Forest Laboratories Inc. F2Q10 (Qtr End 30/09/09) Earnings Call Transcript

Forest Laboratories Inc. (FRX)

F2Q10 Earnings Call

October 20, 2009; 10:00am ET

Executives

Frank Perier - Chief Financial Officer

Larry Olanoff - Chief Operating Officer

Frank Murdolo - Investor Relations

Analysts

Rich Silver - Barclays Capital

Corey Davis - Jefferies & Co.

Gregg Gilbert - Banc of America

Scott Hirsch - Credit Suisse

Ian Sanderson - Cowen & Co.

Tim Chiang - FTN

Ronny Gal - Sanford Bernstein & Co.

Gary Nachman - Leerink Swann

David Buck - Buckingham Research

Marc Goodman - UBS

Louise Chen - Collins Stewart

Tom Russo - Baird

Bill Tanner - Lazard Capital Markets

Presentation

Operator

Good morning. My name is Kimberly and I will be your conference operator today. At this time, I would like to welcome everyone to the Forest Laboratories, second quarter 2010 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to Mr. Frank Murdolo from Investor Relations; please go ahead sir.

Frank Murdolo

Thank you Kimberly, and good morning everyone. Thank you for joining us today for this second quarter fiscal 2010 conference call. Joining me today is Larry Olanoff, our President and Chief Operating Officer; and Frank Perier, our Senior Vice President of Finance and Chief Financial Officer.

By now, each of you should have seen the earnings release that we put on the wires around 08:00 a.m. this morning. The release is also available at our website, www.frx.com. By way of Safe Harbor Statement, let me add that various remarks that we may make about future expectations, plans and prospects for the company constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and actual results may be different.

Let me now turn the call over to Larry, who will comment on the business during the quarter.

Larry Olanoff

Good morning everyone. I will start today’s call by reviewing key company events for the quarter, and then I’ll turn the call over to Frank Perier, who will review the financial details of the quarter.

Our underlying business continued to perform well during the quarter for our key marketed products. Lexapro sales remain close to target, despite the expected modest decrease in market share, and we saw continued solid prescription growth for Namenda, Bystolic, and for our newest product, Savella.

We were very pleased to announce the completion of two important product collaborations during the quarter. The first with AstraZeneca to co-develop it, and commercialize ceftaroline in all markets outside the US, Canada and Japan; and the second deal with Nycomed, to commercialize Daxas in the United States. We believe that both are significant enhancements to the value and revenue generation potential of our late stage development pipeline. I will discuss these opportunities in more detail in a few minutes.

We launched Savella at the end of April, and sales in the current quarter were $10.2 million. Our broad based early experience sampling program, and general promotional activities appear to have succeeded, in driving patient and physician experience with Savella, and we are encouraged by the solid update and positive response to Savella’s profile and performance, with both specialists and general practitioners.

There have been over 22,000 cumulative prescribers since launch, and new prescribers are currently being added at a rate of approximately 1100 per week. Repeat prescribers account for 79% of Savella weekly prescriptions at this time. There has been a steady growth in total weekly prescriptions for Savella since the launch, and new prescriptions have started to grow again since Labor Day, following a slower trend during the summer months.

Now in its 26^th week on the market, Savella new prescriptions for the week ended October 9 totaled 6209, and total prescriptions reached 9179. Savella rapidly gained share in the fibromyalgia market, driven by early adopter physicians in both specialty and primary care. Since launch, 49% of prescriptions have been written by primary care physicians, 17% by rheumatologists, 11% by pain specialists, and 8% by neurologists. Savella’s share of voice on the basis of fibromyalgia details remains the highest with both primary care physicians and rheumatologists, by comparison to Cymbalta or Lyrica.

We continue to meet with managed care organizations and make presentations to the key plans. Our goal is to have Savella placed in an unrestricted formulary position, either Tier 2 or 3, in the majority of the major plans and to do at least as well in gaining formulary access as we have with Bystolic. Currently during the launch phase, about 84% of the prescriptions are covered by third-party insurance.

Regarding our inline products, Lexapro sales in the quarter totaled $566 million, a decline of 3.1% year-over-year. In March, we announced the FDA approval of our supplemental NDA for Lexapro, for the indication of acute and maintenance treatment of major depressive disorder in adolescence, 12 to 17 years of age. This additional indication is helping to stabilize the position of Lexapro in the market, and we have observed an increase in share for this patient population.

Namenda sales were $275.3 million during the quarter, a growth of 11.9% year-over-year. Bystolic had sales in the quarter of $40.7 million; this compares to sales of $14.2 million in the year ago period. Bystolic sales continue to perform strongly, and we continue to see an encouraging mix of patients, including significant proportions of those switching from generic beta-blockers and those new to beta-blocker therapy.

Bystolic has a growing base of over 111,000 prescribers, with approximately 82% of these being repeat writers. The brand continues to add new prescribers and gain repeat prescribers at a rate higher than experienced with Benicar, at a similar time period post-launch, based on script align performance. Both primary care physicians and cardiologists are prescribing the product, and share amongst cardiologists continues to exceed that of the national share for Bystolic.

Overall on the managed care front, our access without any step edit or prior authorization restrictions covers about 85% of total beta-blocker volume in managed care settings; and with several recent tier 2 additions, Bystolic now has unrestricted tier 2 coverage on 18 major national health plans. Overall we are very pleased with the strong sales and earnings performance during the quarter and are enthusiastic about the business development activities completed also in this quarter.

I’ll now turn the call over to Frank, who will provide more details on the financial results.

Frank Perier

Thank you Larry, and good morning everyone. Fiscal second quarter revenues were comprised of $962.7 million of product sales, versus $925.6 million last year, representing a growth of 4%. $46.6 million of contract revenue from the Benicar agreement, up 2.7% versus last year, the receipt of an upfront licensing payment of $40 million related to the previously announced product collaboration agreement with AstraZeneca, to co-develop and commercialize Ceftaroline in all markets outside of the United States, Canada and Japan, as well as $9.4 million of interest income.

Total revenues, which are inclusive of product sales, pretax earnings from Benicar, interest and other income totaled $1.0639 billion, an increase of 7.2% from last year.

During the quarter, wholesalers brought Lexapro inventory down by about a day and a half, and Namenda inventory decreased by nearly a day. The dollar impact of that movement was about $8.7 million on Lexapro, and $2.1 million for Namenda. Bystolic inventories were reduced by a couple of days or approximately $1 million, and Savella inventories are quickly reaching normalized levels - at the end of September, just under three weeks.

Gross margin in the quarter came in at 77%. This level compares to 77.9% in last year’s second fiscal quarter. SG&A spending during the quarter was $324.9 million. It was basically unchanged from last year, and included the one-time charge of $20 million, for a settlement payment related to the legal proceedings with Caraco for Lexapro.

Excluding the $20 million settlement payment to Caraco, SG&A spending decreased by 6.5% in the quarter. In addition to our ongoing spending levels in support of inline products, this quarter included significant investment spending in support of Bystolic and Savella, which was launched in April.

Research and development spending was $253.1 million in the quarter, as compared to $146.4 million in last year’s second fiscal quarter. R&D spending in the quarter included $100 million for an upfront licensing fee, payment to Nycomed, in connection with a product collaboration agreement for Daxas. Excluding the license fee payment, R&D spending increased 11.4% for the quarter.

The quarter also included approximately $29.9 million in milestone development expenses, compared to $36.3 million last year. We expect to spend $80 million from milestone development payments for the year, or $45 million in the second half, with approximately two-thirds in the third quarter, and the balance in the fourth quarter.

Our effective tax rate for the quarter was 26.73%, due mostly to the impact of the one-time items. Excluding the impact of the one-time items, the tax rate for the quarter was 22.58%. The tax rate was up slightly due to discreet adjustments in the quarter. We expect the full year rate to be approximately 21.2%.

Actual shares outstanding as of September 30 were 301,756,000, a reduction of 386,000 shares from last year, due mainly to the company’s share repurchase program. We did not repurchase any stock in the second quarter, and have a remaining authorization to repurchase up to 5.7 million shares.

Our cash and marketable securities balance on September 30 was approximately $3.6 billion, an increase of $210.7 million from last quarter. Of this, $820 million or 23% of our cash and marketable securities are domiciled domestically, with the remainder maintained by our international subsidiaries.

Moving to our fiscal guidance for fiscal 2010, we now expect that diluted earnings per share for the fiscal year ending March 31, excluding the one-time charges in the current quarter of $0.24 per share, will be in the range of $3.40 to $3.50 per share.

The revised guidance maintains total revenues of $4.1 billion, excluding the AstraZeneca license payment, and reflects incremental SG&A expense attributable to pre-launch spending for Daxas, and total R&D spending of $610 million, including a third Phase III study for Aclidinium, and total milestone expense of $80 million. As I said, we expect full-year tax rate to be 21.2%.

I’ll now turn the call back to Larry for our pipeline update.

Larry Olanoff

Thank you, Frank. The second half of fiscal 2010 will be a very busy period for us, as we report on a number of events in our product development pipeline. We will also remain focused on meeting our dual goals, to further advance and expand our product development pipeline throughout the remainder of the year.

As I mentioned earlier, we were very pleased to announce during the quarter, a collaboration with AstraZeneca, to co-develop and commercialize ceftaroline in all markets outside the US, Canada and Japan. We believe AstraZeneca’s expertise in the anti-infective field, together with their first-class global sales and market organization, will help bring this important therapeutic, if approved, to patients with severe skin and respiratory infections worldwide.

We were also very pleased to announce the collaboration agreement with Nycomed to commercialize Daxas in the US. Daxas is a proprietary selective phosphodiesterase 4 or PD 4 enzyme inhibitor, which has been developed Nycomed for the treatment of COPD. Nycomed has demonstrated a great diligence in further developing Daxas, culminating in worldwide regulatory filings, including the submission of an NDA with the US FDA here in July.

Daxas represents the first, in a new class of agents to treat COPD and would be the first new oral agent to be approved for this debilitative disease. Nycomed completed four Phase III trials for Daxas. The results were published in The Lancet in August. In addition, the results of all four trials were presented at the European Respiratory Society Congress last month. Across all four studies, Daxas demonstrated a significant improvement in pre-bronchodilator FEV-1 lung function measures, and reductions in exacerbation rates ranging from 15% to 37%.

The two 12 month pivotal studies, demonstrated that Daxas produced a statistically and clinically relevant reduction in exacerbations, even for patients who were taking long-acting beta agonist broncadialators. In two six month placebo controlled supportive studies, Daxas showed a clear trend in the reduction of exacerbations, a secondary end point, when added either to tiotropium in one study, or salmeterol in the other study.

Regarding Ceftaroline, in June we reported positive top line results from two Phase III studies in patients with community acquired bacterial pneumonia. The top line data in each of the pivotal trials, focus 1 and focus 2, demonstrate that Ceftaroline met the primary objective of non-inferiority, compared with Ceftriaxone, and achieved high clinical cure rates in patients with moderate to severe community acquired bacterial pneumonia, requiring hospitalization.

According to the integrated efficacy data from the two studies, the clinical cure rate and the clinically evaluable population was 84.3% for the Ceftaroline group, compared with 77.7% for the Ceftriaxone group. Ceftaroline was also well tolerated, with an adverse event profile similar to that of Ceftriaxone.

Data from both CABP studies, along with the positive Phase III study results that we received last year for complicated skin and skin structure infections, will serve as the basis for our planned NDA submission for initial marketing approval of Ceftaroline, to be filed around the end of 2009.

We also filed an IND for our ceftaroline beta-lactamase inhibitor combination product this quarter, Ceftaroline 104, which has the potential to further expand the clinical utility of this franchise, by expanding the drug’s ability to treat certain gram-negative strains, that would otherwise be resistant to beta-lactam antibiotics.

Working with our partner Ironwood Pharmaceuticals, we are conducting a comprehensive Phase III clinical programm to evaluate Linaclotide safety and efficacy in patients with either irritable bowel syndrome, constipation predominant or chronic constipation. We expect to report top line data for the chronic constipation studies later this quarter. Recruitment for the IBS trials commenced in July and is going very well, and we expect to report top line data for the IBS trials around midyear 2010.

As announced this morning, the positive outcome from a recently completed short term Phase II study comparing Aclidinium BID, with placebo and tiotropium, supports our decision to start additional Phase III studies, to establish the efficacy and safety of Aclidinium at a higher and more frequent dosing regimen. Results from this Phase II trial and the first placebo controlled Phase III study incorporating this BID dosing regimen are expected to be announced in the first quarter of 2010.

In addition, enrollment has started for two additional placebo control Phase III studies, one three month, and one six month in duration, to investigate the effects of Aclidinium BID in patients with moderate to severe COPD. As we have previously communicated, we anticipate a filing date for Aclidinium in late 2011 or early 2012.

I would remind you that we view Aclidinium as a broad franchise opportunity, and the tolerability experienced from the acclaim study suggests that higher doses are indeed feasible. In addition, the new BID program will facilitate and potentially accelerate our strategy to develop a twice daily Aclidinium Formoterol combination in the future.

We have access to a unique dry powder inhaler device for Aclidinium that will be convenient to use, and easy to incorporate higher and more frequent dosages, as well as combination agents. The ease of use and functionality of the inhaler device is an important factor in delivering the correct dose to the lungs to ensure effective COPD treatment. With a dose counter and a unique control window that tells the patient that the dose has been inhaled correctly, we believe the Aclidinium DPI will add to the competitiveness of the franchise.

Our collaboration with Phenomix for the development and commercialization of dutogliptin, a DPP 4 inhibitor and development for the treatment of Type II diabetes, is progressing well. The first Phase III trial for dutogliptin began in July 2008, and we expect to have top line results available in the second quarter of 2010. As planned, we also initiated additional Phase III trials this past July. Our Phase III program will be similar in size and scope, to the Phase III programs reported for other DPP 4 inhibitors.

Our collaboration with Pierre Fabre for F2695 or legromenalsphran (ph), a once daily administered selective Norepinephrine and serotonin re-uptake inhibitor for the treatment of depression is also on track, and as planned, we initiated Phase III clinical trials during this past summer.

Turning to Cariprazine, in September 2008 we announced top line results from the Phase II clinical trial in patients with acute mania associated with bipolar-one disorder, which showed that Cariprazine produced significant symptom improvement compared to placebo within the first week of treatment, and at each subsequent time point study. This potential indication may represent a significant opportunity for this compound, in addition to the planned indication for schizophrenia.

Our ongoing Phase II B study in schizophrenia with our partner Gedeon Richter, will examine in greater detail a range of lower doses, based on the encouraging results of the first Phase II, proof of concept study. This study is being performed in order to better determine an optimal dose range, to take into the planned Phase III studies, and the top line results should be available shortly.

Depending on these results, we also expect to initiate the Phase III mania disorder studies in early 2010, to be followed shortly thereafter by the start of the Phase III schizophrenia program. In addition, we have commenced Phase II proof of concept studies in bipolar depression, and as add-on treatment for major depressive disorder.

As I previously stated, we continue to believe that our late stage product pipeline, could collectively represent several billion dollars of potential product sales in the long term; sufficient over time to replace the revenues lost due to patent expirees for Lexapro first in 2012, and later for Namenda in 2015. However, we must operate with the assumption that not all of our late stage programs will ultimately result in approved products, or products that achieve our peak sales projections.

Accordingly, one of our strategic goals has been to double the commercial value of our late stage product pipeline by 2012, through the addition of new development opportunities, both license and acquired, and the advancement of our earlier stage pre-proof of concept programs. We have now added three major installments towards that 2012 pipeline expansion goal; Daxas, dutogliptin, and F2695, and we partner with AstraZeneca for the co-development and commercialization of ceftaroline outside the US, Canada and Japan.

We have continued to advance our complete development pipeline. Importantly, our business development team continues to see many interesting and commercially viable products in the market, and we have clearly demonstrated our ability to compete effectively, to secure these new and important products.

During the period from 2004, through the end of August 2009, we completed one co-marketing agreement, one out-licensing agreement, 14 product licenses or acquisitions, and four drug discovery agreements. This list includes 10 products currently in development; Bystolic, which was launched in January of 2008, and Savella, which was launched in April 2009. Thus we remain confident in our ability to achieve our 2012 product acquisition goal, in parallel to advancing our established pipeline.

Frank Perier

Thank you, Larry. I will now offer some second quarter sales figures for the smaller products in our portfolio. Aerobid, $3.4 million; Campral, $6.3 million; Celexa brand, $4.4 million; Cervidil, $14.9 million; Esgic, $0.6 million; Europe, $18.1 million; Generic, $6.5 million; Infasurf, $3.0 million; Lorcet, $1.5 million; Monurol, $0.4 million; Tessalon, $0.1 million; Thyroid, $9.0 million; Tiazac brand, $1.4 million.

With that, I will ask the operator to start the Q-and-A session. Operator.

Question- and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Rich Silver of Barclays Capital.

Rich Silver - Barclays Capital

Hey Larry.

Larry Olanoff

Good morning.

Rich Silver - Barclays Capital

How are you?

Larry Olanoff

Good. Thank you.

Rich Silver - Barclays Capital

Just a question on the SG&A number for the year; is that still, even including the Daxas, is that still unchanged?

Larry Olanoff

I’ll let Frank comment on that, and then I’ll comment afterwards.

Frank Perier

What we’ve indicated is, that we have some incremental investments related to Daxas that was not planned for, but in total, we should be fairly close on total SG&A.

Rich Silver - Barclays Capital

Okay. Then in terms of the SSRI market growth, and Lexapro market share, are those still unchanged from previous expectations?

Frank Perier

We’re really not updating guidance on line-by-line items Rich. We’ve really just indicated that overall, our $4.1 billion of total revenues, the business remains on track to achieve that.

Rich Silver - Barclays Capital

Then on the Daxas launch, any plans to hire additional reps?

Larry Olanoff

At this time we have no plans to hire any additional reps to support the Daxas launch.

Rich Silver - Barclays Capital

Okay, and then on Bystolic and CHS, can you elaborate on what plans you have for that, assuming you gain the approval?

Larry Olanoff

We would plan to launch that product opportunity in the spring. If we gain the approval, we have an action date of March for that indication, and we’re preparing for that event as we speak now.

Rich Silver - Barclays Capital

Okay, thanks very much.

Operator

Your next question comes from the line of Corey Davis of Jefferies.

Corey Davis - Jefferies & Co.

Thanks very much, just two questions. The first, as it relates to Daxas, there’s FDA adcom coming up for Spiriva on November 19. I believe seeking the same claim is a reduction in exacerbation, so I’m not asking what you think the outcome for them would be, but do you think there are things we can learn about the FDA’s disposition on this indication and the studies that need to be done as being predictive for what the outcome for Daxas will be?

Larry Olanoff

Thanks Corey for the question. I think it will be very useful, and we plan to attend that meeting and listen into what is being discussed. My understanding is that the consideration for the exacerbation change will be based on the outlet trial, which as everyone knows is a very large trial.

It failed to meet that end point on progression disease, but did show a statistically significant increase or decrease in exacerbation rate, so we’ll be very interested to hear. I don’t know enough about the details of that trial, to know how well that was prospectively stated as an end point, so whether the FDA will get any issues around that, I don’t know, but I think the discussion around the definition of exacerbation, some patient categories, follow-on, or additional secondary measures are all very helpful to us in our preparation.

We are very confident in terms of the data. The more we look at our own data, the more we feel comfortable in terms of ultimately having to do the same kind of presentation if we’re called upon.

Corey Davis - Jefferies & Co.

Okay, and then the second question is on Linaclotide; can you just help us out in terms of what we should expect when you release the data later this quarter? Remind us of the end points, and beyond just a statistical win, what types of metrics will make the difference between a huge success in the trial, and just a successful trial?

Larry Olanoff

The data we plan to release, as everyone is aware is on the two chronic constipation studies that are ongoing. Each of those studies is looking at two different doses of Linaclotide versus placebo, they are very large studies; and based on the Phase II data, if we can replicate those results, we think we will have a very competitive product to bring to the marketplace.

The end point is a single end point, and it’s around complete spontaneous bowel movement responder analysis, and has been modeled largely on the Phase II data that we generated earlier.

Corey Davis - Jefferies & Co.

Okay, that’s all I had. Thanks.

Operator

Your next question comes from the line of Gregg Gilbert of Banc of America.

Gregg Gilbert - Banc of America

Thanks. First for Larry, can you discuss the size and structure of your hospital force that will be detailing ceftaroline, and how important is business development in that particular channel for Forest at this point?

Larry Olanoff

Our business development continues to be very important in the area of antibiotics and anti-effective is something that we’ve kept a very close eye on, for now at least the last four or five years. Our current hospital sales force is a little over 100 people, and we believe it will be sufficient perhaps with some additional hires, modest size to launch the product to all the major hospitals we need to reach and communicate the products portfolio to.

Gregg Gilbert - Banc of America

Then a longer Lexapro question, other than price increases that you decide to take over in the next couple of years, is there an opportunity to reduce rebating at some point before the patent expiration?

Larry Olanoff

That’s a good question. We are very careful to look at rebating year by year for each one of our products, and given the product’s evolution and its maturity, I think the consideration is on how much you pay by way of rebates that differ from product to product. So yes, we look at that for all our products, Lexapro coming to the end of this. Its exclusivity period will demand the same kind of consideration.

Gregg Gilbert - Banc of America

And are you still in the high teens area there in terms of overall rebating?

Frank Perier

Yes, we still maintain rebates on Lexapro that are in the upper teens level.

Gregg Gilbert - Banc of America

All right. Thanks guys.

Operator

Your next question comes from the line of Scott Hirsch of Credit Suisse.

Scott Hirsch - Credit Suisse

Thanks. Just a follow-up Larry on the Linaclotide data; there’s a 300, and 150 micrograms, and I think the end point for the Phase III is the spontaneous bowel movement, but in the Phase II it was the average spontaneous bowel movement. Is there any real change in that end point or is it basically the same thing?

Larry Olanoff

I believe in the Phase II it was spontaneous bowel movements; in the Phase III for chronic constipation it’s complete spontaneous bowel movements. It’s a subtle difference in the definition, but both those parameters were studied in Phase II as well.

So anything we’ve done by way of estimating or a treatment effect size for Phase III, were driven by the Phase II data, and we are comfortable with that. Again, if are able to replicate the results we saw in Phase II, we should get a very good result out of the Phase III program as well.

Scott Hirsch - Credit Suisse

Are you using the same sites for Phase II and chronic constipation and IBS, and does that offer any insight into placebo responses or controlling for that?

Larry Olanoff

I can’t comment on that, I just don’t know the details. I know that we’re using largely similar geographic regions and effectively US sites, and that within the Phase III programs there’s a lot of overlap between the IBS and the chronic constipation groups. We’re very comfortable with the groups we’re using. Obviously, we needed to use more sites for the Phase III program than we did for the Phase II.

Scott Hirsch - Credit Suisse

Switching on to Savella, have you started any promotion to sites, and have you seen any counter response really yet from the Pfizer or Lillys?

Larry Olanoff

I’m sure there’s counter details all the time, but I’m not sure they have a lot more to say against the product, than we have to say in support of the products, so we’re not particularly concerned about any counter detailing. We’re just aware of it and deal with it. We don’t make a practice of detailing to many sites with this product, because we don’t want to get into any off label issues.

Scott Hirsch - Credit Suisse

Is there an update; one thing you didn’t mention in the pipeline is on the once-a-day memantine; is there a filing timeline update yet?

Larry Olanoff

No, we’ve not provided any timelines on that product. All we’ve said is that the NDA has been prepared for that product.

Scott Hirsch - Credit Suisse

Then just lastly, this quarter we saw on the business development front Proctor & Gamble’s business go, you guys got Daxas. How are you seeing the number of opportunities and the structure of those opportunities play out?

Larry Olanoff

Well, the number of opportunities still remains very high. We’re not at all frustrated in terms of the good opportunities being out there, and they come from the similar range of sources that we’ve seen in the past as well, both in the US, outside the US, middle size companies, small companies, even sometimes large companies.

So, nothing has really changed that dramatically. We continue to look at all opportunities, we tend to favor licensing deals as we have in the past or tuck-in acquisitions, but the quality of the opportunities remains very good. I think the mix, given the fact that we tend to be very opportunistic and not particularly wedded to any particular therapeutic areas, the mix for us is good as well.

Scott Hirsch - Credit Suisse

Okay. Thank you.

Operator

Your next question comes from the line of Ian Sanderson of Cowen.

Ian Sanderson - Cowen & Co.

Good morning. Thanks for taking the questions; first on, dutogliptin, you noted in the press release that you’re conducting additional Phase III studies. Can you talk a little bit about, are these just to satisfy requirements for US registration or are there particular end points of that study that may serve to differentiate dutogliptin, and a similar question on levonomasapran (ph), in terms of where you’re going with that Phase III program?

Larry Olanoff

Those are good questions, both. We’ve not really stated anything about competitive positioning for either one of the products at this point. I can tell you that the Phase III programs are primarily designed to meet regulatory needs.

The dutogliptin program is very similar in size and scope to what has been seen with other DPP 4 inhibitors, and that involves a fairly wide range combination, opportunities which ultimately could translate into combination products of their own down the line.

The switching of F6295, we’re doing a number of standard programs in depression, but we are adding some additional end points to those studies to look at what we think could be the unique efficacy opportunities with this product, and that’s about as much as I can say at this point.

Ian Sanderson - Cowen & Co.

Okay, and if I could ask a follow-up question on Savella; granted we have seen a modest re-acceleration of the adoption curve, but is there anything you’re looking to do differently to accelerate that pace? It appears there was a warehousing effect here that we may have worked through, and any changes to your promotional attack here?

Larry Olanoff

The warehousing, if you’re talking about the sampling and such in our early starter program, that part of the program continues. I would remind you that Bystolic, before all the samples really weld their way out of the system so we could make accurate estimates, without the samples, additional sampling of the launch took almost a year, so that’s still part of the process.

In terms of any changes, every time we have a POA meeting, which we had one recently, we make subtle changes to each one of our marketing programs to reach what we think are the dynamics in the marketplace.

For Savella, the major effort is very similar to what we did at the launch. We think there’s a real opportunity here to grow the market through physicians, and part of what we do with Savella is predicated on identifying and educating physicians as to those interested in treating fibromyalgia, and we think ultimately that will have the major impact on the market.

There’s also a great deal of opportunity here to look at other therapeutics of the generic products that are used in fibromyalgia that have never been approved, and look at that as potential source of new script growth as well, but that hasn’t changed dramatically from the time of our launch.

Ian Sanderson - Cowen & Co.

Okay, thank you.

Operator

Our next question comes from the line of Tim Chiang of FTN.

Tim Chiang - FTN

Hi, thanks. Larry, assuming the Linaclotide Phase III trials in chronic constipation are positive, would you consider filing it just for that indication? You could essentially get Linaclotide on the market a year earlier, given the fact that the IBS trial won’t finish until mid next year. I just want to get your thoughts on that.

Larry Olanoff

It’s a good question, Tim, thank you for that. As we’ve said in the past, our current intent is to file both indications simultaneously. Obviously, we’ll continue to keep an eye on the program, and I’ll also remind you, we said in the past that our timelines even for chronic constipation are not driven simply by the acute studies that we plan to see the results of this coming quarter, but also we need to finish some long term safety studies which are required under normal ICH, nothing special about those, so that will drive the timeline.

We’re really looking at everything we can do. As we said last July when we started the program, to accelerate IBS recruitment, that’s gone very well. So, we think that the difference between the two programs as we look at them right now is relatively modest in terms of what would be the earliest filing dates of individual components, so we continue to move along with the combination of two claims as our intended pathway here, but good question.

Tim Chiang - FTN

And Larry, just one follow-up; on ceftaroline, as you know the category in antibiotics has had a very mixed track record heading into panel meetings. What do you think will be in favor of your product, assuming you have a panel meeting next year for that antibiotic?

Larry Olanoff

It’s a good assumption. If we file as we plan around the end of this year, what’s in favor for us is that we have the good fortune to follow-on to a lot of information that has been determined out of these panel meetings in terms of what the FDA and their advisors require to see a positive outcome on an approval. So, we’ve looked very carefully, and this is really revolves around the efficacy requirements for both the community acquired and the skin claims.

We are very comfortable with our results. Those results are now publicly disclosed, fitting well within the parameters of what the panels have requested, both on the basis of overall results, and even subset analysis. Going in, we’re very confident that our safety and efficacy data as we generated thus far, should fulfill the FDA’s needs in both indications.

Tim Chiang - FTN

Okay great. Thanks Larry.

Operator

Your next question comes from the line of Ronny Gal of Sanford Bernstein.

Ronny Gal - Sanford Bernstein & Co.

Good morning, and thank you for taking my questions. A couple of them, the first one around NXL104 sterlin with lactomis combo, given that you’ve got experience in this indication now, how long do you think it will take you guys to take it to the Phase I, Phase II, and does the AstraZeneca deal include a rider regarding that combination product?

Larry Olanoff

The present AstraZeneca deal only includes ceftaroline, it does not include the 104 opportunity. In answer to your other question in terms of the speed, they’re really not talked much about it, other than to say we filed an IV last summer.

We are currently in Phase I. The results so far reveal no surprises, and we really haven’t talked about the program beyond that in terms of detail. Obviously our intent would be to try to follow on with 104 as quickly as we can after the launch of ceftaroline. We’re looking at a number of years, but not a long time in between the two products. So, as time goes on, we’ll update you more in terms of our plans and ultimate launch plans.

Ronny Gal - Sanford Bernstein & Co.

Great, a follow-on regarding Namenda, now that we have the Maxim hearing behind us, and looking at the economics of the generic guys, I’m just wondering if there is no way to actually find a way to diffuse that patent challenge through a settlement, given that there is really not much economics there for the generic, even if they win and their odds appear somewhat more dim right now.

Larry Olanoff

Is that a question or…?

Ronny Gal - Sanford Bernstein & Co.

I was trying to find a way, but I’m just wondering if there’s a room for settlement, although there are 13 challenges on that product.

Larry Olanoff

What I can tell you is that we continue to vigorously defend the patent. We feel very good on the merits of the case and as you may know from public disclosures, there have been a number of cases dismissed already, as I can state it.

Ronny Gal - Sanford Bernstein & Co.

And last, looking down at 2012, obviously you’re going to have had a bit of a cliff there in 2013. I was wondering if your plans for the next couple of years directionally is to keep SG&A at least flat or slightly declining in terms of how you think about that line.

Larry Olanoff

We don’t really give projections south beyond the year we’re operating in. What I can tell you is, our two focus for spending as we go forward really will be really R&D, and that’s necessary launch costs to support products as we bring them into the market.

Frank Perier

I think Ronny, it’s important to keep in mind, that as Lexapro and Namenda mature, don’t forget we’ve recently launched Bystolic last year, Savella this year, hopefully we’ll be in a position to launch Daxas when it gets approved, hopefully next year, and we also plan to have filed right around the end of this year for Septaro (ph). So, you’ve got four products in three years that are approved or in front of the FDA. So, expectations around SG&A, I would think that we’d be doing a great job if we could keep it to inflationary increases.

Ronny Gal - Sanford Bernstein & Co.

Thanks very much, guys.

Frank Perier

Sure.

Operator

Your next question comes from the line of Gary Nachman of Leerink Swann.

Gary Nachman - Leerink Swann

Hi, good morning. First question on the Daxas market opportunity Larry, what percentage of the COP population is severe enough, that would warrant using Daxas as add-on therapy, and do you think that’s the likely label that you would get? What are your thoughts on market opportunity and labeling?

Larry Olanoff

Without getting into what the label will look like, because I think it’s too early to postulate, I just would remind you that the studies themselves were done primarily to accentuate the ability to generate exacerbation, if not because anyone felt that it only works in the most severe patients.

In fact, the supportive data in the six-month add-on trials shows that in fact the drug gets very good lung response and good trends on exacerbations, some which has reached statistical significance even in the moderate population. If you look at just as a number though, if you look at the patients with moderate to severe disease, it’s about 70% of patients, and patients with very severe disease, it’s probably about 30% to 35% of patients, so there is some overlap there.

Gary Nachman - Leerink Swann

Then another one on Linaclotide; I know there’s an open label safety study that’s ongoing. Any safety signals that you’ve seen so far, different from what we saw in the Phase II, specifically potential safety issues that were concerned with Zelnorm? That didn’t seem to be the case, but anything that you’ve seen recently?

Larry Olanoff

Nothing that I’m aware of, and again, I would remind you that this is a drug that is not systemically absorbed. It doesn’t have to be systemically absorbed to be active, it’s active on the lumen, so one wouldn’t expect systemic type side effects, and we haven’t seen anything unexpected that I’m aware of.

Gary Nachman - Leerink Swann

Okay, and then on ceftaroline, are you going to file by the end of this calendar year in the US? In Europe, is it the same? It’s probably going to be a little beyond that, but is it the same data package that’s going to go into that filing? What’s AstraZeneca’s plans there?

Larry Olanoff

I really can’t comment on AstraZeneca’s plans. I know they are looking at our data package very carefully and their making our own plans in terms of what they plan to file with and how they will approach the European agencies, I can’t comment on it at this time.

Gary Nachman - Leerink Swann

Thank you.

Operator

Your next question comes from the line of David Buck of Buckingham Research.

David Buck - Buckingham Research

Yes, thanks. A quick one for Cariprazine; on the schizophrenia data that’s coming up, first, can you talk about whether you’re planning further development? If in fact those studies don’t come out positive, would you pursue another dose there and continue the development?

Second, on the compound itself, when do you think we get some sense of how this product will be differentiated in the market, versus some of the other atypicals that have been launched in the last 12 months or so?

Then, more of a big picture question Larry, you talked a little bit about building the pipeline for 2012. Can you talk about whether you’ve looked at any more transformative deals in the last six months, and if you have, what was the reason for passing on those deals? Are you still considering end licensing as the primary way to get products? Thanks.

Larry Olanoff

The second question is easy to answer. We don’t really talk about deals we take a pass on. What I said before still holds true, we look at all kinds of deals, but our real preference is along the lines of product licenses and tuck-in acquisitions, and that’s about as much as I can say in terms of the scope of deals we look at, but everything that comes across the table, we look at seriously and as I said earlier also, we are not wedded to any particular therapeutic area or even for that matter, geographies. We’re very interested in opportunities that we can bring to the US from whatever source they come.

Going further back into the question on Cariprazine, I would say that at this present time, we have very positive data in bipolar mania disorder, which potentially as a pivotal trial and clearly is justification going on with Phase III. That indication by itself is probably not commercially feasible, but it’s a nice add-on.

We’re waiting on either the schizophrenia results or if the schizophrenia results are gray and perhaps are not definitive to move on, then we would consider perhaps then waiting for some of the additional trials we have ongoing in both bipolar depression, as well as in treatment resistant depression which would form a sufficient commercial core with bipolar mania to go forward in that way.

As far as differentiation, it’s still early days. I can tell you based on the Phase II data we generated thus far, which is still fairly short term data, that we’re not seeing any major safety concerns, we’re not seeing anything substantial in the way of weight gain, we haven’t seen any major cardiovascular problems, and we see the kind of adverse event profile you’ve seen with the atypicals with regards to exter-parametal symptoms. That’s pretty much what I can say. I think the schizophrenia data coming out will further add to that initial assessment.

David Buck - Buckingham Research

Okay, thank you.

Operator

Your next question comes from the line of Marc Goodman of UBS.

Marc Goodman - UBS

Yes, a couple of questions; first one Larry, on Lexapro, is there any behind the scenes strategy going on for lifecycle extension there, or should we all just assume that the patent expiration is the date?

Second question is, can you give us Benicar sales like you normally do? Then on the DPPV 4, obviously combination therapy is where this is all going to move to, are you going to do all the Phase III and all the work straight through, file the product, and then start the combination products or will you start those potentially even before?

Larry Olanoff

We’ll start with the last part of your question. The DPP 4 project as I said earlier, the profile studies that we’re doing is very similar to what you’re seeing with other products, so that includes a wide range of combination opportunities, so yes we are very interested in combinations.

Marc Goodman - UBS

But will all the combo be done in parallel or…?

Larry Olanoff

It’s being done, it’s being worked on in parallel, but may not be filed at the same time as the initial, but fairly shortly thereafter.

Marc Goodman - UBS

Yes, yes.

Larry Olanoff

Then as far as the question on Lexapro, what we said in the past is, we continue to look at all lifecycle opportunities, but you should work your models based on a March 2012 timeframe in terms of loss of exclusivity.

I’ll let Frank comment on the Benicar sales.

Frank Perier

The net sales for Benicar in the quarter were $237 million.

Marc Goodman - UBS

One other question, would you just talk about the fibromyalgia market in general? I know you guys defined the market where you take parts of Cymbalta and parts of Lyrica. Can you give us a sense of how that market is growing and what your share is now?

Larry Olanoff

I’ll let Frank comment on terms of the share. The market in terms of the growth, we think the market has been growing at double-digit rates, mid double-digit in the 15% rate pa. We continue to see that kind of a number, maybe even a little higher at different times of the year in looking at year-over-year growth.

The market as we currently see it, so it’s an expandable market, we think it’s going to be driven by both patient and physician education. So, physician education is something we’re going to key in on, and continue to try to expand the target list of physicians who are likely to be moderate to high prescribers of this product.

In terms of the market as it exists right now, our share, we are right around 7% in new scripts on Savella which is pretty good given it’s a half year into launch, and in terms of the other products, you still have a fairly significant participation in that marketplace by SSRI, which is almost 30% of the markets. The other proprietary products are about 20% of the marketplace, and then there is a whole host of other products, including generic Avrapentin, tricyclics, spenofaxine (ph) and tramadol type products.

Frank Perier

And from a TRX standpoint, Larry gave a good summary of the anorex. We’re currently running just about 6.6% annorex share in the market. From a TRX basis, we’re about 4.4%, but interestingly if you look at the three branded drugs combined, that’s Savella, Cymbalta and Lyrica, if you combine the three of them on a TRX basis right now, they are less than 30% share of that market.

So you’ve got an enormous share of the market, that as Larry has indicated is in older, off-label generic drugs that doctors have been using for quite sometime now, which does clearly present a very big opportunity.

As we look at the growth on a TRX basis, this market over the last three months reported, you’re running around 11.5% growth in the market. So it’s a dynamic market. It’s growing, and there continues to be very good opportunity to penetrate the market with branded drugs with strong labels, like Savella.

Larry Olanoff

Two other comments I would make, is one potential analogy to think about, is when the SSRI came in for depression at that point in time, tricyclides were the market, and in dollarizing the tricyclides you grew up the SSRI market which very rapidly took over that market. I think here the transition will be a little bit slower, but clearly the opportunity exists to take share away from both the tricyclides and the SSRIs.

The other thing that differentiates this market from the antidepressant market, is this market will have a large add-on component as well which needs to be taken into consideration in terms of growth potential.

Marc Goodman - UBS

And Frank, all those market shares you gave us, is that September data?

Frank Perier

Yes, September month was what I was giving you.

Marc Goodman - UBS

Thank you.

Operator

Your next question comes from the line of Louise Chen of Collins Stewart.

Louise Chen - Collins Stewart

First question I had was on ceftaroline; with respect to the antibiotic resistant pathogen market, how would this be an opportunity for the product?

Larry Olanoff

Ceftaroline’s very unique feature is the fact that it’s highly effective based on its binding mechanisms to treat methaciline resistant (Inaudible). It also works on a number of resistant organisms as well, so that really carries it both very well into skin and skin structure; whether it’s a very high incidence of merser (ph) infections, as well as in the potentially treatment resistant infections in the pneumonia realm.

Yes, ceftaroline I think has really two facets that make it a very unique product. One, is its high activity against resisting gram-positive organisms, and on the other side, it’s central sporran safety profile, which we believe will position it very well for first line use in the marketplace.

Louise Chen - Collins Stewart

Then my second question is just with respect to the SG&A and R&D expenses; given the timing of the pre-launch activities for Daxas and then some of the R&D programs that you have ongoing, how do you expect the progression of that spending cost to progress throughout the remainder of the year?

Frank Perier

For Daxas it should be fairly evenly spread over the remaining two quarters, as well as the incremental R&D; and as I said, the remaining milestones that we have, we expect about two-thirds in the third quarter and the remainder in the fourth.

Louise Chen - Collins Stewart

Thank you.

Operator

Your next question comes from the line of Tom Russo of Baird.

Tom Russo - Baird

Good morning. On ceftaroline, I was wondering, are you at this point in a position to give any other either details or color from what’s obviously a back-loaded transaction, and also, can you comment on when patents expire for Merriem (ph) outside the US, and whether your contract with AstraZeneca contemplates how they manage their sales force between that time and the launch of ceftaroline?

Larry Olanoff

There’s not much more comment I can provide on either the transaction or AstraZeneca’s plans in terms of its current antibiotic portfolio.

Tom Russo - Baird

Second question just on Savella, the comment on combo use, can you just comment the plans that do cover Savella, tier 2 and tier 3; how do they address potential for more than one agent to be used for fibromyalgia?

Larry Olanoff

I can’t comment on any details along those lines. I can tell you that we’ve had good success in presenting information to plans. They are very interested in the product. Our price is another consideration for them, which they look at very seriously around the other proprietary products in the market. Thus far we haven’t gotten any significant pushback, if that’s your question in terms of any potential combinations. I think they are seeing combination use, at least amongst the generics already.

Tom Russo - Baird

Okay, thanks.

Frank Murdolo

Sorry operator, this will be the last question coming up please.

Operator

Your final question will come from Bill Tanner of Lazard Capital Markets.

Bill Tanner - Lazard Capital Markets

Thanks for taking the questions and squeezing me in. Just on Glamolas (ph), I think previous guidance has been data from the Azmatrom first quarter 2010, I did not hear that mentioned. I apologize if I missed that.

Then just thinking bigger picture on the respiratory franchise, with Aclidinium and Reflimalast, it seems like given the dosing regimen and maybe the target patient population could be fairly modest size products, so just from a BD perspective, Larry I know you say you’re not particularly wedded necessarily to any particular therapeutic area, I’m wondering whether we might see some additions to that therapeutic area as you try to expand the portfolio?

Larry Olanoff

I would answer in the positive sense of saying that we look across all therapeutic areas from a BD perspective. We only take into account the synergies that may be offered by stacking compounds within a particular therapeutic area, but reality, our interests are by the compound, so each one of them is more of a zero-base budget from us in terms of looking at the value.

Getting back to your comments on Daxas and Aclidinium, we don’t really look at those products as being modest products, we see them both as well within our sweet spot in terms of where we see primary care products driving sales for the company. We’ve talked about that being in the range of $400 million or $500 million plus at peak sales, and I would also remind you that Aclidinium is just a start as a monotherapy, it’s the start of what could be a much larger franchise opportunity.

Again to answer your question, we remain interested in respiratory products. Very much along the lines, we remain interested in all the therapeutic areas currently and the potential new ones, but also in terms of these two products, we see them both as substantial product additions to our pipeline and well within the numbers that we would see as justifying a primary care sales push on them.

Bill Tanner - Lazard Capital Markets

And then just on Aglenolast?

Larry Olanoff

On Aglenolast, what you said earlier is correct. We do expect to see some results on a asthma Phase II trial sometime in the first half of next year. That study is being run by our partner, Glenmark.

Bill Tanner - Lazard Capital Markets

Thanks very much.

Frank Murdolo

Thank you, operator. That will end our call for this morning.

Operator

Ladies and gentlemen, this concludes today’s conference. You may now disconnect.

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