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Eurand N.V. (NASDAQ:EURX)

Q2 2009 Earnings Call Transcript

August 6, 2009 8:30 am ET

Executives

Bill Newbould – VP, IR

Gearoid Faherty – Chairman and CEO

Mario Crovetto – CFO

Analysts

John Newman – Oppenheimer & Company

Annabel Samimy – Thomas Weisel Partners

Frank Pinkerton – SunTrust Banks

Scott Henry – Roth Capital Partners

Bill Tanner – Lazard Capital

Rich Silver – Barclays Capital

Operator

Greetings, ladies and gentlemen, and welcome to the Eurand second quarter 2009 financial results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator instructions)

It is now my pleasure to introduce your host, Bill Newbould, Vice President, Investor Relations at Eurand. Thank you. Mr. Newbould, you may now begin.

Bill Newbould

Thank you, operator, and good morning everyone. Joining us on the call today are Gearoid Faherty, Chairman and Chief Executive Officer and Mario Crovetto, Chief Financial Officer. Before we begin the call, I’d like to remind everybody that this conference call may contain forward-looking statements within the meaning of the Federal Securities Laws.

These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by such forward-looking statements.

Factors that could cause our actual results and outcomes to differ materially from those expressed in or implied by such forward-looking statements are discussed in greater detail in our annual report on Form 20-F filed with the SEC in March 2009, as well as in subsequent filings.

Given that forward-looking statements are subject to risks and uncertainties, you should not place undue reliance on them. Forward-looking statements are based on various assumptions and represent our estimates and assumptions only as of the date they are made. We assume no obligation to update forward-looking statements.

I’d now like to turn the call over to Gearoid.

Gearoid Faherty

Thanks, Bill and good morning, everyone. I'm pleased to report that Eurand had another excellent quarter, highlighted by impressive revenue growth and the approval and launch of Lamictal ODT with our partner GSK.

Revenues in the quarter rose 31% to EUR30.6 million or $42.8 million compared with the second quarter of 2008. Driving this strong growth was sales of our PANCRELIPASE product along with royalties from sales of partnered products and higher development fees.

PANCRELIPASE, our unbranded pancreatic enzyme product or PEP, is now the second most prescribed PEP on the U.S. market today. Since early 2009, PANCRELIPASE has gained nearly 20% share of the U.S. coated PEP market and we expect that the product will continue to gain market share.

Our revenue growth also benefitted from Cephalon sales of AMRIX. Cephalon reported AMRIX sales of $30.9 million for the second quarter of 2009, an increase of 80% from a year ago. We also received some good news on the AMRIX patent front. As noted in today's press release, we received notice of allowance from the U.S. Patent and Trademark Office for an additional patent on AMRIX. We believe this patent when issued will further strengthen the IP estate for AMRIX.

One of the major highlights of the second quarter was the approval of EUR-1048 in May. The product is being marketed by our partner GlaxoSmithKline as Lamictal ODT for the treatment of Bipolar I disorder and seizures. GSK launched Lamictal ODT in late June, which triggered a milestone payment from GSK in the second quarter. While the launch is in its early stages, the prescription data has been encouraging. I'm proud to say that EUR-1048 is the fifth FDA-approved product from Eurand over the last eight years and we are confident that number six is on the horizon with ZENPEP.

As announced on June 22nd, the FDA extended the PDUFA date for ZENPEP NDA by three months to the end of the third quarter. The Agency cited the need for more time to review the existing submission and did not request any new information. We continue to maintain an active dialog with the Agency regarding the ZENPEP proposed label and packaging as the NDA review continues and we remain confident about the outlook for a favorable decision.

In anticipation of ZENPEP approval, we believe we've taken all the necessary steps to ensure a successful launch. All of our marketing and promotional materials have been prepared pending the final label. We've manufactured our launch stock and we are in the process of recruiting the additional sales reps we'll hire upon approval. We estimate that we'll need about 60 days following approval to pack and ship the product. Based on our late September approval, we would expect to launch the product in late November.

Continuing with ZENPEP, as mentioned in today's press release, we've signed a marketing and distribution agreement for the product in South Korea with Samil Pharmaceutical. This is our first out-licensing deal for ZENPEP and we expect to sign similar agreements for ZENPEP in other countries in Asia. We also expect to announce out-licensing deals this year in Europe. Given the diversity of the market in the EU and Eastern Europe, it is likely that we will have more than one marketing partner in these regions.

Moving away from ZENPEP, I would now like to take a few minutes to update you on some recent events with regard to our development pipeline. As mentioned already, the major pipeline development of this quarter was the FDA approval of 1048 Lamictal ODT for the treatment of Bipolar I disorder and seizures.

GSK has now launched the product and in addition to the undisclosed milestone payment we received at launch, we are in manufacturing revenues, royalty on net sales, and milestone payments in connection with predetermined sales in the U.S. To date, we've earned approximately $12 million in total milestone payments and we have the potential to earn an additional $30 million.

We've also received good news about another ODT product, this time in Europe. The Dutch Medicines Evaluation Board recently notified us that the Decentralized Procedure for the registration of Paracetamol 250 mg and 500 mg Orodispersible Tablets have been successfully completed. And just last week, the product was cleared for marketing in the U.K.

We expect to receive formal approval in the Netherlands, Germany, France, Italy, and Spain in the coming months and we are actively talking to potential marketing partners in these countries. Paracetamol is used widely in Europe as a pain reliever and fever reducer.

Turning now to EUR-1025, our once-a-day proprietary formulation of the anti-emetic Zofran or ondansetron. We filed an IND with the FDA in December 2008 and recently completed pivotal pharmacokinetic or PK studies. I'm pleased to report that the data from these studies showed that single and repeated oral administration of 24 mg of 1025 once a day resulted in similar rate and extent of exposure as 8 mg of Zofran three times a day.

Based on these results, we expect that 1025 has a similar efficacy and safety profile as 8 mg of Zofran dosed three times a day. We’ve scheduled a meeting with the FDA in the fourth quarter to discuss the data and plans for clinically differentiating 1025 from ondansetron 8 mg.

With regard to EUR-1000, it looks as though the approval will be extended into 2010 based on recent discussions between GSK and the FDA. EUR-1000 is a bioequivalent formulation of INDERAL LA, in treatment for hypertension and migraine, which is partnered GSK.

In summary, we had another excellent quarter with strong revenue growth in all segments of our business and we are particularly pleased with the market penetration we've achieved with our PANCRELIPASE product.

Now, I will ask Mario to review our financial results with you and then I'll close with a few brief remarks before we take your questions. Mario?

Mario Crovetto

Thank you, Gearoid. As you would have noted from our press release and as Gearoid mentioned, the second quarter of 2009 was another quarter of very significant revenue growth for Eurand. Revenues totaled EUR31 million compared with EUR23 million in second quarter 2008 and this represents an increase of 31%. In constant currency, revenue growth was 19%. In dollars, revenues were $43 million at the convenience rate of 1.40.

Gearoid already mentioned the three main reasons for this increase in revenues compared to a year ago. In summary, first, face-up on credit base during the quarter. Second, higher royalties from sales of AMRIX by Cephalon. Third, development fees, which included a nice down-payment from GSK, triggered by the launch of Lamictal ODT in late June.

Gross margin on product sales was 35%, better than 33% in first quarter 2008. Research and development expenses were up 25% in constant currency compared to second quarter 2008, mainly because of increased clinical and product development activity this year compared to a year ago.

Selling, general, and administrative expenses during the quarter were slightly lower in constant currency compared to a year ago. The difference is explained by the fact that last year we had higher legal expenses as a result of the UCB litigation set up in September.

Net loss in this quarter was EUR0.6 million or $0.8 million, which is $0.02 per share in dollar compared to a $0.09 per share loss a year ago. At the end of the second quarter, we had no debt. Cash, including cash equivalents and marketable securities, was EUR21 million or $30 million.

I will now turn to first half 2009 financial performance. Most of the comments I just made in connection with quarterly results are also applicable to first half results compared to first half 2008. First of all, in first half 2009, revenues totaled EUR60 million or $84 million. This represents an increase of 24% over the same period a year ago. In constant currency, revenue growth was 13%.

Product sales grew 19% or 9% in constant currency, mainly driven by our PANCRELIPASE product. Royalties rose 38% in constant currency, primarily due to sales of AMRIX by Cephalon. Development fees increased by 31% in constant currency. Gross margin on product sales was 38% versus 37% in first half 2008.

Research and development expenses were up 28% in constant currency compared to first half 2008 because of increased product development activity. Selling, general, and administrative expenses were slightly lower in constant currency compared to first half 2008 when legal expenses were higher, prior to the settlement of our litigation with UCB. Net loss in first six months of 2009 was EUR1.6 million or $2.2 million. This is $0.05 per share in dollars compared to $0.12 per sales loss a year ago.

Turning to second half of 2009, we expect continued strong revenue growth compared to the same period in 2008. And we expect the second half of the year to be stronger than the first half. As Gearoid mentioned, based on a late September approval of ZENPEP, we would expect to launch in late November. Therefore, we do not expect meaningful revenues from this product in 2009.

As far as margins are concerned, during first half 2009, selling, general, and administrative expenses did not increase in constant currency compared to a year ago. But this should not be taken as an indication that this trend will continue for the rest of the year. The selling and marketing component of these expenses is expected to step up significantly as soon as ZENPEP is approved.

Moreover, we are committed to developing our product pipeline, and we confirm that compared to prior year, we expect significant growth of research and development expenses also in the second part of 2009.

I will turn the call back to Gearoid.

Gearoid Faherty

Thank you, Mario. I would now like to take a moment to summarize some of the milestones we expect to achieve in the second half of 2009 before I open the call to questions.

Number one of course is the expected approval and launch of ZENPEP, which is in FDA action date in late September. Our preparations are complete and we are waiting for the green light from the FDA. In addition to South Korea, we expect to sign additional distribution agreements for ZENPEP in other countries outside of the U.S.

We look forward to tracking the launch of Lamictal ODT by GSK and the continuing growth in Cephalon sales of AMRIX. We plan to meet with the FDA for 1025 ondansetron and define the registration pathway. We look forward to the clinical data announcement from the ZENPEP Phase III chronic pancreatitis trial and our partner Chiesi's Phase IIIb ulcerative colitis study evaluating Clipper or EUR-1073 in Europe.

And finally, we expect strong revenue growth and as we've seen in the first half, to continue if not accelerate in the second half. In addition, we continue to be involved in active discussions with multiple pharmaceutical companies regarding new co-developments and in-licensing deals.

That concludes our prepared remarks this morning. At this time, I'll ask the operator to open the call for your questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Our first question is coming from John Newman with Oppenheimer & Company. Please state your question.

John Newman – Oppenheimer & Company

Hi, guys. Thanks for taking the question. Actually I had a couple – I'll just ask two for now. Do you plan to transition patients to ZENPEP from PANCRELIPASE? And could you give us maybe a little bit of detail of how you would go about doing that and also, just wondered if you had any update on the PDUFA for Axcan. Thanks.

Gearoid Faherty

Okay. John, this is Gearoid. With regard to "do we have a transition plan from PANCRELIPASE to ZENPEP," the answer is yes, we do. Are we prepared to share this on a public call when some of our competitors maybe listening? No, we are not and for obvious reasons, for competitive reasons. With regard to the PDUFA date in Axcan, obviously that is something you would need to get some feedback from Axcan from – we are not in a position to call it.

John Newman – Oppenheimer & Company

Okay. And then, maybe jut one quick follow-up. I believe you guys have submitted some information to the Agency regarding a REMS program for ZENPEP. Was this something that has been submitted sometime ago and could you give us any color there? Thanks.

Gearoid Faherty

We’ve completed all the submissions that we needed to do to the FDA quite sometime ago. And obviously, things like REMS programs, medication guide, package inserts, and labels are classic discussions that people have with the Agency as you approach the end of the review process. So we’ve had multiple discussions with the Agency on all the elements of the NDA.

John Newman – Oppenheimer & Company

Okay, great. Thank you very much.

Operator

Our next question is coming from Annabel Samimy with Thomas Weisel Partners. Please state your question.

Annabel Samimy – Thomas Weisel Partners

Hi, thanks for taking call. A few questions. I guess one of the questions I had was what was the reason for the additional time the FDA needed to review the filing given that they've had this for quite sometime, they’ve been reviewing the whole pancreatic enzyme space for a while. Maybe you can just talk to that?

Gearoid Faherty

Annabel, we don't have anymore guidance to give than we already did when we got the advice of the delay. They've essentially told us – they didn’t ask us for any additional information to submit and they didn’t ask us any additional questions. They advised us that they needed additional time to review the data they had and they didn’t provide us with anymore color than that.

Annabel Samimy – Thomas Weisel Partners

Okay. Maybe on – a question on PANCRELIPASE then. I think last time we spoke, you characterized PANCRELIPASE as being mainly in the chronic pancreatitis space. Is that still the case or has it sort of moved more into a cystic fibrosis population yet?

Gearoid Faherty

I think there are four dosage strengths in the market, sort of a low dose in the 5,000 range, then a 10,000, 15,000 and a 20,000, that's the typical breakout of this market. And I think people are aware that the vast majority – the vast majority of the volume in the low-dose market is in GI. And certainly given that we have now almost 55% to 60% of that market – it's our sense that that is principally, not exclusively but principally in GI.

However, it's important – if you've seen the recent IMS data, we are now up to 29% market share in the 15,000, 16,000 dosage strength. It shows that less of this goes into stool GI, but that there is more of the CF component there than there would have been with the low dose.

I think if you look at this market in general and certain doses are certainly used more by GI doctors or GI patients and then other doses tend to go into CF. So I think with our PANCRELIPASE product at the moment, there is a large GI component to the PANCRELIPASE business we have to date and a more minor element in the CF.

Annabel Samimy – Thomas Weisel Partners

Okay. And just on margins, when you move from PANCRELIPASE to ZENPEP, what kind of gross margin increase can we expect?

Gearoid Faherty

We are not in a position to guide in this right now, Annabel, for reasons I've given to John earlier. And obviously, a lot of people are anxious as to how we will price – how we are pricing the PANCRELIPASE and how we will price ZENPEP. And we are obviously aware of this, we have competitors on the call today who would like to know our pricing strategy and that would obviously go to margin as well. So we have a margin on everything we serve, we obviously would expect higher margins on ZENPEP than we would have with PANCRELIPASE, but we have a decent margin on PANCRELIPASE as well.

Annabel Samimy – Thomas Weisel Partners

Okay, great. Just let me ask one more question on Lamictal ODT. To what extent have ODT formulations seen uptick in the market after generics on the primary formulation that sort of already have been released?

Gearoid Faherty

Well, I think what's very unusual about Lamictal and distinct from just ODT is that Lamictal went generic early last year and despite the fact that it went generic then, it reported sales of $125 million in the first quarter, sort of three quarters after generics had entered the market.

So I think there are a number of reasons related to the way that Lamictal is absorbed and to its bio-equivalents and the type of patients that take it that lead to a high branded element in that market and explain the reasons why GSK haven’t lost the business completely. Actually, it's looking like a very strong franchise with them, yes. And I think the ODT offers another opportunity for them to take patients away from the generic form to support the brand. Obviously, there is the benefit with a fast dissolve tablet in bipolar patients and institutionalized patients and in seizure patients because it facilitates swallowing.

Annabel Samimy – Thomas Weisel Partners

Okay, thank you.

Operator

The next question is coming from Frank Pinkerton with SunTrust Banks. Please state your question.

Frank Pinkerton – SunTrust Banks

Great. Thank you for taking the question. First, Mario, maybe for you. When you launch or if ZENPEP is launched in the fourth quarter, can you just tell us would the revenues be booked on demand or you are going to book stocking revenues in that initial quarter?

Mario Crovetto

We would have no stocking.

Frank Pinkerton – SunTrust Banks

Okay.

Gearoid Faherty

I don't know – Frank, are you just asking would we book the revenues as we supply stock to the distributors?

Frank Pinkerton – SunTrust Banks

Correct. I mean, different companies –?

Gearoid Faherty

No. No, we would not.

Frank Pinkerton – SunTrust Banks

Okay. So it will just be what's coming out of the channel on demand is what we could expect to see in the fourth quarter?

Mario Crovetto

Correct, yes.

Frank Pinkerton – SunTrust Banks

Okay. And then maybe Gearoid, when I think of launching this product, it is slightly different from the majority of the products that we track at launch. So can you just make comments around need for things like maybe sampling or couponing or other incentives at the product launch that we should think about in our models?

Gearoid Faherty

Yes, I think certainly, Frank, we will sample. No question about it. And components of this market are very highly supported by Medicare policies. Nobody is, as you know, not guaranteed that you would have coverage from Medicare immediately on approval, it may take sometime to come through.

Now, we’ve been talking to Medicare in the very states we've been talking also to the managed care players in the space. And there are different – the market behaved differently in different states. So we will have patient support programs where people need patient support. We have a very extensive program put together for the launch. Obviously, we had time to work on this for the last number of months. But again Frank, given that competitors come on calls like this, the last thing we are going to talk about is our launch strategy now.

Frank Pinkerton – SunTrust Banks

I don’t know; that's fine. And then finally, just can you update us on the timeline of approval for ZENPEP in Europe? Where do we stand with that? I know it was all kind of aggregated and maybe a fast track, but where does that stand?

Gearoid Faherty

Well, we are still online for a centralized review. We submitted the first part of our file. We've got pediatrics' feedback in Europe; they start with the pediatric element and tell us whether they approve the program that we have. We have another meeting with them, I think it's towards (inaudible) and the September or start of September to define the final elements of what are required for the file.

As we explained on previous calls, there has been a little bit of confusion in the market here because the Agency, the EMEA, has issued draft guidance for the products and it has still not confirmed that guidance. So we don't have a hard reg document to go against. Now, we've worked on the basis that the document will be approved. We've had some discussions with EMEA, we will have more. And then I'd hope given that we have these discussions in September, probably on the third quarter call we will be able to give you better guidance as to the filing date.

Frank Pinkerton – SunTrust Banks

Thank you very much.

Operator

Our next question is coming from Scott Henry with Roth Capital Partners. Please state your question.

Scott Henry – Roth Capital Partners

Thank you. Just a couple of questions. First, when we think about a European partnership as we kind of group the multiple partnerships together, how would you want to set expectations for such a deal? Would we – should we expect an upfront payment, should we look for royalties? I mean, obviously you are going to keep it in general terms, but I just want to get an idea of the environment for your European partnership and what one should be thinking about.

Gearoid Faherty

Okay. Good question, Scott. But again, as you can imagine, the piece of partners that we are talking to presently will be listening to this call as well. And so, I'd give it in broad terms. We would expect to do deals probably for Southern Europe, Northern Europe, Central Europe, and Eastern Europe. So there will be a range of deals.

In each of the geographies, we'd expect to be the owner of the registration because we will file under centralized review and there will be one approval for the 27 countries if we are successful. And so rather than – we certainly will not be pushing for significant upfront fee, that's not something we need. And the type of thing we will be looking for is rather than a royalty and a supply price for the product, we will be looking for a revenue split with the partner. So it will be a combined royalty and supply price. It will be a percentage of the take of the partner and we will supply product into that free.

Scott Henry – Roth Capital Partners

Okay, thanks.

Gearoid Faherty

That's the likely structure.

Scott Henry – Roth Capital Partners

Okay, thank you. That is helpful. Another question, in terms of expected clinical data over the second half of ’09, I believe we should be getting the chronic pancreatitis data sometime soon. Can you just confirm if that is correct and I imagine would that be a press release or would you present that data?

Gearoid Faherty

We would like to present the data. As soon as we have it, we will come to the market with it. We would obviously like it if it works for us, it would be nice if it were to come out around the time of the launch of the product, but as you know, this is going through the (inaudible). It’s going through the statistical evaluation. As soon as we have the data, we'll come out with it. But yes, that should be soon as should be the Clipper data.

Scott Henry – Roth Capital Partners

Okay, thank you. And one question with regard to – is the Creon-approved product on the market yet? I don't believe it was last – last we spoke with you, but curious if there are any competitive dynamics out there that have changed.

Gearoid Faherty

Well, we believe it's in the market now.

Scott Henry – Roth Capital Partners

Okay. Are you getting any feedback on how that has changed with the FDA-approved versus the prior version?

Gearoid Faherty

No, we haven't. We had – it's not there long enough for us to know anything as yet. We've had a talk obviously with the market participants, but nothing we want to share on the call.

Scott Henry – Roth Capital Partners

Okay. Fair enough. And just a final question. With regards to the AMRIX patent, could you talk a bit about kind of the genesis of that patent? I don't see it mentioned other than notice of allowance.

Gearoid Faherty

Yes. Well, obviously notice of allowance that we haven’t been granted yet but we are expecting that to happen quite soon. It's an important patent for us and we think it's very important in relation to the Paragraph IV filings that have been filed to date. We think it's – as Mr. Baldino indicated on his call and we feel the same, we think it's an important patent for us. And we have other patents under review.

Scott Henry – Roth Capital Partners

Okay. Thank you for taking the questions.

Gearoid Faherty

Not at all.

Operator

(Operator instructions) Our next question is coming from Bill Tanner with Lazard Capital. Please state your question.

Bill Tanner – Lazard Capital

Thanks. Gearoid, a couple of questions. One, you mentioned and just wanted to know if it's sort of box-checking discussions with the FDA regarding the label, anything that you think that we might be watching for, anything that may be in there that could potentially provide some meaningful differentiation versus preeminent?

Secondly, presumably once you get approval that would actually be six approvals in last eight years. Just thinking going forward, you've obviously got 1025 and 1073. Generally speaking, would that be kind of a pace to think about over the next few years in terms of other approvals?

Gearoid Faherty

Good question. Bill, it's – the – with regard to the label, we've already seen the label now from the Agency and we know what we are getting. Again, for competitive reasons, I don't want to tell people what it looks like, but we are pleased with our label.

As I think people know with regard to the competition, we are the only people who've clinically tested this product in patients under the age of 12 and so we think that's a very important differentiating factor. We have a different range of doses to some of the other people that are coming to the market. We have a specific pediatric formulation with a range of things that we think benefits us. We've tested our product in food stuff to facilitate administration to children. As we come closer to launch, obviously people will get a better view as to how we differentiate.

And your other question related to pipeline. I think that's a very, very important question, many people seem to miss this. If we've had six products approved in the last eight years and we have signed more than 24 deals in the last two-and-a-half years, certainly people should be expecting that some of our partnership products are in clinical development right now. So I certainly would not limit the breadth of our pipeline to two disclosed products that you mentioned, like ondansetron and 1073.

Bill Tanner – Lazard Capital

And is there anything that would change in – or is it just the disclosure of these presumably are going to be done by the – I guess, the innovator? Anything that would change with respect to the announcement of them or is it just somewhat out of your control and we'll just sort of see when we see it?

Gearoid Faherty

It's somewhat out of our control. The bigger the pharma company is, the more tightly they control us. The more it's a lifecycle management product, the more they'd want to control us. The more innovative the product is, the more the company, the more likely they are they want to disclose something once they get prudent concept for a large part of our pipeline and tends to be with bigger companies rather than the small and there is certainly a heavy proportion related to lifecycle management. So unfortunately, Bill, I think you are going to hear about this when it's very close to coming to the market or already approved.

Bill Tanner – Lazard Capital

Okay. Thanks very much.

Operator

Our next question is coming from Rich Silver with Barclays Capital. Please state your question.

Rich Silver – Barclays Capital

Yes, thanks. I've got a couple. First for Mario, on the R&D spending increase you expect in the second half, can you give us some sense of magnitude and also what's behind that spend?

Mario Crovetto

In the last call, we gave an indication that overall 2009 would see an increase of R&D expenses between 30% and 50%. We essentially confirmed that fact for full 2009 and the reason is, as in the first half, we have higher activity, higher clinical activity and further development activity in general, both on our internal pipeline and for our partners.

Rich Silver – Barclays Capital

Is it still 30% to 50% or can you narrow that down a little bit in terms of the range of increased spending?

Mario Crovetto

We could narrow it down a little bit to 30% to 40%.

Rich Silver – Barclays Capital

Okay. Thank you. A question for Gearoid. On Lamictal ODT, now that it's been launched, can you give us a better sense of perhaps what GSK has communicated with you as far as where this is going to fit in their Lamictal franchise and whether this is a niche opportunity or a real cornerstone of their franchise and franchise preservation?

Gearoid Faherty

Rich, I believe it's a very important part of their franchise preservation. They've spent a lot of money, it takes a lot of time and a lot of clinical development in an accelerated pathway to get this product to the market. As you know, they've worked also on a sustained release formulation. I would imagine without giving away what their marketing plans are for their products, both of those, both the sustained release and the ODT, are an important, very important part of their efforts to protect the franchise from generic competition.

As I said in the answer to the previous questions, even despite the fact that this product is now faced – has faced generic competition for a year, it's still running at 500 million a year as a product. So I think it's fair to expect GSK to work hard to protect it and I think this is an important part of them.

Rich Silver – Barclays Capital

And the milestone payment in the second quarter, where was that recorded on the P&L?

Mario Crovetto

In the development fee revenue line.

Rich Silver – Barclays Capital

Okay. And then lastly, can you give us a sense on the pricing on PANCRELIPASE? What's sort of discount to Creon that is – that we are seeing in the market?

Gearoid Faherty

We prefer not to. We understand that Creon are coming out with a significant price increase or already have come out with a significant price increase, but we haven't verified that yet. So we don’t want to comment on it. But we have a – quite a decent discount for PANCRELIPASE. We've obviously changed price on PANCRELIPASE over the last number of months as well. I'm not going to say today that we won't be doing it again and it's definitely a big discount to Creon, but we prefer, Rich, to say no more.

Rich Silver – Barclays Capital

And the price increase that you are referring to on PANCRELIPASE occurred in the second quarter?

Gearoid Faherty

It's incurred – I think it was – yes, it did. Yes, it did.

Rich Silver – Barclays Capital

Okay. Thanks, Gearoid.

Gearoid Faherty

Yes, no problem.

Operator

Thank you. At this time, we have no further questions. I'd like to turn the call back over to Mr. Faherty for closing comments.

Gearoid Faherty

Thank you for your attention this morning, everybody. I appreciate your time. I know it's a very busy day with earnings releases today. And we look forward to updating you on our progress in the next call. Thank you.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. And we thank you for your participation.

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