Warner Chilcott Management Discusses Q4 2012 Results - Earnings Call Transcript

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Warner Chilcott (NASDAQ:WCRX)

Q4 2012 Earnings Call

February 22, 2013 8:00 am ET

Executives

Paul S. Herendeen - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Roger M. Boissonneault - Chief Executive Officer, President and Director

Analysts

Marc Goodman - UBS Investment Bank, Research Division

Shibani Malhotra - RBC Capital Markets, LLC, Research Division

Christopher T. Schott - JP Morgan Chase & Co, Research Division

Gary Nachman - Susquehanna Financial Group, LLLP, Research Division

Douglas D. Tsao - Barclays Capital, Research Division

Michael Kallai Tong - Wells Fargo Securities, LLC, Research Division

Irina Rivkind - Cantor Fitzgerald & Co., Research Division

Elliot Wilbur - Needham & Company, LLC, Research Division

Gregory D. Fraser - BofA Merrill Lynch, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Warner Chilcott Announces Fourth Quarter and Full Year 2012 Financial Results Conference Call. [Operator Instructions] As a reminder, our conference is being recorded. I'd now like to turn the conference over to your host, Mr. Paul Herendeen, Executive Vice President and CFO. Please go ahead.

Paul S. Herendeen

Thank you, Allie, and good morning, everyone. This morning, we issued a press release that details our operating results for the fourth quarter and full year 2012. The press release is available on our website.

Roger will make a few opening comments, and then I'll provide some additional color around our financial results for the quarter and full year, and we'll end with a Q&A session. I want to point out that based on our release this morning, NASDAQ, at their sole discretion, elected to halt the trading of our shares until 8 a.m.

Before we get into the meat of our call, let me point out this call will include forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause the company's actual results to differ materially from such statements. These risks and uncertainties are discussed in our 2012 Form 10-K to be filed later today and other filings, which are available on the SEC's website. Forward-looking statements made during this call are made only as of the date of this call, and the company undertakes no obligation to update such statements to reflect subsequent events or circumstances.

In addition, we will make reference during the course of the call to non-GAAP financial measures as defined by the SEC. In accordance with SEC regulations, we have provided reconciliations of these measures in our press release issued this morning to what we believe are the most directly comparable GAAP measures.

With that, let me turn things over to Roger Boissonneault, our President and CEO.

Roger M. Boissonneault

Thanks, Paul. Good morning, everyone. Before Paul takes you through specifics of our financial results, I would ask you to take a step back and consider our accomplishments over the past year.

In 2012, we built a good deal of positive momentum that we believe will carry forward into 2013 and beyond. Within our portfolio of key promoted products, we achieved a number of milestones. Our U.S. hormonal contraceptive business exceeded $0.5 billion in net sales. Our ASACOL franchise in the U.S. surpassed $700 million in net sales. ESTRACE Cream approached $200 million in net sales.

The commercial team's efforts were especially noteworthy in the results for DORYX. Despite the entrance of a generic competition in the second quarter of 2012, the dermatology field force was able to maintain an impressive share of the prescriptions for DORYX. Although the predictable declines of the global ACTONEL business resulted in a year-over-year revenue decline, we were able to grow our core business by 3% even with the impact of generic competition for DORYX.

In addition to the progress we made in our key franchises this year, we had a busy and productive year in other important areas as well. We completed our previously announced restructuring of our Western European business and now benefit from a cost efficient distributor model in the majority of these markets.

Through 2012, the R&D priorities were focus on our oral contraceptive and gastroenterology franchises. While we have been working hard to develop new and improved products, we realize that our shareholders are focused on results. The approval of DELZICOL, our new 400-milligram delayed-release mesalamine product, provides you with tangible evidence of our ability to successfully develop improved versions of our key products.

We have NDAs related to oral contraceptives on file with the FDA, which may lead to additional approvals in 2013. We also made good progress in the development of new products for urology and dermatology segments. We expect to complete Phase III development for our PDE5 udenafil in the first quarter this year and file an NDA in 2014. In addition, we have completed Phase II development of our novel tetracycline. We also made substantial progress in the development of projects for many of our key promoted products.

In the middle of 2012, we completed the process of exploring strategic alternatives for the company. The final outcome of that review was the approval of a series of initiatives intended to enhance shareholder value. In the third quarter, we paid a $4 per share cash dividend to shareholders. And in the fourth quarter, we paid the $0.25 per share installment of our regular semiannual dividend. We also renewed our share redemption program, under which we have the flexibility to purchase up to $250 million of our ordinary shares during 2013.

And last but certainly not least, in December, we entered into 2 advance pricing agreements, or APAs, with the IRS. This was an important project that we're able to bring across the finish line this year. We believe the APAs provide greater clarity around the integrity and sustainability of our tax structure.

In summary, 2012 was a productive year, and now we turn our attention to our strategic initiatives for 2013. Our top commercial priority right now is the launch of DELZICOL. We will begin promotion of DELZICOL in the middle of March and will be the promotional priority for our gastroenterology sales force and other resources that we will leverage to jumpstart this important initiative. We are well underway in our behind-the-scenes efforts to facilitate a smooth and rapid ramp-up of our DELZICOL business, including securing coverage of DELZICOL in key formularies and educating the wholesale and retail distribution channels as to our plans. We assume we'll also have a successful transition from DELZICOL 400 -- from ASACOL 400 to DELZICOL, and we'll do everything we can to ensure that success. We'll provide you updates as the launch program is on the progress beginning with our first quarter results call.

And finally, business development remains a high priority for us. We continue to review ways to grow our business through potential acquisitions, our product rights, marketed products or companies. We continue to consider potential opportunities through our disciplined approach to business development as a way to augment our internal development capabilities.

With that, let me turn it over to Paul for our overview of the financial results.

Paul S. Herendeen

Yes. Thank you, Roger. Let me start with the high-level overview. We had a solid fourth quarter and finished the year above both our full year revenue and adjusted cash net income guidance expectations.

In the fourth quarter, revenues from what I call our core business, which is everything other than global ACTONEL, increased $42 million or 9% compared to the prior-year quarter. That's pretty good when you consider the definition of our core business includes DORYX, which Roger just talked about, which was impacted by the launch of the generic competitors starting in Q2 of 2012.

Total revenues for the quarter were down $34 million or 5% versus the prior-year quarter, and that's due to the combination of the expected continued decline of global ACTONEL revenues which declined $76 million compared to the fourth quarter of last year and the impact of the generic competition for DORYX 150. Combined, these 2 products accounted for the lion's share of the decline in our total revenue versus the fourth quarter of 2011.

Within operating expenses, we continue to drive cost down where able. However, you can clearly see the benefits of having restructured our Western European operations. You can also see the impact of the rightsizing of our U.S. field sales forces, and that's part of our ongoing efforts to balance our investments in promotional resources with the expected returns on those investments.

Below the operating line, you'll note that as a result of getting to finish line on the U.S. advance pricing agreements that Roger just commented on, the company recorded a $12 million income tax benefit in the fourth quarter from the reversal of accruals no longer needed in light of the new APAs. We've excluded that in arriving at our adjusted cash net income of $0.91 per share for the quarter. So that's the high-level view of the quarter. Let me provide a little more granularity.

As I said in my summary, revenue from our core business increased $42 million versus the prior-year quarter. The primary drivers of the revenue increase were the LOESTRIN franchise and ASACOL. Our OCs in the aggregate delivered strong net sales growth compared to the fourth quarter last year. LO LOESTRIN continued to be our lead promotional priority in the category, and we saw the results of these efforts as LO LO net sales rose to $42 million, double the amount in the prior-year quarter. The increase was driven by an 84% increase in LO LOESTRIN prescriptions.

With the focus squarely on LO LO, LOESTRIN 24 prescriptions declined by 18% as would be expected. Net sales of LOESTRIN 24 grew 25% compared to the prior-year quarter but, and this is an important safety tip, fourth quarter 2011 net sales of LOESTRIN 24 included the impact of nonrecurring gross to net factors that had a disproportionate negative impact on that quarter. So the growth versus the prior-year quarter overstates the true growth.

I point you instead to the sequential quarterly trajectory of LOESTRIN 24 as the best way to think about the near-term prospects for LOESTRIN 24. As we noted when providing our 2013 financial guidance, our objective is to grow our overall OC franchise. Currently, that means growing LO LO faster than the predictable declines of LOESTRIN 24.

Turning to ASACOL. ASACOL had a strong fourth quarter with net sales of $204 million, up 15% compared to the prior-year quarter. In the quarter, we saw higher average selling prices and an expansion of pipeline inventories due to increased buying in the quarter. For the avoidance of doubt, fourth quarter ASACOL sales benefited from the expansion of pipeline inventories, an expansion that should reverse in Q1 of this year. Think of that as sales that we recorded last year that quite appropriately being included this year. As Roger mentioned, the launch and promotion of DELZICOL is a top priority for the company in 2013. In connection with the DELZICOL launch expected in mid-March, we intend to stop shipping ASACOL 400 during the quarter.

ESTRACE Cream continues to respond to the promotional efforts that we put behind the brand. Net sales grew 21% versus the prior-year quarter due to a 10% increase in prescriptions, higher pricing and lower sales-related deductions.

ATELVIA continued its slow growth, reaching net sales of $21 million in the quarter due primarily to a 16% increase in U.S. prescriptions compared with the prior-year quarter, but also due to the 2012 launch of the product in Canada. As we noted during our 2013 financial guidance call, we view ATELVIA as a great product with clear differentiation and benefits for both patients and physicians. However, due to the current U.S. market dynamics for oral bisphosphonate, the prospects for growing ATELVIA are tough.

We expect that the market will continue to contract in 2013 at the roughly 20% plus rate that we've seen in the last couple of years. We have reduced our promotional spending and reconfigured the osteoporosis field force to be roughly 160 territories to ensure that our promotional investments behind the brand are kept in line with our expectations. Net-net, ATELVIA will represent a modest portion of our 2013 revenues.

The growth in our core revenues in the fourth quarter relative to the prior year was offset by net sales declines in one of our core products, DORYX, and the expected and continued decline of ACTONEL. DORYX net sales decreased $27 million or 59% compared to Q4 of 2011. In our third quarter facing generic competition, filled prescriptions for DORYX 150 remained reasonably strong. Based on the most recent weekly Rx data, branded DORYX 150 retained more than 60% of total filled Rxs for the product and its generic competitor. It's important to note that the maintenance of the DORYX prescriptions came at a cost in gross net for the brand.

I want to reemphasize a point that we made on the Q3 call. We continue to promote DORYX using our dermatology sales force because we believe in the future of the brand and because it's important to us to maintain the relationships that we forged with dermatologists over more than a decade. We like the dermatology business and expect to be a player in the segment as we go forward.

Finally, ACTONEL net sales continued their anticipated decline with global revenues down 42% compared to Q4 of 2011, driven mainly by a significant contraction of the U.S. bisphosphonate market and the loss of exclusivity for the brand outside the United States beginning in 2010. For the full year 2012, global ACTONEL revenues declined 33% compared to the full year 2011. We have said that we anticipate a similar percentage decline in 2013.

Moving on to gross profit margin. Our gross profit margin as a percent of total revenues was 85.3% in the quarter and 87.8% for the full year, which is just slightly below our 2012 guidance range expectations. Our gross profit margin in the fourth quarter was negatively impacted by higher inventory obsolescence charges and other costs of production increases, including as a result of the changes in product mix.

SG&A expense in the quarter were $191 million, down 8% compared with the prior-year quarter. Let me give you some color on each of the components of SG&A. Advertising and promotion, what we call A&P, those costs were down $10 million or 32% due to a number of factors, including the reduction in the size of our U.S. field sales forces. Selling and distribution costs were down $27 million or 22% also due to cost savings as a result of a reduction in the size of our U.S. field sales forces and the move to a distributor model in Western Europe.

In fourth quarter, G&A, or general and administrative expenses, were roughly $76 million, an increase of 38% versus the prior-year quarter, primarily due to higher legal and professional fees. I've noted in the past that a good run rate for our G&A component of SG&A is roughly in the range of $70 million to $75 million a quarter, and this is the case in 2013 as well. SG&A for the full year 2012 was $745 million, which was within the range of our 2012 financial guidance.

R&D expense in the quarter was up 15% compared to the fourth quarter of '11 as spend -- project spending increased compared with the prior-year quarter. The amount of spending on R&D fluctuates based on the timing and stages of our various R&D projects. For the full year 2012, R&D expense was $103 million, within the range of our guidance.

As Roger referenced, we signed 2 new advance pricing agreements, or APAs, at the end of December. One covered the transfer of certain intangible assets from the U.S. to Puerto Rico, and the other covers transfer of pricing between the United States and other non-U.S. entities and that covers the years 2011 through 2017. As I said before, as a result of the APAs, we reversed $12 million of prior-year ASC 740 reserves, I guess what we formerly referred to as FIN 48 reserves in the quarter. Note that we exclude the impact of that $12 million tax benefit in arriving at adjusted cash net income for the quarter and for the full year. For 2013, the guidance range for our provision for income taxes remains at 11% to 12% of EBITDA, which is earnings before tax and book amortization.

Adjusted cash net income per share for the fourth quarter, which adds back the after-tax impact of amortization and impairment of intangibles, the amortization and write-off of deferred financing costs and excludes the favorable impacts of the Western European restructuring gains and $12 million tax benefit I just talked about, was $0.91 per share using fully diluted shares of 250.5 shares. Note that our share count reflects our share redemption activity earlier in 2012.

For the year, adjusted cash net income was $4.09 per share using 250.5 million shares. I actually misspoke. For the quarter, it was 250.8 shares and for the full year, 250.5 shares. Adjusted CNI for the year was above our guidance range and street expectations and as a result of strong revenues in the fourth quarter, which I just discussed, coupled with cost efficiencies within SG&A.

On to liquidity. We had a strong cash quarter, generating net cash from operations totaling $349 million. As you know, for us, the fluctuations in any quarter related to cash flow are generally driven by the timing of movements in certain working capital accounts, mainly accounts receivables and accruals.

During the fourth quarter, we did not make any optional prepayments of debt, and we did not redeem any shares under our share redemption program. The company did prepay $150 million of term debt at the end of January 2013. That was an optional prepayment of $150 million at the end of January.

We also paid our first semiannual dividend, which totaled $62 million to our shareholders in December 2012. We believe the semiannual dividends provide added value to our shareholders while not limiting our ability to pursue business development opportunities as they arise.

We ended Q4 with $474 million of cash on hand. Leveraged on a net debt basis, it was roughly 2.4x 2012 adjusted EBITDA. We ended the quarter with approximately $4 billion of gross debt comprised of $2.7 billion of term debt under our senior secured credit facilities and $1.3 billion face amount of 7.75% senior unsecured notes. And finally, let me just affirm our financial guidance for 2013, which we just issued 2 weeks ago.

With that, Allie, I would like to open the line to Q&A. [Operator Instructions] Allie?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Marc Goodman of UBS.

Marc Goodman - UBS Investment Bank, Research Division

Can you talk about the udenafil for a second? I think you mentioned that you're going to finish up the Phase III very soon, but you're not filing until 2014. So what's the delay? And then can you just remind us on the oral acne drug? What's the hook? How good was the Phase II data? How would we think about this product?

Roger M. Boissonneault

Thanks, Marc. It's Roger. As for udenafil, actually the Phase III efficacy study is complete. There was additional tox work that we had to do in the background because it is a chronic med. So that is being finished up. I think you also know that our intention is that basis for the ED trial also will be referenced for an indication against DPH. So there's several things going on at one time, but you can rest assure that the efficacy study has been complete, and this was a necessary tox work in the background, which is a long-term tox. You referenced the Phase II trials on ceracyline. They are complete. We have top line results. We're very encouraged by these results, and we plan to move into Phase III trials this year. There is some bulk synthesis going on. Initially, we'll do some of our tox, TTT; again, a chronic med, identify the dose form and hopefully, we're in the clinic by the second half of the year to complete the Phase III, and we are very excited at this point.

Marc Goodman - UBS Investment Bank, Research Division

How do we think about that product relative to the other acne drugs out there?

Roger M. Boissonneault

Well, it's a new NTE. It's not a metacycline. It's not a doxycycline. It's -- the name of it is ceracyline [ph]. We don't have a trademark for it yet. So we'll use ceracyline [ph] as the working name; new molecular entity, unique profile. All I can tell you from Phase II, it looks like it has a very solid safety profile.

Operator

Our next question comes from Shibani Malhotra of RBC Capital.

Shibani Malhotra - RBC Capital Markets, LLC, Research Division

Just a follow-up on the DORYX franchise. I think, Roger, you'd mentioned maybe a couple of quarters ago that one of the reasons you were keeping your sales force intact is that you wanted to keep the relationships, but you also perhaps anticipated a follow-on for DORYX itself. Is that still on the cards? Or are you looking at BD opportunities in this franchise to supplement what your reps selling DORYX alone?

Roger M. Boissonneault

Well, I think the number one is they've certainly exceeded our expectations in maintaining the franchise. The franchise unto itself is profitable. I think we've been on record saying that we had other potential improvements in DORYX that we are pursuing, other forms of doxycycline that really all culminate in ceracyline [ph], which we just talked about we just completed Phase II results. So again, the short answer is yes, there are other projects that we're working on, and we're open to acquisition also if a product becomes available that we think that we can improve its value.

Shibani Malhotra - RBC Capital Markets, LLC, Research Division

Okay. And if I may for Paul, and I'm not sure you're going to answer this but I'll try. You had so many gross to net adjustments on your products. Is there any chance of you taking us through pricing for some of your key franchises?

Paul S. Herendeen

Yes, no, no. I'm not going to get to that level of granularity, but it does bring up a good point though, Shibani. So like with the gross to net, I mean, I would say that the days of the quarterly -- the wild fluctuations that we saw a couple of years ago, those are behind us. The changes that we've seen gross to net now, I mean, are far more modest. There still are the artifacts -- or I should say the impacts of the accounting for the accruals that can cause you to have a disproportionate impact in a particular quarter. But honestly, the gross to net is not something that we worry as much about today as we did, say, 7, 8 quarters ago. So it's actually pretty stable. And if anything, for example, in some products, we take a hard line on what we are willing to continue with, and we look for ways so we can actually improve gross to net either through a more judicious use of cards or by the elimination of managed care contracts that simply don't work for us anymore. So that probably doesn't specifically address your question, but I hope it provides folks with some context of gross to net.

Operator

Our next question comes from Chris Schott of JPMorgan.

Christopher T. Schott - JP Morgan Chase & Co, Research Division

Just had 2 quick ones here. One, can you just talk a little bit about your quarterly earnings progression in '13 as we think about ASACOL coming out of the market, DELZICOL launching, just how we should think about the impact as we look at quarterly progression? And then the second question is, in the unlikely event of a generic ASACOL approval in July, what's the best guess at what percent of your mesalamine franchise you'd maintain if, in fact, we did see an approval kind of midway through that conversion over to DELZICOL?

Paul S. Herendeen

Sure. It's Paul. I'll address the quarterly progression. I mean, you should think of the quarterly progression as being overall -- take our overall guidance for '13, whatever you think we'll earn in '13, it starts a little bit higher and it ends a little bit lower. With the -- by saying that, I think you should assume that the conversion from ASACOL to DELZICOL does not play a role in how you should see the revenues in Q1 rolling out. I mean, I referenced that we will stop shipping ASACOL 400 in the first quarter. You would expect that, that pipeline will contract by the same token to the extent that DELZICOL picks up those Rx as you would expect, that DELZICOL will offset the reduction in the pipeline for ASACOL 400 and ought to be sort of a more normal quarter. But again, quarterly progression starts higher and trends lower based on our financial guidance for the full year '13. Roger?

Roger M. Boissonneault

As for the ASACOL, we think it's a remote possibility that any product could get approved in July for the 400-milligram. I mean, there have been several changes in the guidance. It would be, I think, heroic for the company to try to get -- be consistent with guidance and get this thing accomplished in that time frame. That being said, maybe -- I don't know, maybe alluding to the fact that even if we had a generic ASACOL in the marketplace, how equivalent would it be to begin with. And would we continue with our sales -- our field force out there and try to mimic the success that we've had with DORYX and ASACOL. And it's a good question. It's a rational question that even if you have generic that came in, we'd still promote the brand with clinicians. And I think it still could be differentiated, and we could have a similar outcome to what we've had with the DORYX franchise.

Christopher T. Schott - JP Morgan Chase & Co, Research Division

I guess a question just to follow up on that is, how long after -- I mean, do you need to -- let's say we get to we're in '14 and DELZICOL is introduced, I mean, and we get a generic ASACOL approved at that point, would you expect much of an impact to your mesalamine franchise when we get to that day that ASACOL comes to market?

Roger M. Boissonneault

I think, Chris, historically, we've seen those sorts of things happen. Generally, the generic company doesn't even get launched because the reference product will be DELZICOL. There won't be any ASACOL out there. We've seen that happen with DORYX when the generic company got the product approved and by that time, the product had moved on to, say, to 150 or different, had moved on to a tablet because there really isn't that much business. We saw it in the old LOPA days that happened to us. And basically, as the reference product has changed and then moved on to either tablet or new dose form, there really isn't much to be substituted there.

Operator

Our next question comes from Gary Nachman of Susquehanna.

Gary Nachman - Susquehanna Financial Group, LLLP, Research Division

Roger, could you characterize your level of confidence to get a new OC approved this year? And do you need a typical 6 months, you think, of runway in order to help protect the LOESTRIN 24 franchise?

Roger M. Boissonneault

Would this be the Gary Nachman Richter scale of confidence?

Gary Nachman - Susquehanna Financial Group, LLLP, Research Division

Sure, if you want to call it that.

Roger M. Boissonneault

It's sort of like -- it's a binary event, and you can't -- you just can't say -- we've had things where we've gone down to the last minute and found out that we had a hiccup. It just doesn't work that way. What we're doing is we're doing the best we can. We've got a couple of shots on goal, and you'll be the first to know when and if we're successful, when we're successful, what our strategy is going to be. But we're prepared for it. The other is the fact that we're converting a lot of the business to LO LO. LO LO has been the sole promotional strategy, and it looks like we'll -- and with the way we're converting it, LO LO's doing a pretty good job, and we'd like to accelerate that conversion. I think that's the best strategy.

Gary Nachman - Susquehanna Financial Group, LLLP, Research Division

Okay. And then just one more. Could you just review the full breakdown of the sales force and where you see the most flexibility to scale back further if you need to this year, and a little bit more on how that'll change with the launch of DELZICOL? And do you think that'll affect other products when you launch DELZICOL?

Roger M. Boissonneault

Let me just take the first piece. DELZICOL, we're actually leveraging other sales forces other than gastroenterology. So there it's like -- and it's not a scale back issue. It's actually bringing some of -- where we have coverage in primary care and helping out with the DELZICOL launch. But I'll let -- Paul has the numbers in front of him.

Paul S. Herendeen

Yes, Gary, I'll give you the specifics of how we're structured for 2013 and actually provide a little comment for you. First of all, it's a total of 700 territories broken down as follows: urology, 160; women's health, 210; gastro, 100; derm, 70; and osteo, 160. And you post a question that say if we didn't have the DELZICOL launch ongoing, that number this year might be lower. Roger just referenced, we will leverage some of those other field resources to assist in the conversion of ASACOL 400 over to the improved DELZICOL product, and that's our top priority. So you might think about the 700 as being higher than it might have been, but for this important initiative that we have starting in the middle of March. I also want to point out that, I mean, in the prior year, because people -- we got this question a lot in the wake of our guidance call 2 weeks ago, people said, "Well, gee, your sales forces are lower, but your expense -- I thought your expenses would come down further." Roger referenced in his remarks the completion of the strategic -- review of strategic alternatives. While the company was in that period, it was very difficult for us to maintain high occupancy, if you want to think of it as that way, within our sales forces. So while we were configured for a larger sales force, the actual number of territories that were occupied was lower. So you don't quite see the impact of reducing the number of territories down to 700 in 2013. I look at '13 at 700. That's a good number for us with the initiatives that we have on the table, both here in the first quarter and perhaps later in the year. If not for those things, we might have run down still further.

Gary Nachman - Susquehanna Financial Group, LLLP, Research Division

Okay. And when you leverage the other sales forces for DELZICOL, you're not expecting that to really impact the other products that you're promoting. Is that correct?

Paul S. Herendeen

No, no, we would not expect it to have any influence whatsoever...

Roger M. Boissonneault

Short term, it's...

Paul S. Herendeen

Yes, it's a very -- yes.

Operator

Our next question comes from Douglas Tsao of Barclays.

Douglas D. Tsao - Barclays Capital, Research Division

Just a couple of quick ones on DELZICOL. First -- or actually with ASACOL. Do you anticipate managed care will retain ASACOL on formularies past 2013 to 2015 and beyond?

Roger M. Boissonneault

That's -- well, the issue is it's not going to be available. So to keep it on the formulary, it's a hard conversion. We're stopping -- we're going to stop the shipment of ASACOL 400 shortly, and it will be all DELZICOL. I think they're all familiar with what's going on. We're making progress on that front. But the issue is they can keep it on the formulary, but there won't be any ASACOL 400 around.

Douglas D. Tsao - Barclays Capital, Research Division

I guess I was just -- the question -- the reason for my thinking was just given the potential availability of generics coming in 2014 and beyond, if they retain it and they could have it as a therapeutic equivalent, sort of what I was curious is on your perspective.

Roger M. Boissonneault

Yes, I've never seen just in my experience that once they go to DELZICOL -- I mean, in other words, DELZICOL has no substitute. They would have to have a substitute for DELZICOL. Even if they kept it on the formulary, physicians -- I mean, our first initiative is to get physicians to write DELZICOL. But if they had a generic approved, then they'd have to start promoting their own brand.

Douglas D. Tsao - Barclays Capital, Research Division

Okay. And then also in terms of DELZICOL, I was just curious in the data that you submitted yesterday wanted for establishing bio-equivalents. Did you meet -- or did you submit the analysis based on what you proposed in your submission petition in October? Or was it based on the guidance that the FDA had issued in September?

Roger M. Boissonneault

That's a good question. But you got to remember, we're dealing with SEDAR, not OGD. So we provided what SEDAR wanted, all right. So it's not an ANDA, it's an NDA. And we had to meet the requirements of SEDAR not the generic. We're also the innovator.

Douglas D. Tsao - Barclays Capital, Research Division

And could you provide us then what those requirements were or what they were interested in?

Roger M. Boissonneault

No, that's not -- that's between us and SEDAR.

Operator

Our next question comes from Michael Tong of Wells Fargo Securities.

Michael Kallai Tong - Wells Fargo Securities, LLC, Research Division

Just a quick follow-up on your novel tetracycline, just trying to get a better handle on what the profile might be. Would you be able to share whether this is a once-daily dosing and whether you are actually pursuing an acne indication?

Roger M. Boissonneault

Okay. Michael, that I can do. It is once daily, and the indication is indeed acne, which means it's a chronic med and obviously, it requires product tox. You should look at it as, I mean, just for the mental picture, as you have metacycline, doxycycline and now you have ceracyline [ph].

Operator

Our next question comes from Irina Rivkind of Cantor Fitzgerald.

Irina Rivkind - Cantor Fitzgerald & Co., Research Division

I was wondering if you could quantify the inventory expansions of LOESTRIN 24 and ASACOL in the quarter. And also, when you were talking about your progression in the quarters, you were saying that revenues would start high and kind of move down. But with those inventory expansions last quarter, and so inventory is going to have to come down next quarter, plus we've got some potential inventory work down in ASACOL, do you still view first quarter as higher than everything else with all that going on?

Paul S. Herendeen

Yes, it's Paul. I'll start with the sequencing. Yes, we still would expect that our Q1 revenues would start higher and trend lower into Q2, 3, 4 for the year. I called out specifically the ASACOL because it had a meaningful impact on how you think about Q4 versus Q4 the prior year. It was a number that -- and this is a round number. This is art, not science. But in round numbers, it was -- could have been $15 million to $20 million of revenue, net revenue. It ended up in Q4 that was really a little bit ahead. With respect to LOESTRIN 24 -- sorry, your question on that was?

Irina Rivkind - Cantor Fitzgerald & Co., Research Division

Also, the amount of inventory stocking last quarter and just want -- okay, yes, just that.

Paul S. Herendeen

Yes, I don't have that number right in front of me. I'm sorry. I'll have to follow up with you one on one.

Irina Rivkind - Cantor Fitzgerald & Co., Research Division

Okay. And then just another question separately on the OC launches and the 2 new oral contraceptives. Are you thinking about these as coexisting in the market with your 2 current brands? Or are you thinking about them as replacements?

Roger M. Boissonneault

I wouldn't focus too much on that until it does happen. As I said, it's a binary event and really don't assume anything.

Operator

[Operator Instructions] Our next question comes from Elliot Wilbur of Needham & Company.

Elliot Wilbur - Needham & Company, LLC, Research Division

Just 2 real quick ones. First, for Roger. During your guidance call, you talked about some of the differentiated aspects of DELZICOL versus ASACOL, and you suggested that it was potentially -- differentiation was potentially patentable. And I just want to make sure that -- confirm that. Obviously, we haven't seen a patent application published, and I would think kind of given where we are in the timeline here that, that would be something that you would have already taken care of, if in fact you think you can get a differentiated patent on the product. And then just as a follow-up question for you, Roger. Can you just talk a little about you're thinking on pricing dynamics in the bisphosphonate market? I mean, obviously, this market is going to continue and to progress in a fairly steep rate of decline, yet pricing trends here have been pretty tame relative to what we've seen in other markets that are rather significant stage of decline, meaning that the innovator companies have tended to take fairly large price increases. It just seems like, particularly with ACTONEL, there may be an opportunity to become a little bit more aggressive on pricing headed into the patent expiry, and obviously given the size of the product, still could generate incremental cash flow, a couple of hundred million. But we really haven't seen any real pricing movement in that market from any new players.

Roger M. Boissonneault

Okay. You have 2 questions. You said it really quick and neither one of them was quick. So okay. I'll try to...

Elliot Wilbur - Needham & Company, LLC, Research Division

I'm making up for not getting on the call last time.

Roger M. Boissonneault

As for the patentability of DELZICOL, remember patents can be listed -- it has to be listed in the Orange Book. Don't get caught up in timing. So the fact is yes, it is an improved version, and we'd look to the Orange Book for the listing of the patent, but it doesn't have to be listed right away. So don't assume that there's nothing there, but assume that it's a unique product form. I guess that's enough code there. Surprising, you got to remember in this marketplace too, there's a lot of contracting with managed care, and this contracting is over a period of years. I mean, you might be contracted for 2 or 3 years. And within that contracting, there's limits to what you can do with your pricing. So I don't know what you're thinking about is like if you're near the end of your life cycle, the old traditional model, this was in the old days, people would actually increase the price in the hopes of maximizing their return at the end of the product life cycle. I think when you look at that and you look at ACTONEL, I mean, I guess you're assuming that we're, again, approaching the end of our product life cycle. And if I made that assumption, you don't really have that much leeway in moving price up and trying to reprice advantages at the end of life cycle because a lot of the stuff, quite frankly, is contracted with managed care.

Operator

Our next question comes from Greg Fraser of Bank of America.

Gregory D. Fraser - BofA Merrill Lynch, Research Division

It's Greg Fraser for Greg Gilbert. One question on taxes. You used to talk about the tax rate generally creeping up over time. And now with the new APA covering you through 2017, how should we think about movement in the tax rate just in general terms over the next few years?

Paul S. Herendeen

Yes. I mean, I think that the best thing to do is to take our financial guidance for 2013, and say in the absence of having any other information, that's a pretty good range for the period during which you guys would model us. A lot goes into how that number sorts itself out, especially on a quarterly basis. You've seen how it can bounce around, and it can even bounce around year-to-year and it has a lot to do with where your pretax income ends up by tax jurisdiction. But over time, that's pretty good estimate. Yes, the guidance that we provided for '13 is a pretty good estimate. And if you wanted to be conservative because you thought well, gee, it may be slightly creeping up, that's fine too. Without your ability to see inside where -- inside all of our consolidations, you won't be able to come up with a better estimate than that.

Operator

With no additional questions, I would like to turn the conference back over to Mr. Paul Herendeen for any closing remarks.

Paul S. Herendeen

Yes, terrific. Thanks, Allie. Thank you, all, for taking the time to listen to our call this morning. We certainly put a good quarter on the board, and we're happy to have wrapped up a successful 2012. As Roger said, we have a lot of momentum going into 2013. We're excited about 2013, and we look forward to talking to you again in May on our first quarter call. Thank you.

Operator

Ladies and gentlemen, this does conclude today's conference. You may all disconnect, and have a wonderful day.

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