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
Raul E. Kohan - President of Intervet and Schering-Plough Animal Health
Thomas P. Koestler - Executive Vice President and President, Schering-Plough Research Institute
Unidentified Company Representative
Thomas J. Sabatino Jr. - General Counsel
Analysts
Tim Anderson - Sanford Bernstein
Chris Schott - J.P. Morgan
Roopesh Patel - UBS
David Risinger - Morgan Stanley
Jami Rubin - Goldman Sachs
Anthony Butler - Barclays Capital
Barbara Ryan - Deutsche Bank Securities
Steve Scala - Cowen and Company
John Boris - Citigroup
Seamus Fernandez - Leerink Swann LLC
Catherine Arnold - Credit Suisse
Schering-Plough Corporation (SGP) Q1 2009 Earnings Call April 21, 2009 7:30 AM ET
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 first quarter earnings conference call. (Operator Instructions)
Janet Barth, you may begin your conference.
Janet M. Barth
Thank you, Jennifer, and good morning, everyone. Thank you for joining us to review our first quarter 2009 results.
Before we begin I'd like to note that some of our comments made today may contain forward-looking statements about Schering-Plough's business and prospects. As you know, our actual results may differ from these forward-looking statements. Schering-Plough does not assume the obligation to update any forward-looking statement.
Please refer to the company's Securities and Exchange Commission filings, including Item 1A, Risk Factors, in the company's 2008 10-K for additional information about the things that could cause our actual results to differ from our forward-looking statements. The company's SEC filings as well as today's earnings release and tables are available on our website 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 net sales plus an assumed 50% sales contribution from our cholesterol JV. We will also refer to as-reconciled amounts or amounts on a reconciled basis. As reconciled amounts exclude purchase accounting adjustments, acquisition-related items and other specified items, please refer to the non-U.S. GAAP reconciliation tables for a reconciliation of these adjusted figures to our reported GAAP results that can be found under Financial Highlights in the Investor Relations section of our website.
This morning I'm joined by Fred Hassan, our Chairman and Chief Executive Officer, Bob Bertolini, our Chief Financial Officer, Carrie Cox, the head of our Global Pharmaceuticals, and Raul Kohan, President of Intervet and Schering-Plough Animal Health. And we also have other members of management here available for Q&A.
Now I'd like to turn the call over to Fred Hassan.
Fred Hassan
Thank you, Janet, and welcome to our call. We appreciate you making the time to join us.
You will have seen our press release on our results for the first quarter, which were very good. This morning I'd like to talk with you about our quarterly results as well as what we've achieved over the past six years, so let me begin with our performance in the first quarter.
In the midst of a severe global recession, our people came through and delivered 4% operational growth. Our people also delivered reconciled earnings per share growth. Our reconciled EPS of $0.56 was ahead of last year's Q1 EPS of $0.53. These were gratifying and impressive accomplishments. It was especially impressive given intensifying pressures on our industry and on our company, particularly the global pressure relating to pricing and continuing shifts to generics.
Our people executed on the basic strategy of our action agenda - grow the top line, grow the pipeline, and reduce costs while investing wisely. As we continued drive the build the base phase of the action agenda, we continued to build strength and diversity across the company.
In the U.S., our people worked hard to drive the Prescription business despite intense industry challenges and the specific challenges affecting us, including pressures on our respiratory and cholesterol franchises.
Meanwhile, outside of the U.S. our people continued to achieve strong operational growth with key products in most key markets around the world. For example, the underlying performance of REMICADE continued to be very strong. Also, TEMODAR's growth continued after crossing the $1 billion global sales dollar mark in '08.
We also continued to execute on our geographic expansion strategy in newer markets.
Around the world, we continued to realize the promise of our business. For example, in women's health we grew NUVARING more than 25% on an operational basis. We also continued to execute effectively in our industry leading Animal Health unit and we launched important new products in our Consumer Health Care unit. Consumer Health Care and Animal Health add value and diversity to our business.
I know that many of you are interested in the Animal Health unit, so we've asked Raul Kohan, our head of Animal Health, to spend just a few minutes on this call to provide an update.
Raul?
Raul E. Kohan
Thanks, Fred, and good morning. It's a pleasure for me to speak to you about our leading Animal Health business.
The combination of Intervet with Schering-Plough Animal Health strengthened our Animal Health portfolio and brought together complementary product lines. Before coming together, Intervet was known for its biological and poultry products and Schering-Plough was known for its pharmaceutical and livestock products, especially cattle products. Together, we have reached an R&D pipeline consisting of more than 120 pharmaceuticals and 140 vaccine projects. This provides us with a solid platform to meet med needs in Animal Health and the opportunity for further growth.
The integration has gone well and we are now operating as one company around the world. I'm proud of he way our Animal Health colleagues have come together as one team to maintain momentum and drive the business forward.
Now I'd like to comment on the performance of our business in the first quarter. First, let me say that I'm very pleased with our performance. In spite of the tough global economic and related credit conditions, we were able to hold our operational sales in line with the first quarter of 2008. However, an unfavorable impact from currency cost our reported global Animal Health sales to decline 13%.
In the U.S. we grew sales by 11%, with higher sales of cattle and combined animal products. In the U.S. and on a global basis, these categories account for about 40% and 20% of our business, respectively.
Meanwhile, we saw more impact from the severe global recession in our international markets. As an industry, we are being impacted by factors resulting from current credit conditions, including inventory reductions by customers and profitability pressures on producers, especially in Southern Europe.
International sales were down 2% on an operational basis, 18% including the unfavorable impact of exchange. Strong sales in certain markets in Northern Europe and in countries like India and Japan were offset by lower sales in Southern Europe.
You can see that the diversity of our business is a real asset. Our strong geographic diversity provides some insulation from risks in individual countries, such as market conditions, weather, or outbreaks of animal diseases.
Also, because our sales come from more than 1,000 products covering biologicals, pharmaceuticals and parasiticides, we were not overly dependent on any single product.
As Fred has said before, innovation is the best way to power through challenges, so we are proud to see our innovation coming through. For example, we are benefiting from higher sales of new products such as circovirus vaccine for pigs and the blue tongue vaccine.
Our people worked hard to deliver these good results in spite of the challenging environment and our results demonstrate that we are focused on executing on our strategy.
Finally, I'd like to highlight one of our most important strengths, the alignment of our people around our culture and way of working. Our people are unified and energized in a high-performance culture. This is why we have a lot of confidence about the long-term performance of our Animal Health business.
Thank you and I will now turn the call back to Fred.
Fred Hassan
Thank you, Raul.
I think you can see that we're making very good progress with Animal Health. In particular, we've managed the cultural integration of two strong animal health teams effectively. We know that is what really drives value for the long term in a combination.
During the quarter we also continued to make progress with a strong late-stage Rx pipeline including our five stars. Here are just a few examples:
We completed enrollment in our boceprevir Phase III program in hepatitis C in January. We have a long history as innovators in hep C and this exciting new protease inhibitor demonstrates our continuing commitment to innovation leadership.
We continue to see very good progress in our Phase III TRA clinical program. This is our novel treatment for deadly blood clots and we're ramping up enrollment fast.
And during the quarter we received and responded to an FDA action letter for SAPHRIS or asenapine. We will continue to work with the agency on this important products.
We had additional gridiron launches in Europe and just last week we announced the first regulatory approval for SIMPONI in Canada, which is a very important market for this treatment. The approval of SIMPONI is significant for several reasons. First, it's not every day that an important biotech treatment gets approved. Second, SIMPONI is the first once-monthly product in its class. And third, the product will launch with three approved indications. We are very proud of this achievement, especially in the increasingly risk averse regulatory environment of today.
So it's good to see that our investments in R&D are coming through. At the same time, we continue to focus on controlling costs and improving efficiencies through our Productivity Transformation Program, PTP for short. PTP was a key contributor to a solid Q1 bottom line performance. Bob will talk more about this.
Now let me talk about what we have created over the past six years. Schering-Plough will be bringing enormous value to the planned combination with Merck. Through strong people and a new high-performance culture, we created strength and diversity.
Since we began in '03 we added more than $12 billion in adjusted top line sales. In that same period we transformed negative free cash flow of close to $1 billion a year into more than $2 billion in positive free cash flow.
We created product strength and diversity, expanding our Animal Health presence, driving new Rx to OTC switches, entering new therapy areas such as CNS and women's health, and becoming a leading company in cardiovascular care. In '03 we had no product with over $1 billion in annual sales. By the end of '08 we had transformed Schering-Plough into a company with five products with over $1 billion in annual sales.
We embarked on a geographic expansion strategy into newer markets more than four years ago. Sales from these markets were more than $2 billion in '08 and on an operating basis they also contributed to our growth in the first quarter of '09.
Most importantly of all, we grew our late-stage Rx R&D pipeline. In '03 you could count the number of late stage projects on one hand. Today we have 12, including four in pre-registration.
Our combination with Organon BioSciences contributed to our transformation on many fronts. Seeking, acquiring and successfully integrating OBS was a major achievement. Our people can take great pride in the transformation they've engineered over the past six years.
Finally, let me describe how we're approaching our business going forward. Our priority is to remain relentlessly focused on executing against our goals. We are determined to keep creating value and delivering value so that we sustain the momentum going into the combination. We are working hard to keep our people continued to stay focused on their important work. In the meantime, we are also contributing to integration planning, which is so critical to a merger's success.
So in summary, we're very pleased about delivering another strong quarter. We will continue to focus relentlessly on driving our business. We believe the strategic logic of the merger is very sound, and we are proud of the strength we bring to the planned combination with Merck.
Now let me turn the call over to Bob Bertolini.
Robert J. Bertolini
Thanks, Fred, and good morning.
As Fred mentioned, we're pleased with our performance in the first quarter. As expected, we faced a currency headwind in the quarter; however, excluding exchange, we still were able to grow the top line. We also grew the bottom line. Our solid performance is a testament to our people remaining focused on our strategy to grow the top line, grow the pipeline, as well as reduce costs and invest wisely.
On a reconciled basis, we earned $0.56 per share. These amounts exclude purchase accounting adjustments related to the OBS acquisition, expenses related to our PTP activities, and some pre-integration costs related to our proposed merger with Merck.
For the next few minutes, I'd like to review the highlights of our quarterly results, including our sales performance and our operating performance, with an update on the progress of our Productivity Transformation Program.
On a GAAP basis our first quarter sales were $4.4 billion, down 6%. This reflects 4% operational growth and an unfavorable impact from currency of 10%. As you know, it's difficult to predict movements in foreign exchange rates. However, based on current rates we expect foreign currency to continue to be a headwind on the top and bottom line in 2009, especially in the second and third quarters. As we said during our Q4 call, we remain flexible and nimble in working hard to control costs in the face of this headwind. As a reminder, product sales this quarter are comparable on an apples-to-apples basis to the prior year period.
Within our global Prescription business sales declined 5% to $3.4 billion in the first quarter. This reflects operational growth of 5% and an unfavorable impact from currency of 10%. Our Prescription business outside the U.S. remains strong, while we continue to experience challenges in the U.S. market. Overall, we had solid performance from key global brands such as REMICADE, NUVARING, TEMODAR, and NASONEX internationally.
Turning to the cholesterol business, global sales of the cholesterol franchise were $973 million in the first quarter, down 21% compared to the prior year. This reflects a 17% operational decrease and a 4% unfavorable impact from currency. The decline was primarily due to lower sales in the U.S. Sales in the cholesterol franchise outside the U.S. were down 2%. This reflects operational growth of 11% and a 13% unfavorable impact from currency. Sales benefited from continued growth of ZETIA in Japan. Carrie will talk more about our Prescription business in a few minutes.
Our performance this quarter also benefited from the strength of our business diversity that comes from having a leading Animal Health business and an innovative Consumer Health Care business. While the current economic downturn has had some effect on these businesses, the fundamentals remain strong.
We've already heard from Raul this morning about our Animal Health business.
Turning to our Consumer Health Care business, sales of Consumer Health products were $384 million in the first quarter and benefited from the launch of several new OTC products. Sales of OTC CLARITIN increased primarily due to the launch of CLARITIN Liqui-Gels, which I mentioned in our call last quarter. We're pleased with the performance of CLARITIN given the strong launch of a competitive product in this space last year.
MIRALAX continues to outperform METAMUCIL and maintain its market leadership in the category achieved nearly $40 million of sales in the quarter. A new sachet prescriptions of MIRALAX was also recently introduced.
Our Consumer Health business is benefiting from a strong innovation cycle. So far this year a total of six new products have been launched. In addition to the two I already mentioned, we've also introduced AFRIN Pure Sea Nasal Rinse, two new sun care products - COPPERTONE Neutra Shield and WATER BABIES Pure and Simple - and a new DR. SCHOLL'S product.
Now I'd like to review our operating performance during the first quarter. On a reconciled basis, our gross margin was 71% in the quarter. Similar to the fourth quarter of 2008, the gross margin was higher, primarily due to a foreign exchange benefit. However, in the first quarter this benefit was less than it was in the fourth quarter. As I said previously, the benefit is related to inventory movements throughout our global network.
Before I turn to SG&A I want to briefly review our progress toward achieving our $1.5 billion PTP target by 2012. Recall that we first announced this cost savings program about a year ago in April of 2008.
In the first quarter we achieved more than $300 million of PTP savings, so we're well on track to achieve our annualized target of $1.25 billion by 2010. We continue to see the effects of these savings across all business units.
SG&A expenses in the first quarter decreased 11% to $1.5 billion, benefiting primarily from favorable currency and PTP savings. Excluding a favorable impact from exchange, SG&A was about 3% lower. On a reconciled basis, our SG&A ratio improved to about 34% in the first quarter and about 36% in the prior year period, so we continue to demonstrate that we're controlling our costs.
Moving to R&D, on a reconciled basis our R&D expenses declined 9% to $800 million. Excluding a favorable impact from currency, R&D was lower by about 5% in the quarter primarily due to PTP savings and timing. As you know, R&D spending varies quarter to quarter and is always subject to the timing of clinical trials and related activities. We believe that our pipeline is on track. For example, as Fred just mentioned, our registration trials for boceprevir completed enrollment this quarter and our Phase III Tier A program is progressing well. We continue to make investments in our pipeline and we expect our full year 2009 R&D expense to grow in the low to mid single digit range excluding currency.
Our results this quarter reflect our ability to overcome many challenges, including currency, a severe global recession, industry pressures, and challenges in our own business. I'd like to acknowledge the hard work and dedication of our Schering-Plough colleagues around the world for delivering solid results this quarter.
Over the past several years, we've built a very special company, with an industry leading pipeline, added diversity, strong global brands and a sound financial position. We remain focused on driving our business forward to grow the top line, grow the pipeline, and reduce costs while investing wisely.
Thank you and I'll now turn it over to Carrie.
Carrie S. Cox
Thanks, Bob, and good morning.
We delivered a solid quarter despite challenging market conditions. Our Q1 results continue to reflect the regional differences that exist in our global Prescription business.
Internationally, we see good operational growth from both established and newer markets. We are particularly pleased with our growth cycle in Japan, the second-largest pharmaceutical market in the world. Six recent new product introductions have transformed our product portfolio in Japan, with Q1 sales increasing 32% ex exchange.
In the U.S. we have taken steps to optimize our performance in this tough environment. We will continue to resource appropriately to maximize the long periods of expected exclusivity from many of our core brands.
Turning now to our produce portfolio, REMICADE delivered another strong quarter, with sales of $518 million, increasing 22% ex exchange. As REMICADE approaches its 10-year anniversary in the market, our sustained performance is a testament to its demonstrated efficacy and broadest range of indications among anti-TNFs.
We are also delighted to note the first marketing approval for once-monthly SIMPONI in Canada as a subcutaneous injection for rheumatoid arthritis, psoriatic arthritis, and ankylosing spondylitis. REMICADE is already among the top five of all products in Canada and ranks number one among anti-TNFs. We are very excited that our first SIMPONI launch will be in a market where we have done so well with REMICADE.
SIMPONI has a very attractive clinical profile, with competitive efficacy and clear advantage in delivery and convenience. SIMPONI will be the first and only once monthly subcutaneous anti-TNF. It has a new generation auto-injector that is patient friendly and can be helpful for those who suffer with arthritic hands. We are very pleased to be launching SIMPONI into the larger office space segment of the market and we will now have two complementary products to bring to physicians and patients.
Turning to cholesterol, global franchise sales declined 21% to $973 million. International performance was highlighted by double-digit operational growth across core European markets including France and the U.K. as well as Central and Eastern Europe.
In Japan, ZETIA continues as a growth driver, with $30 million in Q1 sales. ZETIA market share has already exceeded 7% and is tracking quite favorably with previous significant launches in Japan.
In the U.S., franchise sales were down 30%, consistent with declines in prescription volumes. As we have seen across many therapeutic areas, there has been a sharp increase in generic utilization in the U.S. cholesterol market.
Many years of clinical evidence have reaffirmed LDL cholesterol as the primary target of lipid-lowering therapy. Only VYTORIN provides more than a 50% LDL reduction at the usual starting does and gets more patient to goal than any other single brand or generic in the category. We will continue to stay focused on the many patients who require the superior LDL cholesterol reduction that VYTORIN provides.
In respiratory, global NASONEX sales held steady with prior year. International markets continue to perform well and now account for nearly 50% of global NASONEX sales. Each of our core international geographies has delivered double-digit operational sales growth, including Japan, where NASONEX has already captured more than 18% market share since its September launch.
In the U.S., sales for our once-daily ICS ASMANEX grew 18%, driven by double-digit prescription growth. We're also looking forward to the anticipated launch of ASMANEX in Japan later this year. With this year's planned regulatory filing for MFF on track in the U.S. and EU, our asthma portfolio appears well positioned to meet the needs of more asthma sufferers.
Turning to hepatitis, global PEGINTRON sales increased slightly ex exchange, with strong performance in Japan offsetting challenges in the U.S. Last month the FDA approved expanded labeling for PEGINTRON for patients who have failed prior hepatitis therapies. There is still a major unmet need for patients who have not responded successfully to past hepatitis treatment. PEGINTRON combination therapy is now approved to re-treat these patients, providing them a second chance to achieve a sustained virologic response. We continue to bring new clinical science to the treatment of this disease and we're excited with our progress with boceprevir.
In women's health care, NUVARING, IMPLANON, and CERAZETTE each continued to perform well, with a particularly strong 27% growth for NUVARING ex exchange. We are building momentum for these brands around the world and it's good to see franchise growth across every region.
NOMAC-E2 is a novel oral contraceptive in development that combines a natural estrogen and a novel progestin. Our planned NDA filing for NOMAC-E2 remains on track for 2009 and we look forward to expanding our U.S. portfolio with an oral contraceptive product. OCs are the largest segment of the contraceptive market and NOMAC-E2 will be the first OC to contain estradiol, a women's natural estrogen, combined with a novel progestin.
We have built great strength at Schering-Plough, strength in our brand, strength in our country operations, and strength in our people. We would like to thank all of our Schering-Plough colleagues for their continued focus and commitment to the work ahead.
Thank you and now let me turn the call back to Janet.
Janet M. Barth
Thank you, Carrie.
As we move towards our Q&A session we'd appreciate it if you could limit yourself to one or two questions at a time and then, if you have further questions, feel free to get back into the queue.
So with that, Jennifer, we'd now like to open the line for Q&A.
Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Tim Anderson - Sanford Bernstein.
Tim Anderson - Sanford Bernstein
Can you describe your level of confidence that golimumab will receive European approval some time in the current year?
And in Canada, where you recently received approval, why are you guiding for launch only later in the year? It seems like a delay that would be longer than what I would expect on the launch of that.
And can you give us an idea of what your sales are in the quarter in emerging markets both in terms of absolute sales as well as year-on-year growth?
Fred Hassan
Very good questions, Tim. The first question will be answered by Tom Kessler and the second question will be answered by Carrie Cox.
Thomas P. Koestler
As far as the European registration's concerned, it generally takes about 12 to 18 months for a registration in Europe and we think it's on track.
Carrie S. Cox
We are delighted to have the approval in Canada. We're very optimistic about the upcoming approval in the EU, but nothing additional to report at this time.
We are working through the local issues around reimbursement and access that occur in any market, particularly the first market for launch, so we look forward to bringing golimumab or SIMPONI to the market as soon as we can in Canada.
Fred Hassan
As you know, Tim, the provincial reimbursement formularies do take some time.
Robert J. Bertolini
Tim, on the emerging markets - or we call them newer markets actually - about 10% of our sales are in those markets and on an ex exchange basis this quarter they grew about 5%.
Operator
Your next question comes from Chris Schott - J.P. Morgan.
Chris Schott - J.P. Morgan
First on the gross margin strength in the quarter, can you just quantify the benefit you saw from some of that inventory revaluation in the quarter and, sequentially, how shall we think about the benefit as we move into 2Q? I guess you would be expecting gross margin declines.
And the second quarter on the Animal Health business, as we think about the impact of the weak economy here, is that something that accelerated throughout the first quarter? And when we think ahead again to 2Q and beyond, are you anticipating an increased level of economic impact on that Animal Health business as the year progresses?
Robert J. Bertolini
The gross margin came in about 71%. It was high this quarter. And again, similar to the fourth quarter, the gross margin was higher due to the foreign exchange benefit that I mentioned. I would say about 1.5% or 1.3% to 1.5% actually benefit came in the quarter and this was less than we had in the Q4 benefit. Going forward I would say we don't expect this level of benefit to continue going forward but I will say that these currency rates are volatile so there will be some volatility in our gross margin going forward, but we would not expect this level of benefit in Q2.
Raul E. Kohan
With relation to the Animal Health question, the U.S. performance was quite strong in the quarter. If you recall, last quarter of last year there was inventory adjustment throughout the U.S. because of lack of credit and that, once it's normalized, is having a positive impact in the first quarter.
Projecting to the second quarter, I think the market will be moving in the low single digits.
Operator
Your next question comes from Roopesh Patel - UBS.
Roopesh Patel - UBS
First, if you could kindly take us through the pushes and pulls of the impact of FX up and down the P&L this quarter, including that on EPS, that would be very helpful.
Secondly, if you could also clarify what gross margins would have been excluding the impact of FX.
And then thirdly, in terms of the $300 million in PTP savings achieved this quarter, I'm curious as to how that is spread across the various P&L line items. That would be very helpful as well.
Robert J. Bertolini
Let me kind of take you through exchange first.
As I said, on the top line currency had a negative 10% impact. That was about $450 million this quarter. And it's going to vary quarter to quarter, but this quarter we would estimate that between 45% and 50% dropped to the bottom line or about $0.13 negative. That includes the impact in the JV, which we would estimate at $0.01 to $0.02 of that $0.13. Now, again, it's going to vary quarter to quarter based on the mix of our expenses and volatility in individual countries' exchange rates. Now we also this quarter had a favorable impact that I mentioned in the gross margin and that was about $0.03 to $0.04, so when you net it all out on the bottom line about $0.09 to $0.10 negative versus the first quarter of last year. So that's the way I would think about it.
On the gross margin, excluding the FX benefit, I would think of it in the mid 69% range, so mid 69% range.
I think your final question was on PTP, Roopesh. I would say of the roughly more than $300 million this quarter about 75% was in the SG&A line and about 25% in the R&D line. As you know, on the manufacturing side it does take a little bit longer, so we'll see those PTP savings as we move out to the 2010 to 2012 periods.
Operator
Your next question comes from David Risinger - Morgan Stanley.
David Risinger - Morgan Stanley
My questions relate to a couple of pipeline products. First, if you could comment on the recent ESA label change in hep C patients and implications for FDA's assessment of boceprevir's Phase III ESA use.
And then second, on the TRA Phase III trial enrollment, could you just comment on the 10,000 patient clinical event reduction trial and whether that may need upsizing?
Thomas P. Koestler
As far as the use of [epo] is concerned, we have always allowed the use of [epo] in all of our clinical trials. It's a decision that the investigator chooses to make.
FDA has provided all developers at the current time with some guidance on the use of [epo] in these types of clinical trials and we're actually going to be presenting some data at the [Easel] meeting this week, so I would suggest that you tune into that for an update.
As far as the tracer trial is concerned, which is TRA - I think you're referring to our tracer trial - right now we continue to look at 10,000 patients as the target enrollment for that trial. This could change, but at the present time we maintain that 10,000 patients is what we're tracking for.
Operator
Your next question comes from Jami Rubin - Goldman Sachs.
Jami Rubin - Goldman Sachs
Carrie, can you flesh out the continued opportunity for REMICADE overseas? Obviously, we've seen an abrupt slowdown in growth in the EPNS blocker class in the U.S. largely due to reimbursement concerns. It doesn't appear that those concerns are playing out at all in European governments even though the price is roughly the same, so if you could talk about what you see with respect to potential reimbursement pushback and European governments in the TNF class and specifically REMICADE, which is more expensive.
And if you can talk about where REMICADE is with respect to its market share. How much more growth left is there? It seems that the RA market is becoming more fully penetrated and with SIMPONI coming in my sense is that you're going to try to expand the market, but if you can, again, talk about how you plan to position that there.
Fred Hassan
Just a general comment before we turn it over to Carrie. I think we've all known that there's a tendency for biotech drugs to penetrate slower into Europe and that is an opportunity for REMICADE. There is more wide space there than in the U.S.
Carrie?
Carrie S. Cox
So in essence, Jami, that is the real answer here, that the market penetration in the U.S. happened broader and more rapidly than in Europe, so there is still quite a bit of room to continue to expand in European markets.
As you know, in many countries REMICADE is actually considered more of a hospital product, so its budgeting and reimbursement sometimes is treated differently than subcutaneous products. We think that's also a benefit for us in being able to bring both REMICADE and SIMPONI into the marketplace. In many cases these will be different prescribers who will now be the primary prescribers in Europe for each of the products, though we think most physicians who prescribe in this category will have use for both products.
But there is a slight difference in the European markets versus U.S. in this potential differentiation between a hospital product and an office-based or outpatient segment product. We see great growth still for REMICADE and the anti-TNF category, but REMICADE particularly as leader in the gastroenterology indications. There is still quite a bit of penetration yet to occur there, many patients still suffering. And as there continues to be greater awareness of the fact that REMICADE is perceived as a very high efficacy product and can be used in patients who may be suffering from rapidly progressing disease, it continues, I think, to hold a strong position in physicians' minds.
SIMPONI will let us now compete in the broader segment, though, where HUMIRA and ENBREL do well in the outpatient segment of the market. So I'm very excited to see that we have such a broad franchise and we do expect to be able to continue to support both brands well and do well for the long term.
There is an additional advantage for SIMPONI which I mentioned which is the great new auto-injector that it will be introduced in. This is a device that we think is significantly better than many other out there because it's easier for patients potentially to use and for many patients who in this category have rheumatoid arthritis, this is a device that's now designed to assist them and make it easier to use.
So we're very excited about this franchise, as you can tell, and look forward to it continuing to prosper.
Operator
Your next question comes from Anthony Butler - Barclays Capital.
Anthony Butler - Barclays Capital
Bob, the detail on PTP was helpful but is there a way to actually break out the amount or at least by percent that has been taken out of the drug business versus the other, that being Consumer and Animal Health, both for SG&A and for R&D?
Robert J. Bertolini
We do have that detail, Tony. I would say the majority is coming out of the Rx business. Clearly that's the case. The Animal Health business, just by its nature, there's some coming out of there, but it's smaller. And the Consumer Health business, while there is some in PTP in Consumer Health, it's not very substantial, particularly this quarter. So that's the way I would think about it, Tony - a majority is the Rx business, the Animal Health and Consumer businesses are relatively small.
And when you look at the overall percentages when we announced the program we said roughly 50% in SG&A, about 25% in R&D and roughly 25% in manufacturing, so I think those still tend to hold as we go forward.
Fred Hassan
And Tony, one thing we're very proud of is that we have a very cohesive senior management team and these cuts were done together as a team and done with a lot of care.
For example, it's not easy to reduce Consumer Health Care where the driver is the media budget and that basically drives the business; there are other areas where we could do more. So it was done very well.
Operator
Your next question comes from Steve Scala - Cowen and Company.
Steve Scala - Cowen and Company
First, when do you expect the single efficacy look at IMPROVIT in 2009? Can you identify a month, if not a month, the quarter? I'm not referring to any safety checks or the HDL look, but the overall event rate look. And if it's already occurred, perhaps you can confirm that.
And secondly, are there any events or data points upcoming that could move the Congressional investigations of both ENHANCE and SEAS towards resolution, particularly given that another letter was received as recently as this past February?
Thomas P. Koestler
Steve, the short answer is it's being tracked according to the events. We need to have half the events come in before that interim analysis will take place, and I really can't project timing.
Unidentified Company Representative
Steve, on your next question, we're cooperating fully with the investigation by the Congress, but there's nothing to predict in terms of timing for that resolution.
Operator
Your next question comes from John Boris - Citigroup.
John Boris - Citigroup
Just a two-part question for Bob, just on NOLs - did you use any NOLs in the quarter, was the U.S. business profitable? And any thoughts on the lower-than-expected tax rate?
And then any commentary on free cash flow that you generated in the quarter.
Robert J. Bertolini
The NOLs coming into the year were about $1.3 billion, so as you can see last year we reported that in our 10-K. We are generating taxable income. I can say we are generating taxable income in the U.S. currently and we anticipate taxable income for 2009 in the U.S., John. On the tax rate we came in right around the mid-teens level. I think we're still thinking for the full year to be in that mid-teen range.
On cash flows, you'll see those in our 10-K, but I will say that cash and short-term investments, we ended the quarter with about $3.6 billion, up from about $3.4 billion we had at the end of last year.
Operator
Your next question comes from Seamus Fernandez - Leerink Swann LLC.
Seamus Fernandez - Leerink Swann LLC
In the context of Merck's quarter this morning, I was just wondering if you could comment on the timing of the shareholder vote and what your thoughts are with regard to the close of the acquisition and how much Merck actually brings to Schering-Plough in 2010 and beyond.
And then separately I was hoping that you might be able to give us your estimates of what the primary comparator will be in TRA 2P? What I'm basically asking is the standard of care is not necessarily dual anti-platelet therapy or single anti-platelet therapy; in fact, both can be used, is my understanding, in the TRA 2P study. And it would seem to me that your likelihood of success would be considerably greater depending on the percentage of patients that actually receive single anti-platelet therapy given the TRA's mechanism of action. So if there's any way that you could provide us a little bit of color, whether it be overall market utilization of dual anti-platelet therapy in the secondary prevention setting or something with regard to TRA 2P, if you can provide us some incremental color on that.
Fred Hassan
The first question was the various merger processes. First of all, everybody should know that we have our annual meeting on the 18th of May. The other dates have not been established. We expect the merger meeting to occur later this year, but it's not been established.
Tom, on the other question?
Thomas P. Koestler
Yes, Seamus, you're correct in pointing out that the way we've conducted the TRA trial, both the 2P trial as well as tracer, which is in [acute pulmonary syndrome], is a comparison to the standard of care and that can be single, double, triple or whatever therapy that the investigators are using at that particular site.
There will be stratification of the results in the primary and secondary analyses, but we're going to compare directly to whatever the standard of care is in the trial.
Fred Hassan
Tom, you may want to also answer the previous question on the merger - Thomas Sabatino, our general counsel.
Thomas J. Sabatino Jr.
Sure. Just to put a point on that, we do expect that we'll file the merge proxy some time toward the end of next month and we continue to expect that the transaction will close in the fourth quarter of this year.
Operator
Your last question comes from Catherine Arnold - Credit Suisse.
Catherine Arnold - Credit Suisse
I wanted to ask you a bit about the cholesterol franchise because obviously it goes without saying a lot's happened over the last 12 months here and I wondered if you could give us a little bit more detail on some of the business sourcing and things like as you look back have you seen a change in your business split in PDPs versus commercials? Have you seen a change in terms of patients mean LDL levels starting therapy or more therapy failures? Are you seeing any patients coming from the CRP interest? How is prior authorization accessing therapy, how has that changed? And then economic sensitivity on the business.
So that's a lot, but I just wonder if you could sort of dimension for us some of the drivers of your business and which of those you might say have some upside potential over the next 12 months.
Carrie S. Cox
I think the major hallmark of our product franchise and unfortunately of the entire market is that there is still a huge unmet medical need for getting LDL lowered and getting patients to goal, especially in the high risk category. And the great thing about the products that we bring forward is the unsurpassed efficacy that we can offer with VYTORIN. And I know you've heard me say it many times, but it does bear repeating - you can get a greater LDL efficacy, a better lowering with VYTORIN at the starting dose and across the dosing range than with any other product out there.
So in a category that remains a huge killer over time in cardiovascular disease and a category where we know that still about half of patients don't get to goal, we are confident that the need for these strong brands continues.
We do definitely see a growing impact of generics in the U.S. market particularly. There is greater interest in generics around the world. But at this point the issue is not brand versus generic so much as it is efficacy and there's no product out there - brand or generic - that can provide the efficacy that can be seen with VYTORIN, especially at the lower doses.
CRP remains something that we think is very interesting. I think it's still premature to say what impact if any it has on the market, but it certainly is good to know that the impact on CRP that we see with VYTORIN is as good as with any other product and better than with some.
So the future of the franchise I think long term remains to be a very strong and optimistic one despite other pressures that continue to accelerate in the marketplace.
Fred Hassan
I think the good news is that if you look at the last few years lower LDL is better has been validated based on a number of studies. In fact, the numbers are going lower and lower based on the studies we've been seeing. And it's the only gold standard that is clear out there. There are many other good hypotheses and I hope they work because we'd like to see better treatment for HDL and for other matters, but the real gold standard, the clear, validated gold standard, is LDL, and there the numbers have gone lower and lower, and we are in the right space with VYTORIN.
And this brings us to the last question and my closing comments. We're pleased that we delivered another good quarter in an extremely tough environment. This reflects the great strength our people have built at Schering-Plough over the past six years. Looking ahead, we'll be focusing relentlessly on continuing to drive our business while preparing for a smooth transition in our planned merger with Merck.
Thank you very much for joining us on this call this morning.
Operator
This concludes today's Schering-Plough conference call. You may now disconnect.
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