Wyeth Q3 2007 Earnings Call Transcript

Wyeth (WYE)

Q3 2007 Earnings Call

October 18, 2007 8:00 am ET

Executives

Greg Norden – SVP, CFO

Bob Essner – Chairman, CEO

Bernard Poussot – President, COO

Joe Mahady - President, Global Business, Wyeth Pharmaceutical

Doug Rogers – President, Wyeth Consumer Healthcare

Justin Victoria - IR

Analysts

David Risinger - Merrill Lynch

Steve Slaughter - UBS Global Asset Management

Roberto Cuca – JP Morgan

Roopesh Patel - UBS

Chris Schott - Banc of America

Jim Kelly - Goldman Sachs

Mario Corso - Summer Street Research

John Boris - Bear Stearns

Tony Butler - Lehman Brothers

Seamus Fernandez - Leerink Swann

Jami Rubin - Morgan Stanley

Steve Scala - Cowen

Operator

Welcome to the Wyeth third quarter earnings conference call. (Operator Instructions) I would now like to turn the conference over to our host, SVP and CFO Greg Norden. Please go ahead, sir.

Greg Norden

Thank you, operator. Good morning, everyone and thank you for joining us. With me on the call today are Bob Essner, Chairman and CEO; Bernard Poussot, President and Chief Operating Officer; Joe Mahady, President Global Business Wyeth Pharmaceutical and SVP; Doug Rogers, President, Wyeth Consumer Healthcare; and Justin Victoria, Vice President, Investor Relations. We will begin, as usual, with some brief remarks from 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 from such forward-looking information. This has 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, Greg. As you have seen from our press release, Wyeth had another strong quarter. Looking at our pro forma results, you see a 9% increase in revenue, a 14% increase in operating income and a 7% increase in diluted earnings per share.

For the first nine months, revenue increased 10%, operating income increased 18% and pro forma diluted earnings per share increased 10%. Overall, a very good quarter and nine months, and we remain on track for a strong year.

We continue to expect pro forma diluted earnings per share of $3.48 to $3.56, an increase of 11% to 13% over 2006. This target is a reflection of the continued strong performance of our products and our commitment to managing our cost structure. Greg will provide more details on our financial results in a few minutes.

This is the last quarterly earnings call before I step down as CEO in January. I would like to briefly discuss the succession process, and how excited I am about Wyeth's future under Bernard Poussot's leadership. Succession planning is one of the most, maybe the most, important duty of a CEO and a board of directors.

The process that resulted in the selection of Bernard was begun five years ago and involved a thorough and long-term evaluation of the character, track record, and potential of several candidates. We have tested Bernard with increasing responsibility over the years, culminating in his promotion to COO and his election to the Wyeth Board of Directors last January.

Perhaps the timing of our recent announcement caught some of you by surprise, because we did not engage in the drama of a public horse race for succession that a few of our competitors carried out recently. But our process was long term, thorough, and in accordance with my plans to turn over the CEO position around the age of 60. It is my great pleasure that we have, in Bernard, an outstanding individual to lead Wyeth. I will stay on as Chairman for a transitional period, and will do everything I can to help Bernard and the company during this time.

Bernard Poussot

Thank you, Bob and good morning to all of you on the call today. Let me start by saying that I'm very grateful to Bob Essner and Wyeth's board of directors for their confidence in electing me to the CEO position, which I will assume on January 1. I am proud to be part of Bob's management team and to have been able to contribute to all that we've built at Wyeth under Bob's leadership. I am both excited and humbled at the upcoming opportunity to lead Wyeth forward from this strong base.

Lastly, this appointment is a testament to my teams at Wyeth, who have delivered outstanding and sustained performance over the last ten years, including the successful transformation of Wyeth into a leading pharma company.

So thanks again, Bob. Now let me turn the call over to Greg to review our financial results in detail.

Greg Norden

Thanks, Bernard. Turning now to our financial results, as Bob noted earlier the third quarter was another strong quarter for Wyeth. Diluted earnings per share on a pro forma basis were $0.90 versus $0.84 last year, a 7% increase. For the nine months year-to-date diluted earnings per share was $2.74 versus $2.48 last year, a 10% increase. I'll refer you to our press release for detail regarding the pro forma adjustments. My comments this morning will refer to the as-adjusted P&L included at the end of our press release.

Net revenue increased 9% to $5.6 billion. Excluding the effects of foreign exchange, our increase in revenue was approximately 6%. Our nine month year-to-date growth in revenue was 10%, or an increase of 7% excluding the effects of foreign exchange. Pharmaceutical revenue grew 10% for the quarter, and we saw good growth across most of our portfolio of marketed products. In addition to the strong revenue growth in our pharmaceutical business, we also saw solid contributions from consumer health care and animal health. Bernard will provide more specifics on the performance of these businesses and products in a few moments.

Gross profit growth for both the quarter and nine months year-to-date was consistent with the increase in revenue growth and within the 72% to 74% range that we projected at the beginning of the year.

SG&A spend for the third quarter in absolute dollars was slightly lower than the level of spend in the previous quarter. The year-on-year SG&A growth of 8% was predominantly due to the effects of foreign exchange and one-time costs related to the restructuring in several of our European markets. Adjusting for the effects of this, SG&A growth for the quarter was about 3%. Year-to-date, SG&A growth was 4% versus the prior year, and 1% adjusting for the effects of foreign exchange and reflects our continuing focus on managing these costs to a level meaningfully below the rate of growth of revenue.

R&D spending increased 5% in the quarter and 9% for the nine months year-to-date, and remains on track for a mid single-digit increase for the full year.

Operating income increased by 14% for the quarter and 18% for the nine months year-to-date.

Our tax rate was 29.6% for the quarter, and for the nine months year-to-date the tax rate was 29.3%. We still project the full year tax rate to be within the 27% to 29% range that we projected at the beginning of the year.

In summary, we had a very strong quarter and first nine months of 2007.

Now, before turning the call over to Bernard, I would like to take a few moments to discuss our recently announced $5 billion share repurchase program and our dividend increase. Over the past several years, we have seen a strengthening of our balance sheet. This is largely the result of our strong operating performance and receding diet drug litigation payments. In fact, Wyeth moved to a net positive cash position during the first half of 2007, after many years of being in a net debt position.

The improvement in our balance sheet and net cash position, coupled with our confidence in the continuing success of the company, gives us the opportunity to consider additional ways to generate shareholder value. We believe that the expansion of our current share repurchase program to $5 billion and our 8% increase in the dividend are a reflection of that commitment, yet still affords us the financial flexibility we believe is essential in our industry.

This program also allows us to continue to invest in M&A, end licensing, and other opportunities that will drive future revenue growth and operating performance. We have purchased approximately 24 million shares this year at a cost of about $1.2 billion. Our share repurchase program is an open-ended program with no time limit, and we intend to fund it with cash generated from our ongoing operations.

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

Bernard Poussot

Thanks, Greg. I'll begin my comments with the observation that the third quarter demonstrates Wyeth's continued outstanding performance in the marketplace. Wyeth worldwide human pharmaceuticals revenue was $4.7 billion, an increase of 10% over 2006. That performance was driven by particularly strong international revenue growth of 16% in the quarter, or 10% excluding the effect of exchange rate. For the first nine months, human pharmaceutical revenue was $13.9 billion, up 10%.

Consumer health revenue was up 8% in the quarter, also with a strong international component where it is up 19%, driven by our key brands including Advil, Centrum and Caltrate. Adding to our brands, with a strong consumer heritage in this business, are new opportunities such as Advil PM and our recently launched Centrum Cardio.

Fort Dodge Animal Health continues on a good track with revenue up 11% in the quarter, on the way to a billion-dollar business this year for the first time in our history. The future of our animal health business is bright, with a deep pipeline of innovative products. We are now well underway with U.S. and European launches of ProMeris, our new flea and tick products for dogs and cats. This is the first major new product in the largest animal health category in over ten years, and a likely blockbuster for this category.

Now let me comment on the performance of a few of our key brands. Prevnar worldwide revenue was up 24% this quarter and 29% for the year-to-date. The U.S. sales were up 16% in this quarter, reflecting solid demand, price increases and a purchase of 500,000 doses of Prevnar by the CDC for the U.S. vaccine stockpile. We do not anticipate a stockpile purchase in the fourth quarter of this year.

International performance for Prevnar of 33% growth in this quarter reflects government ordering patterns and continued penetration into existing markets where Prevnar has been launched, including growth in the 17 existing national immunization programs. In the next several quarters, five new national immunization programs are planned to start.

We recently announced the filing for regulatory approval of Prevnar in Japan. Japan is a developed market with about 1.1 million births per year. Japan will be a significant market addition for Prevnar once we receive regulatory approval. Before I close on Prevnar, let me note that in October, Prevnar passed the $2 billion mark level for 2007, making Prevnar the first ever $2 billion vaccine.

Next let me turn to Enbrel. Latest audited sales data shows that Enbrel has climbed to the number 6 position in the world among all pharmaceutical products and number 4 in Europe; a tremendous global success. Amgen will report sales of Enbrel for the U.S. and Canada next week. International revenues reported by Wyeth in the quarter were $527 million, up 39%, tracking towards our goal of reaching $2 billion in international sales this year.

Effexor revenue in the third quarter was $958 million, up 4%. This is despite the impact of generic competition to Effexor XR in Canada and Effexor IR in the U.S.; franchises that previously generated over $400 million in annual sales for the entire Effexor family. Inventory impact in the quarter was minimal. Year-to-date, Effexor revenue is up just over 1%, in line with our projections for a slight increase in sales versus 2006.

We continue to work hard to support Effexor. In early October, we launched a new advertising campaign, both print and television, for Effexor XR. The campaign encourages patients who are still experiencing the symptoms of depression to speak with their doctor about other treatment options to deal with these difficult to treat symptoms. This is an area where Effexor has always performed well.

Protonix revenue in the quarter was $425 million, down 6%. The decline reflects a reduction in wholesale inventory levels following last quarter's build up and the possibility of a generic entry. Year-to-date, Protonix is up 5%; a good performance given our guidance of low to mid single-digit revenue growth in 2007.

As you know last month, the court denied Wyeth's motion for a preliminary injunction to prevent the early, at-risk launch of generic pantoprazole by Teva or Sun. In its ruling, the court found that Teva had raised a sufficient question about the validity of the pantoprazole patent to deny the extraordinary relief of a preliminary injunction, a decision we have appealed.

The court also repeatedly noted that any of its findings were only preliminary, and that Teva and Sun would be held to a different, higher burden of proof at trial. We remain confident in the strengths and validity of the pantoprazole patent and we project a mid-2008 trial.

Premarin revenue was $283 million in the third quarter; that's up 8%. The increase reflects the impact of price and a normalization of inventories in the wholesale channel after some supply constraints last year from our Guayama facility.

Our nutritionals business continues to show substantial growth. Revenue growth in the quarter was 13% and year-to-date this business is up 17%, nearly a $1.5 billion franchise this year with most of our business in the Asia Pacific, Middle East and Latin American regions.

Zosyn continues its strong performance for 2007. Revenue in the quarter was $284 million, up 16%. Year-to-date, Zosyn revenue was $845 million, up 17%, making it the world's largest selling injectable antibiotic today. We have launched our EF formulation in nearly every market around the world.

We have seen generic competition for Zosyn in some international markets, as we had expected. In the U.S., the base patent expired earlier this year, but we have not experienced generic competition to-date. We have not received the response from FDA to our citizen petition regarding standards for Zosyn generics. We believe our petition raises significant issues ranging from Pharmacopoeia standards to patient safety, and warrants serious consideration.

Our newer injectable antibiotic, Tygacil, has been moving up nicely, in line with our projections. Year-to-date, we nearly hit the $100 million threshold and are on track to meet our goal of doubling 2006 revenues, driven by U.S. growth. International performance has been limited by active ingredient supply issues in certain foreign markets. We expect these limitations to remain in place until early to middle of 2008 and we look for continued growth in the U.S. and greater success internationally next year.

Let me make just a quick comment on BeneFIX. Last quarter, we reacquired the full commercial rights for BeneFIX in Europe. We noted that there would be a slowing in the second quarter and a rebound in the third quarter as we transitioned the product back to Wyeth from Baxter in the European markets. That is why BeneFIX shows a 50% growth in the third quarter. We expect the product will now show momentous growth from this new, fully global, higher sales level. Year-to-date, our hemophilia franchise comprised of BeneFIX and ReFacto has reached sales of $551 million, up 13%.

The MP2 is another growing biotech franchise for Wyeth. Our revenue in the third quarter was $93 million, up 25%. As you know, we partnered with Medtronic on this innovative product. The MP2 in Medtronic’s infuse and inductor presentations has now been used in approximately 300,000 patients and has reached a community sales level of $2 billion since launch in 2002.

Before I comment on our pipeline products, let me address our most recent launches. I'll start with Lybrel, a product that will allow women to achieve cycle control over time with their contraceptive of choice. Lybrel has started slowly in its U.S. launch, as is typical with contraceptives, given the high level of patient sampling in this category. Thus it is too early to tell where we will ultimately wind up, but we are working hard to build this brand.

Regarding Anya, the European trade name for Lybrel, the regulatory procedure in Europe is progressing based on the initial approval for Anya by Finland in October of 2006. We are now in the referral phase of the review and the final European regulatory outcome may not come until the third quarter of 2008.

Our other recent launch, Torisel. for renal cell carcinoma is going very well. Torisel is being used in the first line, second line and third line settings and oncologists seem to be responding to our data showing improved survival in their full risk advanced renal cell carcinoma patients. Revenue was $10 million in its first quarter on the market.

Let me next address the products awaiting review and those we expect to file applications for in the near term. Following our complete response to the earlier FDA approval letter on Viviant, or bazedoxifene, for the prevention of osteoporosis, FDA set an action date for the end of December '07.

The complete response on prevention provided the requested three-year fracture data and other data from our clinical studies. In addition to supplementing the efficacy database, we believe this data will address the safety questions raised in the approval letter including VTEs and strokes.

Given the current regulatory environment, we are also weighing the value of submitting data from two additional clinical studies finishing later this year with Viviant in Asia, to further support the prevention application.

We also filed a separate application for the treatment of osteoporosis at the end of July 2007 which has been assigned an action date for the end of May, 2008. Both of these applications now contain virtually the same very large database and we would not be surprised if either the agency, or we, decided it is more efficient to review these two applications and move them closer together, in time.

We have also submitted jointly for prevention and treatment with the European authorities during the third quarter.

With the product for menopausal symptoms and osteoporosis, as we announced on October 5, there is additional work we need to successfully complete before filing our NDA (new drug application) with the FDA, which we now project no earlier than the second quarter of 2008.

We will update you on Viviant and the related product, Aprela, as soon as we have additional information relating to the direction and timing of the NDA reviews and filings, as we address these issues with the FDA.

The NDA and the European MAA for sub.2 methylnaltrexone remain under active review. To remind you, this product is for the treatment of opioid-induced constipation in patients receiving palliative care. We continue to be encouraged by the profile of this novel treatment for this significantly underserved condition. We are tracking towards a mid-2008 submission for IV methylnaltrexone.

We filed our Pristiq low dose 50 mg studies in depression as planned at the end of August, and the FDA has extended the review cycle by six months. We will present the data for these studies at the ACMP conference in December. As we have commented before, we expect that Pristiq will be approved for depression in the first quarter of next year.

I would also note that we filed for European approval for Pristiq in major depressive disorder within the past two weeks.

During this past quarter, we received an approvable letter on Pristiq for vasomotor symptoms that call for the conduct of an additional clinical trial to support approval. We have had numerous discussions with the FDA in the intervening weeks, and we are working to finalize a design of the requested study which we expect will begin early next year.

Also during the quarter, we and our partner Solvay received an FDA action letter on Bifeprunox. FDA requested an additional study to support the maintenance use of the product. We, Solvay and the FDA are still exchanging information on what might be an appropriate study design. We hope to meet with FDA later this year so it is not possible at this time to clarify the path forward.

We also filed our registration for Tygacil for community-acquired pneumonia in July. The additional Phase III clinical trial in hospital-acquired pneumonia to possible indication will begin early in 2008.

Lastly, our Phase III programs with Prevnar 13 for infants and adults continued to progress well and we remain on track for filing for both users in 2009.

So let me conclude. Our underlying base business is performing very well with strong growth from key products in all our business segments and geographies. While we've had some challenging regulatory issues this past quarter, we are moving forward to bring these important new products to market.

So let me now turn the call back to Greg to take your questions.

Greg Norden

Thanks, Bernard. Just in closing, we delivered a strong operating performance in the third quarter; we had a great first nine months and expect an outstanding performance for the year.

Now operator, I would like to open the lines for questions and I would like to ask participants, if they could, to limit themselves to one or two questions. We may have to limit the time for Q&A, given the fact that other companies are also reporting today.

Operator, we can open the lines, please.

Question-and-Answer Session

Operator

Your first question comes from David Risinger - Merrill Lynch.

David Risinger - Merrill Lynch

I have two questions. First, with respect to the cardiovascular profile of Viviant, if it's somewhat questionable relative to Evista, I'm just wondering if some ongoing ex-U.S. studies would be all that the FDA needs to become comfortable with the product? I am also wondering if long-term outcome data would be required?

Second on Protonix, I just wanted to find out how you see the risk of an at-risk launch of generic Protonix and I was wondering where your discussions with Teva and Sun stand regarding potentially settling the patent litigation?

Bernard Poussot

David, let me address your two questions, the first one on the Viviant at-risk profile. We think that a complete response will help the FDA clarify the safety of Viviant on this subject. We do not need the studies you are alluding to, to address that question raised in the first action letter we received. We are pretty confident that we have supplied the FDA with strong data from the three-year fracture data.

On the Protonix front; look, as you realize we are in litigation on this subject so my comments will be limited. We definitely observed that six weeks after the decision we see no commercial activity on the part of the generics that could have some. We continue to look and monitor very closely the situation. We obviously will do everything to defend the franchise. There are a number of options available to us to do so. For the time being, we just limit our comment to this.

David Risinger - Merrill Lynch

Can you just explain in a little bit more detail the additional data that you plan to submit to the FDA on Viviant?

Bernard Poussot

We are discussing the possibility to submit two additional studies that are being conducted now in Asia, and this is something we will discuss with FDA in the coming weeks.

David Risinger - Merrill Lynch

How large are they and significant are they?

Bernard Poussot

They are two large studies, one conducted in Japan and one in Asia.

Operator

Your next question comes from Steve Slaughter - UBS Global Asset Management.

Steve Slaughter - UBS Global Asset Management

Before my question, Bob, I just want to offer my congratulations on your upcoming retirement and obviously your many positive contributions to Wyeth and the industry over the years. I wish you all the best in your retirement.

Bob Essner

Thank you.

Steve Slaughter - UBS Global Asset Management

Briefly, I am curious as to your take on the ASRM data on 50 mg Pristiq that was presented last week on vasomotor symptoms. The nausea rates that we're seeing were in the mid-20s. I'm just interested in understanding how we think about that population relative to depression? Do we have any reason to expect there would be a difference between the two populations at that dose for this side effect?

Interestingly, the dropout rates were very low for nausea. I'm just curious as to how long these symptoms continued before they subsided?

Bernard Poussot

You're right, the symptoms disappear very rapidly; actually, the studies show that three days is average, so it's really an adjustment to treatment and the efficacy of the treatment. We're not concerned with this. We think that's something that patients can adjust to, especially if we tell in advance the physicians of this fact.

I remind you that in depression the regiment would be 50 mg and this is going to be the dose and that dosage should be good for the majority of patients. So we think that makes Pristiq in depression, a very competitive profile. Remember, we've managed that very well with Effexor and I think it is very manageable with Pristiq going forward.

Steve Slaughter - UBS Global Asset Management

As a follow on, Bernard, I believe you have an action date in Europe for Pristiq in vasomotor coming up. I'm curious as to your expectations for that?

Bernard Poussot

I think it's in 2008. I think the file is definitely being looked at by the authorities and I think we have regular interactions, nothing specific to report here. It is following its course.

Operator

Your next question comes from Roberto Cuca – JP Morgan.

Roberto Cuca - JP Morgan

Congratulations to both Bob and Bernard. I had a quick question about the Nevada HRT cases. I was wondering if you could review what the basis would be for the appeal in which you hope to overturn the judgments there? If you could discuss the extent to which those cases differed from the other cases that have taken place so far?

Second, do you expect that the risk of an at-risk launch for Protonix is likely to affect Protonix sales in the coming quarter or coming quarters? Thanks.

Bob Essner

Let me address the Nevada verdict, which was highly unusual. I think the trial as we have said, was riddled with errors and confusion and irregularities and I would say that is the main thing that distinguishes it from the previous six trials that have been decided at the trial court level, all of which we have prevailed in.

We have also had several cases decided in our favor on summary judgment and dismissed by the plaintiffs.

I think we recognize that if you go to trial often enough in the American jury system, you are going to get outlandish verdicts such as this and we will appeal it and we believe that the probability we're successful on appeal is extremely good.

Bernard Poussot

On the Protonix side, I will add that we cannot predict what's going to happen but I remain very confident that we have a very strong case. We are preparing for the trial in mid-2008, as I said, and we continue to monitor the situation and adapt to any signal if we see any. For the time being, we see no commercial activity on this front.

Operator

Your next question comes from Roopesh Patel - UBS.

Roopesh Patel - UBS

First on Viviant, if the FDA combines the review of the prevention and the treatment indications, can you please clarify the time line for approval under that scenario? Based on the data that you have so far on Viviant, I was just curious as to how you expect to differentiate that drug versus those that are on the market?

Separately on Prevnar, if you can just offer some visibility on when you expect it to be approved in Japan?

Bernard Poussot

Let me start with the possible date of the two applications converging. I think it is natural to expect that this would be around May 2008, which is the action date for the treatment portion of the filing. We think the dosing converged, in every piece of clinical study and data that we contributed to one has also been contributed to the other one. These are two very large filing applications and I think it is going to be much more efficient and likely for FDA to look at them both at the same time, so May '08.

I'll ask Joe Mahady to comment on the differentiation.

Joe Mahady

As we really discussed last year at our analyst conference, we have always held that the real value of bazedoxifene is an enabling agent for the combination of vaso with estrogen and that's the Aprela product. But as a single entity, as we've gone through the evaluation of our clinical results, while we see a very similar competitor to Evista, what we have found is that really in patients with more significant risk for fracture, that we see an advantage to bazedoxifene. That won't make it into the first filing here in the U.S., although it has a good chance of getting into the European label.

So we see really the single entity as also being a transition product from patients who no longer need the combination of Aprela. So again, we remain excited at that single entity, it's a valuable product; in combination it's a transforming product that it converts both that and estrogen into an Aprela product that we think will change really how they treat menopausal symptoms and prevention.

Bernard Poussot

Your last question regarded the expected approval of Prevnar in Japan, I can tell you that we are expecting an approval in early 2010, based on the recent filing of the application.

Operator

Your next question comes from Chris Schott - Banc of America.

Chris Schott - Banc of America

First on your SG&A side, you have had several setbacks in your late stage pipeline, I guess some more expected than others. How does that factor into your spend going forward? I know you have been keeping expenses under control in here, but have you taken the opportunity or do you see opportunities to cut back spending further in the near term at least?

The second question on Aprela, maybe just following on some of the questions of Viviant, how relevant do you see the additional safety data from these studies being to your filing there? Do you believe there will be any FDA concerns that Viviant will be applied to Aprela in any way? I know it's a different direction of therapy and different indication, but do you think it's possible to get Aprela approved if Viviant is still under FDA review? Thanks.

Bob Essner

Let me start with the last one. Certainly the Aprela application by prior approval and discussions with the FDA can stand completely on its own. It does not need the Viviant application to be approved or even pending.

Our data that we have seen on Aprela are very, very reassuring with respect to these issues around stroke. Now, that doesn't mean that the agency won't consider the single entity component in their Aprela review. But by what we have seen to date, and of course, that's pretty significant data at this time on Aprela, the stroke question that they raised around bazedoxifene, which is a question that is consistent with a certain category, has not manifested itself in the clinical trials around Aprela.

Again, as Bernard said earlier, we do believe from the Wyeth's perspective that the major supplement we made with the three-year data on the bazedoxifene single entity, we believe addresses the stroke situation and puts it very much in a picture that is reflective of what people have come to know about raloxifene and the category.

Joe Mahady

On SG&A, if you look at our SG&A trends as I noted for the quarter, for the year-to-date very, very modest growth in SG&A, plus 4% nine months year-to-date; 1% after factoring out the effects of foreign exchange. We expect to finish the year probably along those lines, very modest growth in SG&A.

As far as going forward, there's still are a lot of new products that we expect. We expect methylnaltrexone approval in January of next year. We expect Pristiq in the middle of the first quarter of next year. So we're going to continue to manage SG&A within the guidelines of what we set forth over the last couple of years, which is to grow it at a meaningfully lower rate than the growth in revenue.

There still is a need for the SG&A spend to support our core products and the new products that are still coming next year.

Operator

Your next question comes from Jim Kelly - Goldman Sachs.

Jim Kelly - Goldman Sachs

Could you help clarify a little bit about the challenge from Sun on Effexor XR? As they claim that they are AB rated for the product, that makes sense that the 180-day exclusivity for Teva would hold them up. But as they are a tablet, how are they AB rated and could they end up coming out earlier? If you could just help square that for us a little bit, that would be great.

Secondly, for Pristiq in Europe, is there a reference drug that Pristiq needs to show that it is superior to for approval in MDB in Europe and what is that drug and what is the dose of Pristiq?

Justin Victoria

Let me start with the Sun Effexor XR generic. As per their press release yesterday -- I believe it was yesterday -- our understanding of FDA policy, our very clear understanding of longstanding FDA policy that has been implemented many times, is that alternative dosage forms -- that is, tablet dosage forms filed against a capsule product that is referenced with the drug -- will not be AB rated. So we do not expect that an approval for Sun for an Effexor XR extended release tablet, if approved, would be rated AB.

The question with respect to Pristiq, a reference drug in depression in Europe, Joe?

Joe Mahady

We have studies that are completing with respect to MDB, both with comparisons against Cymbalta or Duloxetine and Celexa and I think they would be appropriate support.

Operator

Your next question comes from Mario Corso - Summer Street Research.

Mario Corso - Summer Street Research

On Pristiq for depression, back when the vasomotor decision from the FDA came down, Wyeth's comments were that they did not expect that it would impact the depression review. Of course, that was before the response to the approval letter was filed.

So since the response has been filed now and I don't think accepted yet -- correct me if I'm wrong -- has there been any more discussion about that issue or is it just at this point, just an unspoken assumption that the depression indication remains on track, despite the vasomotor symptom issues that came up? Thank you.

Bernard Poussot

Let me tell you, we have obviously ongoing discussions with the FDA and we have been reinforced in the belief that the FDA has looked at all the elements of the two dossiers to confirm that, in their view, the benefit/risk ratio was much better and therefore could lead to an approval. So we are encouraged and we believe that we will be approved during the first quarter of 2008.

Operator

Your next question comes from John Boris - Bear Stearns.

John Boris - Bear Stearns

Bernard, as you assume the role of CEO in January, can you just outline for us what some of your top priorities will be going forward?

Secondly, on Pristiq to the question Steve Slaughter had asked about the data that was presented on the 50 mg, are the nausea rates and the discontinuation rates comparable in the depression studies that you plan on presenting at the ACMP meeting in December?

If Joe Mahady might be able to give us some color on how managed care is viewing this product from points of differentiation?

Then just one question for Greg on the tax rate. I think your current guidance is 27% to 29%. It seems as though the mix of products, at least going forward, are coming from non-taxed advantaged areas and some of the new product opportunities, especially Viviant being delayed until next year -- at least it seems that way -- is putting some upside pressure on the tax rate. How should we be thinking about that going into '08?

Greg Norden

John, I'll take the tax rate question first and then I'll turn it over to Joe and Bernard. The tax rate year-to-date is about 29%. As I mentioned in my comments, we're still comfortable that we are going to fall within the range we gave at the beginning of the year of 27% to 29%.

Looking forward, again the single biggest determinant as you mentioned in the tax rate to a large degree going forward is the product mix and I don't see the tax rate dropping markedly over the next couple years, but the things that we're doing today to prepare behind our new products -- be it in research or development or pre-marketing-- will yield a lower tax rate when those products are launched.

Depending upon the timing and the magnitude and the ultimate success of those products, we hope to see the tax rate drop over time.

But John, I think your question is probably more short term and my answer would be, we don't expect the tax rate to change significantly going forward. I'll give a lot more guidance on that on our January call when we talk about 2008.

Bernard, I think you have the first question there.

Bernard Poussot

I think my immediate priority is going to continue to work hard at getting those new products approved as fast as we can in a changing environment. This obviously requires that we identify areas where we need to beef up our filing or interaction with agencies and intend to continue to look at that aspect of business, which is so critical.

We have, as you know, five products in registration plus the two Pristiq and Bifeprunox that require additional work. That's my immediate priority. Obviously, my countdown period of two-and-a-half months to go before January 1, I'm looking forward to working closely with the management team here at Wyeth and chief among them, Bob Essner, to look at areas where we can add, improve or modify what we are doing.

I don't see any urgent need for massive changes, but some good work with our key executives will help me to define what we should do going forward. So I'll talk to you about it early next year when this is more precise in my mind.

Joe Mahady

There were two questions that really related to Pristiq. The first was, again, on the nausea issue. Again, a 50 mg dose for depression and a 50 mg to 100 mg dose on vasomotor, the results we've seen in those trials really don't give us much concern on the nausea issue there; there were very few drop-outs for that. The issue was essentially gone after the first few days to a week and then we see relatively good performance then on the efficacy and remaining tolerability throughout the trials.

We think it will be a little easier to manage than what has been there on Effexor. Again, I have to remind people that the nausea that we always talk about on Effexor hasn't stopped it from being the number 1 antidepressant in the world today. So we're very encouraged here.

On the managed care side, I think the issues that we deal with, particularly here in the U.S., is we have a category in antidepressants that are 60% generic today, so we would expect like most of the primary products in the category, that we will run into a lot of generic first formularies. We think in our discussions that Pristiq MDV is a very good opportunity because of its simple dosing; probably one single dose a day to be both a very effective and even more cost-effective option for them. We think with the right rebate structure it has every opportunity to be as well available in managed care formularies as Effexor XR today. So we're pretty comfortable with that position.

Of course, with the vasomotor addition later on, we'll fill a hole that isn't filled today in managed care formularies. I think that will just strengthen the ongoing position of Pristiq.

Operator

Your next question comes from Tony Butler - Lehman Brothers.

Tony Butler - Lehman Brothers

A question that relates to the productivity initiatives. One of the characterizations in the press release related to manufacturing facility closures by the end of the fiscal year. Have we seen the effect of those closures in the P&L to date? Will there not be any effect or will there be some effect moving forward into future years, assuming your business stays status quo?

I realize to some degree that's dependent upon mix, et cetera, new product introductions. But just as your business exists today, how will this facility closure actually have an effect, if at all? Thanks.

Joe Mahady

We've made a lot of changes in our manufacturing network to date and I think we're going to continue to look at those going forward. Specifically Tony, our gross margins remain in the 72% to 74% range. I don't see that changing dramatically right now as we go forward. A lot of what we do gets baked into that margin.

You may be referring to in the restructuring charge in the third and fourth quarter the charge is a bit higher due to an announcement by Amgen in the third quarter to close their Rhode Island facility. They announced the closure of that early in the third quarter to close it by the end of the year and Amgen is having a call next year, which I'll refer you to for more detail on that.

That first facility, it was never a producing facility, it made the original formulation of Enbrel. Amgen has another facility that is now making the serum-free process which they call BioNeXt and that combined with our facility in Grange Castle. To some degree we're taking some excess capacity out of the network. So that will help, obviously, with the Enbrel margins as we go forward.

But the direct answer to your question, I think the margins that we have seen are a reflection of the changes we've made. We're not going to stop here. We're going to continue to look for opportunities to rationalize the manufacturing and to keep those margins as high as we can going forward.

Operator

Your next question comes from Seamus Fernandez - Leerink Swann.

Seamus Fernandez - Leerink Swann

Can you just update us on your expectations for timing of the release of at least top line data on the Alzheimer's program with bapineuzumab (AAB-001)?

Second, can you update us on your expectations for timing of a Markman ruling from the Effexor XR impacts trial which I believe occurred in June of this year?

Finally, can you let us know if you tested the 0.3 mg dose of Premarin with Aprela, and if not, can you explain why you didn't test that? The reason that I ask is because my understanding is that the reproductive group at FDA likes to see the lowest effective dose of everything tested in order to gain an effectiveness margin of safety and efficacy for approval. So just wondering if you could give us a little bit of clarity on that?

Justin Victoria

The impacts of the Markman hearing, we don't have a calendar. The hearing was held and as you know, we'll see. Right now there's not been a trial schedule set for that particular case and one would expect that we'd have a ruling on the Markman hearing sometime before that trial. But unfortunately, we just don't know exactly when that might come. We haven't heard anything further from the judge at this point in time.

With respect to top line data on AAB, as we have noted the Phase II study remains ongoing and blinded at this fashion. The data should be available to us right around the end of the first half of next year, so I think you can expect to see Wyeth and Eli present top line data from that trial, not before the second half of 2008.

Joe, on the Aprela question.

Joe Mahady

I think you're right, FDA does like to see the lowest effective dose, particularly I think in this category. We're pretty comfortable that our results on Aprela really show a good dose response and that at the level we're at, the dose level I think they'll accept as perhaps the lowest effective dose. We are pretty comfortable, we've looked at the range and what we've got is a lot of data that gives them a clear look at the responsiveness of the efficacy and the safety. I don't think we'll have to consider a combo.

Operator

The next question is from Jami Rubin - Morgan Stanley.

Jami Rubin - Morgan Stanley

Thank you. I just wanted to follow-up on the earlier Sun-related question. I guess I'm still puzzled as to why you decided not to sue, given that even if Sun's product Effexor is a tablet version, not a capsule and even if FDA does not ascribe it an AB rating, why can't Sun just distribute through another company and launch at a lower price and take 20% share of the market?

It just seems to be a risk and I don't know what you lose by litigating which would block them from entering the market, truly in the 30-month space. So if you can just talk about that, because my understanding is that there have been six to seven subsequent filings by other generic companies, all of which have been litigated by Wyeth.

Justin Victoria

The key factor, as you note, is the tablet dosage form for Sun. They have filed as an ANDA. Given our previous agreement with Teva, and Teva's ANDA, Teva enjoys the generic exclusivity which therefore FDA will not grant full approval to Sun's ANDA until the exclusivity for Teva is triggered. We think that Sun has quite some time ahead of it before it might come to market as a potential competitor.

We have evaluated a number of factors before making a strategic decision that with this particular product and this circumstance, the best course of action for Wyeth was not to bring suit but to let the non-AB rated status and the existence of Teva's generic exclusivity as essentially a time-blocking entrance of that product to serve best for us.

Jami Rubin - Morgan Stanley

So you are confident that Teva's exclusivity will block Sun from entering the market?

Justin Victoria

That is our understanding based on the fact that Teva has the first exclusivity and it was an exclusivity granted under the previous rules prior to the MMA legislation several years ago. That's a key factor.

Operator

Your final question comes from Steve Scala - Cowen.

Steve Scala - Cowen

Would you elaborate on the formulation and bio equivalence requirements necessary for Aprela that you announced on October 5? What specifically is the issue?

Secondly, on Prevnar 13, Bernard you said it would be filed in 2009. Previously the company had said early 2009. So is early 2009 still on track and is the new resistant strain of streptococcus covered by the product? If not, is that going to be problematic from a regulatory standpoint? Thank you.

Justin Victoria

Let me take a shot at that and then I'll turn the Aprela question over to you Joe.

On the Prevnar 13-valent I think what we said was we expect to file for the infant indication in early 2009. That's still on track and we expect to file for the adult indication in the latter part of '09 and that's still on track.

Your question regarding the sero type I do believe we had a sero type, I think you are referring to, and that is in our 13-valent formulation.

Joe, I'll turn over the formulation and bio equivalence question to you.

Joe Mahady

Steve, I think as many of you may be aware, we had committed as a company a good number of years ago to move our estrogen containing formulations away from a shellac-coated core. That work has been completed in the market with Premarin. It's wrapping up now in the development phase around Prempro. But unfortunately, that formulation wasn't available when we began the Aprela trial. So obviously the responsibility now is to link the Aprela trials throughout their development to the new methylcellulose formulation which is the new estrogen core formulation.

That work is ongoing now. There are a series of biostudies that are being conducted as we speak. Given positive results from those trials and the data we have from the clinical trials, we believe we could make the linkage argument, allowing us to file then in the second quarter of this year.

Greg Norden

Thanks, Joe. Thank you everyone for participating and Justin and his team will be available later in the day if you have any further questions. Thank you.

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