Forest Laboratories Management Discusses Q3 2011 Results - Earnings Call Transcript

Jan.18.11 | About: Forest Laboratories, (FRX)

Forest Laboratories (NYSE:FRX)

Q3 2011 Earnings Call

January 18, 2011 10:00 am ET

Executives

Francis Perier - Chief Financial Officer, Principal Accounting Officer, Executive Vice President of Finance & Administration and Member of Disclosure, Legal Compliance & Risk Management Committee

Frank Murdolo - Vice President of Investor Relations

Marco Taglietti - Senior Vice President of Research & Development, Member of Disclosure, Legal Compliance & Risk Management Committee and President of Forest Research Institute (NYSEARCA:FRI)

Analysts

John Boris - Citigroup Inc

Corey Davis - Jefferies & Company, Inc.

Richard Silver - Barclays Capital

Thomas Russo - Robert W. Baird & Co. Incorporated

Ian Sanderson - Cowen and Company, LLC

Timothy Chiang - CRT Capital Group LLC

Gregory Gilbert - BofA Merrill Lynch

Mario Corso - Caris & Company

Operator

Good morning. My name is Alice, and I'll be your conference operator today. At this time, I would like to will come everyone to the Forest Laboratories Q3 '11 Earnings Call. [Operator Instructions] Mr. Frank Murdolo, you may begin.

Frank Murdolo

Thank you, Alice, and good morning, everyone. This is Frank Murdolo. Thank you for joining us today for this third quarter fiscal 2011 conference call. Joining me today is Frank Perier, our Executive Vice President of Finance and Administration and Chief Financial Officer; and Mark Taglietti, our Senior Vice President of Research and Development and President of the Forest Research Institute. By now, each of you should have seen the earnings release that we issued around 8:00 this morning. The release is also available at our website, www.frx.com.

By way of Safe Harbor statement, let me add that various remarks that we may make about future expectations, plans and prospects for the company constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and actual results may vary. Let me now turn the call over to Frank, who will comment on the business during the quarter.

Francis Perier

Thank you, Frank and good morning, everyone. I will start today's call by reviewing key company events for the quarter, as well as the financial results for the quarter, and then turn the call over to Mark Taglietti, who will review the R&D pipeline.

But before we begin, I would like to take a moment to wish Larry Olanoff, all the best in his retirement, and to thank him on behalf of everyone at Forest Laboratories for his outstanding leadership during his tenure. Larry began his career with Forest in 1995 as Chief Scientific Officer, and was our Chief Operating Officer since 2006. During his years with Forest, he created and built the Forest Research Institute which has produced our successful marketed product portfolio from Celexa to our most recently approved product Teflaro, as well as our robust development pipeline. We will certainly miss the day-to-day interactions with Larry, but we will still have the benefit of his expertise as a member of our Board of Directors and as Senior Scientific Advisor to the company.

Turning now to operations. Our underlying business continued to perform very well during the quarter for our key marketed products. Lexapro sales were essentially, unchanged from last year despite the expected modest decrease in market share, and we saw a continued solid prescription volume growth for Namenda, Bystolic and for our newest product launched, Savella.

We've had a very busy quarter including FDA approval of Teflaro, for the treatment of community-acquired bacterial pneumonia, and acute bacterial skin and skin structure infection. We launched Teflaro earlier this month, and are targeting approximately 2,000 key hospitals. In preparation for the launch, we doubled the size of our hospital sales force to around 240 sales representatives, and now have about 95% of that total onboard in place in a very competitive -- which places us in a very competitive position in the antibiotic market.

We started detailing with the scientific launch in December using the product label and we currently plan the full launch with DDMAC-approved marketing materials around the end of March. Teflaro began shipping in January. The wholesale average cost price for Teflaro is $82 per day of therapy. With approximately 23 million annual therapy days for each of the pneumonia and skin infections, we will be competing in a market valued at brand prices worth well over $3 billion. We also announced the completion of three business development agreements.

In November, we were pleased to announce that we entered into collaboration and distribution agreement with Janssen to commercialize Bystolic and Savella in Canada. Over the next few years, we plan to establish a wholly-owned Canadian affiliate that will exercise the co-promotion rights for Bystolic and Savella in Canada. And they will also take responsibility for the future regulatory filings and commercialization of our pipeline products in Canada which include: Teflaro, linaclotide, levomilnacipran and cariprazine. This collaboration is a significant and valuable first step towards establishing a Forest presence in Canada.

In December, we entered into two agreements with Gruenenthal. We acquired all rights currently held by Gruenenthal for colistin and all rights previously licensed by Forest to Gruenenthal for Colobreathe. Both products are for the treatment of cystic fibrosis. We currently market colistin in the U.K. and Ireland. With this transaction, we will expand our European cystic fibrosis franchise while expanding our commercial capabilities in Europe in addition to our existing presence in the U.K. and Ireland. This is a first step at expanding our commercial capabilities in Europe in addition to our existing presence in the U.K. and Ireland, and also strengthens our presence in the cystic fibrosis market in Europe.

In addition, we were also pleased to announce along with our partner, Gruenenthal, that we entered into a licensing collaboration agreement for the development and commercialization of GRT 6005 and its follow-up compound, GRT 6006. First-in-class, novel small molecule analgesic compounds for the treatment of a moderate to severe pain. Forest will have exclusive rights to the United States and Canada with an option to co-promote in Europe. Gruenenthal will have an option to co-promote in the United States and Canada. Collectively, these three agreements also represent early steps towards expanding our business presence beyond our current focus in the U.S.

On November 1, we and our partner Ironwood Pharmaceuticals reported positive topline results for the second of two Phase III clinical trials assessing the efficacy and safety of linaclotide, or irritable bowel syndrome with constipation, or IBS-C. Preparations are underway to file the NDA for both IBS-C and chronic constipation in the third calendar quarter of 2011.

Also during the quarter, we and our partner, Almirall, reported topline results for the second Phase III ACCORD COPD II study of aclidinium in Chronic Obstructive Pulmonary Disease. And earlier this month, we reported positive topline results for the ATTAIN Phase III study of aclidinium in COPD. We also reported topline Phase II results for the aclidinium formoterol combination dose ranging studies. Preparations are underway to file the aclidinium NDA by mid-2011.

Regarding our in-line products, Lexapro sales in the quarter totaled $586.5 million, essentially unchanged from the year-ago period. Moderate -- modest TRx share decline continues to be offset by market growth and price increase. Namenda sales were $319.8 million, a growth of 13.2% year-over-year. Combination use with an acetylcholinesterase inhibitor remains the most widely applied dosing regimen, and accounts for some 60% of total Namenda use.

Bystolic sales in the quarter was $68.1 million. This compares to sales of $47.5 million in the year-ago period. Bystolic sales continue to perform strongly, and we continue to see an encouraging mix of patients, including significant portions of those switching from generic beta-blockers and those new to beta-blocker therapy.

Our approach to physicians has been to emphasize the use of Bystolic as the first add-on agent to standardize first-line agents, and this message appears to be increasingly well-received. It represents a significant change in the beta-blocker treatment regimen for hypertensive patients. Bystolic has a growing base of approximately 173,000 prescribers with approximately 90% of those being repeat writers. Both primary care physicians and cardiologists are prescribing the product. While share among cardiologists continue to exceed that of national share by Bystolic, recent monthly prescription trends show that primary care physicians are now generating higher prescription volume in cardiologists.

Since launched in 2008, approximately 1.1 million patients have filled a Bystolic prescription. Younger patients prescribed -- comprised a higher percentage of Bystolic patients than they do for other beta-blockers and other antihypertensive agents in general. 53% of Bystolic patients are younger than 65 compared to 42% for other beta-blockers, and 47% for the general and antihypertensive market.

Overall, in the managed care front, our access without any step added or prior offer restrictions, covers 88% of total beta-blocker lives. Bystolic is unrestricted Tier II coverage on major national health plans, and is the preferred brand at many of the major national plans.

We launched Savella in April of 2009 and sales in the current quarter were $24.6 million. This compares to sales of $15.4 million in the year-ago period. Our broad-based earlier experience sampling program and general promotional activities have succeeded in driving patient and physician experience with Savella, and we continue to be encouraged by the solid uptake and the positive response to Savella's profile and performance, with both specialists and general practitioners.

During December, Savella achieved a 6% weekly share of TRx scripts of EFMS market, and is the only branded drug in the category that has grown TRx share versus December of 2009. There had been approximately 71,000 cumulative prescribers since launch, and repeat prescribers continue to account for over 94% of Savella weekly prescribers. Over 80% of Savella's business is coming from continuing patients, while the remainder is primarily coming from new starts as add-on therapy.

We are also seeing switches to Savella from multiple other therapeutic categories including opioids, NSAID, and SSRIs. This is a strategic achievement, as nearly 74% of the fibromyalgia TRx total scripts written are for those older categories. In total, about 88% of Savella-treated patients are on polytherapy for fibromyalgia, which is similar to the current experience for Cymbalta and Lyrica.

We continue to see a steady growth in total weekly prescriptions for Savella, with the latest weekly total prescription volume running at over 15,000 scripts. Savella rapidly gained share in the fibromyalgia market driven by early adopter physicians, both specialists and primary care. Recent weekly TRx data indicates that the primary care physicians account for nearly 60% of all new prescribers, assuring further growth in the primary care segment is our long-term strategy.

We have exceeded our original managed care launch goals and have achieved unrestricted formulary position, either Tier II, or Tier III in commercial plan covering approximately 80% of targeted prescriptions. Overall, we are pleased with strong sales and earnings performance of our in-line products and their position within the national managed care plans.

Now let me move to review the financial results for the quarter. Fiscal third quarter revenues were comprised of just over $1 billion of product sales versus $997 million last year, representing growth of 6.7%. $46.8 million of contract revenue, primarily from the Benicar agreement, down 17.1% versus last year, as well as $7.1 million of interest income and $8.6 million of other income.

Total revenues for the quarter, which are inclusive of product sales, pretax earnings from Benicar, interest and other income totaled $1.1 billion, an increase of 5.8% from last fiscal year. Wholesale of inventories were essentially flat at just under 2.5 weeks as compared to last quarter, with little impact on the current quarter sales.

Gross margin in the quarter came in at 76.6% compared to 75.2% in last year's third fiscal quarter. The lower reported gross margin in last year's third quarter was due to a one-time restructuring charge relating to closing our packaging operations in Long Island. Excluding the one-time charge, the gross margin in last year's third fiscal quarter would have been 76.6%, in line with the current performance.

SG&A spending during the quarter was $285.7 million, down 6.9% from $307 million in last year's third quarter. The current level of spending reflects the resources and activities required to support our currently marketed products, particularly Bystolic and Savella, as well as spending in preparation for the launch of Teflaro.

Research and development spending in the current quarter was $200.8 million, as compared to $233.6 million reported in the third quarter last year. R&D spending in the quarter included a payment of $66.1 million to Gruenenthal for the license agreement and for the co-development and commercialization of small molecule analgesics.

The prior quarter included a charge of $75 million for an upfront license payment to Almirall in connection with the license agreement for LAS 977. Excluding such payments, R&D spending reported in the quarter decreased 15.1% versus the prior year. Research and development spending is primarily in support of an expanded late-stage development program spread out over multiple pipeline projects, with four products currently in Phase III trials.

The current quarter also included product development milestone payments of $4.2 million compared with $23.7 million of milestones in the prior year's quarter.

In December, Congress reinstated the R&D tax credit retroactively. Our reported effective tax rate for the quarter was 18.1%, which reflects the inclusion of the R&D tax credit for the current period, as well as a retroactive adjustment for the entire 2010 calendar year and the impact of the payment to Gruenenthal. Excluding the effect of the Gruenenthal license payment, the effective tax rate was 15.5%.

We expect the full year reported effective tax rate to be approximately 21.2%, which also reflects the reinstatement of the R&D tax credit. After excluding one-time items but including the impact of the R&D tax credit, the full year adjusted tax rate is expected to be approximately 19.3%.

In May of 2010, the Board of Directors approved a share repurchase program of up to 50 million shares of the company's common stock and in June, the company entered into an agreement with Morgan Stanley to repurchase $500 million worth of its common stock utilizing an accelerated share repurchase transaction.

There were no shares repurchased during the current quarter. We have an authorization to repurchase an additional 38.8 million shares. Actual shares outstanding as of December 31 were approximately 286,071,000, a decrease of 16.3 million shares from last year, principally attributable to the ASR transaction. Our cash and marketable securities balance on December 31 was approximately $4.3 billion, an increase of $139.9 million from last quarter.

Regarding the Department of Justice settlement of $318 million, the reserve was $161.5 million at December 31. Of the $4.3 billion in total cash and investments, approximately $1.4 billion, or 32% of our cash and marketable securities are domiciled domestically, with the remainder maintained by our international subsidiaries.

Moving to our financial guidance for the remainder of fiscal 2011, we now expect that earnings per share for the fiscal year ending March 31 will be in the range of $4.20 to $4.30 per share, including the impact of the ASR transaction, and excluding the charges in the first quarter of $0.56 per share for the settlement with the U.S. Department of Justice and the upfront licensing payments to TransTech Pharma, and excluding the payment to Gruenenthal in the current quarter which amounted to $0.23 per share.

The earnings favorability is driven by slightly stronger sales, reduced SG&A spending, excluding the settlement with the Department of Justice, reduced R&D spending excluding the one-time upfront license payments, favorable mix in lower tax jurisdictions, and the reinstatement of the R&D tax credit.

I'll now turn the call over to Marco for a pipeline update.

Marco Taglietti

Thank you, Frank. This is Marco Taglietti. First of all, let me join you, Frank, in wishing all the best to Larry Olanoff. Larry has been such an influential presence for all of us today, and we will greatly miss him in our daily interaction both as a colleague and as a friend.

Let me say also that I'm very pleased to be joining you now in these quarterly earnings calls to update our investors on the progress with our research and development pipeline. And particularly, to speak today about six of our latest products.

As we are wrapping up the fiscal year 2011, we remain focused in R&D on moving forward, the significant product of our development pipeline. So far, during fiscal year 2011, we have reported a number of important Phase II and Phase III clinical trial results, and there are still more to come before we finish this fiscal year. We will be reporting data for cariprazine and levomilnacipran, and we expect to hear from the FDA on our NDA filing for Daxas roflumilast.

Next up, with our anti-infective pipeline, for October 2009, we were very pleased to receive from the FDA news of approval of Teflaro ceftaroline. We submitted to indication acute bacterial skin and skin structure infection and community-acquired bacterial pneumonia, and both were approved. It is notable that this approval was achieved on the first cycle of review. And this is a tribute to the excellent design and execution of quite accomplished clinical development program, as well as the positive attribute of the product itself.

Teflaro is our fourth new drug approved in the last three years through four different division of the FDA. So with approval of Teflaro, three of our late-stage products are now on the market. To remain on our anti-infective pipeline, as you may recall in January 2008, Forest licensed Novexel, a French biotech company, the rights for North America for NXL 104, a beta-lactamase inhibitor for use in combination with ceftaroline. And with the first time negotiation in North America for the combination of ceftazidime and NXL 104.

What's more, about one year ago in December 2009, we broadened our partnership with AstraZeneca in a transaction beyond just ceftaroline. In this transaction with AstraZeneca, which was executed immediately following AstraZeneca acquisition of Novexel, we acquired additional rights to NXL 104, covering not only the combination with ceftaroline but also adding U.S. right to the combination of ceftazidime and NXL 104, as well as other future possible combination with other antibiotics.

NXL 104 is a compound that inhibits several classes of bacterial enzymes called beta-lactamase that break down and activate beta-lactam antibiotics such as: Cephalosporin, a class to which ceftaroline belongs; penicillins; and carbapenems, making the pathogens producing these enzymes resistant to these antibiotics.

NXL 104 covers a broad range of beta-lactamases, including a standard spectra beta-lactamases, PSBL. Chronically, no other beta-lactamase inhibitor available on the market can do better. NXL 104 is the last, the boldest beta-lactamase inhibitor now in development in clinical trials. It can potentially be combined with various beta-lactam antibiotics to enhance the spectrum of activity and counteractive resistance especially in gram-negative pathogens which are the one most commonly-producing beta-lactamases.

So our anti-infective product portfolio antibiotics with our active predominantly against both gram-positive pathogens, like ceftaroline and ceftaroline NXL 104 and also products active against gram-negative pathogens like ceftazidime and with NXL 104, addressing virtually the entire spectrum of clinical relevant bacterial pathogens. In the coming months, we expect report the topline result from to and going to Phase II clinical trial for ceftazidime 104, in patients with complicated intra-abdominal infection, and in patients with complicated urinary tract infection.

We will go Daxas. Last quarter, we announced that the FDA acknowledged the receipt of our resubmission, answering the May 2010 complete response letter. And they consider the resubmission a complete Class II response with a six-month clock. Let me remind you that no additional patient trials were requested. We expect an answer from FDA later in this quarter.

Moving now to linaclotide. During the quarter, we and our partner, Ironwood Pharmaceuticals, announced positive topline clinical trial results from the second of two Phase III clinical trials in the IBS-C, irritable bowel syndrome with constipation. As with the first Phase III IBSC study and announce data from the second study, indicate that the statistically significant improvement was achieved for linaclotide to the patient, compared to placebo on all four primary efficacy endpoint, which included also the endpoint described in the new FDA guidance for IBSC. These four efficacy endpoint included two composite to responder endpoint encompassing abdominal pain and complete spontaneous bowel movement, as well as individual responder endpoint from both component.

Significant improvement were also achieved for linaclotide-treated patients compared to placebo for all specified responder endpoint, which included pressure of abdominal pain, abdominal discomfort, bloating and bowel symptoms. Patient similar to that observed in the first Phase III trials of linaclotide in patients with IBS-C, with diarrhea being the most common of those event in linaclotide-treated patients.

The other clinical trials are part of the broader Phase III program investigating the effect of linaclotide treatment on patients with IBS-C or with chronic constipation. Previously, we and Ironwood, reported a positive result of two Phase III trials in patients with chronic constipation. We anticipate submitting the NDA for both the IBS-C and its indication in the third quarter of calendar 2011.

Let's talk about our respiratory pipeline. This month we and our partner, Almirall, announced the positive topline results for aclidinium from a Phase III trial in patients with COPD. This was the ATTAIN study, Aclidinium To Treat Airway obstruction In COPD patieNts. And because the last of three Phase III clinical studies investigating that twice daily administration of aclidinium.

In this study, aclidinium achieved statistically significant changes from base line and throughout FEV1 versus placebo of 77 ml, or the 200n mcg dose and 105 ml, or the 400 mcg dose, at 12 weeks which is the primary endpoint for the U.S. Throughout FEV1 at 24 weeks, which is the primary endpoint for the European submission, raised statistically significant 120 ml improvement in the 400 mcg dose, but it is also in this study confirmed the efficacy reported in the core COPD, one study that we reported the last time.

With this data in hand, we're moving now forward with our plans to submit the NDA for aclidinium BID monotherapy around mid-2011. So with regard to our latest strategy, we expect to file two NDAs this calendar year: One for aclidinium; and one for linaclotide. Going back for a moment to aclidinium, we view aclidinium as part of a broader respiratory franchise opportunity, which includes not only aclidinium but also the fixed dose combination of aclidinium and formoterol and the longer-acting beta-2 agonist, LAS100977.

With regards to the fixed dose combination of aclidinium and formoterol, we reported two Phase IIbs, those ranging studies comparing different fixed dose combination of aclidinium and formoterol: Aclidinium alone, formoterol alone, and placebo administered in BID in patients with moderate to severe COPD. Both studies showed the statistically significant difference for the fixed dose combination versus placebo on the primary endpoint of normalized AUC zero to 12 hours FEV1.

The fixed dose combination also provided the improved bronco dilution compared to aclidinium alone and formoterol alone. Following up, regulatory consultation, the Phase III studies with the fixed dose combination will start in the second half of this calendar year.

In December 2009, we announced an addition to our existing collaboration with Gruenenthal to develop market and distribute, LAS100977 in the United States. LAS 977 is very important, inhaled once daily, longer acting beta-lactamases. We along with Almirall, plan to develop combination with an undisclosed corticosteroid for the dual indication on both asthma and COPD. Additional Phase II studies are planned to start during the first half of this year.

To further enhance the value of this respiratory franchise, we have access to a unique dry powder in our delivery device developed by Almirall. This device is convenient to use and easy to develop for higher, or more frequent dosages, as well as for various combination agents. The ease-of-use and the functionality of this inhaler device are an important factor in delivering the current dose to the lungs, ensuring the optimal COPD treatment, and improving patient's compliance and satisfaction with the treatment. There is a built-in dose indicator and the unique control window that tells the patients that the dose has been inhaled correctly. We believe this DPI device will add to the competitiveness of our respiratory franchise.

And now let me summarize the status of our last two late-stage products, F2695 and cariprazine. We have a development collaboration with Richter for F2695 or levomilnacipran, a once-daily selected SNRI serotonin and norepinephrine we have taken here before for the treatment of depression.

Development of F2695 is on track. We initiated the Phase III clinical trials during the summer of 2009, and we anticipate to report top line results for the first Phase III clinical study during this current quarter. We have additional Phase III clinical studies completing during the second half of 2011. We licensed this product based on the impressive result of the Phase II depression study that we presented at the 2009 S&P Meeting.

Turning now to cariprazine. In August, we and our partner, Gedeon Richter announced preliminary topline results from an eight-week Phase II clinical trial for the treatment of bipolar depression. In the trial, a total of 233 patients were randomized, 21 of two active treatment tabs, one low-dose and one high-dose versus placebo. The primary endpoint was the moderate score, the Montgomery Asberg Depression Rating Scale. The study was designed to be exploratory. There were all difference observed between the drug-treated and placebo-treated group was not statistically significant. However, over the course of the treatment, there was evidence of a clinical relevant symptom improvement in the high-dose cariprazine compared to placebo. In addition, the tolerability result for cariprazine support further investigation in this patient population. So we are currently considering conducting an additional Phase II dose-response trial in bipolar depression patients, examining a wider range of doses.

Cariprazine is also undergoing Phase II clinical trials in patients as adjunctive therapy to SSRIs in major depressive disorder. We anticipate reporting topline results from that study during this current calendar quarter of 2011. In addition, cariprazine is undergoing Phase III clinical trial for separate indication of schizophrenia and acute mania. We expect to report topline result from both programs during the second half of calendar 2011.

Lastly, our R&D development pipeline also includes two recently added earlier stage programs. This past June, we partnered with TransTech Pharma to license TTP399, a legal selected, glucokinase activator for the treatment of the Type 2 diabetes. Early Phase I testings suggest that pharmacological enhancements of glucokinase activity, may lower blood causing diabetic patients, we'll be initiating the Phase II program during the first half of calendar 2011.

Finally, this month we licensed GRT 6005 for Gruenenthal, GRT 6005 and its follow-on GRT 6006, a novel, first-in-class analgesic with potent activity on opioid receptor like one and the new opioid receptor for the treatment of moderate to severe chronic pain. GRT 6005 has completed proof-of-concept studies in nociceptive and neuropathic pain. Further Phase II studies are planned prior to initiation of these three studies.

This is all with regard to our development pipeline. And Frank, I'm now turning the call back to you.

Francis Perier

Thank you, Marco. So just to recap. Our late-stage group of products included the six products that Marco just reviewed, plus the two recently launched in-line products, Bystolic and Savella. Of the six pipeline products, Teflaro was just approved and launched earlier this month, and Daxas is under review with a decision expected this quarter. Two are planned to be filed during calendar 2011, aclidinium and linaclotide, and we expect to file two more NDAs during calendar 2012, for cariprazine and levomilnacipran.

We believe these products could collectively represent several billion dollars of potential sale in the long term, sufficient over time to replace the revenues lost due to the patent expiry for Lexapro in 2012, and Namenda in 2015, and provide growth. Since late 2008, we have added six major active installments towards the 2012 pipeline expansion goal, including Daxas, levomilnacipran, LAS 977 and ceftazidime/104, and we have advanced aclidinium and linaclotide through Phase III, and cariprazine through proof-of-concept to full Phase III development.

In addition, we recently added the glucokinase activator program from TransTech, and then the Gruenenthal novel first-in-class analgesic program. Both are earlier stage programs, and we've partnered with the AstraZeneca for the co-development and commercialization of ceftaroline, and ceftaroline/104 outside the U.S. Canada, and Japan. In parallel, we continue to advance our full development pipeline. Our business development team continues to see interesting and commercially attractive products in the market, and we have clearly demonstrated the ability to compete effectively to secure such important new products either through product licenses, or direct acquisitions. We remain confident in our ability to launch additional new products prior to and post-2012, in parallel to advancing our established pipeline.

Frank Murdolo

Thank you, Frank. Just before we move to the Q&A, I'm going to read out some of the third quarter sales figures for a few of our smaller products. Capryl [ph], $6.5 million; Celexa, $3.6 million; Cervidil, $14.1 million; Esgic, $0.6 million; Europe, $20.4 million; generic, $7.6 million; Lorcet, $1.2 million; Monurol, $0.5 million; thyroid, $8.6 million; and Tiazac, $1.4 million. And then just lastly, the Benicar third-party sales for the quarter were $248.3 million.

So operator, can you just hold a second, and we'll begin the Q&A in just a minute. We'll go ahead with our first question, please.

Question-and-Answer Session

Operator

Your first question comes from the line of Rick Silver with Barclays Capital.

Richard Silver - Barclays Capital

In this quarter, you mentioned that the current level of spending in clinical reflected resources, activities required to support the currently marketed products that's on SG&A, and it appeared that relative to the $1.3 billion estimate for the full year on SG&A and the $680 million on R&D that, it didn't seem that there will be any major difference there. SG&A maybe slightly lower, R&D maybe slightly higher. Given the spend levels that we saw in the quarter reported today, what can you say about the full year number, and are we looking at a much lower number for SG&A and maybe a slightly -- and a number for R&D that also is maybe lower than what you originally anticipated. And anything that's changed, basically, is the real question since the last quarter call.

Francis Perier

In looking at the full year, as I indicated, we've had multiple factors impacting upon the guidance for the full year. Revenues are slightly stronger than we had originally anticipated, kind of across the portfolio, which is good. And we're seeing some reduced SG&A spending requirements. We have guided originally to $1.3 billion, we'll probably be closer to $1.2 billion. From an R&D standpoint, spending is not going to be quite as high as we had originally anticipated, probably just over $600 million for the full year. We had the benefit of changing sales mix on the tax rate, as well as the reinstatement of the R&D tax credit, and we've guided to a full-year effective rate of 19.3, excluding the one-time items, but including the R&D tax credit. And we also had the benefit of the ASR in the first quarter of the fiscal year. So collectively, we're guiding to earnings, as we said, of $4.20 to $4.30, and it's really a combination of all those factors.

Richard Silver - Barclays Capital

Frank, just one follow-up to that, is there anything specific on -- you just said, reduced spending relative to your previous estimate. Can you give us any qualitative reason for that, either on the SG&A or R&D line? And then I know you're not providing fiscal '12 guidance yet, but how should we think about spend levels for SG&A and R&D beyond fiscal '11, just conceptually?

Francis Perier

Sure. No major changes in product support. I think that what we are seeing is that we're not having to spend at the same levels that we had in the past to support Lexapro. It's getting very late in its product life cycle. We have included investment -- the prelaunch investment essentially in this quarter and then for the rest of the year to launch Teflaro. And we will start to have some prelaunch spending for Daxas, but what you'll see is the bolus of spend for Daxas will probably occur in fiscal 2012, as we're planning on an August launch, pending approval from the FDA this quarter. We believe that it will take that long to get the marketing and materials through DDMAC and approved and get to a full-launch scenario. And so I think that's the thing to think about as -- if you think about spend levels for next year, even though we're not providing any guidance at this point, but do keep in mind, that we are hopeful to be launching dutogliptin in the next fiscal year, then launching Daxas in the next fiscal year.

Richard Silver - Barclays Capital

So we shouldn't necessarily see, you mentioned Lexapro being in its late stage. I know that previously, you've said that the spend would be redeployed on the new launches as opposed to an overall spending decrease. Should we expect the SG&A spending actually to maybe decrease over time particularly with Lexapro?

Francis Perier

I really don't think that's the right expectation to have. When we talk about redeploying resources, we're specifically talking about the field force. But investment levels, also can be redeployed as well, but not -- currently what we're spending on Lexapro would not be enough to support the launch of Daxas.

Operator

Our next question comes from the line of Mario Corso with Caris & Company.

Mario Corso - Caris & Company

So when we think about spending levels again, is there any promotional increase, or field force increase required in the COPD space, I guess including both Daxas and aclidinium as we get into the next fiscal year?

Francis Perier

As we look forward to the launch of the potential launch of Daxas in the next fiscal year, we believe that we have adequate resources on board today to effectively launch that product. And it's really through a combination of shifting resources that were previously committed to Lexapro, some resources on Namenda as it's getting later in its life cycle, and moving those resources, directing those resources towards Daxas. We don't think we'll be in a position to launch aclidinium until the following fiscal year and fiscal '13. We're just going to file the NDA next year, with an approval coming in calendar 2013 which will likely be in fiscal '13 as well. And at that point, we're really going to need to evaluate where we are from a field force standpoint. Again, if we end up in a position -- hopefully end up in a position where we have linaclotide, aclidinium approved, and Daxas and F2695, and cariprazine filed with the FDA, I mean that's really kind of the breaking point where we may need to start considering adding some additional field resources.

Operator

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

Ian Sanderson - Cowen and Company, LLC

Could you provide a -- and I don't know if Marco, couldn't do this, an update on the linaclotide stability studies? And also, this will be for Frank, there is this $8.6 million in other revenue in the quarter, just wondering if that's hedging gain, or what the source of that might have been?

Marco Taglietti

Right now we are given these results from the clinical, we're in contract to file our NDA in the third quarter of this calendar year which include, clearly, all the sections that we need including CMC. So at this point, this is what we are targeting and we don't see any issue, we're on track.

Ian Sanderson - Cowen and Company, LLC

And just a quick follow-up, Marco, did you mention that we should expect the Phase II data for the NXL 104/ceftazidime combination this quarter?

Marco Taglietti

It will be in the next few months, we're -- actually these are studies that are being managed by AstraZeneca right now after they took over Novexel, and we're expecting the next few months to have the new data released.

Francis Perier

Yes, we'll have the data out and think about it in the first half. With regard to other income, no, there is no hedging gains or anything in there. We had a couple one-time payments related to the Canadian agreement with Janssen, as well as an outlicense of a product, both relatively immaterial amount and one-time.

Ian Sanderson - Cowen and Company, LLC

And then finally, any update on Namenda MR patent front?

Francis Perier

We have nothing to report at this time. When we get a decision from the USPTO, we will probably -- likely then be in a position to discuss an overall strategy for the MR formulation.

Operator

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

Corey Davis - Jefferies & Company, Inc.

For Marco, on the design of the Phase III studies for the combination of aclidinium and LABA, are they going to require that you test each of the components of the combo as monotherapy in the Phase III? Or was your Phase II study sufficient to fill the regulatory requirement to prove that the combo is better than each monotherapy?

Marco Taglietti

You know, you may well know the regulation, this is a combination and we like to meet all the rules of the combination. So the combination of aclidinium formoterol for the Phase III trial, will have to demonstrate not only the superiority in the pivotal trial of the combination versus placebo, but also against the individual component. Based on the results of the Phase II, we are confident that we will meet that requirement.

Corey Davis - Jefferies & Company, Inc.

Can we assume though that the Phase II didn't meet the statistical significance?

Marco Taglietti

For the -- let me say, the Phase II was a Phase II. First of all, the design -- keep in mind that the design was not the product of design. As we expressed in our press release, this was a study we'd like to cross over the type of design. So we showed a higher FEV1 in the combination versus the new component, and that is really what we were targeting.

Corey Davis - Jefferies & Company, Inc.

And with respect to the Daxas launch, can you elaborate a little bit more on the audience that you're going to target to launch towards that first? Is it going to be mostly respiratory specialists, pulmonologists, or are you going to come out of the gates with primary care. I was a little surprised to hear you say that the launch is going to wait until approval of DDMAC materials. Is that kind of a new era of caution with regards to the way Forest practices marketing? And secondly, can you, will you be able to use the new gold guidelines that mentioned Daxas in your promotion?

Francis Perier

With regard to the Daxas launch, what we can anticipate is that we'll get out there with the specialists, the pulmonologists, and probably some of the currently prescribing and treating primary care physicians, with the scientific launch similar to what we've done with Teflaro. But we -- before go out with the broad-based, full launch as we've done with Teflaro, we're going to wait until we have the approved materials from DDMAC. And as you know, it can take anywhere from three to 12 months to get your marketing materials approved and in today's environment, you don't want to be out detailing broadly without your full marketing materials approved by DDMAC. So I mean that's essentially the strategy for Daxas.

Operator

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

Thomas Russo - Robert W. Baird & Co. Incorporated

Just circling back to the aclidinium formoterol combo, can you give us a sense of what your hurdle rate is for trough FEV1 efficacy, for that to be clinically meaningful?

Marco Taglietti

Well, we usually, without giving a precise number as you know, that this may be difficult, what we expect is to have an effect in the same range with this -- some of the clinically available drug, both in the combinations -- both as, for example, the LABA currently available in the market and some of the combination that are available also on the market. So what we expect is to be actually in best range and base on the Phase II, we actually expect to be in that range so to be a competitive product.

Thomas Russo - Robert W. Baird & Co. Incorporated

And then maybe bigger picture, there is some commentary in the press release and also, some of the structure of your recent development deals indicates the increased focus in Europe. I'm just curious if you can give us maybe your latest, more holistic thoughts on strategy there and what we should look for going forward?

Francis Perier

Sure, Tom. I mean, I think we've been thinking about Europe as an opportunity now for probably, well over a year, and I think that as you look to -- again, some of the announcements that we've made in the last quarter, both the Janssen agreement in Canada, as well as the Gruenenthal agreement in Europe, we're focused on expansion, profitable expansion, outside of the domestic U.S. business which has traditionally been our strength. And I would view the Gruenenthal transaction for the Colistin business as a first step, and we continue to evaluate opportunities in the European marketplace very, very carefully. We actually have full-time business development personnel that reside in Europe, and so we've dedicated quite a bit of resource to the European marketplace from a BD standpoint.

Operator

Your next question comes from the line of Greg Gilbert with Bank of America.

Gregory Gilbert - BofA Merrill Lynch

Just a quick follow-up on the European comments you just made, Frank. Is it still Forest's preference that any European infrastructure-type deal would also include some pipeline for the U.S.?

Francis Perier

I think, Greg, that has always been kind of the Nirvana deal. I mean, I don't think we've -- we've been looking for a long time and haven't necessarily found that exact transaction yet, and one of the beauties of the Gruenenthal deal on colistin is that, the transaction brought the products, as well as the right number of personnel to support the products in the markets where we have right to do the products. And so we believe that we can profitably expand our footprint in Europe, and that's always been our intention to build that business on an accretive basis, as well us take advantage of the European rights that we have and the most recently announced deals as well as previous deals.

Gregory Gilbert - BofA Merrill Lynch

And a question on Namenda, have you noticed any formulary access or positioning changes in light of the new year and in light of generic availability?

Francis Perier

We have had no -- nothing negative. In fact, if anything, maybe just some slight positive formulary activity. Again, as you're looking at potentially going from two branded products to a single branded agent, still maintaining the same combination strategy.

Gregory Gilbert - BofA Merrill Lynch

And for Marco, just two quick ones, first, what additional indications are you considering or pursuing for Teflaro? And secondly, can you share with us your thoughts on what the differentiators for levomilnacipran could be versus the class and versus the parent compound? I think a lot of us are having trouble figuring out how that's more than just a need-to product?

Marco Taglietti

First of all, with ceftaroline, the major is actually the combination right now with the 104. We have a very active product especially on the gram-positive side, and we have good activity on the gram-negative but with combination with 104, actually will make the gram-negative side of ceftaroline much, much stronger. So this is really now the direction we're going with.

Gregory Gilbert - BofA Merrill Lynch

SO nothing else, monotherapy, to think about right?

Marco Taglietti

At this point, we have two indications but really we were pursuing four.

Francis Perier

In fact, we're very happy with the two indications that we have, as well as the labels.

Marco Taglietti

I think that these are really two well-suited indication for ceftaroline. The second question please?

Gregory Gilbert - BofA Merrill Lynch

Levomilnacipran.

Marco Taglietti

First of all, we licensed it after looking at the results of Phase II in depression. So we saw a four-point drop in matter score, 60% responder weight, excellent tolerability compared to those AstraZeneca compound. And so we expect 2695 to do very well in the depression field, which is as you may say, I think there were sweet spots in terms of market. And so this is where we really expect that to do well. The tolerability has been excellent, so we expect the product, overall, to have a profile that would be competitive. And more importantly, we know very well the market, so I think we can continue to -- we have great a expectation, actually, for this product.

Operator

Your next question comes from the line of Tim Chiang.

Timothy Chiang - CRT Capital Group LLC

Now that you've assembled this late-stage pipeline, you've also brought in some -- a good number of Phase II candidates. Do you think there is a slight change in the strategy going forward as you approach the Lexapro patent date to potentially acquire already established products and grow them through your sales force?

Francis Perier

Actually, Tim, I think as you look at the evolution of the strategy, if you look at the late-stage products, including Bystolic and Savella, the first two that have been in the market now for well over a year; Teflaro, just approved; Daxas, pending a decision from the FDA this first quarter -- first four of the eight, hopefully in the market, in the current calendar year with the next four late-stage opportunities with linaclotide and aclidinium being filed in calendar 2011, and cariprazine in F2695, being filed in 2012. So we've got -- as we look at the utilization of our field force against all eight of those late-stage opportunities, I think we can earn better returns with our late-stage pipeline deploying our field force against our late-stage pipeline rather than trying to licensing some legacy products. Because again, we're under pressure potentially in the 2012, 2013 timeframe to expand the field force if everything is successful. I think as you look at currently market products, it's a good way to extend the European footprint in an accretive manner.

Timothy Chiang - CRT Capital Group LLC

What regions and areas are you most interested in at this point?

Francis Perier

I think as we look at the European marketplace and we've looked extensively over the last several years, I think we remain interested in specialty products that we believe we can differentiate within the marketplace. We don't have a great interest in either primary care or old generic products in the European market. As we look at specialty products, we still see the ability to get formulary access to the various European countries as well as to achieve a preferred price position on those formularies as well. Straight need-to products and the old generics just don't look that attractive to us in the European marketplace.

Operator

Your last question comes from the line of John Boris with Citi.

John Boris - Citigroup Inc

On Daxas, can just help us understand what your base case would be? We think you got through a labeling exercise with the base case optimistic and pessimistic case scenario would be on the Daxas label? And then on Teflaro, any thoughts on formulary acceptance? Any targets that you have, that you'd like to comment on, on formulary acceptance for that, and then just one other follow-up question?

Francis Perier

With regard to Daxas, I think that we submitted a revised label for that product back in December of 2009. That was not the label that was reviewed at the Advisor Committee meeting but we believe that that should probably be the expectation, and with the claim of the maintenance treatment to reduce exacerbations of COPD disease. And we've had a position since that Advisory Committee meeting that we see as clear pathway of approval for this product. We got our complete response letter as expected from the FDA in May, we replied to it very quickly, the reply was accepted, and the review is ongoing at this point. And nothing has changed our opinion relative to the approvability of this product since the Advisor Committee meeting back last April. So I think that's the way we're kind of looking at Daxas and what the label could potentially look like for that product.

John Boris - Citigroup Inc

And on Teflaro?

Francis Perier

With Teflaro, we are in the hospital IV anti-infective market. We've got our field forces, as I indicated, just about 240 reps should be fully scaled up about very shortly, everybody is principally -- but 95% of them are on board, they've been fully-trained, we have the scientific launch back in December, and we have a target list of about 2,000 hospitals and hospital systems across the country. And again, the target is to get on those 2,000 hospital formularies as quickly as possible. Now it will be a process to do that, you got to get through the formulary committee reviews. And institutions have a variety of ways that they go about evaluating products. We believe we've priced the product very effectively at $82 per day of therapy, so we've competitively positioned ourselves in both skin infections, as well as pneumonial infections to get on formulary and to get used. So we're looking forward to the launch of the product. As I've said, we started began shipping the product in January. And I think, it could take about six- to nine-month timeframe as you start to see product uptake at hospitals across the country to get a good view on the acceptance of the product in the acute care center.

John Boris - Citigroup Inc

Just on European infrastructure, I think you indicated you certainly had a preference for Specialty Products and going forward. Can you just help us understand on the respiratory and GI area they're obviously, in the U.S. anyway, have a very high concentration of primary care prescribing, is that the same -- treatment patterns can differ across the big five European countries, but are they classified, at least the respiratory GI product like aclidinium and linaclotide, that will be in those areas more specialty versus primary care in Europe?

Francis Perier

Yes. I think that again, we don't have the European rights to either linaclotide, or any of our respiratory programs, our partner have those rights. But my understanding of the European marketplace, that actually for both the GI market or linaclotide as well as the respiratory market, that it's a very specialist kind of driven market, and therefore, it's kind of a more of a specialist versus a broad primary care type of approach to those products.

Frank Murdolo

Okay. Well, thank you very much, everyone, for joining us this morning. And certainly please feel free to give a call with some follow-up calls, we're happy to help you out. And operator, thank you, we'll end our call now.

Operator

This concludes today's conference call. You may now disconnect.

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