Sepracor Inc. Q1 2009 Earnings Call Transcript

Sepracor Inc. (SEPR)

Q1 2009 Earnings Call

May 1, 2009 8:30 am ET

Executives

Adrian Adams - President and CEO

Jonae Barnes - SVP, IR and Corporate Communications

Bob Scumaci - EVP and CFO

Mark Iwicki - EVP and Chief Commercial Officer

Mark Corrigan - EVP, R&D

Analysts

Manoj Garg - Soleil Group

Christopher Schott - JP Morgan Securities Inc.

Ian Sanderson - SG Cowen & Co.

David Amsellem - Piper Jaffray

Presentation

Operator

Welcome to the Sepracor’s first quarter 2009 Earnings Call. Hosting the call today from Sepracor is Mr. Adrian Adams, President and Chief Executive Officer. At this time all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. (Operator Instructions).

It is now my pleasure to turn the floor over to our host Mr. Adrian Adams. Sir, you may begin

Adrian Adams

Thank you operator. And good morning everyone, and thank you all for joining us for our first quarter 2009 financial results webcast. With me this morning are Mark Iwicki, Executive Vice President and Chief Commercial Officer; Mark Corrigan, Executive Vice President of Research and Development; Bob Scumaci, Executive Vice President and Chief Financial Officer; and, Jonae Barns, Senior Vice President of Investor Relations and Corporate Communications.

Before I proceed, I would like to ask Jonae to read our forward-looking statement. Jonae.

Jonae Barns

Good morning, everyone. Various remarks that we make about our future expectations, plans, and prospects constitute forward-looking statements for purposes of the SEC Safe Harbor Provisions. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors which are discussed in our most recent annual report on Form 10-K, which is on file with the SEC and other reports that we file with the SEC.

In addition these forward-looking statements represent the company’s expectations only as of today. While we may elect to update these forward-looking statements, we specifically disclaim any obligation to do so. Any forward-looking statement should not be relied upon as representing our estimates or views as of any date subsequent to today.

During this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in our first quarter 2009 operating results press release, which can be found on our website in the For Investors section.

Back to you, Adrian.

Adrian Adams

Thank you, Jonae. And I would to like to again thank everyone for joining us this morning. As you know over the course of 2008, we took a number of significant steps to improve our operational productivity and began moving towards more streamlined and nimble organization.

We reassessed our commercial approach and announced a new commercial structure and strategy that was put into place during the first quarter of 2009. The new commercial structure and strategy is aimed at optimizing product growth in 2009 and beyond. We believe that this new model is not only right for the company in terms of enabling improved operating leverage and productivity but it is also particularly well suited to the changing dynamics within the industry and both the short and medium term.

I am very pleased to report that following a strong fourth quarter and end to 2008, we have delivered solid first quarter 2009 results, especially during the quarter in which our strategic corporate workforce reduction was executed and in an environment that remains challenging from both an economic and industry point of view.

As always, we have a lot to discuss this morning and before we begin, I would like to take you through the main areas that we would like to cover during today’s webcast. First I will review some of the key 2009 corporate objectives that we’re working. Bob Scumaci will then comment on the first quarter 2009 financial results. Bob will hand the webcast over to Mark Iwicki, who will follow with an overview of our commercial performance on ongoing priorities. He will then introduce Mark Corrigan, who will provide an update on the progress we are making in research and development. And finally, I will comment on our financial guidance for 2009 and make some concluding remarks before opening the call up for your questions.

Please now refer to slide number four. As part of our medium to long term planning we have marked out an evolutionary strategy for building Sepracor into the future, and I believe that the strategic corporate restructuring plan that we executed in the first quarter will help us to proactively adapt and remain competitive in the rapidly changing environment in which we are all working, while continuing to leverage the many potential opportunities that face us.

With this in mind, we have some fundamental near term corporate objectives that should be enablers of this longer term plan, which reflect our 2009 corporate core priorities and opportunities. A priority in 2009 is to drive strong top line product portfolio performance and we believe streamlining our operations into a more efficient, effective and profitable organization will help us to achieve this. We will continue to focus on delivering enhanced productivity and we are pleased with the progress we are making so far.

One of the key drivers of this strategic restructuring plan is to develop a more competitive and cost effective commercial model that more closely aligns with a current and projected health care environment, in addition to driving greater accountability and opportunities from our valued sales force.

Our goal is to generate solid portfolio performance with targeted resource allocation and a key eye on enhanced profitability. These actions should also generate tactical efficiencies that will help build a strong foundation for the future.

Our research and development pipeline has grown over the last year and existing priority programs continue to advance. During the quarter, we executed against our goal and submitted the STEDESA NDA to the FDA for adjunctive treatment of epilepsy.

Earlier this weak, I am pleased to report that we announced the successful completion of the OMNARIS HFA Phase III study in seasonal allergic rhinitis, and the study met both its primary and key secondary end points.

We will continue to look for opportunities to strengthen our pipeline and enhance the current franchises. And as Mark Corrigan will highlight, we have a number of upcoming events of significant importance.

Last year we successfully completed several corporate development and licensing agreements and we will continue to actively pursue these opportunities and hopefully leverage our strong balance sheet to enhance our existing portfolio and complement Sepracor’s strategic direction.

We delivered strong EPS results this quarter and grew first quarter 2009 non-GAAP EPS by approximately 57% over the same quarter in 2008. We are determined to continue to deliver strong financial performance, sustainable earnings momentum and enhance shareholder value over time, and importantly to meet or exceed the expectations we set.

Having made these opening remarks, let’s now move along to our financials, beginning with a summary of our first quarter 2009 financial results. Bob, please take us through these results.

Bob Scumaci

Thank you Adrian and good morning everyone. Let me begin with slide five which summarizes our first quarter 2009 financial results. I’m pleased to report that the first quarter revenues increased by approximately 3% versus first quarter 2008 to $330.2 million. Our product royalty and license revenues for the first quarter of 2009 were as follows.

LUNESTA revenues were $140.4 million. XOPENEX Inhalation Solution revenues were $118.1million. XOPENEX HFA revenues were $20.1 million. BROVANA revenues were $18.5 million. OMNARIS revenues were $5.9 million. ALVESCO had no revenues in the first quarter of 2009 since we continue to sell through the launch inventory. This inventory was reduced by approximately 40% from December 2008.

Sepracor Pharmaceuticals, Inc. and royalty and license revenues were $27.2 million. GAAP EPS for the first quarter increased approximately 416% to $0.31 per diluted share versus the same quarter in 2008. Please note that prior periods have been adjusted to reflect the January 1, 2009 adoption of FSP 14-1 and certain other immaterial adjustments, both as described in our first quarter results press release issued earlier today.

Non-GAAP EPS increased 57%, $0.85 per diluted share in the first quarter of 2009 versus the same quarter 2008. Q1 2009 operating income on a GAAP basis was $66.4 million versus $6.6 million in Q1 ‘08.

Q1 ‘09 operating income on a non-GAAP basis increased 69% to $97.5 million versus $57.8 million in Q1 ‘08. Cash, short and long-term investments were approximately $729 million at March 31, 2009.

Please now refer to slide six which compares non-GAAP operating income and earnings per share for the first quarter of 2009 versus first quarter 2008. The increase of approximately 69% for operating income and approximately 57% in non-GAAP EPS was fueled by the company’s restructuring program announced in the fourth quarter conference call. A focus on increase contribution margins on our major products as well as the impact on gross margin of our quarter-over-quarter revenue growth of approximately 3%.

Please now refer to slide seven which compares Q1 ‘09 non-GAAP summary of results to Q1 ‘08. Sepracor’s objective of delivering sustainable earnings momentum to improved expense ratios is evident in the 13% improvement in SG&A’s percent revenue of 43% versus 56% in Q1 ‘08. We believe that this improvement which was driven primarily by reductions in sales and marketing expenses clearly demonstrates our commitment to a projective $190 million operating expense reduction in 2009.

Please note, as a portion of these reductions were anticipated, approximately $11 million released the timing of certain sales and marketing programs that have been shifted to the second quarter 2009.

Please now refer to slide 8, which reconciles non-GAAP to GAAP fully diluted EPS for the first quarter 2009. Non-GAAP fully diluted earnings per share of $0.85 excludes the cash gain on early extinguishment of debt of $0.04 per diluted share, the pre-tax restructuring charge of $0.24 per diluted share, and the interest expense associated with implementing FSP 14-1 in Q1 of ‘09.

The FSP 14-1, a non-cash expense is highlighted in both the special and recurring sections to designate the accelerated portion related to the early extinguishment of debt and the recurring portion. Please note that the bifurcation relates specifically to the 2024 convertible debt and the interest expense will continue until the 2024 notes are repaying full, which we anticipate will occur in the put date of October 2009.

Also included in this reconciliation are the recurring items similar to those items in Q4 ‘08 and $0.19 per diluted share for income tax as to reconcile to a non-GAAP cash provision for income taxes.

Please now refer to slide nine. Sepracor has been opportunistic in reducing its debt position over the last six months. Our tender offer completed in Q1 ‘09 further reduced our debt by $134 million to $380 million. Please not, the numbers are adjusted for the impact of FSP 14-1. The net cash gain of $4 million will be netted against the accelerated bifurcation interest expense and recorded in other income and expense on the statement of operations.

Our cash, short and long-term investments were approximately $729 million at March 31, 2009, with cash flow generated from operations for the first quarter 2009 of approximately $110 million. We again feel the impact of interest rates on our fully diluted EPS and we expect interest rates to remain constant for remainder of the year. Sepracor will continue to take a very conservative position in its investments but is set to maximize on short-term rate fluctuations due to the relatively short position of our portfolio.

I would now like to hand the call over to Mark Iwicki, who will review our commercial operations.

Mark Iwicki

Thanks Bob, and good morning, everyone. Please refer to our next slide now, slide number 10, which is an overview of our progress with our new commercial model. Current industry trends along with the macroeconomic environment are having an impact on all the markets in which we sell our products. And these factors led us to launch a new commercial model and restructure our sales and marketing organizations during the first quarter of 2009. We believe the Sepracor can gain operating leverage with this new streamline commercial model that’s more effective and efficient at supporting our current and future portfolio.

Our new commercial model is organized into two business units, one for primary care and the second for specialty markets. The Specialty Markets Business Unit has responsibility for BROVANA and the institutional channels for our brands. The primary care unit has responsibility for LUNESTA, XOPENEX Inhalation Solution, XOPENEX HFA, OMNARIS, and ALVESCO.

We believe this model will enhance the synergy between our marketing, managed care and sales organizations and give us a tighter focus on profitability. We have three sales teams and in each team the representatives have territory brand ownership with no mere territories. This is aimed at fostering high empowerment and a focus on profitable performance. We believe this new model is already generating an entrepreneurial spirit and fast acting high performance culture.

We’re driving decision making to lower levels in our field organization and have more variable compensation that’s linked directly to a single representative’s performance. We also have incentives for our managers to make local business decisions to drive profitable growth in their areas.

As expected, the reorganization caused a slight decrease in volume and share in Q1 ‘09. We believe that there will be further disruption felt from the restructuring during the second and third quarters as many of our representatives will need to build relationships with new doctors that they are now responsible for under the model.

The sales teams are energized and enthusiastic about our new model that encourages and rewards individual territory ownership in results, and we’re focused on growing the top line and improving contribution. Our new dedicated selling teams are in place and we have exciting and streamlined professional and consumer programs ready to help drive growth. As previously mentioned, we anticipate a settling down period during the second and third quarters.

I’d now like to review our brand performance and highlights for the first quarter of 2009. Please refer to slide 11. Revenues for LUNESTA in the first quarter 2009 were $140.4 million, up approximately 4% versus Q1 2008. I’m pleased to report that LUNESTA had solid Rx performance through the early phase of our sales force restructuring.

The overall insomnia market though continues to face challenges due to significant generic utilization that’s being driven by managed care and pharmacy chains and we believe that the branded insomnia market will continue to decline.

Our promotional priorities for LUNESTA are to continue to differentiate our product from other agents, particularly generic zolpidem. LUNESTA’s mechanism of action helps patients fall asleep, stay asleep and function better the next day. Our promotional spend is targeted for a balance of top line growth and margin improvement. We will continue online for web-based DTC and relationship management programs to improve LUNESTA conversion and persistency.

Over the past 18 months, we have significantly enhanced LUNESTA contributions. You can see in the graph, quarterly revenue is robust while we have strategically reduced our promotional spend. This enhanced productivity which we are driving across the portfolio has significantly improved our SG&A ratio.

Please refer now to slide number 12. OMNARIS is our intranasal corticosteroid that we launched in April 2008 for the treatment of seasonal and perennial allergic rhinitis. Revenues for OMNARIS Nasal Spray for the first quarter 2009 were $5.9 million.

Our promotional priorities for OMNARIS are to have our field force efforts focused on the most valuable physicians. We plan to continue to drive uptake with key physician specialists such as allergists and ear, nose and throat specialists.

In addition, we are seeing early positive indicators from the direct-to-consumer launch for OMNARIS, which started airing in the last week of March. Consumer awareness of OMNARIS is building nicely and share and volume have risen sharply in recent weeks.

Turning now to slide number 13. BROVANA is a long acting beta-agonist approved for the maintenance treatment of bronchoconstriction in adult patients with COPD. Revenues for the first quarter of 2009 were $18.5 million, up approximately 87% versus Q1 2008. I am pleased to report that this growth is coming from both retail and non-retail sources.

BROVANA’s volume continues to build and retail market share has also grown versus Q1 2008. BROVANA has unrestricted access in approximately 93% of managed care lives and is available through home health care pharmacies.

Our promotional priorities for BROVANA include a new Specialty Markets Business Unit which we believe will help to drive BROVANA growth with top prescribers, hospitals and other key channels.

Moving now to slide number 14, I’d like to comment on the performance of XOPENEX Inhalation Solution and XOPENEX HFA. XOPENEX Inhalation Solution revenues for the first quarter 2009 were $118.1 million. The reduction from Q1 ‘08 can be attributed to several factors including the continued challenges with Medicare reimbursement for the product and the impact this has had on our home health care business.

Some negative spillover as well which resulted from the change in our home health care contracting strategy and disruption in our selling efforts in Q1. Over the next 12 months we believe our new, more efficient commercial model and focus on profitable business segments will help maintain retail revenue and product contribution.

XOPENEX HFA revenues for the first quarter 2009 were $20.1 million. We increased contribution margins as well versus 1Q 2008. Our promotional priorities for our XOPENEX franchise include a new Asthma Sales team that would give additional focus to the XOPENEX family of products. These efforts are focused on top docile prescribers as well as loyal XOPENEX prescribers where our share continues to remain strong.

Our efforts remain dedicated on educating health care professionals on the fact that XOPENEX is the only differentiated molecule and the branded in the branded short-acting beta-agonist market with advantages over generic albuterol. We’re working to increase patient starts with our new XoPack sampling program which includes a sample of both XOPENEX Inhalation Solution and XOPENEX HFA along with co-pay offset cards.

In addition, we plan to continue our efforts to drive share and targeted accounts where we have a preferred position in place, and we’ll seek to optimize the channel mix to realize greater volumes and higher margins for both XOPENEX Inhalation Solution and XOPENEX HFA.

Please note as our home health care and therefore COPD business is now minimal, XOPENEX Inhalation Solution will experience significantly more seasonality versus previous years. This will likely be most prominent in the low asthma seasons which are the second and third quarters.

Moving now to slide number 15. We launched ALVESCO HFA in September of 2008. The initial focus of the launch was on key specialists and we saw positive Rx growth trends throughout the specialty launch in late 2008 and into early ‘09. We just recently broadened our detailing efforts in the first quarter to focus on a select group of high potential Primary Care physicians.

For March and the first weeks of April, ALVESCO volume has been building nicely. We anticipate this should translate into a positive impact to NRx trends and continued growth with key specialists such as allergists.

No revenue was recorded for the first quarter of 2009 due to the time necessary to move the launch inventory through the distribution channels and to patients. Our promotional priorities will be to educate Primary Care doctors at ALVESCO as a unique corticosteroid prodrug that’s activated into des-ciclesonide after oral inhalation, and has a potent anti-inflammatory activity.

We’ll continue our efforts to differentiate ALVESCO and plan to leverage the small particle size and resolving greater lung deposition along with the prodrug benefits. We plan on effective use of patient programs including starter kits with co-pay reduction cards and continued use of other relationship management programs to continue to grow ALVESCO.

At this time I would like to hand the call over to Mark Corrigan, who will provide an update on our progress in the R&D area. Mark?

Mark Corrigan

Thank you Mark and good morning everybody. Turning to slide 16. This slide depicts our current pharmaceutical product candidate development pipeline. And in addition, we maintain an active NCE focused discovery effort. SEP-018, our new formulation of LUNESTA, advances this year into further clinical trials.

I am pleased to announce that we have achieved our goal of submitting the NDA to the FDA for STEDESA, for the adjunctive treatment of partial complex seizures at the end of the first quarter. Ciclesonide nasal aerosol, potentially the first HFA metered-dose nasal device, has successfully completed a Phase III study in seasonal allergic rhinitis, and I will be sharing those results later on the call.

Our meeting with the FDA on the XOPENEX/ipratropium combination yielded guidance requires further Phase II drug-drug interaction studies prior to initiating Phase III. On a more positive note, FDA guidance on SEP-162, an antidepressant candidate, has indicated that we can move rapidly towards Phase III and we are evaluating initiating a registration trial as well as strategically considering our options for the platform as a combination treatment approach to depression.

A proof of concept Phase II study for SEP-289, a novel triple reuptake inhibitor for the treatment of depression, is completely enrolled and we look for the Phase II data readout in the third quarter. SEP-432 continues to progress and 900 is on track.

Turning to slide 17. We are excited to have submitted our NDA to the FDA for eslicarbazepine acetate. The proposed trade name is STEDESA. STEDESA, a new chemical entity is a novel, voltage-gated sodium channel blocker that has been designed to reduce the frequency of partial-onset seizures. The NDA contained over 2,000 patients. I’m pleased to report it was submitted on schedule. Our partner BIAL recently received marketing authorization approval in the European Union for the product. We began a Phase III U.S. monotherapy trial in April this year and are currently planning the pediatric studies and additional indication programs.

Now referring to slide 18. I would like to go into more detail on OMNARIS HFA product candidate. When CFC, MDI products were available for the treatment of allegoric rhinitis, they commanded significant market share because of their improved tolerability with regard to nasal side effects. In fact prior to the CFC, MDI phase-out, inhaled nasal steroid aerosols represented approximately 25% of total prescriptions.

We have the opportunity; we first back into the market with this presentation of ciclesonide, our site-activated corticosteroid. This metered-dose nasal spray delivers precise amounts of ciclesonide and a nasal clearing pump. It features a dose counter so that patients will know just how much they have left in the small compact dispenser that fits conveniently into a pocket or purse.

We already have been quite successful in reducing unpleasant side effects with OMNARIS Nasal Spray with its hypertonic solution reducing nasal drainage. The HFA presentation represents a further advance to improve patient tolerability while maintaining efficacy.

Turning to slide 19. The pathway to FDA approval for allergic rhinitis in the Unites States is with a seasonal allergic rhinitis study, which we have just completed, followed by a trial of perennial allergic rhinitis, which we plan to initiate this fall. The details of the SAR trial are outlined in the site. We studied two doses of ciclesonide versus placebo and 707 adults and adolescents aged 13 or older. The primary endpoint was a 24-hour reflective total nasal symptom score, which asses the common allergy symptoms of nasal congestion, itching, sneezing and running nose versus placebo. Importantly, we hit on the key secondary endpoints of improvement in 24-hour reflective instantaneous TNSS and 24-hour reflective total ocular symptom score. OMNARIS is well tolerated, adverse events were comparable or lower than placebo, and there were no nasal alterations and perforations.

Moving to slide 20. This slide depicts the preliminary analysis of the TNSS, the primary endpoint. OMNARIS met its primary efficacy endpoint by demonstrating a statistically significant reduction in 24-hour reflective TNSS. As you can see, both doses separate early and maintain their improvement over the duration of study.

On slide 21, we show the key secondary endpoint of total ocular symptom score. Ocular symptoms which include itching, tearing and redness of the eyes can be particularly troublesome and are present in significant amount in patients with SAR. Again for both doses, ciclesonide provided effication reduction of the symptoms relative to placebo.

I would like to note that approximately 40% of respondents in the Allergies in America Survey reported experiencing ocular symptoms on most days during allergy season. More than half the respondents in the Allergies in America Survey found their ocular symptoms to be moderately or extremely bothersome. Patients typically use a combination of different products such as intranasal steroids and antihistamines, in attempt to treat both nasal and ocular symptoms.

Please refer now to slide number 22. Looking down the progression of the road map of 2009, we anticipate key announcements every quarter, as you can see. In the third quarter, we anticipate the data for SEP-289 as well as commencing the OMNARIS HFA Phase III perennial allergic rhinitis study.

In quarter four, we will see the European LUNESTA in combination of venlafaxine study that we have been conducting in Europe, and we will also submit the post approval submission for the LUNESTA coding change.

Early next year in the first quarter, we anticipate initiating Phase II for our DAO inhibitor SEP-900. We also will undertake the 162 program as we move forward to potential Phase III initiation and we will look forward to the STEDESA PDUFA date.

And with that, I would like to hand the call back over to Adrian. Adrian?

Adrian Adams

Thank you, Mark. I would now like to turn to slide number 23 and to reiterate our 2009 financial guidance. Our 2009 total revenue guidance is to achieve revenues between $1.15 billion and $1.25 billion. This range as we mentioned in our last webcast reflects some uncertainties that exist as we move throughout this year.

Sepracor projects its sales, marketing and G&A expense will be approximately $600 million in 2009. We also project our non-GAAP research and development expense will be approximately $210 million in 2009. I would like to note that there are no non-GAAP adjustments to revenue or SG&A expense guidance.

Fully diluted non-GAAP EPS guidance remains within a $2.10 and $2.70 per diluted share range based on $116 million weighted average shares outstanding. At the mid point of the range, this would represent an approximately 50% increase over 2008.

And finally cash, short and long-term investments as of December 31, 2009 are anticipated to be approximately $525 million to $600 million.

Turning to slide 24. As we continue to hold firm on our non-GAAP guidance, we must increase our overall GAAP EPS guidance to between $0.57 and $0.95. As you can see, various new special and recurring items have now been included in our reconciliation of non-GAAP to GAAP EPS.

As Bob discussed earlier, the cash gain on the earlier extinguishment of debt, the accelerated bifurcation on our extinguishment and the restructuring reserve estimated for the year are now included for the full year 2009.

As announced in our first quarter 2009 financial results press release, with the mutual decision to terminate the commercialization of the LUNIVIA agreement with GlaxoSmithKline, we will accelerate the remaining deferred revenue related to the previously received milestone payment of approximately $70 million of $0.15 per fully diluted share. Also please note the timing of the BIAL milestone payment of $20 million, has shifted from the first quarter to the second quarter of 2009.

Please now refer to our final slide, slide number 25. This slide emphasizes again the aligned priorities we have for this year. These are to firstly drive strong top line product portfolio performance with continued focus on efficiencies, effectiveness and profitability; secondly, to generate ongoing efficiencies and effectiveness from the corporate restructuring to achieve better productivity, greater accountability and cost savings to help build a strong foundation for the future; thirdly, to successfully execute high priority R&D initiatives to strengthen our pipeline and enhance all current franchise; fourthly, to continue to aggressively pursue corporate development and license opportunities that enhance the portfolio and complement Sepracor’s strategic direction; and finally to deliver sustainable earnings momentum and enhance shareholder value over time.

In summary, we believe that we are well poised to take Sepracor into a new phase of momentum. We look forward to reporting to you on how we’re executing against the plan that we’ve put in place.

At this point, I would like to open up the call for questions and answers. Eric.

Question-and-Answer Session

Operator

Thank you, Mr. Adams. The floor is now open for questions. (Operator Instructions). And our first question is coming from the line of Manoj Garg with Soleil Securities. Please go ahead, your line is open.

Manoj Garg - Soleil Group

Hey, good morning guys. I’ve a couple of quick questions for Bob and then a couple of quick ones for Mark Iwicki. First for Bob, can you review the key product inventory levels as well as the sustainability of the royalty run rate? And then for Mark, can you actually detail for us the percentage change in share voice under the reorganization spend for LUNESTA as well as LUNESTA’s competitive positioning amongst the lots of your medications there on the horizon?

Bob Scumaci

Yeah, let’s take the inventories first. Q4 ‘08 versus Q1 ‘09, LUNESTA inventories at the wholesale level were down about $1.7 million units. And XOPENEX UDV is down about 600,000 units from year-end to Q1 ‘09. The remaining products fluctuate a little bit but they are insignificant in total HFA, had a little bit of a bump really due to some late orders at the end of the quarter, but not anticipated.

And on the royalties the royalties, the royalties for the first quarter were strong. The main reason for that was the Japanese royalties on Allegra, which was significantly more than last year and even more than what we anticipated. So I think that that is historically the big quarter for Allegra. So I think if you just take that and add it to the run rate, you are probably going to be pretty close.

Mark Iwicki

Okay. Hi Manoj, this is Mark.

Manoj Garg - Soleil Group

Hey Mark.

Mark Iwicki

I’ll give you the answers using the audited data from IMS. For LUNESTA, our detailed share voice is about 20% to 25% it fluctuates and it’s come down a bit. In fairness though, we don’t have the March or April data, which is when our changes really went into effect. So I expected it might be down a little bit more but not a lot. We have done a lot to really protect the LUNESTA detailing level for 2009. It was one of our key priorities. And LUNESTA has a sales force that’s really dedicated to it. It’s our largest sales force, 755 reps.

What we’ve really done with LUNESTA as I am sure you know is significantly enhance our DTC efforts through the use of web-based advertising and reduced our TV advertising and that’s created quite a bit of leverage for us with LUNESTA.

We feel like the detailing activity is going really well right now. We are really excited about what we are doing online. We are getting great traffic and great conversion. And so we think we have got a nice motto moving forward and an opportunity to potentially even grow some share with LUNESTA.

Your second question around STEDESA and the competitive positioning, you know I put a couple of points out there. The first one is that it’s a QD product with a strong efficacy profile and we also have favorable tolerability and safety profiles for the product. What’s paramount importance, especially in epilepsy is to keep patients on their medicine and a TID product is really hard for patients to comply with. I think STEDESA’s QD dosing will really help. And the second point is that side effects are also a major cause of non-compliance. And if patients don’t take the regimen for either dosing or AE reasons, you know they’re not getting the efficacy. And we think that STEDESA is going to have a great competitive profile and that it’s going to be well received by doctors and patients because of the combination of efficacy, tolerability and safety benefits.

Manoj Garg - Soleil Group

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Chris Schott with JP Morgan. Please go ahead, you line is open.

Christopher Schott - JP Morgan Securities Inc.

Great. Thank you. Just a couple of questions. First STEDESA, can you just give us some timelines for enrollment and competition of the U.S. monotherapy study that you’re running?

Second, can you elaborate a little bit more on the rebate levels you’re providing for those core LUNESTA and XOPENEX franchises? Have you seen any changes in those levels or especially have you seen decrease in those levels since last year, given some of the share erosion you see in your business?

And then finally, when I look at Q1, SG&A was low relative to my expectations? You mentioned about a lot of million that was shifted into 2Q. But how should we be thinking about SG&A sequentially? I guess I’m trying to get here was given, you know, I know in Q1 you were getting some of the benefits of the restructuring, how much more is there to come going forward as we think about SG&A? Thanks.

Mark Corrigan

Okay, this is more Mark Corrigan. I’ll take the timelines one first. We are anticipating an 18-month program for the study for the first adult monotherapy study and getting out of the clinic between the first and second quarter in 2011.

Mark Iwicki

Okay. Chris, this is Mark Iwicki, and I’ll talk about that rebate levels. You know, what I can say to you is we have a really, really strong focus on making sure that every single contract that we have across the board is profitable for us and really gains us an access position that we think we need to sell the product. There is no doubt that over time you see branded products moving from Tier 2 to Tier 3 as generics become more and more the mainstream for products. But, we’re really pleased. We have a very broad, unrestricted access position. We also believe we’ve done some really smart things to help improve the contribution margin and we’re looking forward to having a great year with our access and our ability to really drive that business through.

Bob Scumaci

Yeah, I’ll take the SG&A. As Adrian talked about before, reiterated the SG&A guidance in the year about $600 million and I think that really have to look at just the shift I mentioned from the first and the second quarter I think. If you look at the overall consensus and say all right, we are and we buy core. I think that’s the place where you really have to look as the shift from Q1 to Q2 from $11 million to $12 million.

Christopher Schott - JP Morgan Securities Inc.

Thank you.

Operator

Thank you. We do have our next question coming from Ian Sanderson with Cowen & Company. Please go ahead, your line is open.

Ian Sanderson - SG Cowen & Co.

Thanks, good morning and thanks for taking the question. First, it now appears that Sanofi-Aventis is taking steps to defend the Ambien CR patents, and so how does impact your marketing plans for LUNESTA looking forward to the balance of this year at least? And second, what are the next steps in both your O-desmethylvenlafaxine and 162 patent interference proceedings with Wyeth and what needs to occur between now and when you plan to go into Phase III early next year?

Adrian Adams

Hey on the first one, this is Adrian here. Good morning, Ian. When we gave vital guidance for 2009 with the revenue range of $1.15 billion to $1.25 billion, we gave that range because of number of uncertainties, one of which was related to uncertainty around whether or not there would be a generic Ambien CR in the marketplace. So as you will have noted there has been continued strong activity from Sanofi-Aventis in the marketplace where they’d be from a television advertising point of view or they’d be from a detail in that perspective, and we’re not picking up any significant signs of the potential for generic in the near term.

That said, I think we are very focused on just driving those things that we can control from a Sepracor perspective. And those relates very much to very targeted effort, making sure that we have strong position in the managed care environment with renewals of our managed care plans etcetera and operating in a very efficient and effective way of our promotional resource allocation.

So, we feel within our plan that we built in this year that we’ve built in any uncertainty in that regard. And clearly in the event that a generic Ambien CR comes later than anticipated then clearly that would be what we would consider to be good news.

On the second front, the questions, in relation to the patent interference by Wyeth. As you all know Ian, I think we never comment on aspects related to litigation. Clearly when we get news of some progress in that area, we will share that with you and obviously in a public format. So, beyond that I can’t comment on that litigation.

Ian Sanderson - SG Cowen & Co.

On the development front, what needs to occur between now and starting Phase III early next year?

Mark Corrigan

Yeah, hi Ian, it’s Mark Corrigan. We are completing a late release formulation screening. Currently the FDA has requested one bioequivalence study with venlafaxine that we can complete in short order. We have an ongoing CMC program and preclinical toxicology programs and we would fundamentally was getting to the Phase III is probably is despite our equivalent study that we would complete late in this year.

Ian Sanderson - SG Cowen & Co.

Okay. And could I quickly ask a question on ALVESCO, the NRx trends looked flat in Q1, what’s the primary hurdle to adoption and how do you sum up that?

Mark Iwicki

Ian, it is Mark. Well, maybe they are a little bit flat in Q1. We did have a bit of disruption especially leading into the beginning of the year. The CSO was the primary detailing force for ALVESCO. So when we made the decision to end our relationship, that hurt a little bit. But the recent weeks have looked really promising and we feel really good about ALVESCO and we had to delay a little bit, the launch to Primary Care doctors because of the reorganization. So really the reps just got back in the field, focusing on Primary Care docs in the very beginning of March, and we’ve seen a nice increase in volume as well as a bit of an increase in share. So I think the early signs are positive for ALVESCO and now that we are out there with a very focused and targeted approach to Primary Care docs as well as to specialists, I’m feeling good about the progress we are making.

Ian Sanderson - SG Cowen & Co.

Thanks.

Operator

Thank you. We do have our next question coming from the line of David Amsellem with Piper Jaffray. Please go ahead, your line is open.

David Amsellem - Piper Jaffray

Yeah, thanks. Just couple of questions on STEDESA. Do you think that the absence of U.S. had in the regulatory filing maybe a barrier to a timely approval?

Mark Corrigan

Hi, this is Mark Corrigan. I can only tell you what the FDA has told us, which is that they would accept the file as it were based on European patients and throughout the file we made argument about why the treatment of epilepsy is highly comparable. The manifestations of the disease state as well as the medications used to treat it are highly comparable between the European population, which the file is based, and the U.S. population. They are also very aware that we are conducting the monotherapy trials and they may take some solace in the fact that this product is recently approved by the European Union. So as it stands now, we have no information from the FDA and in fact we have written guidance from them that they will except this and consider this file.

David Amsellem - Piper Jaffray

Okay and then secondly, also on STEDESA, how do you think about pricing? And I know maybe early to ask, but given the significant number of generics in the space, how would you think about pricing of the product?

Adrian Adams

At this stage, we wouldn’t comment on pricing. That said, what I would say is that any pricing obviously, not just dictated by the competitive environment but also the target product profile that you are offering. And we do believe that the fact that STEDESA is a significant advanced from a once daily dosage point of view, simpler dosage titration and a busy profile. But that particular profile and what is a very disturbing condition, epilepsy, we believe that that will put us in a good position to make sure that we can price the products appropriately within the marketplace while retaining a very strong competitive advantage.

David Amsellem - Piper Jaffray

Okay, that’s helpful. And just one last quick question on 289 if I may. You said previously you may look for partners that are positive but one thing we’ve seen is many big pharma companies have been rationalizing their pipeline particularly in neuropsychiatric space, so how confident are you that you’d be able to secure a partnership effect indeed you plan going forward?

Adrian Adams

Well, you know, that’s a good question. I think clearly like a lot of pharmaceutical companies we remain very active in ongoing dialogue and discussions with a lot of pharmaceutical companies. There has been a lot of significant interest in our pipeline. There is no doubt that when you are near to an event from a clinical trial perspective with 289, you know we get the results of that in the third quarter of this year. And I think there is a lot of anticipation of that internally here and obviously externally.

I think the level of discussions we’ve had with a number of parties broadly across our portfolio suggest that obviously in the event that that study is positive, I think given that it would be the first triple reuptake inhibitor. I think there would be pretty good interest from a partnership perspective.

As I have mentioned in previous calls, I think clearly from a development perspective, if we were seeking a partner for 289 then clearly some participation in the Phase III development in addition to commercialization outside North America would be a benefit. And I think with positive results from that Phase II trial and in the event that happened, I think it would be pretty good interest in that asset based on interactions that we’ve had today. And I think that’s the same with one or two of our other assets in development. Right now, we are focused on getting those results and driving the rest of our pipeline as well.

David Amsellem - Piper Jaffray

Thank you.

Operator

Thank you. And Mr. Adams, there are no further questions at this time. Please continue.

Adrian Adams

Thank you all for joining us this morning, and for your questions. And I look forward to updating you on our progress on our next quarterly conference call, so do have a very good day. Thank you.

Operator

Thank you. This does conclude our conference for today. An audio replay of today’s call will be available for one week starting today at 12 noon Eastern Standard Time. The dial-in number is 320-365-3844 and the pin number is 996447. Again the dial-in number is 320-365-3844 and the pin number is 996447. Please disconnect your lines at this time and have a wonderful day.

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