Executives
Gerald Pappert - Executive Vice President, Secretary and General Counsel
Robert Merritt - VP of IR
Robert Repella - Senior Vice President of U.S Pharmaceutical Operations
Lesley Russell - Chief Medical Officer and Executive Vice President
Frank Baldino - Founder, Chairman, Chief Executive Officer and President
Wilco Groehhuysen - Chief Financial Officer
Kevin Buchi - Chief Operating Officer
Analysts
Corey Davis - Jefferies & Company, Inc.
Louise Chen - Collins Stewart LLC
Raghuram Selvaraju - Rodman & Renshaw
Manoj Garg - Soleil Securities Group, Inc.
Frank Pinkerton - SunTrust Robinson Humphrey Capital Markets
Bret Holley - Oppenheimer & Co. Inc.
Marc Goodman - UBS Investment Bank
Gregory Gilbert - BofA Merrill Lynch
Eric Schmidt - Cowen and Company, LLC
Gary Nachman - Leerink Swann LLC
Cephalon (CEPH) Q1 2010 Earnings Call May 4, 2010 5:00 PM ET
Operator
Good day, everyone, and welcome to the Cephalon First Quarter 2010 Earnings Conference Call. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Chip Merritt, Vice President of Investor Relations.
Robert Merritt
Thank you. Today, we will review Cephalon's financial performance for the first quarter 2010. Before we begin, let me remind you that certain statements on this call maybe 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 revenues and earnings, operations, transactions, prospects, intellectual property, litigation, development of pharmaceutical products, clinical trials and potential approval or 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 either the earnings press release or the Investor 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 2010 guidance and introduce second quarter guidance. Please note that guidance will remain in effect unless the company provides 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 the Cephalon homepage and will be available for one week after the call.
Speaking on today's call will be Dr. Frank Baldino, Chief Executive Officer; and Wilco Groenhuysen, Chief Financial Officer. Also joining us today are Kevin Buchi, Chief Operating Officer; Dr. Lesley Russell, Chief Medical Officer; Jerry Pappert, General Counsel; and Bob Repella, Senior Vice President and Head of U.S. Pharmaceutical Business. Following remarks by Frank and Wilco, we will be pleased to answer your questions.
Now, Frank Baldino.
Frank Baldino
Thanks, Chip. Good afternoon, everyone. I am pleased to say that Cephalon again delivered strong financial results. First quarter 2010 sales of $576.7 million and adjusted net income of $144 million, both set new records for the company. We are off to a great start in 2010 and expect to deliver another year of record sales and earnings. This quarter, we recorded cash from operations of $234 million. This put the cash and cash equivalents in our balance sheet to $1.9 billion at the end of the quarter. Even after paying for Ception Therapeutics and Mepha AG, both of which closed shortly after the quarter ended, we have approximately $1 billion in cash on hand. Ception Therapeutics and Mepha AG are two very important deals for us. Ception brings to Cephalon the late stage biological candidate, CINQUIL, for the treatment of a severe type of asthma. Mepha doubles our ex U.S. business with a product base including 120 branded and non-branded generic products and sales in over 50 countries. We are dedicated to building a diversified business and a strong pipeline of new medicines for the future.
TREANDA is bringing new hope to oncology patients. First approved in April 2008 for the treatment of chronic lymphocytic leukemia, TREANDA received its second indication for rituximab-refractory indolent non-Hodgkin's lymphoma in October of that same year. After just two years on the market, TREANDA has helped over 18,000 patients. Growing acceptance by hematologist resulted in sales of $81.3 million for the quarter. TREANDA continues to penetrate the market and is fast becoming an important treatment option for oncologists and patients. We are committed to advancing treatment for cancer patients by seeking FDA approval for TREANDA as treatment for front-line indolent NHL.
To this end we're working with the StiL Group to determine if their study can be filed with the FDA. We should know more by mid-year end and we'll keep you updated on these efforts. And as we have previously communicated, our own study with TREANDA and front-line indolent non-Hodgkin's lymphoma is currently enrolling patients. We remain confident that TREANDA's proven efficacy, safety and ease-of-use will allow us to reach additional patients as physician's gain experience and confidence in its use.
NUVIGIL continues to gain market share as physicians and patients becomes familiar with the benefits this product has to offer. This year, we launched our shift towards disorder campaign. We are beginning to see positive results as use increases among Americans who work shifts. Recall that there are 15 million shift workers in the United States and approximately 1/3 of them suffer from excessive sleepiness associated with shift work disorder. We have an opportunity to serve many of these potential patients with NUVIGIL.
As we announced on March 29, we received the complete response letter from FDA regarding our NUVIGIL sNDA for jet lag disorder. Although we read statistical significance on both primary endpoints, the complete response letter raised questions regarding the robustness of the subjective assessment. We have a meeting scheduled with the FDA in the next few weeks to discuss this further and we'll update you as soon as we have some clarity on this issue.
As most of you know, we continue to pursue new areas of treatment for NUVIGIL. Presently, we have a broad range of clinical programs underway studying NUVIGIL's effects and excessive sleepiness associated traumatic brain injury, bipolar depression and the negative symptoms of schizophrenia. Enrollment continues in our program examining patients with excessive sleepiness associated with traumatic brain injury or TBI. This is a 620 patient Phase III program with co-primary endpoints of a multiple sleep latency test and the Clinical Global Impression scale. We're also examining the effects of NUVIGIL outside of wakefulness. We expect to report on our clinical program of NUVIGIL as adjunctive therapy in schizophrenia during this quarter. This is a 24-week Phase IIb program examining 280 patients with chronic stable schizophrenia.
Lastly, we are studying NUVIGIL in patients with bipolar depression. We're encouraged by our 257 patients Phase IIb trial in patients suffering from this disease. Enrollment in our 1,200 patients Phase III program is underway with expected study completion in the fourth quarter of 2011. And we can show similar results in our Phase III bipolar program that we may have an additional label indication by late 2012 and the opportunity to treat millions of poor people suffering from bipolar depression. We believe that the benefits of NUVIGIL combined with the potential for additional indications will make this product very successful for years to come.
AMRIX sales have remained relatively flat for the last several quarters. We continue to execute our plan to reinvigorate sales and believe that AMRIX will once again be a growth product for the company. FENTORA sales grew by 25% this quarter compared to the first quarter of 2009, aided by the recent launch of this FENTORA in Europe. We continue to have discussions with the FDA concerning our REMS program. We submitted our FENTORA REMS in April 2009 and responded to all of the FDA's comments to date. We look forward to bringing this discussion to a closure. Lastly, our FENTORA patent infringement lawsuit begins May 10 in federal court in Delaware. We believe we have a strong case and look forward to presenting it to the court.
Shortly, after the end of the first quarter, we completed the acquisition of Mepha AG and Ception Therapeutics. Mepha is a Swiss-based pharmaceutical company which develops, manufactures and markets branded and non-brand generic products in over 50 countries, which enlarges and compliments our geographic footprints. We're pursuing sales and cost synergies and have a detailed plan in place to realize these synergies over the next several years. Mepha clearly adds to our strategy of building a diversified global biopharmaceutical company.
We're excited our option to purchase Ception based on their exceptional results from a Phase II study with CINQUIL in patients with eosinophilic asthma. This 106 patients study demonstrated improvement in asthma control over standard of care therapy in patients with moderate to severe asthma and eosinophilic airway inflammation as measured by the ACQ or Asthma-Control-Questionnaire.
Additionally, an analysis of the FEV1, a measure of lung function, show a statistically significant improvement with CINQUIL compared to placebo. We are very impressed with the consistency of the data across several end points and we plan to begin our Phase III program by the end of the year and look forward to deliver this product to the many people suffering from the severe poorly controlled form of asthma.
While we have amassed a considerable pipeline, an interest of time we can only mention a few more opportunities. We're moving ahead with our study of LUPUZOR for the treatment of systemic lupus erythematosus. Enrollment on our six-month Phase II clinical program is set to begin this quarter. Recall that data was shared with you in an earlier Phase II program showed a statistically significant improvement in moderate to severe patients suffering from this terrible disease. We're encouraged by the early results and look forward to bringing a critically needed therapy to this large underserved patient population.
Our anti-TNF epidural injection for the treatment of radicular pain including sciatica will enter a Phase I to study over the next few months. And lastly, we expect that our tamper-deterrent hydrocodone program currently at Phase I will begin a 12-week Phase III program by the end of this year. Our well diversified global portfolio of products continues to thrive growth for the company and we are well-positioned to continue our history of long-term growth.
Now Wilco will discuss our financial performance during the quarter.
Wilco Groehhuysen
Thank you, Frank. Today we released our first quarter 2010 financial results. We reported sales of $576.7 million, which is a 12% increase over the first quarter of 2009, and is in line with our previously issued guidance of $575 million to $595 million. Adjusted operating expenses increased by only 3% compared to the first quarter of 2009 as a result of our focus on spending as well as timing of certain programs. This resulted in considerable operating leverage in the first quarter. Adjusted net income for the quarter was $144 million, an increase of 42% over the first quarter of 2009.
Basic adjusted net income per common share was $1.92 based on an average 75 million shares outstanding. This quarter, we delivered strong top line growth and again, we're able to improve operating margins to deliver record quarterly adjusted earnings.
Compared to the first quarter of 2009, CNS franchise sales increased by 14% to $307.1 million. Pain franchise sales were down by 7% to $113.6 million. In 2009, we began launching FENTORA in Europe which contributed to 25% increase in worldwide FENTORA sales to $42.2 million. This largely offset the continued generic erosion of ACTIQ and our OTFC [Oral Transmucosal Fentanyl Citrate] product. Oncology franchise sales were $110 million, an increase of 44%, largely due to 62% sales growth of TREANDA, which reached $81.3 million.
Other sales, which include the portfolio of 30 products were $46 million, unchanged from a year ago. Overall sales to our European organization grew by 14%. Adjusted for positive currency effects of 5%, sales in local currencies grew by 9%. At the end of the first quarter, total inventory levels for our U.S. brand of products remained relatively unchanged at our goal of between two to three weeks. Excluding VIE expenses, adjusted R&D in the first quarter of 2010 increased from $92.5 million to $96.9 million, primarily due to the addition of Cephalon Australia. Again, excluding VIE expenses, adjusted SG&A increased slightly from $195 million to $199.3 million.
In the first quarter of 2010, we generated net cash provided by operating activities of $234 million and ended the quarter with approximately $1.9 billion in cash and cash equivalents. In April, we closed Mepha inception transactions and made cash payments of $615 million and $250 million, respectively. Our adjusted tax rate for the quarter was 34% which was in line with our guidance.
During the quarter, there were several adjustments that were made to arrive at adjusted net income. The most significant of these were: we exclude the $31 million associated with the ongoing amortization of acquired intangible assets and accelerated depreciation related to restructuring. We excluded $17.6 million of imputed interest expense associated with convertible debt. We exclude $6.2 million of expense associated with currency forward contracts related to our acquisition of Mepha AG. And we included a tax effect of these items and other charges.
As a result of the healthcare reform legislation, more patients will become insured and have greater access to our products beginning in 2014. These benefits in Cephalon cannot be estimated at this time. Healthcare reform will also have certain negative effects on our business, in particular we expect that the increase of the Medicaid rebate to 23.1%, as well as the changes to the 340B Program, we'll have an estimated $7 million to $11 million impact in 2010 and continuing in subsequent years. Our first quarter results included the charge of $2.2 million since these rebates are retroactively effective January 1, 2010.
We also estimate increased government rebates impacts us effective 2011. Based on our current understanding of these provisions and anticipated product mix, we expect the incremental Medicare Part D coverage provision total between $5 million to $10 million and industry taxes on sales of the government to total between approximately $6 million to $9 million in 2011.
Based on our current outlook, our 2010 total sales guidance remains between $2.61 billion to $2.69 billion. Our guidance for the adjusted net income for the full year is increased to $530 million and $545 million. And our guidance for basic adjusted income per common share has increased of $7 and $7.20, reflecting a basic share count assumption of 75.7 million shares outstanding. Guidance for the CNS franchise has increased to $1.22 billion and $1.26 billion. The pain franchise is decreased to $455 million and $490 million, reflecting new OTFC generic competition and lowered AMRIX expectations. Oncology has increased to $460 and $490 million based upon robust TREANDA sales and our guidance for other product sales has decreased to $450 million and $470 million, primarily as a result of the strengthening U.S. dollar. R&D and SG&A expenditures are expected to be between $480 and $500 million and $910 and $930 million, respectively. Our assumed tax rate for the year is approximately 34%. The company is introducing second quarter 2010 sales guidance of between $645 million and $670 million, adjusted net income of between $124.6 and $132.1 million and basic adjusted net income per common share of between $1.65 and $1.75 based upon 75.7 million shares outstanding and a tax rate of approximately 34%. That concludes our opening remarks.
We will now open this call to you and your questions.
Question-and-Answer Session
Operator
[Operator Instructions] We will take our first question from Eric Schmidt of Cowen and Company.
Eric Schmidt - Cowen and Company, LLC
I guess, the first question I have is on NUVIGIL. It looks like sales were flat on a quarter-over-quarter basis. But IMS at least you saw, I don't know, 15% to 20% quarter-on-quarter increase in demand. Can you just talk about the disconnect there?
Frank Baldino
Yes, let's talks about NUVIGIL in general though, Eric. Well, we believe we're on track for our internal plan on NUVIGIL. We're pretty excited about where we are versus progression in NUVIGIL franchise rather both on the basis of total our axis annual our axis and Bob Repella is here with us today and probably a good idea to let him clue you in on the details of what you're asking.
Robert Repella
Thanks, Frank. As Frank mentioned, we're very pleased with our launch performance and progress to date. Prescriptions were up 12% in the first quarter versus fourth quarter of last year. March was a very strong month at 58,000 TRxs and we continue to operate against our strategic plan of converting appropriate Modafinil patients to NUVIGIL and expanding our business in the shift work disorder segment. And a lot of effort in terms of our consumer campaigns and shiftwork in the first quarter. Starting to see some results associated with that. One example, we launched our program with WebMD in the first quarter and today, we've had over 7 million visits to their website related to either NUVIGIL or disease area content. So that's a significant undertaking for us. We launched our non-branded radio campaign as well here in the first quarter. So a lot of programs that will continue to drive growth and traction for the brand throughout 2010. The question regarding the sales versus the prescriptions, little bit of pipeline decrease in the first quarter which accounts for maybe that bit of difference between prescription and dollars.
Wilco Groehhuysen
And just for the record, Eric, we're tracking about 30% penetration into the modafinil market for tota Rxs and new Rxs are approaching 35%. So we feel pretty good about it.
Eric Schmidt - Cowen and Company, LLC
And then in terms of the guidance for the full year, you've brought down SG&A spending by about $50 million relative to your prior guidance. One, I'm wondering where those savings are coming from. And two, I think you've increased your net income guidance by less than $50 million. Is there an offset maybe in cost of goods or can you provide any gross margin guidance for this year?
Frank Baldino
Sure, Kevin, can answer that for you.
Kevin Buchi
Part of the reason for the change in SG&A is currency related. When we last gave you a forecast, I think the euro was trading around $1.49. It's now around $1.30. And that has a very significant decrease, caused a very significant decrease in expenses coming out of Europe. Obviously, that's offset by a decrease in revenue coming out of Europe which we kind of absorbed in the forecast. The other part of the SG&A change is frankly we're trying to be careful as to how we spend money. We've been giving you, we've been telling you for the last couple of years now that we have been focusing on, trying to improve our margins not by cutting the meat a way but cutting maybe a little bit of the fat. Just trying to get a little bit more careful as to how we spend money. Until you grew SG&A kind of comes out of those types of efforts.
Eric Schmidt - Cowen and Company, LLC
And Kevin, is there an offset to some of those savings or can you provide us with guidance for gross margins?
Kevin Buchi
I mean, there is some change in gross margin associated with the mix changes on the top line.
Eric Schmidt - Cowen and Company, LLC
I mean, going forward, and as far as part of the business here, can you even estimate where your gross margins are going to shake out at?
Kevin Buchi
I would rather not give you that level of granularity at this point. We've given you sales, we've given you the...
Eric Schmidt - Cowen and Company, LLC
Just on healthcare reform, you alluded to some of the hits being in expenses. Will you be recording some of these impacts on the expense side rather than offsets to revenue? How's that going to work for Cephalon?
Wilco Groehhuysen
Yes, the three -- the one that particularly is important to the 2009 P&L relates refers to Medicaid rebate and the 340B Program. Those would be in gross of net adjustments so it's reflecting on that sales guidance. That's 2010, by the way.
Operator
Our next question comes from Manoj Garg of Soleil Securities.
Manoj Garg - Soleil Securities Group, Inc.
First off, on the NUVIGIL number, it was a little bit lower than we would have forecast based on the prescription trends. Can you comment on specific inventory changes to NUVIGIL or if there was a greater proportion of the 30 day couponing this quarter versus last?
Wilco Groehhuysen
It's our belief that it's primarily driven to reduction in the pipeline, both in the wholesale and retail channel.
Frank Baldino
And with regards to vouchers and coupons, it's been pretty steady around 25% of prescriptions. So the only difference is a little bit of a pipeline draw down this quarter. That explains most of it.
Manoj Garg - Soleil Securities Group, Inc.
And then when you think about the overall franchise from our vantage point, the conversion's going excellent, but the franchise continues to trend down. I think, Frank, you alluded to a focus on shift work sleep. And can you just review what your focus there is and what;s some of the resources you're putting to work?
Frank Baldino
Yes, I'm going to let Bob Repella give you a lot detail there. But the overall concept here is to grow the franchise with new indications, right? So we started with a shift towards sleep disorder, which we really haven't focused on the past with Modaf while it gives us some first opportunity to build that segment. A lot of patients in that segment. So we should expect that to drive growth in the segment going forward. And of course, the new indications that we need to get approved, the gen-like disorder and so on and so forth down the road with schizophrenia hopefully, or bipolar hopefully, or some of the others. That should expand the market going forward. The specific programs that we have, I'll turn it over to Bob to talk about some of the more exciting ones.
Robert Repella
So as I mentioned, a lot of our focus in terms of expansion around shift work disorder has been our web-based campaigns. And we're working with a number of portals and providers to get the message out around shift work disorder. WebMD as I mentioned is a big undertaking for us and we've had over 7 million visits for their site alone. Working with all the search engine optimization entities like Google and others as well to make sure that the data is well placed and well-represented. We've undertaken our non-branded radio campaign in select markets where shift work is a significant part of the working population. So that's just getting started now and we expect to see the benefits coming out of that as we move through the year. The other thing that we'll be doing in a big way in 2010 is executing our pill-through programs with managed care customers. We've signed agreements with many of the major commercial providers in the U.S. and now that they're in place, we have an opportunity to work with them to pull-through the business. Again, conversion of appropriate patients from modafinil to NUVIGIL and also potentially to leverage our shift work disorder campaign with them as well. So those are the types of things that will help us accelerate growth during 2010.
Manoj Garg - Soleil Securities Group, Inc.
And then just last housekeeping question, for Wilco, why does the basic share count decreased by 500,000 quarter-over-quarter in terms of when you're giving basic guidance?
Wilco Groehhuysen
Well, basic guidance was based on a forecasted share counts and it came out a little bit lower than we expected. No particular reason to further allude there.
Operator
Our next question comes from Gary Nachman of Leerink Swann.
Gary Nachman - Leerink Swann LLC
First question for Frank. You said in your prepared remarks, you're confident you can grow AMRIX. Specifically, what can you do to accelerate the product? And how much of a focus is that currently for the pain sales force and has there been any sort of changes in the promotional effort behind it?
Frank Baldino
Yes. Yes to all the things you mentioned. I think it's a big focus for us. We think AMRIX is going to be a good performer. We're very happy with the drugs being able to develop it as we have and launch it as we have. We, sort of in the past, we moved the sales reps off of AMRIX and put on to NUVIGIL. We probably dropped the ball a bit on the execution side. We probably didn't move them quickly enough and we adjust the remaining sales reps, sort of -- I'd say rapidly enough on to the high prescribers. It took us a little longer time than we really wanted to. But now we're back on track with that. And really the opportunity is very simple. It's a call in the highest prescribing population in that category, the highest prescribing docs possible and we now have that plan in place. It's been a place for about since the national sales meeting, which was at the end of February, early March or so. So we have that much time but we like where we are. We think it's going to be successful. The other thing is, Bob, you might want to talk about are some of the opportunities we see with those collection [ph] (43:34) going away and that sort of thing.
Robert Repella
Sure. So for both the primary care and pain sales forces, AMRIX does have the highest weighting in their portfolio. So there is a focus on AMRIX for both of those groups. And as Frank mentioned, we are focusing in on the high decile writers in this category and increasing our frequency with those customers to make sure that our message is resonating and impactful with these doctors. And with going Stelaction [ph] (44:04) generic, clearly we'll have an opportunity to have the most significant share of voice in this category going forward. So with the right targeting, the right message and a dominant share of voice in this segment, we think we can get amortized back on, a growth track very soon and we anticipate seeing some of those results here in the second quarter in the prescriptions moving forward and North.
Gary Nachman - Leerink Swann LLC
For Wilco, a couple of clarifications on the healthcare reform. First, which products are most affected in your portfolio? And in 2011, is the $19 million, is that an addition to the $7 million to $11 million in 2010? I think it is, but just confirm that, please.
Wilco Groehhuysen
Yes, one of the products that's affected by healthcare, it's probably got a trail from the top of my mind, the $7 million to $11 million clickable into 2010, we fully expect to also apply in 2011.
Frank Baldino
Exposure in 2011, that would approximately $30 million.
Gary Nachman - Leerink Swann LLC
Wilco, on the licensing contract revenue, any one-timers in there? Or is that a run rate now? What's in that number?
Wilco Groehhuysen
Licensing also includes some income from Cephalon, Australia, formerly that we will still have partially in the second quarter and will then dry up. The net P&L impact of that is also reflected in our full year guidance.
Gary Nachman - Leerink Swann LLC
And then lastly for Frank, or Lesley maybe if she's on, you mentioned for the anti-TNF, you're going to start the Phase I two of the next few months. But you should be getting data a readout in sciatica, is that still on track for mid-year?
Frank Baldino
Right. the readouts from the Bio Assets group, you need?
Gary Nachman - Leerink Swann LLC
Yes.
Frank Baldino
We did get readout earlier that we've been showing around. Now the first Phase IIa study I guess you've caught, where they had significant improvement in the endpoints that they measured. Second study is probably due when in June, July?
Lesley Russell
It's been a bit slower than anticipated, so they're not saying sort of mid-year. but it's subject to...
Frank Baldino
Mid-year means around June or July, so that's what we anticipate. But Lesley, why don't you give a little color with what we're doing with our study and why we think it's a good opportunity.
Lesley Russell
I mean, we believe it's a really nice noble opportunity for an anti-TNF. The role of TNF alpha in disk herniation lends itself to certainly the series over the anti-TNF inhibitor being effective in that model. Our own compound will take into the clinic just finishing up some tox work now then we'll take it into clinic later this year. And we plan to run our sort of Phase I/II adaptive design studies that will be -- those escalations with placebo control in each dose group. So as soon as we have an application of those, we'll be able to take straight into Phase III. So we really are going to run a very expedited program to get this to market as soon as we can.
Operator
Our next question comes from Greg Gilbert of Merrill Lynch.
Gregory Gilbert - BofA Merrill Lynch
First for Bob, what's your theory on why the TRxs have been shrinking for the NUVIGIL, PROVIGIL franchise for the past several quarters? Do you think it's economically driven or is something else?
Robert Repella
So we have seen a bit of a decline in the weight category. If you look at first quarter '10 versus first quarter '09, it's down about 3%. And the primary driver really is the category being managed more completely by managed-care entities. And the reality is, as we've entered into agreements with NCOs, many of those agreements have NUVIGIL prior off to the label, about 70% of lives are prior off to the label. And when entering into those agreements, many of those customers have taken a look at the category, including PROVIGIL and also made some adjustments as well. So I think that's probably the most significant part of what's putting some downward pressure on the weight category.
Gregory Gilbert - BofA Merrill Lynch
Second one for Frank, have there been any positive or negative market developments in Europe since you announced the Mepha transaction?
Frank Baldino
From our sales perspective, is that what you're asking?
Gregory Gilbert - BofA Merrill Lynch
Yes. I mean, whether or not those developments affect you? I assume your sales guidance is what it was before, but have there been any significant changes from your point of view in terms of different countries or anything tied to Mepha?
Frank Baldino
No, other then FX alterations, we are pretty much on track with what we expected with Mepha. I think the real opportunity there as you know and as we've spoken about is what we do with it going forward. We have a real opportunity to move those products into the territories that we formally had, and that's sort of the plans ongoing this year and early next year is to move those in there, as well as bring our products, the formally existing Cephalon products into the Mepha territories. I think that's going to provide some upside to what we -- for the reason that we acquired the company, as well as the cost savings. We just closed the deal last month, so we really don't -- I can't appreciate any of those cost savings yet, but we're on the track, on a good plan to synergize that organization and drive our bottom line significantly. We intend to make this a big European top line growth driver, as well as bottom line in years ahead and we think we can still do that. The only other development that we're pretty excited about is we like the generic business that Mepha has. There's sort of a demand from the world for a Swiss-made, high-quality generic and a lot of countries in the world that we really don't have operations in. The third world nations that we often talk about but don't do anything with. And we think those products give us some upside to the deal that we really haven't spoken about and we have to deliver. So we're pretty happy with what we bought. We're very happy with the people there. We're pretty happy with the things for our future outside United States.
Gregory Gilbert - BofA Merrill Lynch
Just to clarify the last point, your talking about sort of regular commodity generic products made in Switzerland sold into emerging markets, is that what I heard?
Robert Repella
Exactly.
Gregory Gilbert - BofA Merrill Lynch
For Jerry, can you confirm who's first to file on which strength for NUVIGIL on the generic filing front? And also what comes next on the PROVIGIL antitrust litigation?
Gerald Pappert
The court has set its schedule now in the antitrust case. I think, look, the big development to talk about in that case is obviously you are all aware of the motions that we had filed to dismiss the various complaints. And we always kind of knew that while all of those cases, as you know, have been dismissed in the circuits that have considered them, most of those dismissals were at the summary judgment stage as opposed to the 12(b)(6) motion to dismiss stage. So while we had a great argument, we weren't shocked to know that we'll now just have to renew those arguments at the summary judgment stage and we'll be positioned to do that because the judge adopted for our case the scope of the patent test that has been employed in all the other circuits, which had resulted in the settlements being upheld. So with the framework and the parameters that the judge has adopted for the litigation, we feel very, very good about now seeing the discovery process through which, under the judge's schedule, will take us to roughly the middle of 2011. And then we will be filing our dispositive motions, our motions for summary judgment. I believe the court has a schedule set for July of 2011, and then the court will consider those motions at that time. So we think we are very well positioned in that litigation.
Gregory Gilbert - BofA Merrill Lynch
Can you provide any more color on the hydrocodone formulation and development strategy? Do you think you'll be first or among the first to hydrocodone launches?
Lesley Russell
We have completed the first Phase I study, we're very pleased with the pharmacokinetic profile of the drug. We go into the next one, Phase I study very shortly. And then plans to take it straight to Phase III actually, because we don't believe in the need to show the hydrocodone is an effective analgesic, I think we already know that. So we plan to get it into Phase III later on this year and run the program as efficiently as we can. We're certainly among one of the first. So I think we're in a reasonably good shape there.
Gregory Gilbert - BofA Merrill Lynch
So it's a twice-a-day product?
Lesley Russell
That's twice-a-day product, yes.
Operator
Our next question comes from Bret Holley of Oppenheimer.
Bret Holley - Oppenheimer & Co. Inc.
I'm just wondering, your talking about patients that would be appropriate to the switch over to NUVIGIL. I guess, the flip side of that question is what I have is, what patients do you believe wouldn't be appropriate to switch to NUVIGIL from PROVIGIL?
Robert Repella
Our focused effort in promotion is specifically within the context of the label for NUVIGIL, so our effort is to make sure that patients that are captured by the label, whether it'd be OSA or shift work disorder or narcolepsy, those are the patients that we believe are appropriate. And our promotional campaign is focused on them in terms of conversion.
Bret Holley - Oppenheimer & Co. Inc.
And then on CINQUIL, you said you start the Phase III by the end of the year. What's the reasonable time line for completion of that trial? I guess, gives you confidence you can really focus that trial on asthmatics with the eosinophilic-driven disease?
Lesley Russell
With a little plan to enrich the population by only enrolling those subjects with documented patient with eosinophilia, so I don't plan to change the enrollment criteria from the Phase II program that Ception ran. We are on track to get going with the Phase III study by the end of the year and we've been pretty aggressive with this one. So again, run it as quickly as we can and run it through the global program, taking advantage of both Northern Hemisphere and Southern Hemisphere in terms of their winter months.
Frank Baldino
Are you asking a question of how we're going to guarantee that we get these eosinophilic patients?
Bret Holley - Oppenheimer & Co. Inc.
Yes, I mean, just to really tighten up the entry criteria, because obviously that's been a key stumbling block in other trials.
Lesley Russell
We'll make sure that one of the inclusion criteria that they have documented eosinophils in their sputum. And I think that shows that was the patient population in the Phase II study where we show really quite a profound effect on FEV1, so we don't plan to change that.
Frank Baldino
That was the entry criteria in the Ception Phase IIb study. That's one of the reasons why it was so successful.
Operator
Our next question comes from Marc Goodman of UBS.
Marc Goodman - UBS Investment Bank
First one is, can you give us some flavor on where the TREANDA sales are coming from? NHL first line, second line CLL, maybe could you just give us a flavor there? And second thing, Frank, what are you thinking next for BD? Where in the world are we going next?
Frank Baldino
We're in the world are we going next with BD is everywhere in the world. We have a Global business, and we intend to continue to build it globally. We have a big deal last year, as you know, we're just recently closed in what we call the rest of Europe, which really rounds out our European footprint. We think we're done in Europe pretty much. Product acquisitions and product licenses and things like that, of course, we'll always do to embellish that business. But as far as generally a larger footprint within Europe, I think we sort of we're there and we're okay with that. We like the Chinese space. We've been trying to do something there for quite some time. We've spoken about this, you and I, as the Street and the company has spoken about this. That's been a little bit of a challenge as the stock market fluctuate around the world. And a relative value has changed to some of the acquisition targets we look at. Suffice to say, there's a lot of great opportunity there and we like to get a deal done this year. I know I said last year, but there's a lot of factors there out of our control on valuation that we have to make sure we do a good deal for the shareholders. So there's lots of good opportunities and we see that as a growth market of consequence for the future for us. It's also a market where we can exploit some of the Mepha technologies and businesses that we acquired. I mentioned to the earlier question there that we like the pure generic play of Mepha Swiss made in a lot of emerging markets. And even though we'll develop brands in China, we have a number of them under development in China right now, we would like to push the generic Mepha brand in China as well. So we have big plans for that part of the world and hopefully, we can execute them this year. As far as the rest of the world goes, I think we don't see the South American continent as a big growth driver for our business going forward. We're very happy with the relationship we had. We do sold product in most of those countries through partnerships. We will always expand and make those better partnerships going forward, but we don't intend to have a footprint in South America anytime soon. And India, we'll have to see. I mean, that's the other space that we look at. Either we're not ready for India or India is not ready for us. I don't know what the answer is, but we're not going there anytime soon. Regarding TREANDA, Bob, the question was about where it's coming from?
Robert Repella
Sure. So if you look at our market share for TREANDA overall across all lines in CLL, we're holding steady at around 30%. And then across all lines in NHL, we've seen an increase of about 10% from 15% to 25%.
Operator
The next question comes from Ram Selvaraju of Hapoalim Securities.
Raghuram Selvaraju - Rodman & Renshaw
With respect to the biologics pipeline, could you give us some more color on the clinical development path for Cinquil and when that study or studies might kick off? And secondly, with respect to Lupuzor, what would be the next after the upcoming Phase II study is completed? And would it be possible to utilize that program as part of the registration package?
Lesley Russell
In terms of the asthma program, I mean, it was pretty much as I outlined before. We're getting geared up to go into Phase III. We are hoping to meet with the agency for a formal end of Phase II meeting during the summer months. We're currently in protocol development and site development and all the things that we need to do to get a big global Phase II program up and running. And we are on track to get one of the Phase III studies that this up and running this year. And as I said, we really want to take advantage of both the winter months in the Northern Hemisphere and in the Southern Hemisphere. So our first goal will be to get the Northern Hemisphere up and running during this coming winter and then move it down to the Southern Hemisphere to take advantage of the winter months down in Australia there and other places. Because certainly, enrollment in the Phase II studies that was undertaken by Ception suggested that certainly the exacerbations and everything occurred not surprisingly, when the infection rates are highest, which obviously occurs in the winter, so that's our goal for that. In terms of Lupuzor, hopefully, we're going to Phase III after we finish the Phase II study. Certainly, the patient's exposure numbers will help us in the registration program, and so everything contributes. We know we have to expose around 1,500 subjects for this type of agent over a 12-month period, so every little helps. It might not be one of the two adequate and well-controlled studies, but certainly helps in terms of safety data and exposure numbers.
Frank Baldino
And it's not very limiting because when we do our Phase III, we usually do them in tandem going forward. We're going to learn a lot from Bedelista [ph], (1.01.30) right. [indiscernible] out there with Bedelista [ph]. And they're going through their process and generating data and more data last month that you saw. So we're learning a lot from their process and we'll certainly apply those lessons to what we do going forward with Lupuzor. The only other comment I'd like to add to Lesley's comment about the eosinophilic asthma studies is, there is a little bit of a myth out there that asthma means thousands and thousands of patients for a long period of time. And that's simply not the case. And this rather narrow severe asthma eosinophilic population. I know you haven't finalized your plans yet, Lesley, but maybe you might want to comment about the size of these studies that we're talking about.
Lesley Russell
We are in the double-blind, placebo-controlled partnered studies. That'll be around in sort of 400 to 500 patient category. And then clearly, we will have a label extension, because we will need some longer-term exposure. And we also want to consider study specifically looking at exacerbation rate. So when you add up with the totality of that program, becomes a big program and certainly should meet the minimum requirements for ICH standards for exposure and size of stage data...
Frank Baldino
But it's not the thousands of patients per study that...
Lesley Russell
No, it's not that.
Raghuram Selvaraju - Rodman & Renshaw
With respect to your post or potential activities in China, Frank, could you elaborate on what specifically you see is the best potential opportunity in China? Is it on the biologics side, on the generic side or is it some kind of combination of the two?
Frank Baldino
Well, I think we are victims of our own experience here and I think we've learned that. There's a good balance in business makes sense. We like the fact that we're now in biologics space and moving commercially into that space. We like the fact that we've been selling brands and branded sort of small molecules. And we also like the fact that we've entered the generic space in Europe. So in China, we like all three of those spaces. So don't be surprised if we put a couple of companies together and a couple of products of our own there to benefit from all those markets. All those marketplace will do well in China. We like them all. As far as our product, don't forget, we sell roughly 40 branded drugs throughout the world and roughly 120 generic drugs throughout the world, with 50 new generic and sort of in the mill here. So we've got a lot of choices to choose from, lots of opportunities to choose from to see which products will do best in those environment. So the goal is to bring together an infrastructure in the right parts of China that's hopefully profitable out-of-the-box. And then add a selection of our broad array of products to drive growth in those businesses going forward. Pretty simple, I know, and we haven't done anything yet. So it's pretty exciting to think about it.
Operator
Our next question comes from Louise Chen of Collins Stewart.
Louise Chen - Collins Stewart LLC
I was wondering if you could talk more about your life cycle expansion strategy for TREANDA and how you're thinking about the peak sales estimates for this product?
Frank Baldino
I think we talked about peak sales estimates. We like to talk about what the analysts have out there from peak sales. I mean, there's a lot of them on the phone today and they'll be happy to tell you what their estimates are, including your own. I think the numbers range in the $400 million to $500 million range, some are higher than that. Some are right about there. So my guess is peak sales are pretty much where they're suggesting they'll be. I see no reason to disagree with the estimates that are out there. As far as sort of adding to the exclusivity of TREANDA, we've got a number of initiatives underway on the industrial property side that we've spoken about in the past, and then we'll have to see how they pan out. We're enthusiastic about that approach but we'll have to see how successful we are. We also have a number of other approaches where we formulate TREANDA to approach different types of cancers, including solid tumors. We've entered a number of relationships with technology companies that have some advanced sort of formulations in those areas and we're working with them. We're working on our own. And the goal would be to extend this beyond 2015 in a meaningful way, both with an IP strategy and a formulation strategy.
Louise Chen - Collins Stewart LLC
My second question is regarding PROVIGIL pricing strategy ahead of generic competition. Are you thinking of raising prices more aggressively now or closer to the date of generic competition for PROVIGIL?
Frank Baldino
I think pricing strategy is something that we keep internal. That's a good question, but we don't really discuss that publicly. I think we've shown you that historically, that PROVIGIL's had a good market run and we're moving the business over now to NUVIGIL and has been rather successful. So we're pretty happy with where we are.
Louise Chen - Collins Stewart LLC
And then just last question, could you elaborate more on the market opportunity for abuse-deterrent opioid? Obviously, a lot of companies are interested in getting into the space, but it's still early days. Just wondering what you're thinking about that.
Frank Baldino
Right. We developed abuse-deterrent technology to our Minnesota CIMA group and hopefully some of them are listening on the phone today. They've been very, very successful with that. There are several advantages of the technology we've developed. One is sort of prevent alcohol dumplings, so it could be applied to those kinds of products that have those kinds of issues. It also lends itself to either once-a-day or twice-a-day utility of the product, which is dosing of the product, which is in advance successfully with hydrocodone, which is 3 or 4x day-to-day, we can move that to twice-a-day. And of course, the hydrocodone there's made is an opportunity to develop an APAP-free formulation there which I think suits the market pretty well today. And we expect to apply this to a number of product opportunities going forward. But hydrocodone is the one that we've prioritized and chose to develop in an aggressive way.
Operator
Our next question comes from Frank Pinkerton of SunTrust.
Frank Pinkerton - SunTrust Robinson Humphrey Capital Markets
On your oncology guidance, and I know a lot of different analysts use different sources for sales. But given the very strong sales for TREANDA in the March quarter, should we look that as maybe a little bit of an anomaly or loading, because if we take that and annualized it, it's pretty much above your guidance range.
Frank Baldino
I think this is the first quarter of 2010 guidance. We don't want to sort of jump into the fourth quarter 2010 at this point in time. I think if you look at TREANDA's performance over the years, some months have been very strong, some parts of the year which are a little weak. I know there's a little bit of a summertime effect of the product that we experienced last year. So we sort of envision that in the guidance that we've given you, and we'll see when it materializes. It's just a little too early to go whole hog into trend at this time.
Frank Pinkerton - SunTrust Robinson Humphrey Capital Markets
I know you don't want to comment on pricing for PROVIGIL going forward, but following the PROVIGIL price increase in November, it did look like then there was kind of an acceleration at least from a weekly standpoint on switching over to NUVIGIL. What is your thought process around using price as part of the switching mechanism? And how should we think about prices or potential increases in the future telling us on how satisfied you are with NUVIGIL switches?
Frank Baldino
I think the overall strategy, we've been pretty clear to everyone on. It's a really good question. We think you've got in line to patient's medical interest than the patient's economic interest appropriately to move business over to the product that you want, and NUVIGIL is that product. So we're going to follow that strategy in the past, we'll continue to follow that going forward.
Frank Pinkerton - SunTrust Robinson Humphrey Capital Markets
Finally, just a Mepha question more on reporting. How are we going to look at reporting for that going forward? Is it going to be stand alone? Is it going to be lumped in with other products? Are you going to breakout Europe and take the old Zeneus franchise and put it in with Mepha reported in line? How should we think about reporting for Mepha?
Wilco Groehhuysen
As in the previous quarter, the product sales guidance for Mepha acquisition's incorporated in other. We will report our financial statements basically in line with what we've done before. We'll make sure there's adequate disclosure in place with respect with the impact of Mepha in our global and European P&L will look like. So we'll give you the transparency, hopefully the transparency that you're looking for.
Operator
We have time for one more question. That question will come from Corey Davis of Jefferies.
Corey Davis - Jefferies & Company, Inc.
For Lesley, do you know in the NUVIGIL bipolar studies, are there any restriction on the other meds that the patients are allowed to be on, or are they encouraged to be on standard of care and then add NUVIGIL on top of that?
Lesley Russell
They'll all be on the mood stabilizer. And the mood stabilizers that we are allowing in the study are one of the atypical antipsychotic risperidone and olanzapine. We are excluding from this particular study but we'll address it with other studies, Seroquel because of potential drug-drug interaction, so we're addressing that with other programs. So valproate they're allowed, lithium they're allowed and I'm probably missing one or two. But it's...
Corey Davis - Jefferies & Company, Inc.
How about Lamictal?
Lesley Russell
Yes, they are like Lamictal, though obviously we ask them to be careful on that, because of the compounding problems with the skin reactions in Lamictal.
Frank Baldino
All right. That concludes today's conference call. Well, thank you all for joining us.
Operator
This does conclude today's conference call. We thank you for your participation and have a wonderful day.
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