Carrie?

Carrie Cox

We did implement our PTP actions in the United States in 2008 and that is now resulting in our new focus with our sales force. But together with Merck, we continue to have a very competitive level of support for the JV cholesterol products and we are continuing to invest appropriately with an eye towards potential future growth in that category. We continue to see that there is a very large unmet need in getting patients to their LDL cholesterol goals. So we continue to be committed to the appropriate investment.

Fred Hassan

Overall it's fair to say that the promotional intensity has started to come down in that whole market.

Carrie Cox

In the entire category, but we remain one of the strongest competitors.

Fred Hassan

Thank you, Carrie. And next question please?

Operator

Your next question comes from the line of John Boris.

John Boris - Citigroup

Thanks for taking the questions. On the tax rate, Bob can you just give some color on the low tax rate in the fourth quarter, both from the contribution from the R&D tax credit and is that sustainable going into '09? On net operating losses, what were they in '08 and what's the cumulative amount of NOLs that your are currently carrying? And then on the pipeline on Sugammadex, any thoughts on your interface with the FDA on what additional work needs to be done there to secure approval and then any update on timing for securing approval on BRIDION or Sugammadex. Thanks.

Fred Hassan

Very good questions, John. Bob?

Robert Bertolini

So, just on the tax rates, John. We came in right around the mid-teens, kind of where we thought for the full-year. So that's kind of where we've been running going... I would say if you think about '09, we are currently thinking that it's generally going to be in that mid-teen rate in '09 as well going forward. On the NOLs, John we've published those when we filed our 10-K. I will say coming into the year, we had about 1.7 billion. We will be showing some taxable income, we will be finalizing that and we will be reporting that in our 10-K; so that 1.7 will come down a bit, but we will be reporting that in our 10-K.

Fred Hassan

Thank you, Bob. And Tim Koestler on the Sugammadex?

Thomas Koestler

Yeah, John. We had a good meeting with FDA in December, just this past December. And their concerns, what they were concerned about had to do with hypersensitivity and we had a good meeting with them and we have a clear path forward. The path forward will involve a small study in normal healthy volunteers in a few hundred subjects and the final protocol is just being worked out, it still needs to be headed to the agency. So from a timing point of view, I would expect that we will be in position to conduct that normal healthy volunteer study this year.

John Boris - Citigroup

What will the length be of the study, I mean for each patient?

Thomas Koestler

Yeah the protocol is... we have the protocols developed and we have an agreement with FDA on that protocol. It will be in the 12 week range. I expect it to be a trial that could be run very quickly. In normal healthy volunteers, this is something that I don't see as problematic long kind of trial, this will probably a trial that can be enrolled within about a 8 to 10 week timeframe.

John Boris - Citigroup

Thanks.

Fred Hassan

Thank you, John. Next question please?

Janet Barth

I think we have time for maybe two more questions.

Operator

Your next question comes from the line of Chris Schott.

Chris Schott - J.P. Morgan

Great, thank you. Just a couple of pipeline questions. Maybe first on TRA, how do we think about communications on TRA as it relates to trial enrollment as well as updates on the DSMB as the year progresses, maybe also an update on the timing about Lancet publication there. Second on asenapine, are you expecting a Class I or Class II response when...to your complete response letter?

And then maybe finally, just taking a step back, we're about a year post on Organon transaction at this point. Where are we with the registered product investment particularly as it relates to the Organon human pharma business? At this point are we seeing the full impact, the top line from the reorganized sales force etcetera or are we still kind of early in that process? Thanks.

Fred Hassan

Good questions. Tom and then Carrie.

Thomas Koestler

Yeah Chris. TRA continues to be really, really moving well on enrollment. We have exceeded 16,000 patients very recently. As you know the trial consist of... the little trials one of 20,000 patients, another one of 10,000 patients. So we are really will be moving on quite well. In fact, the TIMI trial, TIMI 50 trial which is our secondary prevention trial, this was the highest and fastest enrolling trial that they have ever conducted. So we are really pleased with that.

In terms of the publication, it is accept for publication in Lancet. We expect that very, very soon. I can't say much more than that except we're all waiting. But it is accept for publication and it's in press.

And then your question on asenapine, for a Class I or Class II clock start upon... as Carrie mentioned earlier, we will provide a complete response to the FDA very soon in this quarter. It's a difficult one to predict, but... the way I would think about it is to lean more towards the Class II response.

Fred Hassan

Thank you. Thank you, Tom. And Carrie?

Carrie Cox

May I... on the Women's Health products. Actually this is a great franchise that we are very exited about. There are very innovative brands in there, they are highly differentiated. We are now a leading company in the Women's Health Care arena and we've had a lot of fun in 2008, really strengthening the promotional platform in support for the franchise. So I would say there is still a lot of opportunity ahead of us and we are very bullish on continuing to develop that franchise.

We have a very strong double-digit growth on a worldwide basis for those products and I think we will continue to see further enhancement as we go forward. Another example of answering your questions though is a product like REMERON in Japan, it's under regulatory review now and remains an additional opportunity to continue that exciting new product launch cycle that we have going on now in Japan.

Fred Hassan

Yeah, this is very exciting opportunity. The REMERON for example is going into a market that is still pretty early in Japan. The whole depression market got opened up by Paxil and this is now a big opportunity for REMERON. In Women's Health, what's very exciting is that because of the excellent signs that Organon had, a lot of the products have long exclusivity barriers, for example, NuvaRing goes till 2018. And this is the opportunity we have now to build brand strength while we build the backup pipeline to keep us going for the long-term in this important area. And it's an especially good opportunity at a time when the larger companies have left this space open for the very few companies that are in this space. And we are ready for the last question.

Operator

Your last question comes from the line of Catherine Arnold.

Catherine Arnold - Credit Suisse

Thanks a lot. Just an editorial comment about... I want to just say thanks for providing so much transparency on currency and I think if you take that to the next level even in the press release I think you would be further applauded. So thanks for that.

Robert Bertolini

Thank you, Catherine.

Catherine Arnold - Credit Suisse

You are surprised to hear me say that I know. And then secondly, I just wanted to ask you about BRIDION and the rollout in Europe. And if you can give us a little bit more granularity on how you are contracting, obviously there is a lot of national budget involved here in terms of BRIDION's inclusion. So how might we think about starting to see BRIDION's results in Europe throughout this year and next year?

Fred Hassan

Thank you. Carrie?

Carrie Cox

The rollout of BRIDION is going extremely well. We are launched now in about 10 countries outside the United States. And in every country that we have had a chance to launch into, we get excellent feedback from the physicians who've had an opportunity to use the product. From a budgetary point of view, you might want to recall that the hospital budget management is often managed differently in most countries than the retail reimbursement segment. So while this is clearly the normal part of getting access to hospital formularies and getting accepted for use, the budget impact is not typically the same as it might be in a retail product segment. So we are excited about seeing the rollout really start to take hold in 2009.

Fred Hassan

Again as I said in the... this is a similar situation to Women's Health in the sense that it's an underdeveloped and under-promoted space. And we believe that long-term, this is a very, very good opportunity. And we are also pleased that since Europe is regarded as a high science authority, we can use the free sales to get applications in other countries, many other countries as a result of our approval in Europe and we don't have to wait for the FDA approval for that purpose.

And this brings us to the end of our Q&A. I would like to just make some concluding comments. As we look at the tough environment ahead, our R&D strength and expected exclusivity on our existing products gives us a special edge. Meantime, our combined operation with OBS is running well. Our greatest strength is the proven ability of our people who rise to the challenges and change. So they are ready for a challenging changing environment and that is the biggest reason we are confident as we look ahead. Thank you very much for joining the call this morning.

Operator

This concludes today's conference call. You may now disconnect.

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