Good morning, my name is Sotura, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter 2012 Earnings Conference Call for Forest Laboratories. [Operator Instructions] Thank you. Mr. Frank Murdolo, sir, you may begin.
Frank J. Murdolo
Thank you, Sotura, and good morning, everyone. Thank you for joining us today for this fourth quarter fiscal 2012 conference call. Joining me today is Elaine Hochberg, our Executive Vice President of Sales and Marketing and Chief Commercial Officer; Frank Perier, our Executive Vice President of Finance Administration and Chief Financial Officer; and Marco Taglietti our Senior Vice President, Research and Development and President of the Forest Research Institute.
By now, each of you should have seen the earnings release that we issued around 8:00 this morning. This release is also available at our website, www.frx.com. By way of Safe Harbor Statement, let me add that various remarks that we may make about future expectations, plans and prospects for the company, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and actual results may vary.
Let me now turn the call over to Elaine, who will comment on the business during the quarter.
Thank you, Frank, and good morning, everyone. It's my pleasure to update you on how our commercial portfolio of new and existing products is performing. Fiscal year 2012 was an important year for Forest since, as I mentioned in the last quarter, it was a year in which we actively promoted 6 products for the first time in our history. Viibryd for depression, Daliresp for severe COPD, were both launched together last August. Teflaro, our hospital-based anti-infective was launched in March of 2011. Our remaining promoted products, Bystolic for hypertension, Namenda for moderate to severe Alzheimer's disease and Savella for fibromyalgia round out the product portfolio that was supported by our multiple field forces in fiscal 2012. These 6 products are also important because they signify the beginning of our effort to build sustainable, multiproduct, therapeutic franchises such as CNS, cardiovascular, respiratory and anti-infectives. Our ability to unlock the value of each franchise will be dependent on the product offerings in each and more importantly, the power will be in the mix and our ability to exploit its synergies.
So let's start with our newest launches, Daliresp and Viibryd.
Daliresp has gained momentum in both pulmonology and primary care. Sales for the quarter were $13.1 million, a 56% increase over the December 2011 quarter. Daliresp is participating in a COPD market that's currently valued at approximately $5.7 billion with over 26 million prescriptions written annually. Since Daliresp is indicated for severe COPD patients, we plan to deeply penetrate this segment of the market in which both the unmet medical and educational needs are high.
We're pleased with the early prescription data and trends for Daliresp. As of the week ended March 30, there have been over 135,000 prescriptions written. Overall total prescription volume in the March quarter increased almost 40% over the December quarter after having doubled in the fiscal third quarter over the second. New prescription share of the total market was 1.49% for the week ending March 30 versus 1% for the last week of December, while TRx share was 1.15% versus 0.75% for the same period. Over 18,000 physicians have already tried Daliresp, including 39% of all specialists, which is a very positive signal, and over 50% [ph] of physicians have used Daliresp more than once.
Since launch, primary care physicians and other healthcare providers have written approximately 75% of scripts; specialists, around 25%, which is in line with expectations. Our sales force has reached 85% of our target audience. Physicians’ interest in Daliresp is very high, with awareness of products well above 90%. Feedback from pulmonologists and PCPs is positive, as seen by the fact that most prescribers have written more than once.
Likelihood to prescribe remains high for both PCPs and pulmonologists. We continue to focus on educating these physicians about how Daliresp works, explaining where, when and how Daliresp should be used to reduce the risk of exacerbations in patients with severe COPD. In fact, as I described last quarter, our education efforts on behalf of Daliresp are akin to what our extensive education efforts were for Namenda when we launched that product. We've also included disease-state understanding, appropriate patient identification and product-specific knowledge.
The support and advocacy of pulmonologists is a key need in this category and early signs of adoption by this group, they're very encouraging, with new prescription share among specialists exceeding national share and reaching almost 2.4%. Approximately 25% or almost 1 million severe COPD sufferers are hospitalized for an exacerbation each year. In March, our institutional sales force began promoting Daliresp to pulmonologists in over 2,000 hospitals. Over 500 hospitals to-date are using Daliresp to reduce risk of exacerbations following a hospitalization. We now have 190 target hospitals on formulary and the vast majority have added Daliresp with no restrictions.
We're meeting with pulmonologists in the hospital setting as well as in their practice offices. Through our hospital initiative, we've added 2,000 new pulmonologists to our existing panel of 6,000 pulmonologists. Market share in pulmonology is up almost 40 basis points in just the past 3 weeks.
Use with other COPD products, such SPIRIVA and ADVAIR currently accounts for over 80% of Daliresp used to-date. We expect prescription volume of Daliresp to increase as pulmonologists and primary care physicians continue to gain more experience with Daliresp and understand when, where and how to use this novel compound for the treatment of severe COPD in both the hospital and office-based settings.
Turning to Viibryd with sales for the quarter of $24.9 million, a 32% increase over the December 2011 quarter, Viibryd's strong momentum continues. We expect Viibryd's strong start to be sustained by an expanding user base and first-line use in patients with moderate to severe MDD. Prescription in the March quarter grew 32% over the December quarter. Approximately 60% of physicians report using Viibryd first or second line and in a broad array of patients, young and elderly and male and female.
Over 30 million patients are taking antidepressants in the U.S. Patients need a first-line antidepressant that offers efficacy that can help them recover as well as an acceptable side-effect profile. Furthermore, roughly 50% of patients need an alternative antidepressant, primarily due to lack of efficacy of the previous agent or secondarily, due to side effects. In either situation, Viibryd can be that option. Its mechanism of action is different from other antidepressants. Viibryd's the first and only approved SSRI and 5HT1A receptor partial agonist.
As discussed on our last call, physicians continue to describe the effect of the drug observed in the clinical trials as meaningful, consistent across multiple depression rating scales and similar to other SRIs with a tolerability profile that's favorable. And we're hearing very positive experiences from doctors and patients who have tried the drug so far.
As of the week ended March 30, there have been over 415,000 prescriptions written by approximately 43,000 prescribers, including almost 44% of high-prescribing psychiatrists. Approximately 70% of prescribers are repeat prescribers. Since launch, about 43% of scripts have been written by psychiatrists and approximately 57% by primary care physicians and other healthcare providers. We're very pleased with the response to this product by not only specialists, but also primary care physicians.
Bystolic's study has sustained growth so far and is a good example of how we build products over time to their full potential. Sales in the quarter for Bystolic were $96.9 million, representing growth of 32.6% year-over-year. At 4 years post-launch, Bystolic's NRx volume has surpassed many anti-hypertensive agents while looking at launch-align new Rx volumes. Moreover, total prescription launch aligned volume is in line with Benicar, a first-line ARB. Bystolic achieved a 4% share among specialists several months ago, and weekly national share among all prescribers is now consistently above 4%. We believe this performance is generated from the broad user base of greater than 240,000 prescribers that we have built over the last 4 years. We also believe it is due to the satisfaction those prescribers have with Bystolic, as evidenced by the fact that 98% of using physicians are repeat prescribers. Strong clinical profiling of Bystolic that has been generated through an active Phase IV program has helped our field force elucidate Bystolic blood pressure lowering effects and tolerability profile. In total, these data demonstrate that Bystolic when used early and often in a wide array of hypertensive patients can fill a need for doctors and the more than 1.6 million patients who have tried Bystolic to-date.
Interestingly, younger patients comprise a higher percentage of Bystolic’s patient base than they do for other beta blockers and other antihypertensive agents in general. 56% of Bystolic's patients are younger than 65 compared to 46% for other beta blockers and 52% for the general antihypertensive market.
Recent FDA label changes to the beta-blocker class that linked blood pressure lowering to cardiovascular benefit should encourage doctors and patients to pursue target blood pressure levels and in turn, should foment a climate of growth for products like Bystolic. As the 17th beta-blocker to market, Bystolic has performed well. Looking forward, we intend to continue to spur Bystolic's growth through the development and hopefully, the approval and launch of a fixed-dose combination of Bystolic and the market's leading ARB, Valsartan. Through a fixed-dose combination product, we hope to expand the pool of eligible patients for Bystolic and to generate first-line use as well. In a few minutes, our Marco Taglietti will speak with you about this important life-cycle clinical development program for Bystolic.
As described earlier, Forest is actively developing several therapeutic franchises that have significant potential. Anti-infectives, we hope, will be such a franchise. And this brings us to our hospital efforts in Teflaro.
Hospitals, in their own right, are a new geography, a new frontier for Forest, not dissimilar from our efforts to enter foreign territories, except that this new geography is right in our home territory. And hospitals, as in the office-based setting, we intend to build value over time through the introduction of a multiproduct anti-infective line, as well as other hospital-based product offerings. In essence, this effort has already begun with the launch of Daliresp into the hospital setting in the January 2012 quarter. The synergy of having 2 products, Teflaro and Daliresp, to meet the needs hospital pulmonologists and other members of the hospital team is already being felt by our institutional sales force, and we hope to propel this further in the months ahead.
Teflaro was launched into hospitals just over a year ago. In that time, the recognition of the quality of our sales effort and of Teflaro has advanced. Teflaro's proving to be a steady climber, methodically increasing its use. First in skin, an obvious source of opportunity given its effectiveness against MRSA and more recently, in CAP. Keep in mind that Teflaro competes in a very large market with approximately 23 million annual therapy days each for community-acquired pneumonia and skin infections. Valued at brand prices, that's worth nearly $4 billion.
Sales of Teflaro in the quarter were $7.9 million, up 22% over the third fiscal quarter and significantly up compared with $2.7 million in the year-ago quarter. Since product availability in January 2011 and a full promotional launch in March 2011, Teflaro has generated approximately 310,000 days of therapy, which is comparable to launch-aligned levels of Zyvox.
In quarter 4, days of therapy increased 20% over quarter 3 to reach approximately 120,000 days of therapy in the quarter. Teflaro has a strong user base, with over 3,000 hospitals purchasing, which is almost 50% of the entire hospital universe. The number of new and repeat accounts is also climbing and significantly exceeds CUBICIN's launch-aligned user base count. Quarter-over-quarter, we've seen an increase of 13% in total accounts purchasing Teflaro, and 83% of hospitals have purchased Teflaro multiple times.
Formulary acceptance continues to advance with the majority now of target hospitals, 56%, granting Teflaro unrestricted access. Overall, we had 80 formulary wins since December, and 17 have been in the top 250 hospitals, where days of therapy growth continues to outpace growth in the overall market. In addition, over time, the gap in days of therapy between unrestricted access versus non-formulary access continues to widen.
The majority of Teflaro uses to-date have been for ABSSSI. In terms of CAP, we have made nice strides that have, in part, been aided by CMS's core measures. As you may recall, CMS added Teflaro, the specifications manual for national hospital in-patient quality measures, as a recommended initial antibiotic for CAP for hospital discharges on or after January 1, 2012. Use for CAP increased by 50% over the past 3 months following the addition of Teflaro to the CMS formulary.
Share of the ABSSI market in January was 1.26% versus 0.89% in December, a 0.37-point increase in one month. Our CAP market share jumped to 0.42% in January, versus 0.25% in December and more remarkably, from 0.1% at the beginning of the respiratory season.
Namenda is and remains an important product for Forest. Sales for Namenda were $393.1 million in the quarter with growth of 19.5% year-on-year, which contains consistent, single-digit real growth 8 years post-launch. We expect Namenda to continue to be a growth product for Forest as we continue to support it. Furthermore, the launch of an XR product that has a higher dose, a once-a-day formulation and also has been studied in combination with all acetylcholinesterase inhibitor should propel future growth for this important product.
Savella sales in the current quarter were $25.3 million, growth of 6.5% year-on-year compared to sales of $23.7 million last year. Overall, the fibromyalgia market has grown more modestly than anticipated and has proven itself to be a more specialty-driven market than a broad-based primary care category. Savella's share among specialists is comparable to that of Cymbalta and Lyrica.
Lexapro's patent exclusivity ended this past March. Substitution rates for Lexapro quickly grew to greater than 80% in just 6 weeks. Consequently, wholesalers rapidly drew down their inventories. Sales of Lexapro were $355.8 million versus $594.8 million the same quarter a year ago. Only 2 generic products, Mylan's and Teva's, will be in the market until mid-September 2012, when the 180-day Hatch Waxman exclusivity period ends.
So this concludes our recap of the last quarter and the performance of our promoted products. Of course, we're now busily preparing for the potential launches of 2 additional primary care products, aclidinium, our LAMA, for the treatment of COPD, and linaclotide, our GCC agonist for the treatment of IBS-C and chronic constipation, 2 common GI conditions treated by PCPs and gastroenterologists. We anticipate approval of linaclotide in June and aclidinium in July and are planning to introduce both products to the market in the late third quarter or early fourth calendar quarters. We'll update you with additional details on the launches later this summer.
Overall, fourth quarter fiscal 2012 was a good quarter for our promoted products. Sales of our newest products were up: Daliresp increased 56%; Viibryd, 32%; Teflaro, 22% over the previous quarter. Our more established products, Bystolic and Namenda, continue to enjoy real unit growth several years post-launch. As we prepare for another round of important launches, we're very encouraged by these results.
Nevertheless, we're not prepared to declare victory yet. We have a great deal of work to do in order to build robust, therapeutic franchises that bring value to physicians and the patients they treat.
Now let me turn the call over to Frank Perier for an update on our financial results.
Francis I. Perier
Thank you, Elaine, and good morning, everyone. Let me start out by explaining a reporting change for EPS that we made this quarter. As you have seen, we provided an EPS figure that excluded the amortization from acquisitions. We are not moving to a cash P&L format, but we did want to provide you with an impact on EPS from the amortization of acquisitions, which has the most influence on a reported earnings figure.
Turning to total revenues, for the fiscal fourth quarter, which are inclusive of product sales, pretax earnings from Benicar, interest in other income, totaled approximately $1 billion versus $1.1 billion last fiscal year. Fiscal fourth quarter revenues were comprised of approximately $1 billion of product sales versus $1.1 billion last year. $46.8 million of contract revenue, primarily from the Benicar agreement, Lexapro-authorized generic income of $17 million as well as $6.4 million of interest income and $5.6 million of other income.
Wholesaler inventories came up slightly in the quarter, but the -- are still well within the normal range and impacted the sales for the quarter by approximately $9 million, with Namenda probably having the largest impact. Gross margin in the quarter came in at 78.2%, unchanged as compared with last year's fiscal fourth quarter. SG&A spending during the quarter was $410.5 million, up 16.7% from $351.7 million in last year's fourth quarter. The current level of spending reflects the resources and activities required to support our currently promoted marketed products, particularly the newest products, Teflaro, Daliresp and Viibryd, as Elaine has just described for you.
For the full fiscal year, SG&A spending of $1.6 billion increased by 10.8%. This compares to last fiscal year's spending of $1.4 billion, including a one-time charge of $148.4 million related to the settlement with the U.S. Attorney's Office investigation. Excluding the impact of the one-time charge, SG&A expense increased 23.9%.
Research and development spending for the current quarter was $213.9 million as compared to $140.9 million reported in the fourth quarter of last year. The current quarter includes product development milestone charges of $5 million. The prior-year quarter did not include any product milestone charges. Research and development spending is primarily in support of our expanded late-stage development program spread out over multiple pipeline products -- projects, as Marco will describe shortly.
For the full year, R&D spending was $796.9 million, including a licensing charge of $40 million, related to the agreement with Blue Ash Therapeutics for azimilide and milestone expenses of $59.6 million. This compares to last fiscal year's spending of $715.9 million, including license charges totaling $116.1 million and milestone expenses of $27.2 million. Excluding the impact of the license agreement payments in both years, R&D expense increased 26.2%.
Turning to the tax line. As we have completed the full year income allocation based upon the final financial results, the company's reported effective tax rate for the fiscal year was 20.9% and resulted in a reported effective tax rate in the quarter of 9.8%. The lower effective tax rate in the quarter included certain adjustments to prior-year tax reserves. The annual effective rate, excluding the licensing agreement with Blue Ash Therapeutics for azimilide was 20.2%.
In May 2010, the Board of Directors approved the new share repurchase program for up to 50 million shares of the company's common stock. There were no shares repurchased during the current quarter. We have 17.3 million shares remaining under our 2010 share repurchase authorization. Actual shares outstanding as of March 31 were approximately 265,621,000, a decrease of approximately 20.5 million shares from last year. Our cash and marketable securities balance as of March 31 was approximately $3.2 billion, a decrease of $1.9 million from last quarter. Of the $3.2 billion in total, approximately $550 million or about 17% of our cash and marketable securities is domiciled domestically with the rest maintained by our international subsidiaries.
With regard to use of cash. We continue to judiciously manage our cash resources to facilitate the growth of the business and return of capital to shareholders. Since 2004, we have repurchased $4.7 billion worth of stock, including the 3 ASR programs. Since 2007, we have spent $2.1 billion on acquisitions and another $700 million on initial new product license agreements for a total of $2.8 billion invested in business development.
Let me now turn the call over to Marco, who will give you an update on the progress of our pipeline.
Thank you, Frank. Good morning. Buongiorno to everyone.
Let me start by saying that fiscal year 2012 has been another exciting and successful year for my research and development organization: We supported the launch of 3 new products, Viibryd, Daliresp and Teflaro; we submitted 2 NDAs, Linaclotide and aclidinium; and we finished the fiscal year in crescendos.
In February, the FDA pulmonary and allergy advisory committee overwhelmingly, 12 to 2, supported the approval of aclidinium, and we completed successfully the registration program for levomilnacipran in major depression disease, and for cariprazine, in schizophrenia and acute mania, not to mention the progress in all our other development products.
Now as we enter fiscal year 2013, we are looking forward to 2 upcoming PDUFA date. We expect to hear from the FDA about linaclotide in June and about aclidinium in July. In addition, we plan to file 2 NDAs by end of the year, one for cariprazine and one for levomilnacipran. We have also been moving forward with our regulatory filings for Canada, where we recently received the acceptance letter for our filing for Bystolic.
Let's start to have an update of our respiratory pipeline. As I mentioned, on February 23, the FDA hosted a pulmonary allergy drug advisory committee meeting to review aclidinium, our new long-acting anti-muscarinic agent for the maintenance treatment of COPD. It was a great day with a great discussion. And at the end of the day, the committee voted 2 to 2, 12 to 2, in favor of approving the NDA for aclidinium. Of note, during the advisory meeting, we discussed also the possibility of running a post-approval, 4,000 patients, 3-year, safety phase IV study that would also collect data for our NSS submission plan.
In March, we and our partner, Almirall, announced that the FDA will require a 3-month extension to complete its review of the data supporting the NDA for aclidinium. No additional data has been requested by the agency to complete the review. The FDA action is now expected by July 2012, and we currently don't see any obstacle to the path for a successful registration.
With regard to the fixed-dose combination of aclidinium and formoterol, the Phase III studies with the fixed-dose combination began in September 2011, and we anticipate first topline result from the trials to report out during the first half of calendar 2013 and to complete the registration program in the second half of 2013. Also, in respiratory, we continue to support the launch of Daliresp, and we are conducting additional post-marketing studies to meet FDA post-approval requirement and to further characterize the profile of Daliresp in the approved indication.
Moving now to linaclotide. We and our partner, Ironwood Pharmaceuticals, submitted the linaclotide NDA in August of last year for the treatment of IBS with constipation and chronic constipation. In February, we learned from the FDA that an advisory committee panel meeting will not be required prior to linaclotide's PDUFA action day, which is expected to occur in June 2012. Also for linaclotide, we currently don't see any obstacle to the path for a successful registration.
Moving on to our CNS pipeline. In February, we and our partner, Gedeon Richter, announced the positive topline results of 3 pivotal studies. One Phase III study in patients with acute mania associated with bipolar I disorder, and 2 Phase III studies in schizophrenia. The data showed that cariprazine-treated patients experience significant symptom improvement compared to placebo-treated patients, both in acute mania and in schizophrenia. So we are very pleased that we have successfully met the primary endpoint in each of these studies. And now we have 3 positive schizophrenia trials and 3 positive bipolar mania trials. With these, we plan to file the NDA for both indications during the fourth quarter of calendar year 2012.
Cariprazine is also under development in Phase II studies for bipolar depression and as an adjunct treatment in MDD. We expect to report the top line results from these studies around the end of calendar 2013, and mid-2014, respectively.
In keeping with our extensive string of positive R&D news for the CNS area, on March 7, we and our partner, Pierre Fabre, announced positive preliminary top line result for levomilnacipran, a once-daily selective serotonin and norepinephrine reuptake inhibitor for the treatment of depression. This is the second positive, placebo-controlled Phase III study in this population. So with 2 successfully completed positive Phase III studies for the treatment of MDD in adults, we plan to file a new drug application for levomilnacipran during the third calendar quarter of 2012. Results from an additional placebo-controlled Phase III fixed-dose studies are expected in this current calendar quarter.
Let's turn to our anti-infectives pipeline. With Teflaro approved and launched, our focus is moving now to the combination with avibactam, formerly known as NXL 104. Avibactam is a new broad spectrum, beta-lactamase inhibitor that we are developing in combination with ceftaroline and with ceftazidime. With these 2 additional combination products, our anti-infective product portfolio of Teflaro, ceftaroline avibactam and ceftazidime avibactam addresses practically the entire spectrum of clinically relevant bacterial pathogens by covering both gram-positive pathogens, including MRSA, and gram-negative pathogens, including pseudomonas. Development of ceftaroline avibactam is a joint collaboration between Forest Laboratory and AstraZeneca. Clinical studies are ongoing with this combination in complicated intra-abdominal infection and complicated urinary tract infections.
As Elaine mentioned earlier, in the cardiovascular area, we are very excited to report to you that as part of our life-cycle strategy for Bystolic, we have initiated a Phase III clinical trial to study a fixed-dose combination of Bystolic and Valsartan for the treatment of patients with hypertension. This January, we began a multi-center, randomized, double-blind placebo-controlled study of approximately 3,700 patients to evaluate the safety and efficacy of Bystolic and Valsartan in patients with stage 1 or 2 essential hypertension. We expect to report preliminary topline data from the study around the middle of calendar year 2013.
Also, last April, we announced a licensing agreement for the cardiovascular product, Azimilide, which is a class 3 antiarrhythmic agent. It was originally developed by Procter & Gamble, and we are developing this product in patients with a history of life-threatening ventricular arrhythmias, who carry an implantable cardiovascular defibrillator. In November, the second Phase III 890-patient pivotal study, SHIELD 2, was initiated and is being conducted under a special protocol assessment with FDA. We expect to report the top line result from this study in the second half of calendar 2014 and, if positive, to file an NDA right thereafter.
Our R&D development pipeline also includes 2 earlier-stage programs. In June 2010, we partnered with TransTech Pharma to license TTP399, a functionally liver-selective glucokinase activator for the treatment of Type 2 diabetes. Early Phase I testing suggests that pharmacological enhancement of glucokinase activity may lower blood glucose in diabetic patients. Finally, in December 2010, we licensed GRT 6005 from Grünenthal. GRT 6005 and its beta, GRT 6006, are novel first-in-class analgesic with potent activity on opioid receptor like-1 and mu-opioid receptors for the treatment of moderate to severe chronic pain. GRT 6005 has completed proof-of-concept studies in nociceptive and neuropathic pain. Further Phase II studies are planned prior to initiation of Phase III studies.
This is all with regard to our development pipeline. Frank, I'm now turning the call back to you
Francis I. Perier
Thank you, Marco. Just to recap. We have 5 new drugs that we are actively marketing: Bystolic, Savella, Teflaro, Daliresp and Viibryd. And in the coming months, we expect to be launching aclidinium and linaclotide. This portfolio of products represents 6 therapeutic categories: anti-infectives, cardiovascular, central nervous system, gastrointestinal, respiratory and pain. And with the potential future approvals of our 2 filings later this year, levomilnacipran and cariprazine, we will be promoting this broad portfolio to a wide range of healthcare practitioners, both primary care physicians and multiple specialists in a wide array of venues that now includes hospitals. We believe that our next 9 group of products are collectively sufficient over time to replace the revenues lost due to patent expiries of both Lexapro and Namenda in 2015 and will also provide incremental growth for the company.
Forest's track record of developing new products is one of the strongest in the industry. Over the last 10 years, Forest has received 7 novel drug approvals, including 4 in the last 5 years, outpacing not only specialty pharmaceutical peers, but also some of the world's largest global pharmaceutical companies. Our business development team continues to see interesting commercially attractive products in the market, and we have clearly demonstrated the ability to compete effectively to secure such important new products, either through product licenses or direct acquisition.
Moving to our fiscal guidance -- moving to our financial guidance for fiscal 2013. This will be another significant investment year on the SG&A line as well as the R&D line as we launch 2 additional primary care products, aclidinium and linaclotide, and continue with our launches of Teflaro, Daliresp and Viibryd at the same time, supporting our portfolio of late-stage pipeline products, as well as our currently marketed products, as Marco just described. We are projecting an SG&A expense of approximately $1.6 billion, which includes the continued significant support for Vystolic, Savella, Teflaro, Daliresp and Viibryd.
Projected SG&A expense also includes the launch cost for aclidinium and linaclotide, as well as an expanded sales effort of approximately 300 sales representatives.
Turning to R&D. We are projecting fiscal year 2013 spend of $850 million, an increase of approximately 7%, which includes approximately, $65 million in potential milestones for existing products, an increase of approximately 12%, excluding upfront license payments from last year.
For product revenues, we are projecting net sales of $3.2 billion and total revenues of $3.4 billion, which also includes income from the authorized generic of Lexapro, the Benicar agreement, interest and other income.
Turning to the product sales detail. For Namenda, sales are projected to grow approximately 17% in the next fiscal year. Bystolic sales are projected to grow approximately 29%. Savella sales are projected to grow approximately 5%. Teflaro sales, we expect to approximately $65 million; Daliresp sales of approximately $85 million; Viibryd sales of approximately $175 million, aclidinium sales of approximately $35 million; linaclotide sales of approximately $60 million; and Lexapro sales of approximately $250 million; and income from the authorized generic of Lexapro of approximately $115 million. Benicar earnings declined by approximately 10% from $129.3 million reported in fiscal 2012.
Looking at the tax line, our projected tax rate will be approximately 26.4% for the coming fiscal year and reflects the shift in the mix of earnings among jurisdictions and most importantly, the expiration of the U.S. research credit -- U.S. research tax credit, which has the most significant impact on our tax rate.
We're projecting average diluted shares outstanding to stand at approximately 268 million, which assumes no additional share repurchase activity during the fiscal year.
Rolling all this up leads to an earnings-per-share projection of between $0.90 and $1.05 per share, including acquisition-related amortization. Excluding acquisition-related amortization, diluted earnings per share will be in the range of $1.20 to $1.35.
As you would expect, the quarterly phasing of our earnings is driven by Lexapro and the authorized generic royalty in the first quarter and the timing of a new product approvals and sales impact in the fourth quarter. Accordingly, we expect approximately 40% of our earnings in the fiscal first and fourth quarters, respectively, with the balance weighted heavily towards the third quarter.
Let me also share with you how linaclotide will be accounted for in the Forest P&L. Forest Labs is primarily responsible for the sales and distribution of linaclotide. Accordingly, 100% of the net sales and cost of goods will be reflected in the Forest P&L. Each partner will incur their own commercialization and development expenses on their books, with Forest bearing the larger contribution to the commercialization effort. Quarterly, the partners' linaclotide expenses will be combined and when measured against product margin, the resulting pretax profit or loss will be shared equally between the partners. [indiscernible] require a quarterly true-up or balancing adjustments, which will be included in the SG&A line in the Forest P&L. Each quarter, we will report the adjustment.
We view the increased SG&A and R&D spend levels as necessary strategic investments as we continue to manage the business with a long-term goal of ultimately developing and marketing a portfolio of new products that will collectively more than replace the earnings from Lexapro following the recent loss of its marketing exclusivity and Namenda after its marketing exclusivity expires in 2015. Our first priority remains to provide for the future growth of the company's sales and earnings beyond fiscal 2013.
In addition to advancing our current pipeline and supporting our existing and future in-line products, we are also actively pursuing new product licenses and assessing potential acquisitions to add to our development pipeline and in-line products. [indiscernible] significant progress in creating a robust pipeline that has already delivered significant value and has the potential to deliver even greater value, both in the near and long term, with patent protection extending through 2020 and beyond. These additions have the potential to feed our existing therapeutic areas as well as allow us to enter into new therapeutic areas, consistent with our business model. This combined effort will continue to drive our decision-making and allocation of resources as we look forward into the next decade.
As we continue to achieve success with our pipeline and launch these new products, you will hear more about our R&D efforts and the execution of our commercialization strategies. And on June 20, we will host an investor meeting in New York to further discuss our R&D and product commercialization plans with you. We remain confident in our ability to launch additional new products in parallel to advancing our established pipeline.
Thank you, Frank. I will now read fourth quarter sales figures for some of our smaller products. Campral, $4.8 million; Celexa, $3.5 million; Cervidil, $12.8 million; Esgic, $0.4 million; Europe, $30.9 million; Generic, $11.4 million; Lorcet, $0.9 million; Monurol, $0.7 million; Thyroid, $13.3 million; Tiazac, $0.8 million; and just for information, the Benicar third-party sales for the quarter were $207.5 million.
And operator we’ll start the Q&A session in just a second, please. Just give us a minute.
Operator, thank you. Let's proceed with the Q&A.
[Operator Instructions] And your first question comes from Greg Gilbert.
Gregory B. Gilbert - BofA Merrill Lynch, Research Division
First, for Frank. I was hoping you could clearly outline what’s changed in the company's costs and/or revenue outlook to make it clear to folks, what changed since the $1.20 floor EPS guidance was offered several months ago? And then my second question is for Marco and perhaps, Elaine, on the Bystolic combo, will one study be sufficient for filing? And what do you think it will need to show clinically to make this product commercially attractive?
Frank J. Murdolo
Greg, I'll take the guidance number first, and then let Marco address the second part of your question. Again, let's -- if we roll the tape back to a year ago when we gave the original $1.24 guidance, there were a lot of things that happened over the ensuing 12 months to get to where we are today. We had to launch and drive 3 new products in the market, we had to file 2 NDAs and we had to advance 2 more Phase III programs toward successful conclusion and the preparations for an NDA. As we look back over the entire fiscal year, we find ourselves with the high-class problem that everything worked. We successfully launched all 3 drugs and they're all doing well, with the base products continuing to do -- perform very well. We filed the NDAs on time, and we believe that we expect to get decisions from the FDA shortly and be -- hopefully, be in the mode of launching 2 more drugs in the current fiscal year. And Marco and his team, as Marco described, is in the process of preparing these 2 NDAs for levomilnacipran and cariprazine, which we expect to file by the end of this year. So in an industry where you're lucky if maybe 40% or 50% of your plans work, we basically had everything pretty well work this year, which really drives toward the fact that we really had to focus on investing behind the business, both the R&D line as well as the SG&A line to support the products that we've just launched, the 2 products that we expect to launch and the 2 products that we expect to file NDAs for. And that really is the story behind the new guidance range.
Let me take the question about Bystolic and our registration plan, the study that I described briefly. This is, clearly, a study in the program. It has been agreed with FDA in details. The results of the second study that I didn't mention, which is the long-term safety trial that you need to have, and that was actually started even sooner than the efficacy trial. So we expect this program to be adequate, it has been agreed with the agency, it follows other precedents with the types of programs for combination. I will let Elaine talk about the combination, let me just say from a medical point of view, combining a best-in-class ARB -- but what we consider best-in-class beta blockers can really provide an exceptionally effective and well-tolerated combination. Well, I would like to let Elaine really to further elaborate on the point.
Thanks, Marco, and thanks, Greg, for the question. Picking up where Marco started, we're probably the only beta blocker ARB combination on the market. You know that blood pressure control is still the thing the doctors strive for and don't really get to. The fact that through this combination, we believe we can get to double-digit blood pressure reductions, I think will help us penetrate more first-line use in a broader array of patients. And at the end of the day, all of that's packed into one little pill. So I think that there's a lot here that we can work with in a market that has still a lot of needs.
Frank J. Murdolo
Next question, operator?
Your next question comes from Chris Schott.
Christopher Schott - JP Morgan Chase & Co, Research Division
The first question was just on the new products. You obviously laid out some pretty encouraging metrics for some of these products, but 2 of your 3 launches in 2012 did come below forecast for the year. Can you just elaborate a little bit more in what's happening here? Is this just a more difficult market, whatever the market is, just to launch a product in today's environment? And as you address that, can you just talk a little bit about if we are seeing this slower ramp? Do you -- does there come a point when you evaluate the launch model here and just how much expense ramp you're going to see to get these products off the ground?
Francis I. Perier
Chris, thanks and a very good question. As we look back to the guidance that we gave for last year, Daliresp, both Daliresp and Teflaro, came in slightly behind plan, but that's -- we've seen that in the results for several quarters now. I think as Elaine described, and I'll turn it over to Elaine for a couple of comments in just a minute, but we see great prospects for both products. I think with Daliresp, we probably underestimated the level of effort that it takes to really change a physician's treatment algorithm. This is the first product launched into the COPD space in many, many years that is not a bronchodilator. And so it's an oral, solid-dose tablet that is geared towards the treatment of the exacerbations associated with COPD and towards the more severe patients. So you're really having to go in and help, as Elaine described, identify who are the patients, when do I put them on and how do I do that and -- but we're starting to see -- make great progress and particularly with the pulmonologist community, which is an important thought leader in the treatment of COPD. And with Teflaro, again, we entered the institutional market, full force for the first time. And it's a difficult market. The anti-infective market is a difficult and challenging segment of the market, but we think we've made great traction and we think we've got great expectations for the performance of both Teflaro as well as the follow-on agents that we have in development. Elaine, I don't -- is there anything else you'd like to add?
Frank, you did a good job. I would think -- I'd like to remind everyone that when we first took on Daliresp, we thought we have a broader indication. And so we had to go deep into the severe, which ties up with what Frank was saying, the educational needs in the severe place are really one of helping doctors, particularly primary care, recognize what they have in their meds [ph]. That's why when we call out the hospital effort, I think we're very encouraged because puds treating people with exacerbations and then bringing those people back out into the community will help us develop the PCP side. Teflaro, I think, is one thing. CAP, I think there CAP is taking longer for us, but the encouragement that we've seen in the most recent period, beginning with just the first respiratory season to pick up is good and we await the next respiratory season to realize the full value.
Frank J. Murdolo
Operator, next question, please?
Your next question comes from David Risinger.
David Risinger - Morgan Stanley, Research Division
This is Dave Risinger from Morgan Stanley. Can you hear me?
Francis I. Perier
You're breaking up a little bit, Dave.
David Risinger - Morgan Stanley, Research Division
Sure, sorry about that. So thanks for all the [Indiscernible] on the fiscal '13 out. First things [Indiscernible] were on fiscal first [Indiscernible].
Francis I. Perier
Dave, we were getting about every third word.
David Risinger - Morgan Stanley, Research Division
Sorry. Can you hear me now?
Francis I. Perier
It's the same, Dave. You just keep chopping up there.
David Risinger - Morgan Stanley, Research Division
Sorry, okay. So I was just hoping that you could provide some color on the fiscal first quarter EPS, just because, obviously, there's a step down, but it's hard to know how much the step down will be and whether earnings bottom in the first quarter or the second quarter of the fiscal year. And then second, if you could just talk about Namenda, it looks like you're anticipating an acceleration in revenue growth for Namenda in fiscal '13 and I'm just wondering if that's price-driven or why you're expecting an acceleration to 17% revenue growth in fiscal '13?
Francis I. Perier
Sure, Dave, and thanks for the questions. With regard to the phasing of the quarters, I tried to outline and maybe, I wasn't terribly clear in the prepared remarks, but it's -- the 2 strongest quarters that we're going to have in the next fiscal year will be the first quarter and the fourth quarter. And you'll see probably about 40 -- we expect about 40% of our earnings per share in each of those 2 quarters. And the first quarter being driven by the fact that we still have the tail benefit of Lexapro and the authorized generic sales. And then in the fourth quarter, you start to reap the benefits of the products that you're launching, as well as continued growth from the other launched products. It's the middle 2 quarters that are a little bit more difficult to predict, but we see more heavily skewed earnings per share in the third quarter than we do in the second quarter. So as to the phasing of the quarters, that's the most guidance I can give you as to how we see it. And with regard to Namenda. Namenda, we continue -- we've had a -- Namenda just finished a great year, and we continue to see strong growth opportunities for Namenda, both volume in the market, with the market itself growing slightly. Namenda continued to expand its share as well as our ability to take price in this category.
Frank J. Murdolo
Operator, can we move on to the next question, please.
Your next question comes from Greg Waterman.
Gregory Waterman - Goldman Sachs Group Inc., Research Division
First, on tax. I'd hoped you could quantify the R&D tax credit impact versus the impact related to earnings mix. And then I also wanted to ask if you could talk just a little bit about your flexibility to take price increases across the product portfolio in general. If I have my data correct, it looks like price increases have been more frequent over the last year across a number of products, and I'm just trying to understand whether we should expect this to continue.
Francis I. Perier
Sure, Greg. With regard to the tax rate, the R&D credit -- well, I think the way to think about it is the R&D tax credit in the current year had an almost -- had over a full point impact on the rate, but our earnings next year will be 1/3 of what they were last year. So you can get a sense that the R&D tax credit, the expiration of that benefit in the tax provision has a pretty significant impact on the tax rate. We used kind of just the current-year credit that we accrued, it's almost a 450-basis point move on the rate, which would bring us down to more like a 21% to 21.5% kind of rate. So the R&D -- if the R&D tax credit gets reinstated, we should see a positive impact on our tax rate that's significant. And with regard to pricing, we do continue to see the ability to take price increases. We're probably a little bit more aggressive with Namenda than we have been in the past fiscal year, but we do see the opportunity to take price and to take price across the board. We generally have kind of built into the plan strong single-digit price increases across the product line.
Frank J. Murdolo
If we could move to the next question, please, operator?
Your next question comes from Frank Pinkerton.
Frank H. Pinkerton - SunTrust Robinson Humphrey, Inc., Research Division
Can you just give me some detail, number one, on gross margin; and then number two, on how the amortization is being treated as you walk down the P&L? Is this coming out of the gross margin line or out of SG&A expenses? How is that being accounted for from moving from the one guidance range to the other on the P&L?
Francis I. Perier
Yes, Frank. And with regard to gross margin, we do see an improving gross margin in the budget year versus the year just completed. And part of that gross margin improvement is coming from the mix of products that we'll be selling next year versus the loss of Lexapro and its gross margin. And also, we did get a significant benefit from the buyout of the Bystolic royalty from Janssen. With regard to the add-back of the amortization, it's almost -- it's split almost evenly between cost of goods on a per-share basis and SG&A. So it's just about $0.15 per share for the full year in each of those 2 line items.
Frank J. Murdolo
Okay, thank you. Operator, can we move on to the next question, please.
Your next question comes from David Buck.
David G. Buck - The Buckingham Research Group Incorporated
Just a couple. Following up on Namenda and the acceleration of 17% growth. Are you including some type of stocking in there from the modified release formulation? And if so, can you give some magnitude of how much it might be? Because I'm looking at Namenda's scripts are declining slightly and the category is declining slightly. I'm just wondering if you’re including some stocking or whether you’re -- we should be expecting sort of 20%-plus pricing for this year. And I've got a follow-up.
Francis I. Perier
Thanks for the question, Dave. With regard to stocking assumption, there is no stocking assumption, wholesaler stocking assumption, built into the plan. And with regard to Namenda's share decline, again, IMS continues to be -- continues to -- the IMS numbers continue to be challenged. And that in the long-term care sector, we believe the scripts are being under reported and it's not insignificant. And that as we look at other data sources, we actually see that the market's growing and that our share is also growing as well. So there's continues to be a disconnect without [ph] the IMS data, going back to the Omnicare transition, and they are still in the process of trying to work that out. So if you're just working straight off of IMS, you get a little bit different picture than we see that links into what our factory sales have been, which, we believe, is the ultimate measure of what's going on, factory sales and wholesaler inventories, which haven't significantly moved in one direction or the other.
Frank J. Murdolo
Okay, thank you. Can we move to the next question, please, operator?
Your next question comes from Elliot Wilbur.
Elliot Wilbur - Needham & Company, LLC, Research Division
I think someone asked a question earlier about R&D and sort of what has changed maybe to cause expected increases versus what you said earlier. Maybe I'll ask the question a little bit different way. I'm still trying to understand sort of why we're not seeing that number peak or even decline on a year-over-year basis given now that cariprazine and levo are kind of moving into the tail-end of their development programs. I understand there's a lot of Phase IV commitments and the like around some of the recently launched products, but trying to get a sense sort of what the -- where the bulk of the expenses are going to be concentrated? And then a follow-up question, for you, Frank, as well. Outside the comments around the R&D tax credit, given that Lexapro is now no longer going to be -- really contributing to the P&L, any reason to think that there's going to be any sort of longer-term structural change to your tax rate as sort of -- or is your expectation still that tax rate, over the long-term, is still going to be approximately in the low-20% range?
Let me start with the R&D part.
Francis I. Perier
And Elliot, all I can say is that Marco is cringing as you're asking the question.
Let me say there is this myth that once the product is approved, R&D is out of it. Let me say, that is far from the truth. There is a significant amount of activity after the product is approved. And there are, I would say, 3 major buckets of activities: One, the first one, is of course to satisfy the additional requirements, the post-approval commitment that FDA may require. The second one is clearly supporting the launch with this. It's very, very critical and I think part of the success of Bystolic has been our ability to continue to bring new data to the physician to show how to use the drug, so the -- what is called the post-marketing activities. And the third bucket is really lifecycle, that is additional indications that we are looking for that sort of bringing in new claims. So what we have seen in our budget, and I'm sure of it, also Frank and Elaine can jump in, there's been a shift in the last few years. A few years ago, we were really spending money to get products approved. And we have been very, very successful, as Frank mentioned before, in getting all our -- what we call the late [ph] actually to the point, in which we see them becoming now real products. And so the bulk of the money was there, it is in the classic development. Now it's more a 50/50 split, in which we have significant amount of money to continue to bring our product, to develop the [indiscernible] development, but also the other 50 is really to support the products on the market with new lifecycle. A classic example is Viibryd, a product of which we have a lot of confidence and which we have significant new post-approval commitment, developing a low-strength dose, we're developing pediatric indications, but also looking for new indications. So this has been really the shift, and this is why you see still a significant growth and significant expenses.
Elliot, I think Marco has adequately described it. Without the ability to continually make relevant a molecule in the marketplace through good R&D, there is no growth. And so we believe that, that's a wise important, investment, and have proven it time again from Lexapro and Namenda, all the way to Bystolic and the rest of the portfolio. So I think that, that will be part and parcel of what you hear going forward for many drugs.
Francis I. Perier
And just to close the loop, Elliot, with regard to structural changes in the tax rate, we don't see any significant structural changes in our tax rate going forward. There will be some modest upward pressure on the rate, just given the mix of where we're earning -- generating our earnings. But again, as I said, the biggest impact on the rate in the current year has been the R&D tax credit.
Frank J. Murdolo
Okay. Thank you, Frank. Let's move on to the next question, please.
Your next question calms from Tim Chiang.
Timothy Chiang - CRT Capital Group LLC, Research Division
Frank, I wanted to ask you, you talked a little bit about gross margins increasing potentially in fiscal '13. If I just do some rough calculations, it looks like to get to the bottom end of your new EPS guidance, that would put your gross margins slightly around 80%. Is that an acceptable number to you?
Francis I. Perier
Yes. I think that's within the planning range.
Timothy Chiang - CRT Capital Group LLC, Research Division
And just one follow-up for Marco. What sort of discussions have you had with the FDA on aclidinium? Certainly, I think the panel had suggested that -- well, you had actually suggested to the panel that you'd do a 4,000 patient Phase IV marketing, post-marketing program. Is that basically being confirmed by the FDA?
Well, this is part of -- we don't speculate usually on these type of discussion. We base this -- but yes, we are now in discussion with the agency really to sort of follow up to the outcome of the Advisory Committee, and this is certainly -- are the topics that we are talking, including our post-approval commitment. Does this address your question, Tim?
Francis I. Perier
Okay, I guess -- I believe so.
Frank J. Murdolo
Thank you, Tim, and thank you, operator. We'll take this as our last question, the one's that's coming up now, please.
Okay. Your next question from the line of Mario Corso.
Mario V. Corso - Caris & Company, Inc., Research Division
Just 2 things I wanted to ask. So on the SG&A front, can you talk a little bit about the pushes and pulls? I mean if we look at the annual guidance at $1.6 billion, that's essentially in line with where the number was for the last couple of quarters. So as you add 300 sales reps and you're launching 2 products, is it a matter of investment behind Teflaro, Daliresp, Viibryd starting to decrease at the same time, so you're kind of ending up at about the same net quarterly level? And then on the cash BD side of things. So with the assumption of no repurchases this year, is that meant to signal that M&A business development will be increasingly aggressive? And at this point, would you, guys, rule out doing something kind of larger on a multi-billion-dollar-type of transaction basis?
Francis I. Perier
Sure, Mario. And again, thanks for the questions. With the SG&A mix, I mean, obviously, there's always some push and pull. I mean, we don't have unlimited resources. And in fact, I think if we were launching most of these products in a traditional method, we probably have to almost double the size of our sales force. So what we are doing is we're looking very carefully at the investment and the calls behind every product. And again, we do have a lot of synergy in the calls that our reps are making. Our reps, all of our reps, are carrying at least 4 -- 3, some carrying 4 products into an individual primary-care doctor's office. So you do get a lot of synergy benefit out of that. But what that does say is that for the details on Bystolic, which is on the market now for quite -- for several years, you don't need to have that same kind of first-level, first-physician detail that you had in the launch years that you do now to maintain and continue to drive it. So there's obviously shifting of focus and concentration in level of investment among the product portfolio. I mean, that's basically how we're able to do what we're doing with the SG&A spend that we've guided to. And with regard to cash and business development. Again, we've always said that our primary use of capital has always been driven towards business development. And when we see that we have excess capital, we will, from time to time, return capital to shareholder through share repurchase programs. Remind you that last year, we returned about $850 million worth of cash to shareholders through 2 ASR programs. But we're always -- business development has always been a primary focus. We've been acquisitive over the last several years with a number of deals, Clinical Data being the largest, but that's not to say that's the largest transaction we would ever do either. Again, we're being focused on driving the business and driving the future growth prospects of both our top and bottom lines. And that's really been -- always been the focus of the company. So I want to thank everyone for participating today and look forward to catching up with you in the future.
Frank J. Murdolo
Thank you, Frank. And thank you, everyone, for joining us. Operator, that will conclude our call, please. Thank you.
Thank you. This concludes today's conference call. You may now disconnect.
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