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Wyeth (WYE)

Q2 2007 Earnings Call

July 19, 2007 8:00 am ET

Executives

Justin Victoria - VP IR.

Bob Essner - Chairman and CEO.

Bernard Poussot - President, COO and VC

Greg Norden - CFO

Analysts

Roopesh Patel - UBS

John Boris - Bear Stearns

David Risinger - Merrill Lynch

James Kelly - Goldman Sachs

Chris Schott - Banc of America Securities

Tony Butler - Lehman Brothers

Steve Scala - Cowen and Company

Jami Rubin - Morgan Stanley

Seamus Fernandez - Leerink Swann

Joe Carroll - SAI Healthcare

Presentation

Operator

Ladies and gentlemen thank you for standing by. Welcome to the Wyeth Second Quarter Earnings Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host Mr. Justin Victoria, Vice President, Investor Relations. Please go ahead.

Justin Victoria

Good morning everyone and thank you for joining us this morning to review Wyeth 2007 second quarter results. We will begin as usual with some brief remarks from senior management and then open the call for questions.

Before we begin let me remind you, that certain statements made today, that are not historical facts, are by their nature forward looking and involve risks and uncertainties. Actual results may differ materially form such forward looking information. This is been more fully disclosed in our press release, issued this morning and in our periodic SEC reports, including quarterly reports on Form 10-Q and the annual report on Form 10-K.

Now let me turn the call over to our Chairman and CEO Mr. Bob Essner.

Bob Essner

Thank you Justin. Good morning everyone, thank you for joining us. On the call with Justin and me today is Bernard Poussot, President, COO and Vice Chairman of Wyeth, also with us today is Greg Norden, Wyeth's newly appointed Chief Financial Officer. As you know, Greg has a long history at Wyeth, in positions of leadership in our financial organization.

Greg will continue the many good practices begun by Ken Martin, and also put his own stamp on our finance group. The key part of Greg's near term agenda will be to get to know all of you.

Let me now turn to the business results. The 2007 second quarter was another excellent quarter for Wyeth. Looking at our pro-forma results, we see a 10% revenue increase and 18% increase in operating income and a 13% increase in diluted earnings per share. These results are reflection of our efforts to keep revenue growth strong and at the same time increase the leverage that we achieve at the bottom line by constantly improving how we operate.

Pharmaceutical revenues grew 11% for the quarter, within the pharmaceutical business we saw a strong growth across most of our portfolio of marketed products Bernard will provide more specifics on the performance of our products in a few moments. In addition to pharmaceuticals we saw steady contributions from our consumer health care and animal health businesses.

In the second quarter we also received FDA approval for Lybrel, the first low dose combination oral contraceptive offering women the opportunity to be period free over time. We also received the FDA approval for Torisel a targeted first-in-class mTOR inhibitor for the treatment of advanced renal cancer.

Looking to the second half of the year we expect FDA action on Pristiq for vasomotor symptoms associated with menopause, bifeprunox for schizophrenia and VIVIAN for osteoporosis.

In addition, we anticipate filing approval our tissue selective A Tissue Selective Estrogen Complex or TSEC for menopausal symptoms and osteoporosis by year-end. Bernard will also provide more comprehensive update on our pipeline.

So now we are halfway through the year and we are very pleased with our progress, In fact the business has performed ahead of our expectations. For the first half revenue was up 10%, operating income increased 20% and EPS increased 12%. We are seeing very strong growth in certain key products like Enbrel and Prevnar and very solid performance across the product line.

Given the strong first half results and the momentum we see going forward we now project pro forma diluted earnings per share for the 2007 full year of $3.48 to $3.56 a share, an increase of 11% to 13% over 2006. This guidance means that we are expecting to sustain the strong growth versus 2006 that we have seen so far through the remainder of this year.

We expect strong revenue growth to continue however we also expect our marketing spend to increase as we invest in the launch of new products. We also expect our R&D spend to grow by mid single-digits for the year as we continue to advance 100 product pipelines.

Nevertheless, we will continue to pursue the productivity enhancements that will become routine at while and as a result, we anticipate outstanding financial performance for the year. In summary, we’ve an excellent first half and we look forward to a great year. As we look ahead, we believe Wyeth is well positioned for substantial growth this year and beyond. Now let me introduced Greg Norden.

Greg Norden

Thanks Bob. Let me add welcome to every one on the call. I look forward to meeting with many of you in the coming month to discuss Wyeth business performance. The second quarter was not a very strong quarter for Wyeth. Diluted earning per share on a pro forma basis was $0.90 versus $0.80 last year a 13% increase. I'll refer you to our press release for detail regarding the pro forma adjustment. Our comment this morning will refer to the as adjusted P&L included at the end of our press release. Net revenue increased 10% to $5.6 billion. Gross profit also increased 10% and the gross margin percentage for the quarter was 73.7% versus 73.9% last year.

SG&A increased 2% for the quarter which is consistent with our goal to grow this expense category at slower rate then revenue. As Bob noted, we are projecting increase marketing spend in the second half of the year, as we launched a number of new products into the market, but we still expect to manage our SG&A growth for the year to a level significantly below the rate of growth in revenue.

R&D spending increased 11% in the quarter, while net interest represented income of $19 million this year versus $2 million of expense in 2006. Given improvements in our net cash position interest income is tracking higher for the year. Other income net reflected again of approximately $40 million related to our divesture of several smaller products in Europe earlier in the quarter. Our resulting pre-tax profit before other income increased by 18 %.

Our tax rate for the quarter was slightly higher than expected, due to the one-time impact of certain state tax law changes. Without this impact, the tax rate would have been approximately 29%. We continue to expect the tax rate for the year, to be in the 27% to 29% range.

Finally, net income and diluted earnings per share both increased by 13%. Overall a very good quarter, and as Bob noted we are on track for a very strong year.

Now I would like the turn the call over to Bernard, for more detail on our products and pipeline

Bernard Poussot

Thank you Greg and good morning to everyone on the call. The second quarter was another strong quarter for Wyeth. The momentum we created at the beginning of the year continues. As you heard from Bob, we are expecting very strong performance for the balance of the year. And the future is bright as we prepare for the potential launch of seven new products in the next 18 months, with the first two launches this month.

Wyeth Worldwide Human Pharmaceuticals revenue for the quarter was more than $4.7 billion, that’s up 11% from the second quarter of 2006. Our biologics business continues to drive our performance. Total biological revenue for the first half of the year including vaccine revenue was 3.4 billion up 27%.

Consumer Health revenue was up 4% this quarter. Strong international performance and worldwide growth from our core brands Advil and Centrum drove that increase. Fort Dodge revenue was up 2%. We are anticipating a strong second half in this business, as we launch our new ProMeris flee and tick product into global markets.

Now let me comment on the performance of a few of our key brands. Prevnar worldwide revenue was up 22% this quarter. That was driven by 35% growth in international markets. National immunization programs that began in the second half of 2006 in Germany and Mexico, and government purchases in major markets drove that international growth. We anticipate more national immunization programs to begin later of this year. This will continue to fuel the growth of Prevnar.

US sales in the second quarter increased 9%. This reflects the positive impact of price and government ordering patterns. U.S. sales were down slightly from this years' first quarter, that's when we recorded a purchase by the CDC for the Vaccine Stockpile Program. A similar stockpile purchase was not repeated in the second quarter.

Before I leave Prevnar, let me just note that our infant and adult Phase III programs with Prevnars' 13 are progressing nicely. Patient involvement is ahead of plan, and we remain focused on our 2009 regulatory filings.

Now next let me turn to Enbrel. The latest audited sales data show that Enbrel is now ranked number eight in the world, among all pharmaceutical products. In some markets, Enbrel ranks even higher. It's number one in Sweden and Norway, number four in the UK, number six in Germany, and number seven in the United States.

Enbrel is a strong and growing global product. Amgen will report sales of Enbrel for the United States and Canada next week. International sales reported by Wyeth for the second quarter were more than $1.5 billion dollars, that's up 37% versus last year. In Japan, the government recently lifted the post-marketing surveillance requirement for Enbrel, following our treatment of 14,000 rheumatoid arthritis patients. This will nearly triple the target hospital accounts now available to Wyeth and our partner Takeda. Overall, we are trending towards $2 billion for international Enbrel sales this year.

Effexor revenue in the quarter was up 6% at nearly $1 billion. I remind you that we described a low US wholesaler inventory level in the first quarter of this year. This has now returned to normal levels. The wholesaler inventory levels reflecting last year's inventory were down, and this year's increase, contributed about $70 million to our reported increase in US net revenue.

Excluding Canada, which has been impacted by a generic Effexor XR, international sales were up 9% in the quarter. Globally for the first half of this year, Effexor is up slightly versus 2006, as we had projected.

In the second quarter, Protonix also been benefited from the positive impact of wholesaler inventory changes. Protonix net revenue in the quarter was $550 million, that's a 25% increase. That includes a benefit of about $75 million for inventory changes on a year-over-year basis. Wholesaler inventory levels have rebounded just slightly above normal levels. Protonix performance remained strong in this increasingly competitive marketplace. Commercial and government programs are increasing their control over branded PPI use and are driving utilization of generics. But Protonix is the only branded PPI showing positive prescription and sales volume growth over the course of the past 12 months.

We have recently announced that we filed a motion for a preliminary injunction against a possible early market entry by Teva or Sun. This is in anticipation of ANDA approval before court decision on the patent changes. We continue to be confident in the validity of our patent and confident that we have a strong basis to seek a preliminary injunction.

Premarin Family revenue was $267 million in the quarter, that's up 3%. Here price is offsetting the negative impact of volume declines. Importantly, progress continues in clarifying the benefit rich profile of hormone therapy.

Just a few weeks ago, the New England Journal of Medicine reported that women age 50 to 59 who received estrogen therapy in the WHI Study had significantly lower levels of coronary artery calcification, a predictor of future of cardiovascular events.

This extend the observations from the April reporting JAMA that hormone therapy showed no increase in coronary heart disease when initiated between the ages of 50 and 59 years or within 10 years after menopause.

The JAMA Study also reported a 30% reduction in total mortality in women aged 50 to 59 receiving hormone therapy. These reports received wide media coverage and we believe it can help explain the benefit risk issues for women who are thinking about starting hormone therapy when menopausal symptoms begin.

Our nutritional business continues to show outstanding growth. Revenue growth in the quarter and for the first half overall increased 19% and we expect similar growth for the balance of the year. The last major product I will comment on is Zosyn. Zosyn revenue in the quarter was $280 million, that's up 17% with double digit growth in both US and international markets.

For the first half of the year Zosyn revenue was $560 million, confirming Zosyn as the world's number one selling inject able antibiotic. The Zosyn US patent has expired, but FDA has not yet approved any generic versions to Zosyn. FDA also has not responded to a citizen petition on standards for this product. Accordingly we continue to project the generic competition in the US will not occur before the latter part of this year, although it is possible that we could face it sooner. We do expect to see generic approvals beginning in the third quarter in certain international markets where the Zosyn based patent is expiring.

Last quarter we offered a comprehensive review in our products pending registration. So let me update you on where we stand today. We plan to launch seven new products in the next 18 months, starting with the launch of Lybrel and Torisel this month.

Our R&D effort continues to show substantial progress, with success in the clinical trials and a robust Phase III pipeline. In project a number of additional Phase III starts, in the back half of this year, including the initiation of the Phase III program for bapineuzumab or AB-001 in Alzheimer's disease. As we anticipated, Lybrel was approved in the US on May 22nd, the European applications remains under review.

The US Lybrel approval was accompanied by significant press around the world. We will be working hard to translate that level of interest in to demand. The launches on there way and we are finalizing territory and promotional materials and we will begin active promotion in the next several weeks. Lybrel is just the first of a series of potential new products from Wyeth in women's healthcare. It's a field in which we intend to remain a leader.

Torisel was approved in the US on May 30th, before the early July user free day, Torisel is indicated for the treatments of advanced renal cell Carcinoma, product is being shipped into channels and we will be begin active promotions soon.

The product is under review in Europe, the project will get approval later this year. And it was just filled at the end of June for review in Japan. Torisel is the first and only targeted therapy proven to extend survival in patients with renal cell Carcinoma. It provides another option for oncologists and patients with this form of cancer. And because of its clinical results and another mechanism of action as an mTOR inhibitor, we expect Torisel adoption to be strong initially as first-line therapy in poor-prognosis patients and second-line therapy in TKI failures.

We have several products still pending review including NDA’s for Pristiq for vasomotor symptoms and depression, bifeprunox for schizophrenia, Viviant for osteoporosis prevention and subcutaneous methylnaltrexone for opioid-induced constipation or OIC.

For Pristiq the user free date vasomotor symptoms NDA is July 23rd. FDA is evaluating the efficacy and the safety data with the 100 milligram dose using a three day 50 milligram starting dose. The user free date is only a few days away and we will advice you further as soon as we receive FDA’s letter next week.

We remain on track to file our low dose studies in depression for Pristiq in August. We expect that FDA will extend the review by 6 months to the first quarter of 2008 and we are preparing to present the full results of our 50 milligram depressions studies with Pristiq later of this year.

FDA issued an approval letter for Viviant, bazedoxifene for the prevention of osteoporosis on April 23rd. FDA requested among other things, data from our three year fracture on prevention trial. We submitted our complete response including these data for FDA review at the end of June.

We expect the delay will extend the review at least to year-end. We will also plan to file a separate NDA for Viviant for the treatment of osteoporosis at the end of this month. We are also planning to file for European review for treatment and prevention of osteoporosis in the third quarter.

With our combination product of bazedoxifene and conjugated estrogen’s or Aprela, we’ve plan to file for US approval by year end 2007. The bifeprunox NDA is under review with a user free date in August. We have an open and active dialogue among Wyeth our partner Solvay and FDA and we'll keep you advised of our progress here as well.

We recently commented on our plan to file Tygacil for community acquired Pneumonia this summer. We’ve determined that we will need to conduct an additional Phase III study of Tygacil, in a hospital acquired Pneumonia before fighting for that indication. We’ve plan to begin new studies which Tygacil in the hospital setting soon.

Lastly FDA is now reviewing the NDA for subcutaneous Methylnaltrexone for the treatment of OIC in patients receiving palliative care. We’ve also find our marketing application for subcutaneous and Methylnaltrexone for OIC in patients with advanced illness in Europe in May. Our Phase III program with the intravenous formulation for post operated Illinois is progressing. Our targets for the IV NDA submission is early 2008.

So let me now conclude, the performance of the business in the second quarter and for the first half of the year was strong across the board. We are capitalizing on that projector by setting new financial targets for Wyeth for the year. We’re launching two new products to the market this month. These are the first of seven potential new launches projected in the next 18 months. And we welcome Greg Norden to our senior leadership team as are our new CFO. So now let me turn the call back to Greg who will lead our Q&A session.

Greg Norden

Okay. Thanks Bernard. So in conclusion we delivered a very strong operating performance in the second quarter. We had a great first half and we expect an outstanding year. We look forward to several successful new product launches as well as the continuing progress in our R&D pipeline.

And operator I'd like to open the lines for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And we'll go to the line of Roopesh Patel of UBS. Please go ahead.

Roopesh Patel - UBS

Thank you. I've got a couple of questions. First on Pristiq in VMS, can you confirm that you are expecting a full approval on July 23, based on your discussions to date with the FDA and can you also summarize for us the cardiovascular risk profile of the drug based on all the clinical studies that Wyeth has completed so far? And how does it compare to the other SNRIs and how do you expect it will be reflected on the label? And then separately on the pipeline if you could just elaborate on which other product besides bapineuzumab that we expect to start Phase III trials later this year? Thanks.

Greg Norden

Okay. Bernand you want to take that?

Bernard Poussot

Yes, on Pristiq first. I can confirm that we are few days away from getting action letter from the FDA, so we'd like to wait for that response from FDA for further comments. On the cardiovascular profile we standby the safety of the product. We've analyzed the database on the cardiovascular field and believe that you know what we see and the product is no different than what you would observe in the general population of that age and condition. So overall, we believe we have a very safe product and stand by that. Its very early for me to speculate on how the labeling would look, so I would not do that and then you had a question on bapineuzumab but I think Justin wants to address that.

Justin Victoria

Roopesh this is Justin obviously there has been a lot of comment about bapineuzumab or AAB with our plans to initiate our Phase III trials later this year we are preparing to dialogue with the regulators to ensure we get adequate buy in on the program working with our partner Solvay so we're continue to be very excited about that opportunity.

We have several of compounds that are progressing nicely in Phase II that were targeted for Phase III initiation later this year. We haven't identified exactly what they are I can tell you a number of compounds in our oncology pipeline are moving along that include HKI and SKI in oncology., We are looking at one of the other Wyeth compounds and Alzheimer is potentially moving from Phase II to Phase III but I think we'll hold off on identifying the specific compounds until such time which we do make those transitions.

Roopesh Patel - UBS

Okay. Just want to clarify one thing the partnership is with Elan not Solvay bapineuzumab

Greg Norden

No I missed them. Pardon me.

Justin Victoria

Okay we'll take the next question please.

Operator

Yes and that comes from the line John Boris, Bear Stearns, please go ahead.

John Boris - Bear Stearns

Congratulations on the quarter. I just have a couple of questions first for Bob Essner, in your discussions with the board Bob on cash flow obviously your cash flow moving forward is improving very nicely can you just talk about cash flow distribution and shareholder return going forward, and how you see that going forward? In addition can you comment or can Greg give any color on what free cash flow was in the quarter?

And then for Bernard have you stocked Torisel and Lybrel, and how much of those products have you put into the channel? And then one for Bernard also on Enbrel, can you just comment on the upcoming potential launch and competitive threat from Humira in Japan? And do you anticipate that they will be restricted in distributing the product much as you were restricted in that market. Thanks.

Bob Essner

Let me start by answering your question about free cash and our balance sheet and you know how we plan to utilize it. And it is a discussion that takes place nearly every board meeting, so it's something that we are very cognizant of and we certainly have received a lot of different opinions from different investors in terms of what they'd like to see and we are very sensitive to that.

As Greg said, we have put in place a modest share buyback program, so that is a part of our mix. Our dividend has been steadily increased now over the last couple of years, but we also see potentially opportunities to use cash to bring in companies of product technology that could help the company grow, and probably that remains our most important priority.

But my guess is over time we will continue to use all three elements of that mix, and the specific amount allocated to each one will depend on the circumstances going forward. But it is a subject as I say that between management and the board is something that is constantly being paid attention too.

Greg Norden

Okay. And Bob, let me just add to that. Regarding your question on cash flow, let me answer that by just giving you what out net cash position was. In June 30 of this year, we had about a $500 million positive net cash position. It's made up of about $12 billion of cash, net of about $11.5 billion worth of debt.

That swung positive this year. If you go back to the end of 2006, there's about $500 million net debt position. So we swung to positive cash this year, and we are happy with that. So, let me then turn over the second part of that to Bernard.

Bernard Poussot

Yes, John. You had questions for me. The first one regarding inventory filling and shipment for Torisel and Lybrel let me say that we started in July with a very minimal, in fact, in June very, very small but mainly we've started to ship in July. So, it's not included in the second quarter for both products.

And then, your last question was regarding Humira in Japan. It's not for me to comment precisely on what will happen there. Suffice to mention that we followed in Japan was Enbrel with the same course of action requested by the authorities for Remicade before us. So there seems to be a phase of observation of those products and there are some constraints at first. I wouldn't be surprised if that continues.

John Boris - Bear Stearns

One quick follow-up if I may?

Justin Victoria

Okay.

John Boris - Bear Stearns

Just on Enbrel growth, can you breakout the Enbrel direct growth between what it was in Japan, EU and the rest of world?

Bernard Poussot

I will tell you that growth of the second quarter versus the first quarter of the year in Japan was about 50 plus percent. So, we are definitely growing fast in Japan, and the growth in Europe is about 35%.

John Boris - Bear Stearns

Thank you.

Justin Victoria

Okay. We will take the next question please.

Operator

Thank you, sir. And next comes from the line of David Risinger, Merrill Lynch. Please go ahead.

David Risinger - Merrill Lynch

Thanks very much. Could you comment on the move of bapineuzumab in to Phase 3 please? I believe that Dr Ruffolo said last year, that the interim results would have to spectacular to move the product in to Phase 3 based on the interim look. So if you could provide some color on that that would be helpful.

And then separately, with respect to Prempro, I saw that a case was settled recently. So, we've now seen a few Prempro cases settled which a different way of dealing with litigation is than Merck has dealt with Vioxx. If you could comment on that as well, that would be helpful. Thank you.

Bob Essner

Dave, this is Bob, let me comment first on litigation question. We have stated and our actions have shown that we are basically willing to go to trial on any of these HRT cases. So far we've had seven cases decided in the courts, and now we have in fact won six of those. So, we’ve shown that we are willing and able to go to trial and not just go to trial but go to trial successfully.

Occasionally circumstances say that we might be better off, that many cases we can do so in a way that we think it’s advantageous and we are going to retain the options to be able to do that. But our basic stance hasn’t changed, which is basically to try these cases and try them in a way where we prevail most of the time.

Justin Victoria

And David this is Justin, regarding your inquiry on the bapineuzumab interim analysis of the Phase 2 results. The Phase 2 study remains lidded and continuing, and clearly our interim analysis of the Phase 2 results was a component, and the decision that we and NR and Elan reached in terms of moving into Phase 3 or preparing to move in to Phase 3.

But as we indicated in our press release, it truly was a composite of all of the information that we have at hand. The interim analysis of the Phase 2 result, the Phase 1 results that were presented last year, the earlier work with the first formulation in the beta-amyloid family, the AN-1792, our understanding of the mechanism, the need for new therapy's effective new therapy's in the commission. So, really it was a composite and not just a Phase II results spectacular or otherwise.

Greg Norden

Okay, thanks Justin. We'll take the next question please.

Operator

Thank you, sir. And that comes in the line James Kelly with Goldman Sachs, please go ahead.

James Kelly - Goldman Sachs

You discussed the doses that are going to be sought for Pristiq both in the U.S. and internationally and just thoughts on when getting a licensing for international. What head-to-head products are going to be use and what the comparable dose will be? Thank you.

Bernard Poussot

We don't have different positions for doses between the U.S. and international. When in comes to VMS, we believe that the lowest efficacious dose, it is 100 milligram, with an initial loading dose at 50, as you know and that's represents our best thinking about how to use Pristiq in VMS in all territories.

And for depression as you know, we've now convinced ourselves in view of the recent clinical studies results, that 50 milligram is the lowest efficacious dose for depression and should be actually the largely used dose for the large number of patients with a possibility to escalate to higher doses if needed. But I think we have here a very simple, well tolerated, very practical, very simple dose to use for patients in depression.

James Kelly - Goldman Sachs

And then looking at this product, if I may just follow-up quickly. And when you run a head-to-head trial, would you expect to see for European registration an escalation allowance of the trial or it would just be held at 50?

Bernard Poussot

No, I think our view again from what we see of those studies is that 50 milligram should be a sufficient dose to handle the great majority of cases in depression, and that should be not only a competitive dose but may be the best profile for going forward.

James Kelly - Goldman Sachs

Thank you.

Greg Norden

Okay, thanks Bernard. We will take the next question please.

Operator

Yes, and that comes from the line of Chris Schott, Banc of America Securities. Please go ahead.

Chris Schott - Banc of America Securities

Hey, thank you. Just two quick questions - First on SG&A, obviously a nice group of incremental launches coming next 12 to 18 months. I think you mentioned year-over-year spending growth second half does accelerate a bit. From a longer-term perspective, can we continue to expect SG&A growth coming in significantly below sales growth, or is there going to be a period of time when these new launches could temporarily kind of reverse that trend?

Second question I had with regard to Prevnar, could you talk about some of the countries to watch in the second half of this year for national immunization and the potential size of those cohorts? Thanks.

Bob Essner

Yes, this is Bob Essner. On your first question about SG&A, we are committed to keeping SG&A below the rate of revenue growth, and looking into the future we see that as something that our plans come pretty close to what we expect. We are seeing that going on as far out as we can project. The exact ratio between SG&A growth and revenue growth may change a little bit from time to time, but we think there is prominent leverage and that revenue will continue to grow faster than cost for Wyeth at least as far as our planning cycle goes.

Bernard Poussot

Regarding your question on Prevnar and national immunization programs, you remember that we have such programs in 16 countries today and that is fueling obviously the basic Prevnar business. We are excited about discussions we're having with seven more countries for '07, that could potentially embark on National Immunization Program in important countries like Sweden, Ireland, and Austria. So, we are in talks with those governments. And we've strong hope that those programs will start. We've also another array of countries and governments with whom we're talking. Countries like Turkey with large birth cohorts, but would be more for the '08 horizon. So I think the point is that we continued to make significant progress. Prevnar is affirming as a must in a number of countries now one after the other, just based on the results of the efficacy level, not only in children but also in adults living near those children. So, this is convincing more and more governments.

Greg Norden

Okay, thanks Bernard. We'll take the question please.

Operator

Yes, from the line of Tony Butler of Lehman Brothers. Please go ahead.

Tony Butler - Lehman Brothers

It was just answered. Thank you though.

Greg Norden

Okay, next.

Operator

Yes, we'll go to the line of Steve Scala of Cowen. Please go ahead.

Steve Scala - Cowen and Company

Thanks you. I have three questions. First, your R&D guidance and probably second half R&D spend that could be about flat despite the Phase 3 starts that you cited, is that a correct interpretation?

Second, regarding the Zosyn in the EU, what should we anticipate the generic curve to look like, and are the European regulatory authorities and or medical community at all sympathetic to your administrational formulation arguments which have influenced the thinking here?

And then lastly on Protonix, is the stocking in the second quarter a strategy at all to blunt a potential address to have a launch of generics in August or is it unrelated?

Bob Essner

Okay. Let me start with your last question on Protonix, it definitely is not a strategy to blunt Teva in fact it was just a result of some increased wholesaler activity in the trade in the US and nothing more than that. I'll also take your first question and then I'll turn it over to Bernard. On the R&D guidance, we expect the R&D spending in the second half for this year to be more than it was in the first half for this year. So the R&D spends in the second half will grow versus the first half. There is a comparison in the fourth quarter of '06 where there was a rather large R&D spend in the fourth quarter which was predominantly due to some increased milestones, including the bifeprunox filing milestone and some licensing deals. So the fourth quarter '07 and '06 comparison will reflect that, but the R&D spend for the remainder of the year reflects the ongoing studies we have in the clinic and will represent an increase half two versus half one. Okay, Bernard.

Bernard Poussot

Yes, on Zosyn for Europe you should not expect the same kind of curve that you would expect in the US. Couple of reasons, number one, only a few countries have seen a introduction of generic where we didn’t have patent protection and so its on the limited basis, another one. Number two, capacity in our view remains limited on the generic side for these products, so I don’t think we should see a quick transition. And lastly, we're also introducing our EA formulation in as many countries as possible. And we have various degrees of adoption and depending on the date of the introduction, but that should also constitute a factor. And we are pleased to see the by the way the usage of the EA formulation in the US and in those counties where we have introduced now.

Justin Victoria

Steve, this is Justin. As we launch the EA formulation we will certainly abdicate our position about standards and the advantages of the new formulation to the regulators and within the medical community, that effort is different on a country-by-country basis depending upon our access and the sophistication of the authorities with whom we are interacting. So, it's difficult to tell you what level of sympathy or empathy we are getting on those discussions. But we are taking every opportunity to advance those arguments.

Bob Essner

Okay thanks Justin. We'll take the next question please.

Operator

Yes and that comes from the line of Jami Rubin Morgan Stanley, please go ahead.

Jami Rubin - Morgan Stanley

Hi guys, just a couple of follow up questions. Firstly, I may have missed this, but what are Enbrel sales in Japan firstly. And secondly just a couple of follow up questions on Pristiq, I understand on the vasomotor symptoms, indication that you are pursuing an additional type dose titration study starting at 25 milligrams, 50 milligrams and then a 100 milligrams. I was just wondering what the rationale is behind that study and how that dose titration, how the results might affect sort of the overall dosing indication for that indication? And my second Pristiq related question, relates to the efficacy in 50 milligrams we saw data at APA which showed that the 50 milligrams dose did not separate from the curve until six weeks and that was an intend to treat population. I am just wondering if you can put that data into perspective I understand you are going to show the full data set of depression. And also when we are likely to see the second Pristiq study on vasomotor symptoms? Thanks?

Bernard Poussot

Okay. First question, the sales of Enbrel in Japan, what I said was that the sales have grown between Q1 and Q2 by over 50%, as a result of our completion of the first Phase, as was required by the government, so with sales are progressing well in Japan.

Jami Rubin - Morgan Stanley

Did you give the specific sales level?

Bernard Poussot

No I did not. Usually we don't comment on individual country sales but to say that we are performing per plan and that should continue to fuel fast development of Enbrel on the international side.

Justin Victoria

Jamie on the Pristiq studies we are looking at a study with a 25 milligram initiation dose as an effort to explore again options of titration, acclamation of patients received, what the impact on tolerability is, and of course to determine the impact on efficacy as well. We don’t have those results as yet but it’s just the continued exploration of the approach in terms of using this important molecule. So, we will learn more and certainly share that with you on the regulators as we gain access to those data.

The 50 milligram depression studies, our plan remains to present both the studies in the full composite package and profile of the 50 milligrams in depression at a medical conference later this year. We have not yet identified the specific conference, nor have the information been accepted by any conferences as yet, but we are still planning on presenting it later this year. So, I think you will get a better flavor for the profile of 50 milligram studies in depression including efficacy, including tolerability, including onset of response, which we believe is competitive with all of the agents in the category. There's a lot of opportunity for exploration of information about onset of statistical significant efficacy, clinical onset of response and frankly we believe the profile of Pristiq is highly competitive.

Jami Rubin - Morgan Stanley

So the study that we saw is not representative of the overall efficacy studies at 50 milligrams or is it a subset of patients?

Justin Victoria

It was selected information from one study. I am going to wait until we have the entire profile out there for you to evaluate the response.

Jami Rubin - Morgan Stanley

Thank you.

Bob Essner

Okay thanks. Justin, next question please.

Operator

Yes. And that comes from the line of Seamus Fernandez with Leerink Swann. Please go ahead.

Seamus Fernandez - Leerink Swann

Thank you, can you hear me?

Bob Essner

Yes.

Seamus Fernandez - Leerink Swann

Great. Thank you. So, just want a couple of quick updates on Effexor. I didn't hear if you noted the amount of the US wholesaler buying in the quarter, but if you could provide us with that. In addition, the Effexor generic conversion rate in Canada, if you could just give us an update on that and how that impacted Effexor XR international sales? And then finally, Bernard, you actually stated that it's very early for me to speculate on the labeling for Pristiq. So should we assume from that that you have not entered labeling negotiations with the FDA and as a result we should anticipate at least an approvable letter on Monday? Thank you.

Greg Norden

Okay. I'll take the first question, Bernard, maybe turning it over to you. On the Effexor and the effect of the inventories on the trade on Effexor, the net effect second quarter '07 to second quarter '06 is about $70 million, but there is two components of that. The largest component was a decrement in inventory in the trade last year from the first quarter of '06 to the first quarter of '07, and now it's about $50 million. And then there was a slight build in the trade this quarter of about $20 million. So there are two components equal that as $70 million impact, but the only net increase this year in the absolute is about $20 million. Okay. Bernard, I'll turn the second question over to you.

Bernard Poussot

So the impact of the generic in Canada, on XR is pretty significant and you could appreciate that in comparing our international results, including Canada versus the statement I made of growth of 9% for international excluding Canada. Basically, the impact is about $50 million less sales in the quarter in Canada on Effexor, but that points I guess also to the dynamism we see in another markets. I could point to France, Germany and others who have a double digit increase in Effexor as we speak. So we’re very pleased with the continuing development of Effexor abroad. And lastly on the Pristiq, I think you would understand that it was being so few days away from this action later on FDA we will reserve all in all comment and discussion when we have this piece of information in hand.

Seamus Fernandez - Leerink Swann

Thank you.

Justin Victoria

Okay, thanks Bernard. Next question please.

Operator

And that comes from the line of [Joe Carroll of SAI Healthcare]. Please go ahead.

Joe Carroll - SAI Healthcare

Hi, good morning. I have a couple of questions, one has to do with the AAB-001 and the other is bifeprunox. It has been reported that there have been manufacturing issues associated with the plant in Puerto Rico. How will that affect the bifeprunox manufacturing and what plans are you currently underway with rolling the product out.

Bernard Poussot

Bifeprunox as we indicated earlier is under review and we expect an FDA action in August and we'll advise at that point in time. With respect to Guayama we received a clearance from FDA last quarter, that the facility is now cleared and found in compliance by FDA and in fact FDA approved Lybrel which is a product manufactured out of the Guayama Puerto Rico facility, so that is testimony to FDA's satisfaction with the facility. So, we do not believe Guayama represents any barrier to manufacturing nor approval of the bifeprunox application.

Joe Carroll - SAI Healthcare

Okay, and can you give an idea of; let's say you are talking for the planning cycle. Given the typical antipsychotic market, what are you looking at in terms of possibly peak sales as a target?

Bernard Poussot

It characterizes our analyst meeting in October 2006 that the peak sales for bifeprunox in the Wyeth territories that we share with all, they would be only about of $1 billion

Joe Carroll - SAI Healthcare

Okay, thank you very much. And then finally, it has to do with the AAB-001. I understand you are going forward with your Phase 3 for Alzheimer's disease. What about any studies in terms of the presenile dementia' is there anything, is that being explored?

Justin Victoria

Those will be discussed, again that we will have it regulated in terms of the populations and sub-populations that we going to explore in further development, we have not made any specific plans in that regard as yet.

Joe Carroll - SAI Healthcare

Thank you.

Greg Norden

Okay, thanks Justin. We're going to take one more question.

Operator

Yes, and that comes from the line John Boris with Bear Stearns, please go ahead.

John Boris - Bear Stearns

Thanks for taking the follow up. Just want to clarify one question that Steve Scala had asked on Protonix. Can you remind us when the 30 months stay expires on the Protonix patent challenge and the how are you preparing for, at risk launch by potentially caving that market place? Thanks.

Justin Victoria

John this is Justin. The 30 months stay acceleration for Teva since that's the company that you indicated is August 2, which is a couple of weeks away. We believe the patent is solid, we believe the current patent life runs out in July 2010, and with the periodic extension that we do anticipate will take about to January 2011.

As Bernard mentioned in his comments, in anticipation of the possibility of consideration of an early launch prior to the court hearing on the patent it self, we have filed for a motion for preliminary injunction against Teva, and or understanding is that preliminary injunction will be considered by the court prior to the August 2 date. We shall see. At this point, we do not even have a trial date scheduled for the first court decision on the patent itself. We are not expecting frankly a trial to occur before the midpoint of 2008 probably at the earlier.

John Boris - Bear Stearns

Thanks.

Greg Norden

Okay. Thank you Justin and that wraps up today’s call. Thank you all for attending.

Justin Victoria

Operator?

Operator

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Source: Wyeth Q2 2007 Earnings Call Transcript
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