Executives
Robert (Chip) Merritt - Vice President of Investor Relations
Frank Baldino Jr., Ph.D. - Chairman and Chief Executive Officer
J. Kevin Buchi - Executive Vice President and Chief Financial Officer
Lesley Russell - Executive Vice President and Chief Medical Officer
Robert P. Roche Jr. - Executive Vice President, Worldwide Pharmaceutical Operations
Gerald J. Pappert - Executive Vice President & General Counsel
Analysts
Jim Birchenough - Barclays Capital
Bret Holley - Oppenheimer & Co.
Louise Chen - Collins Stewart
David Amsellem - Piper Jeffray
Gary Nachman - Leerink Swann
Marc Goodman - UBS
David Buck - Buckingham Research Group
Chris Schott - J.P. Morgan Chase
Corey Davis - Natixis Bleichroeder
Shivani Malhotra - Goldman Sachs
Greg Gilbert - BAS-Merrill Lynch
Eric Schmidt - Cowen and Company
Cephalon, Inc. (CEPH) Q3 2009 Earnings Call October 27, 2009 5:00 PM ET
Operator
Good day everyone and welcome to Cephalon Third Quarter 2009 Earnings Conference Call. Today's call is being recorded. At this time for opening remarks and introduction, I would like to turn the call over to Mr. Chip Merritt, Vice President of Investor Relations. Please go ahead sir.
Robert (Chip) Merritt
Thank you. Today, we will review Cephalon's financial performance for the third quarter of 2009.
Before we begin, let me remind you that certain statements on this call may be forward-looking and are subject to risks and uncertainties associated with the company's business. These statements may concern among other things, guidance as to future earnings and revenues, operations, transactions, prospects, intellectual property, litigation, development for pharmaceutical products, clinical trials and potential approval of our product candidates.
The company also may discuss certain non-GAAP financial measures within the meaning of Regulation G during today's call. The information required by Regulation G is available in the either the earnings press release or in the Newsroom section of our website at www.cephalon.com.
Additional information and risk factors affecting the company's business and financial prospects and factors that would cause Cephalon's actual performance to vary from our current expectations is available in the company's current Form 10-K on file with the SEC.
During this call, we will update full year 2009 guidance and introduce 2010 guidance. Please note that guidance will remain in effect unless the company provides a subsequent modifications or updates. Our earnings press release is available on the Internet at www.cephalon.com.
Investors with further questions should contact me at 610-738-6376. This conference call is being webcast via Cephalon homepage and will be archived for one week after the call.
Speaking on today's call will be Dr. Frank Baldino, Chief Executive Officer and Kevin Buchi, Chief Financial Officer. Also joining us today are Dr. Lesley Russell, Chief Medical Officer; Bob Roche, Worldwide Pharmaceutical Operations; Jerry Pappert, General Counsel and Wilco Groenhuysen, Senior Vice President of Finance. Following remarks by Frank and Kevin, we will be pleased to answer your questions.
Now Frank Baldino.
Frank Baldino Jr., Ph.D.
Thanks Chip and
good afternoon everyone.
Cephalon delivered solid results for the third quarter of 2009. While our total sales came in less than our guidance, our adjusted net income came in well ahead of the high end of our guidance range. The highlight of the quarter was the extraordinary launch of NUVIGIL.
There were two consequences of this success. The first was a temporary reduction of AMRIX sales as a result of diverting resources away for AMRIX to NUVIGIL. Second was the discount associated with each NUVIGIL prescription, both of which assured the top line.
Our decision to focus on NUVIGIL was the right thing to do to help ensure franchise longevity and create shareholder value. We are very pleased with the results so far.
Despite the challenges of new product launch and overall difficult economic environment, Cephalon delivered strong growth of both sales and adjusted net income compared to the third quarter of 2008.
Net sales for the third quarter of 2009 grew 9% to $535 million and adjusted net income grew 36% to $126.7 million exceeding the high end of our guided range by over $10 million. I congratulate our employees for executing upon our biggest plan and delivering these solid results.
I'm very proud of all the hard work and the successful execution of the NUVIGIL launch program as we demonstrate that the best projector of future product successes is a fast start. In the first four months since launch we achieved 19% market share.
We are indeed off to a terrific start. If dosage of NUVIGIL patients conclude a lower dose and wait for list throughout the day, the actual daily consumption day demonstrates the truth of our belief that NUVIGIL can impact way from us throughout the day. The daily consumption for NUVIGIL is currently 1.04 pills per day compared to 1.4 for PROVIGIL demonstrating its extended effectiveness.
Through September approximately 57,000 patients have been prescribed NUVIGIL. While the NUVIGIL launch has been a success we have bigger plans for this product. Our strategy is to further develop NUVIGIL to meet patients' needs.
We are delighted to have completed and filed an sNDA for NUVIGIL for excessive sleepiness associated with jet lag disorder, a disorder which affects million of patients. The NHL has granted a priority review for our filing and we now expect their decision by the end of this year. Priority review is granted when there are no approved medications currently available.
If successful, physicians would for the first time have an approved therapy to treat jet lag and have prescribing and safety information for NUVIGIL in that acute setting. We are currently enrolling patients in the Phase III study to examine the effects of NUVIGIL and individual suffering excessive sleepiness associated with traumatic brain injury.
We have a special protocol assessment in place and anticipate completion of this study in the second quarter of 2011.
Results of our Phase II study with NUVIGIL as adjunctive therapy and bipolar depression were positive and we're beginning our Phase III program. If all goes well, we'll have an indication of bipolar depression by 2012.
Last week, we've completed enrollment in the Phase IIb study of NUVIGIL to treat the negative symptoms of schizophrenia when used in conjunction with various antipsychotic medications. We anticipate this data will be available by mid-2010.
Our clinical program with NUVIGIL is advancing according to plan. Additionally, we will be launching a new model campaign for treatment of shift work sleep disorder and we're planning to launch NUVIGIL for jet lag disorder in the first half of 2010 pending approval.
We believe that our clinical programs and commercial strategies will deliver solid growth in our CNS franchise for many years to come.
TREANDA remains ahead of expectations for 2009. We expect TREANDA sales to accelerate upon publication of the pivotal study which demonstrated that TREANDA induced durable responses in patients with Rituxan refractory indolent NHL.
Results of this study which supported the October 2008 FDA approval of TREANDA in this patient population are anticipated to appear in the peer reviewed journal before the end of this year.
In addition, we anticipate there will be important new data involving clinical study of TREANDA at this year's Anglo-American Society of Hematology meetings or ASH in December.
In addition to TREANDA, we have a number of oncology candidates in our pipeline that can help meet the critical needs of patients suffering from numerous types of cancer. We intend to provide you as an update on the status of these research efforts at our November 10 R&D Day.
As mentioned earlier, the launch of NUVIGIL impacted our AMRIX results. 700 of the 800 sales rep selling AMRIX had enrolled in the NUVIGIL launch. And we realigned sales territories to accommodate this change.
As we told you in the past, AMRIX is an exclusively detailed sensitive products. Each AMRIX sales force is realigned, it disrupts sales and this realign, that was no exception.
That was behind this now. At the end of September weekly prescriptions of AMRIX again surpassed 10,000 prescription mark, a level not seen since May. We are on the right track and continue to believe that AMRIX will continue to grow for years to come.
We continue to work with the FDA to secure approval for a risk evaluation and mitigation strategy or REMS for a rapid onsite similar products.
We believe our REMS program will ultimately improve patient safety, provide confidence to physicians and create a new standard of safety for the class. The FDA action date for our proposed REMS was October 2nd. A new action date has not been set and we remain in discussions with the agency.
For our pain care products, we have a sound strategy. We're confident that AMRIX will continue to grow and believe our FENTORA REMS will ensure appropriate patient safety and could pave their way for broader FENTORA label.
In addition, we will share details regarding additional product opportunities for our pain franchise at our upcoming R&D Day.
We made a strategic decision to enter into the biologics space and are preparing for this next chapter of Cephalon's growth. We believe biologics are for the opportunity to enter new therapeutic areas with a better regulatory protection and market exclusivity.
Our recent licensing and M&A transactions are inductive of our new strategy direction. Our nearest term opportunity is reslizumab for the treatment of eosinophilic esophagitis.
Data from the Phase II, III study ensures them with this disorder and is expected by year end and the decision regarding the trigger of our options to acquire the company in the first quarter of 2010.
Additionally, data from the Phase II study and eosinophilic asthma are expected by mid-2010.
Another opportunity is the treatment of lupus. There has been a resurgence of interest in the treatment of lupus as a result of recent clinical data. But the drug can be a LUPUZOR with itself (ph) in the forefront of this progress.
The interim data of LUPUZOR Phase IIb study shows statistically significant results and the eosinophil scale at 12 weeks. We elected to discontinue this study, so we can review the totality of the data to determine next steps.
Currently we are planning to initiate a six months Phase II study early next year to confirm the results before proceeding to Phase III. Mechanistically LUPUZOR differs from most of the drug candidates in this therapeutic area because it targets T cells instead of B cells. Because of this different mechanism of action, LUPUZOR may have the potential to be used as monotherapy or in combination with other lupus agents.
We're very excited about the prospects of developing of a viable therapy for this devastating disease.
As we told you last quarter, Arana Therapeutics represents an important platform for antibodies and proteins providing us a firm footing in the biologics space. In conjunction with this acquisition, we are reducing our CNS research resources as we redirect our early research efforts more towards inflammatory disease, oncology and pain with the particular emphasis on biologics.
Just yesterday we announced an agreement establishing our option to acquire BioAssets Development Corporation. BioAssets' intellectual property portfolio relates to the treatment of radicular pain and special disorders by inhibiting inflammatory cytokine TNF.
We now have an exciting new opportunity for AMRIX anti-TNF compound. We plan to combine the anti-TNF domain antibody with this technology to develope a new treatment option for radicular pain including sciatica.
The BioAssets deal provides a new path forward for ant-TNF program by potentially allowing us a less expensive and faster development path to approved drug.
We estimate that there are approximately 1.5 million U.S. patients suffering from this extremely painful condition. If successfully developed, a TNF inhibitor therapy could allow patients suffering radicular pain to recover more rapidly with more reduced suffering while potentially delaying or perhaps avoiding the risk of expensive surgery.
We believe we have demonstrated time and time again the vision to see extraordinary value in unappreciated assets. With this vision we've delivered exceptional growth.
In addition to our existing pipeline, we've recently announced several new opportunities. We believe it is in the best interest of our shareholders to invest in these new opportunities, the clinical program and other pipeline opportunities to drive substantial growth long-term. Our plan for 2010 calls for funding of all these opportunities while delivering 9% adjusted net income growth over 2009.
We expect that these investments will result in significant and sustained sales and earnings growth in 2012 and beyond. We have the vision, strategy and experience and commitment to build this company into something extraordinary.
Now Kevin will discuss our financial performance during the period, update our 2009 guidance and provide guidance for 2010.
J. Kevin Buchi
Thank you, Frank. Today we released our third quarter 2009 financial results. We reported net sales of $535.2 million which is a 9% increase over the third quarter of 2008. Also compared to the third quarter of 2008, basic adjusted net income attributable to Cephalon increased 36% to $126.7 million.
This resulted in basic adjusted income attributable to Cephalon per common share of $1.70, exceeding the high-end of our previously issued guidance of between $1.45 and $1.55.
As Frank mentioned, our focus on the NUVIGIL launch has put some pressure on our top line. We're confident that this is the best strategy to ensure franchise longevity and increase shareholder value.
During the third quarter, we generated cash from operations of $204 million. As a result, we ended the quarter with cash on hand and short term investments of approximately $1.6 billion which we intend to use to purchase products, companies and other assets to support our long-term growth.
During the quarter, CNS franchise net sales increased 7% from the third quarter of 2008 with NUVIGIL generating net sales of $21 million.
In the pain franchise, AMRIX sales grew $26.7 million, up 30% from a year ago. This increase nearly offset the decline in our rapid onset opioid business resulting in the overall pain franchise decreasing approximately 1% compared to the third quarter of 2008.
Our oncology franchise net sales of $83.1 million increased 58% over the third quarter of 2008, due primarily to sales of TREANDA. TREANDA recorded net sales of $54.5 million, an increase of 122% over third quarter of 2008.
Our goal is to maintain wholesale inventory levels of between two to three weeks to each of our key products. During the quarter total inventory levels decreased slightly while remaining within this range.
Adjusted R&D in the third quarter of 2009 increased approximately 11%, primarily due to BIE accounting of Ception Therapeutics and the acquisition of Arana.
Adjusted SG&A was largely unchanged from the third quarter of 2008 as increases in NUVIGIL sales and marketing expenses were offset by decreases in PROVIGIL related expenses.
Our adjusted tax rate for the quarter was 34.3% of pre-tax net income attributable to Cephalon, Inc. During the quarter, there were several material adjustments made to arrive its adjusted net income attributable to Cephalon. We excluded $26.4 million associated with the ongoing amortization of intangibles.
We excluded $17 million of non-cash interest expense associated with the implementation of APB 14-1. We excluded $6 million of acquired in-process R&D associated with charges incurred in exchange for license rights to certain proprietary antibody library materials. We excluded $23.5 million to reflect the taxes that took these pre-tax adjustments and additional tax benefits of 2008 settlement with the U.S. Attorney's Office.
Based on our current outlook, we're taking down our 2009 total sales guidance due to strong conversion of our CNS franchise and lighter than expected sales in our pain franchise.
Total sales guidance is now 2.125 to $2.175 billion. However, our guidance for adjusted net income attributable to Cephalon for the full year remains between 457 and $464 million.
Consequently guidance for basic adjusted income per common share attributable to Cephalon remains between $6.30 and $6.40, reflecting a basic share count assumption of 72.5 million shares outstanding.
On a franchise basis, sales guidance of the CNS franchise is between 1.15 and $1.17 billion. The pain franchise is between 480 and $500 million. Oncology is between 315 and $335 million. And our guidance for other product sales is between 160 and $175 million.
R&D and SG&A expenditures are targeted to be between 400 to $415 and 800 to $815 million respectively.
Our assumed tax rate for the year is approximately 34%. We believe it is in the best interest of shareholders to invest in the numerous R&D opportunities we have accumulated in order to fuel sustainable long-term growth.
Our plans in 2010 call for substantial increase in clinical spend while delivering 9% adjusted net income growth over 2009. We are introducing full year 2010 guidance based upon the following key assumptions: NUVIGIL continues to gain market share and we move forward to the acquisition of Ception.
Based upon these assumptions our 2010 sales guidance is between 2.325 and $2.4 billion, an increase of approximately 10% over our 2009 sales guidance. CNS sales guidance is between 1.18 and $1.22 billion. Pain franchise sales are between 535 and $570 million.
Our oncology sales guidance for 2010 is between 400 and $430 million. Our guidance for other sales is between 200 and $220 million. Consistent with previous periods, our sales guidance does not include other revenues.
Our SG&A guidance is between 840 and $860 million and R&D guidance is between 470 and $490 million.
For full year 2010, adjusted net income attributable to Cephalon is between 495 and $510 million which equates to basic adjusted income to common share attributable to Cephalon of between 650 and 670 based upon 76.2 million shares outstanding at a tax rate of approximately 33%.
In summary, we expect that the ongoing investments in our business will result in significant and sustained future growth, all the while delivering strong top and bottom line results.
That concludes our opening remarks. We will now open this call to you and your questions.
Question-and-Answer Session
Operator
Thank you. (operator instructions) Our first question comes from Jim Birchenough.
Jim Birchenough - Barclays Capital
Yeah hi guys. Couple of questions on the pipeline. Just on reslizumab, can you give us any details on what percent of patients are going into the open label extension phase of that trial and whether you're seeing any thing, any open label extension that gives you confidence on hitting a primary end point?
And then secondary to that, I am just wondering if you can comment on the end points and the significance both from a regulatory and a commercial standpoint producing eosinophil counts and improving global impressions for these kids. A lot of them get feeds and I am just wondering if you're not really improving feed rates or getting them off GIP, is it really going to support approval and commercially use? Thanks.
Frank Baldino Jr.
Jim, great question, thanks a lot. This is Frank. I will answer the first question and I'll turn the second one over to Lesley about the end points and the regulatory piece of that.
And it's always just the comment in general, it's always difficult to look at anecdotes in open label to know what guys are saying and what that really means overall. And especially people on this call know the caveats of doing that. But nonetheless we are seeing a lot of good things. We don't have specific numbers for you, but majority of the patients are continuing in open label.
I'm going to guess, I never really do that, but since we don't have the real numbers around the table, I'm going to guess it's north of 80% continuing. The second thing that they've noticed is, now they are in open label, they are looking at these kids and again you wait, some of them have eosinophil counts are way down, actually measuring them in open label.
So, we're seeing all the good things you expect to see but there is -- what that means is another question, but what we're not seeing is the stuff we don't want to see. So, from a general anecdotal perspective I think things are winding up the way. We hope they would in the open label setting, and of course we'll know until we break code sometime, but before the end of this year.
Lesley, the second question was about the end points relative to approval for this indication and I think the other part of that question was given the fact that they are on diet, how that would influence some clinical benefit of some sort?
Lesley Russell
There's two end points, both primary end points, both have to achieve fiscal significance. The first was a reduction in the eosinophil counts, active compared to placebo and the second was patients -- physician global assessment of symptomatology due to the eosinophilic esophagitis both clearly have to be statistically significant.
I think what the question there for the PGA takes into account symptoms of seizure and eating and all those sorts of things that would really determine clinical benefit for these kids. Obviously some of the things you brought up about weight gain and do they take, they choose out, really can't be answered in a short-term study but obviously as we track these children over the one year open label treatment that would be the time to look and see whether the improvements they see in a relatively short-term setting of three months or four months of treatment is maintained in the longer-term. So, I think the totality of the data is important here for approval.
Frank Baldino Jr.
Did that answer your question Jim?
Jim Birchenough - Barclays Capital
Yeah, thanks guys.
Robert Merritt
I would like to remind everybody, please keep it a two part questions. Thanks.
Jim Birchenough - Barclays Capital
So that we can remember more than --
Operator
Thank you. Our next question comes from Bret Holley.
Bret Holley - Oppenheimer & Co.
Yeah thanks for taking the question. I was just wondering if the sequential slowdown in TREANDA was due to any slowing an either CLL or NHL or there were other seasonal factors that we need to consider here?
Frank Baldino Jr.
Well, Yeah that's a good question Bret. We'll turn it over to Bob Roche who is our Pharmaceutical Sales Exec here.
Robert Roche Jr.
Hi Bret, thanks for the question. As you know CLL continues to be the predominant source of business and we penetrated into that market I think more rapidly than any of us and probably any of you guys thought that we would. And that was the primary driver of the terrific response and terrific results we've seen for that product in 2008 and thus far in 2009 in May.
We certainly will reach a terminal point of penetration into the CLL market. We're probably closer to that today than when we started probably a lot closer. But what that does not does speak to is the continuing really significant upside that we believe exists on the non-Hodgkin's lymphoma side. There are as you mentioned seasonal issues which affect the oncology products as there are products across the span of the marketplace. And we are really confident and now as we go through the fourth quarter here and approach the ASH meeting and variety of other important settings where data are going to be shared on TREANDA that we're going to see a resurgence of growth here.
Don't forget the CLL data were just published a month or so ago. We're looking for a publication in the couple of weeks for the NHL data. And all of these are going to be really important elements in the continued driving of the top line for this product.
Bret Holley - Oppenheimer & Co.
Okay, thanks.
Operator
Thank you. Our next question comes from Louise Chen, go ahead please.
Louise Chen - Collins Stewart
Hi, first question is just -- is there any update on generic ACTIQ supply agreement with Teva?
Frank Baldino Jr.
I will let Jerry Pappert our General Counsel to handle that Louise.
Gerald Pappert
Hey Louise. As I think everybody knows our obligations to supply for flash Teva with product and did under the license and supply agreement on September 5th. We fully complied with all our obligations and supply them up to that point. But then consistent with the terms of the agreement we are no longer supplying them product.
Louise Chen - Collins Stewart
Okay, then the second question I had was with respect to your R&D day, will you be discussing any new product opportunities that you haven't disclosed yet?
Robert Roche Jr.
I think R&D Louise is going to be focused on data. We don't often have a chance to talk about new data both preclinical, clinical. I know Jeff Vaught is pretty excited about the team he's put together to talk about data and the oncology settings of our new product opportunities there, ARC inhibitors and so on and so forth.
Lesley is going to -- in her team Charlie Morris and others are going to update everybody on clinical performance where this, RXi and developed patent (ph), sort of reinforce the design of these studies with all of you and look forward to the Phase III programs with NUVIGIL some of the largest studies going forward, how they're going to designed, what you should expect to see. So it's going to be more of a day-to-day data day, I should say, and not necessarily talking about the new product opportunities.
The pipeline is pretty rich and our pipeline charts that we have been publishing don't include everything and we have some groups still like Arana, we have Stephane Knock (ph) who is our head of Australian operation there, head of our biologics group there, to talk about their pretty immense pipeline of domain antibodies and also pipeline of biologics that we think have opportunities in oncology. So, these would be told you that stuff, you probably any of that and that will be no.
Louise Chen - Collins Stewart
Thank you.
Operator
Thank you. Our next question comes from David Amsellem.
David Amsellem - Piper Jeffray
Thanks. NUVUGIL I think on the last call you said, how many NUVIGIL scripts were being written for patients, naived to PROVIGIL. Do you have an update on that figure for this quarter?
Frank Baldino Jr.
Bob should know that.
Robert Roche Jr.
You're right Bob should know that. So, scrambling through -- David, I'm sorry the question is how -- what percent of patients coming on to NUVIGIL are naived to therapy in total?
David Amsellem - Piper Jeffray
Correct.
Robert Roche Jr.
Okay, yeah I do have that information hold two seconds, right. We are reckoning that of the total for NUVIGIL prescriptions coming on right now, that new to brand are about a half of the total, a little bit under half and that refills then are approximately 60 to 65%, 70% may be at the max.
The new to brand is a little bit deceptive because it's not only patients who were -- have never taken away promoting agents in the past, but there was also patients who have perhaps lasted on therapy and come back on to NUVIGIL after having taken PROVIGIL at some point in the past. So if I were to hazard a guess and Frank already did once this evening already so I can as well I guess. I would say that about 25% of patients coming on to NUVIGIL today have never taken the product before or have never taken PROVIGIL at any point in the past.
David Amsellem - Piper Jeffray
Okay. And then on LUPUZOR can you explain the rationale behind running an additional Phase II, are you testing a different dose in the new study compared to what was the dose tested in trial earlier this year/
Frank Baldino Jr.
We -- LUPUZOR remember we licensed this from a pretty small company. And why we are very excited about the opportunity, sometimes these small companies don't have adequate resources. To really get the CMC together and all the elements together that you really need in place with quality study and a quality comparative study in this space. So, we've been focusing on doing that and part of that would be to get more dose ranging information -- more information in larger groups of patients. Lesley, you want to talk a little bit about the Phase IIb design you have in mind....
Lesley Russell
Yeah I think the purpose of the study is two fold; one is to get more information on the composite end point to do a six month study as opposed to a three month study because most lupus drugs need to be studied for longer than three months and also to look at variety of dose ranges too.
So, and the beauty of doing it is that we can also use all of that information for exposure. We know that for lupus studies and drugs to get approved, we need pretty high exposure numbers. So, all of this is going to come towards our safety data. So, I think that's important too and as we get ready to have our final product presentation to take into Phase III.
Frank Baldino Jr.
So, we'll be ready for Phase III after we complete this Phase IIb and get our CMC house in order on this product. And we'll be ready to go for about 2011.
Lesley Russell
2011 yeah.
David Amsellem - Piper Jeffray
Thank you.
Operator
Thank you. Our next question comes from Gary Nachman.
Gary Nachman - Leerink Swann
Hi, good afternoon. First for Bob, how is formulary acceptance for NUVIGIL versus PROVIGIL? And then how much do you expect the jet lag indication to help franchise growth, how can we even begin to quantify that? And if you could get in terms of how much investment you might have behind that indication?
Robert Roche Jr.
Okay. Yeah, Gary we're continuing to make good progress in our contracting strategy with NUVIGIL. Given the data differential that Frank mentioned earlier as well as the inherent discount that a tablet per tablet NUVIGIL to PROVIGIL comparison suggests it really is the compelling set of arguments. And there are many plans that recognize this in a number -- significant number that we've already signed up and are putting NUVIGIL in a position of benefits vis-à-vis these PROVIGIL in several different ways, primarily around tearing but also in some cases around staff editing, NUVIGIL, PROVIGIL and so forth.
So we are very encouraged by that. Clearly that remains a significant element of our commercial strategy and we are going to continue to push for more and more of these deals properly selected and correctly constructed as we go through the end of 2009 and early next year.
And the second part of your question?
Gary Nachman - Leerink Swann
Jet leg indication?
Frank Baldino Jr.
The jet leg indication excuse me, yeah this is really a landmark and all kudos to the clinical and regulatory team that have gotten us to the point where we are with a priority review. Quite frankly we weren't expecting a priority review and that's caused to accelerate our thinking a little bit but the prospect of getting this product approved in a significantly sized population of patients who are otherwise healthy and poor in acute indication obviously is a first and demonstrates in my view the FDA's belief that they understand this is a safe and efficacious product and this is the patient population that needed.
We've done some modeling on a number of individuals who travel. Obviously who are potential subjects for UC and in the numbers in the millions. Clearly we're going to be conservative in our approach here. Because it is only couple days worth of therapy and it's not going to be size of prescription that we would have anticipated for any of the more chronic users, but you can understand our excitement here and our belief that this is going to be an important growth driver for NUVIGIL lining up with the other exciting indications that we're looking at for 2011 and beyond, that the Frank went through in his opening remarks.
Gary Nachman - Leerink Swann
Will you need to increase size of the sales force to this where it could be targeted?
Robert Roche Jr.
That's a terrific question and we have not yet really come to a point where we can address that publicly. Clearly every physician out there has patients who potentially could be candidates for therapy and then we need to understand who they are, where they are and what will be their propensity to prescribe.
Frank Baldino Jr.
Well we just brought on -- fairly broad universe today, partner account physicians, specialty physicians on the neurological side as well, etcetera. So, we do have a pretty broad coverage today. It will be more forthcoming as we develop the strategy going forward.
Gary Nachman - Leerink Swann
Okay, and then if I could squeeze another one into quickly for Frank, R&D expense for next year, I calculated about 23% of revenues obviously makes a big statement there. Is that all ongoing programs or do you build something in there for new deals?
Frank Baldino Jr.
It's pretty much all ongoing programs. We haven't built anything for new deals. There is a dependence on success. Right I mean the Ception data has to be positive for us to spend big on asthma in 2010. Today asthma is -- we will be not launching two large Phase III asthma studies in 2010. But we are planning for success, we are very bullish on this and we expect to do that.
Gary Nachman - Leerink Swann
Thank you.
Operator
Thank you. Your next question comes from Marc Goodman.
Marc Goodman - UBS
Yeah, a couple of questions. First Bob can you give us an actual percent of sales that are the NHL? I mean is this just 10% or is it that low or could you just give us some type of sense what you think?
Robert Roche Jr.
Yeah, thanks for the question. First of all these data are little fuzzier than what we are used to with the other side of the business. But what our understanding is, is that somewhere around 60% of current TREANDA usage is in CLL and the balance is split between big non-Hodgkin's lymphoma, NHL and some physician determined the uses of the product that we can always expect. So, somewhere around two thirds CLL, one third or slightly less NHL is the metric that we work with.
Marc Goodman - UBS
And so, I guess, I mean all of us were just -- I mean we see the IMS sales data, I think everybody was wondering like what your number was going to be. This is not a number that reflects any type of inventory change or anything, this is true demand and I guess is that you'd agree to that?
Robert Roche Jr.
Yes.
Marc Goodman - UBS
Yeah, okay. And so your expectation is that the usage in CLL is pretty penetrated and now you expect again NHL to really start to ramp up and with the publication that's going to be the critical and the data at ASH. So you're expecting really the first quarter is when you start to see inflection point again.
Robert Roche Jr.
I think that inflection point will occur when it occurs. We are very, very bullish about where we see NHL going. You mentioned correctly that our penetration at the CLL area is already pretty significant. We've been somewhere around 30% penetration is about the top end of where we could hope to get and we're pretty close to that.
In NHL we are much, much lower than that. The data that we have show somewhere between 10 and 15% penetration into what we call the relevant patient population for the product. So, that speaks to a tremendous amount of upside there. Clearly we're not going to get all of it but with the publications, the presentations, the excitement around ASH, the new data coming out, I suspect that as we go through the end of 2009 and into 2010 we're going to see a significant uptick in the sales in non-Hodgkin's lymphoma.
Frank Baldino Jr.
But Marc, your thesis is correct. This is a very data sensitive or data driven environment in the oncology space. And I think our team has done an extraordinary job with very little data. And for the first time we expect important data will be published, so I think that will change the course of announcement, so you're right.
Marc Goodman - UBS
And then the other question I have was just obviously there's lower guidance this year for some of the spending. Can you just talk about what were some of the programs that were given up for SG&A and R&D what -- what we should think --
Frank Baldino Jr.
I think we make priority decisions everybody here Marc as you know. And we are looking for the best return on investment, things that will continue to drive top line, drive bottom line and things that will hopefully drive shareholder value and sometimes we choose correctly, sometimes we don't. But I don't think it's worth while going through each individual project that was cut or cut back or --.
Marc Goodman - UBS
Well, I guess I am not asking that -- was there anything specific that would have an implication I guess going forward that we need to know that kind of thing?
Frank Baldino Jr.
None of the major plans have changed. Individual program is running as we've been detailing it to you. Everything else is pretty much on track, there's nothing that's been aggressively changed.
Marc Goodman - UBS
Okay.
Operator
Thank you. Our next question comes from David Buck. Go ahead please.
David Buck - Buckingham Research Group
Yes, thanks. First question is quick question on other revenue. Can you talk about what must led to the spike quarter-to-quarter and year-over-year whether that number is sustainable?
Secondly on NUVIGIL can you talk about in the quarter whether there was any stocking like there was in the second quarter? Looked like it was fairly around prescription growth but want to get a sense of whether that is a good metric for the price for a rags and then looking into --
Frank Baldino Jr.
Wait a minute, I just start taking notes now. One at a time -- I want to give first couple first. The change in other revenue was associated with the Arana royalties, the royalty Arana receives on TNS. Those royalties will continue through I believe third quarter 2010.
Your second question was on NUVIGIL stocking, there was no stocking additional wholesale of stocking of NUVIGIL during the quarter. I did refer in my remarks to a modest amount of destocking. Some of that occurred in NUVIGIL. But that's too other okay so far, we also got you.
David Buck - Buckingham Research Group
And so following up on NUVIGIL then, is this a reasonable price prescription we should be looking at?
Frank Baldino Jr.
I think it's stilly early in the launch so, I don't know that I would use the number that you've generate of the prescriptions as your long-term average. I think is too early to do that. But I can assure you there was no additional inventory being built as wholesale individuals.
David Buck - Buckingham Research Group
And one of the big picture question for Frank, obviously you've raised capital a few months ago to surge force and deals. You obviously did with on a small basis with the BioAssets but cam you talk a little bit about the pipeline what do you see attractive assets and--
Frank Baldino Jr.
I mean let you guys see a lot of what we see as well. This opportunity has built tremendous in front us, is there is a lot of great companies where difficulty raising funds and in this difficult climate. Is there is a couple of companies get on publicly but it's still not -- definition robust public right now, so there is still opportunity we see a lot of it.
We saw it through many, many of these opportunities over time and we take the opportunities of great if they were last year. Remember we have had -- of comments from people about zee, how you can get all of this money. We want to spend it wisely, so we are not in any hurry to spend money and same thing as you'll because we see a lot of opportunities it takes two to tango here and just because we want it doesn't mean you are the person wants to sell it. And that takes time and it takes lot of negotiations, some deals they take couple of months or it takes to negotiate.
But we think we have a resource to do that. We're excited about what this means for our future and then you'll see us spend some of this money going forward...
Operator
Thank you. Our next question comes from Chris Schott.
Chris Schott - J.P. Morgan Chase
Great thanks. First question can you sort of elaborate a little bit of work you're doing in sciatica, how should we be thinking about both clinical program from here and specifically when could we see your domain antibody move into studies any indication? And I have a follow-up on NUVIGIL after that?
Frank Baldino Jr.
Well, Lesley is thinking about the answer to give you. Spell her that here, the point is R&D day coming up, we've got Stephane Knock (ph) of our Australian group presenting, you should go to that. He's going to talk about domain antibodies how they optimize and how to humanize them and what opportunities that presents to us. Yes we're going to talk a little bit about the sciatica opportunity, the epidural application. We like this for reasons that I should have summarized in my opening remarks, when you look at the RA opportunity with TNF we all know that it's an anti-inflammatory, working RA, psoriasis etcetera.
But beneath the size of those markets and in fact, the seven or six I believe products already in that space and the sheer number of patients you need to put into your clinical trials to get an indication for that and the years it would take to develop a safety database etcetera.
We might be the narrower more focused opportunity in the sciatica roll back pain Chris with TNF. The BioAssets still gives us very strong intellectual property positioned in that space. We're excited about that, the space where we could, we could do very well and then not worried about the other six opportunities that are out there. And we think it will be the prefect market for us and other low cost sales opportunity that we look for.
Lesley, have you had time to think about the question?
Lesley Russell
I estimate we've done and fit well on the program on this as well. I mean, I think it's a fairly conventional clinical development program. We're clearly going to have to do some dose finding work, followed by Phase II proof of concept studies and taking it into larger randomized placebo control study, so fairly conventional. I think Frank highlighted the gravity of the program, so this is an cute indication. So we don't need long-term clinical data as opposed the two or three doses maximum and that allows to run programs more quickly and more efficiently.
And also we know the physicians who do these procedures, they have patients lined up ready to go pretty much everybody of the week. So, I think that's why from that perspective a relatively straight forward program we still obviously got to show the drug statement effective, so that's what we will need to do.
Chris Schott - J.P. Morgan Chase
That's great. Thank you and then on just NUVIGIL, could you elaborate a little bit more in level of sampling and couponing activity at this point? I guess how far along in the process are we and what percent of scripts at this point are coming from these type of programs?
Robert Roche Jr.
Yeah. Chris, in a launch setting like this, getting physicians to try the product and getting patients on it in a fashion that the samples and the coupons provide is key. And these two elements have been two of the most important in our early launch marketing mix.
I'm searching for the data here that we have shared with you in the past. Yes, vouchers and all voucher redemptions combined have attributed to approximately 30% of TRXs thus far today and about 25% of units. We've had well over 45,000 vouchers redeemed thus far and what this does is gives physicians a risk free means by which they can provide this drug to a patient to determine whether or not that patient is going to respond. The feedback that we're getting from physicians is that yes indeed they are responding. They are responding extremely well and that these vouchers have been very important in gaining patient to trial.
Chris Schott - J.P. Morgan Chase
Great. Thanks very much.
Operator
Thank you. Our next question comes from Corey Davis, go ahead please.
Corey Davis - Natixis Bleichroeder
Hey, thanks. Let me go back to Bob and answer that he gave to an earlier question about how you're going to tackle jet lag and the need to promote this because, I won't put words in your mouth from what happened this year but it sounds like to me that you misguessed a little bit in terms of the negative impact on other products that the NUVIGIL launch would have. So how do you avoid that on jet lag, have you adequately anticipated that but because I can imagine that if you do need to add sales reps that is not baked into your current guidance.
So what are the chances we will wake up in the middle of the year and you have to increase your SG&A spend unless you're thinking about co-promote partners something like that?
Frank Baldino Jr.
Yeah Bob.
Robert Roche Jr.
Wait one of my colleagues that come to my defense here and --
Frank Baldino Jr.
Maybe I guess --
Robert Roche Jr.
Keeping their comments
Frank Baldino Jr.
This is Corey Davis from Jefferies Company, is that right?
Robert Roche Jr.
Corey think about what we got ahead of this with jet lag, right. First of all think of all the companies that have been out there marketing products for jet lag and think of all the patients, who have been out there taking drugs for jet lag all these so many years, right.
This is a market which does not currently exist. This a market that we need to build from the ground up and that we are going to begin building at some point early to mid next year. There is going to be a major components of physician education and patient education that needs to occur before I put a sales rep in front of a doctor trying to pedal the -- the newest greatest treatment.
We've got a lot of work to do here. We've got a lot of understanding that we've got to develop about the extent of the market and the amount of product, the amount of physicians that we believe are going to drive, ultimate usage here. Before I'm going to give you any thoughts about how many more sales people, well how much more marketing expense we need. And I'll be happy to give you regular and hopefully coaching updates as we go through the course of the year. But I am very excited about that it will provide for significant revenue in the future. And that we're just now getting going here and are thinking about how to go about maximizing that.
Corey Davis - Natixis Bleichroeder
Okay. I think I got it. Than maybe on the flip side to that, has there been anything in the post marketing experience both on PROVIGIL and NUVIGIL that's new that might cause the FDA to revaluate some of the recent warnings that they put in a label either to make them less stringent which I can imagine what happened or more stringent as they realized too that a jet lag indication would take the product more broadly?
Lesley Russell
Corey let me answer that. I mean obviously we do routine pharmaco disease (ph) and surveillance on an ongoing basis and there has been nothing in either put PROVIGIL or NUVIGIL but of course I have to say that the risk benefit profile of the drugs are changing.
I mean I think you're probably alluding in terms of the jet lag is the whole bolded warning skin rash going to be a problem, I think the beauty of a jet lag indication is an acute indication. It take one or two doses. And bearing in mind the serious skin reactions don't occur to who have been on the drug for a while that really probably doesn't enter into thinking too much for such an acute use of the drugs.
So, we haven't -- clearly haven't had any feedback from the agency that suggests they are worried about the safety profile. I really don't think they would have given a priority review if that was utmost in their mind. And so we'll answer all the questions that they ask us but we've seen nothing to alter benefit risk profile of the drugs.
Corey Davis - Natixis Bleichroeder
Okay, great. Thanks for the answers.
Operator
Thank you. Our next question comes from Shivani Malhotra.
Shivani Malhotra - Goldman Sachs
Hi guys thanks for taking my question. So, just very quickly a follow up to a Corey's question on NUVIGIL and the jet lag indication I assume that spend is not in your guidance but can you just comment on whether your revenue assumptions for 2010 includes a jet lag indication or would this represent upside And then I have an as follow on NUVIGIL
Frank Baldino Jr.
First of all to spend on the NUVIGIL, NUVIGIL launch for jet lag is indeed in our guidance. We intend to launch it but we are anticipating approval and we wouldn't give guidance without having that in there. I mean just for the time that same thing with the sales side, you mentioned revenue but sales of jet lag and estimate of sales are in our 2010 top line estimate as well.
Shivani Malhotra - Goldman Sachs
Okay. And then a question on R&D if I may; I do have a little one but I guess this is more important right now. But what would the net income growth be ex-perception R&D. So for example if you don't go into the asthma Phase III studies and we have to add like a milestone, how should we be looking at the net income growth then in that situation?
Frank Baldino Jr.
Shivani I think the way you have to look at this is we've got lots of opportunities here, lots of investments, made a lot of ferrari decisions on this. And then we're going to spend this R&D money in their appropriate place going forward. And I don't think you should model anything for failure. We don't do that, you shouldn't do that.
Shivani Malhotra - Goldman Sachs
Okay. Can I just ask my NUVIGIL question again; I mean you guys have done a great job in converting the PROVIGIL franchise to NUVIGIL but over the last three or four weeks we've kind of seen share stabilizing or kind of slowing down at the 19% range, is that something what you see as temporary or does that signal a shift in terms of your marketing? Are you refocusing resources to AMRIX, how should we be thinking about that going forward?
Frank Baldino Jr.
Yeah, I think Shivani your comments and the I'm glad you brought this up. If you look at the entire pharmaceutical market over the last couple of weeks if you look at some special categories like CNS categories etcetera, the entire space has been down radically. The numbers, Bob, do you have that number, tip of your tongue, 4% each of the last two weeks for the entire category of products of CNS.
You want to expand on that a bit.
Robert Roche Jr.
Yeah there is cyclicality -- really that occurs throughout the year in the marketplace Shivani as you know. The whole market I mentioned earlier has been weak really through the summer. What we saw was -- just the last IMS week reflected what was going on during the week, I think of Columbus Day and everybody was down. The entire market was down over 4%. The CNS market was down approximately the same amount.
And PROVIGIL and NUVIGIL as a whole declined, and this is something which is temporary, which is nearly as a result of the holidays would fall, given a certain period of time. To answer the question I think is really on your mind. No, we do not expect NUVIGIL share of the weaker converting market he to remain at 19, we're projecting significant and continued growth for the end of 2009 and that will be perpetuated in 2010.
Shivani Malhotra - Goldman Sachs
Okay, great, thank you very much.
Operator
Thank you. Our next question comes from Greg Gilbert. Go ahead please.
Greg Gilbert - BAS-Merrill Lynch
Hi, thanks Bob. Going back to those NUVIGIL vouchers, what's the average value per voucher and would you expect the overall scripts that are tied about -- just to go up or down going forward, you made a tone, it was bit of a launch related exercise but we've seen a bunch of other companies that have had to rely on those vouchers or co-pay add-on cards sort of perpetuity, what are your thoughts there?
Frank Baldino Jr.
Well, first of all Bob is searching through his notes here. Perpetuity is a long time.
Greg Gilbert - BAS-Merrill Lynch
All right. The few years out of that.
Frank Baldino Jr.
We're not committing to anything in perpetuity, we've run a marketing program in perpetuity but vouchers as an example certainly have been a tried and true, especially in the case of our products that we've been launching in the space over the years. I tried two methodologies to incentivize patients and try something new, just to try something new. And there is numbers and Bob almost had this number at the tip of your tongue but the amount of conversions from samples that actually become switch down the road. I know there is an average in industry, there's an average across our product base here. But we do it because we think it yields long term growth in our prescription base.
It has perpetual and is doing the same, we think in NUVIGIL so far.
Robert Roche Jr.
That's exactly right Frank. And then specific question will vouchers remain as heavy an element of the promotional mix as they have been in the first two or four months? The answer of that question is no, they will decline in terms of our total focus in spend. Samples will remain high and samples may actually increase because the vouchers have taken place of samples in many instances moving forward, moving through the first couple of months launch.
And the voucher program is very specific, right? We have put vouchers out there which were specific conversion vouchers that were designed for physicians to use in patients who were on PROVIGIL therapy. And this would provide them with a risk free means of getting on NUVIGIL and give him get to try.
We've also provided seven day vouchers which had a different purpose and the initial vouchers to kind of get folks to try one of these drugs in the first place. So vouchers will decline in importance, samples will likely increase in importance and both of these methods have been demonstrated time and time again to be helpful in either initiating patient therapy or maintaining patient therapy in certain instances.
Greg Gilbert - BAS-Merrill Lynch
Just I am so clear though, the average value for each of those vouchers is the complete value of a prescription or is it more like a buy down of a certain dollar amount?
Robert Roche Jr.
You're talking about different things, right. Vouchers are provided to the patients with an ability to get a number of tablets for free, ether seven or 30 in the case of the two different batteries that we have had. And that's what I was describing earlier.
We also have a co-pay assistance plans in place with the NUVIGIL and these are means by which a third tier co-pay which could be as high as $60 a month or more can be brought to a more manageable level for a patient. That does not have to be accompanied by a voucher. It wouldn't be accompanied by voucher which provides for product free of charge for that patient.
Greg Gilbert - BAS-Merrill Lynch
Okay, thanks. And shifting gears to Jerry, any update on the Medafana (ph) litigation you can offer and also what is your view on how the law around settlements is like with the change going forward?
Gerald Pappert
I will take the second one first, it's very, very difficult to handicap how get that off and what timeframe the law around settlements might change. You're familiar with competing versions of legislation before the Congress. I can't sit here and predict which version or which form of a bill might come out -- comes through the Congress and besides the law that we have, new legislation of all.
An update on Medafana related litigation last week was an active week in the United States District Court in Eastern district of Pennsylvania where Judge Goldberg heard oral argument on the four different motions to dismiss that we have filed in the kind of four category of cases. The FTC litigation, the after-tax litigation and then the separate cases filed by what we call the indirect purchasers and the direct purchasers. I know the arguments went very, very well for us, I think highlighted by that point in the argument where the attorney for the SDC conceded to the court that Cephalon has the law on its side.
We were very pleased to hear and confirm that for us. Judge Goldberg has now been presented with an awful lot of paper and a very long as he referred to I think reading list of cases that has insighted to him in the briefs and oral arguments and Judge Goldberg will now make his way through all those materials and issue his ruling on his schedule and whenever the court might rule, we look forward to the decisions.
Greg Gilbert - BAS-Merrill Lynch
Thank you gentlemen.
Operator
Thank you. We have time for one final question today. Our final question comes from Eric Schmidt. Go ahead please.
Eric Schmidt - Cowen and Company
Thanks for squeezing me in. A couple of questions on the 2010 guidance, maybe the first one for Kevin or Bob I'm not sure. But the guidance is calling for actually CNS franchise growth on a year-to-year basis, you obviously cited the more rapid conversion to NUVIGIL as a reason for the weakness in the current quarter and obviously you are expecting more conversion next year.
So I guess maybe you could just outline for us the factors that are going to drive that growth or at least support very little to no decline in the sales?
Frank Baldino Jr.
Great question, Eric.
J. Kevin Buchi
I think frankly Eric if you look at the third quarter results, if you look to CNS results for the third quarter when NUVIGIL was first launched, NUVIGIL did quite well in the quarter that the overall franchise performance was as strong as it was before the NUVIGIL was launched.
So I think we see a tremendous opportunity here to grow the overall business. And we're comfortable with the guidance numbers we presented you with.
Frank Baldino Jr.
I think one of the points you made Eric about next year we expect of course continued growth of NUVIGIL and we mentioned is something about the diversion next year as well. And we all think that's certainly the case. So the diversion of resources away from other opportunities and maybe Bob want to comment on that a bit.
Robert Roche Jr.
Well I am confident with the guidance that we provided Eric. Sales are a result of volume and cost per prescription and those are the elements that we are looking to work with them to drive. We are very excited about the initial growth in NUVIGIL and that's going to continue based not only on the current indications but others that get added next year and that we're prepared for, for 2010.
PROVIGIL continues to generate a lot of revenue and despite the fact that we are not spending any time focusing on it and I think we'll continue to be a significant contributor for years to come.
Eric Schmidt - Cowen and Company
Okay then, second question also about next year's guidance in the pain franchise, Kevin is there embedded in that guidance for in particular whether we might see additional generics of ACTIQ or you've set of potentially the dispute with Teva or potentially with FENTORA label expansion just trying to further understand that number?
J. Kevin Buchi
But no, the assumption is kind of status quo if you will. We're assuming that there is a another generic out there, another generic version of ACTIQ out there. But we haven't included revenue now forecast for supplying that generic.
Eric Schmidt - Cowen and Company
Okay. Thanks a lot.
Robert (Chip) Merritt
Thank you all for joining the conference call today. And this concludes, we're little passed one hour. Thank you.
Operator
The conference has concluded. You need to disconnect at any time. Thank you for joining us and enjoy the rest of your day.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!