Schering-Plough Q3 2007 Earnings Call Transcript

Schering-Plough Corporation (SGP)

Q3 2007 Earnings Call

October 22, 2007 8:00 am ET

Executives

Alex Kelly - VP, IR

Fred Hassan - Chairman and CEO

Bob Bertolini - CFO

Carrie Cox - Head, Global Pharmaceuticals Business

Analysts

Steve Scala - Cowen and Company

Chris Schott - Banc of America

John Boris - Bear Stearns

Tony Butler - Lehman Brothers

Tim Anderson - Sanford Bernstein

Jami Rubin - Morgan Stanley

Roopesh Patel - UBS

Catherine Arnold - Credit Suisse

Presentation

Operator

Good morning. My name is Luann and I will be your conference operator today. At this time, I would like to welcome everyone to the Schering-Plough Third Quarter Earnings Call. (Operator Instructions). I will now turn the call over to Mr. Alex Kelly. Sir, you may begin your conference.

Alex Kelly

Thank you, Luann and good morning everyone. And welcome to the Schering-Plough third quarter 2007 conference call. We know that you have other conference calls lined up later today, so we will wrap up our call about 8:50 this morning.

Before we begin, I would like to cover a few items. First, some of the statements we make during the call this morning may be considered forward-looking statements. Our SEC filings, including Item 8.01 of the 8-K that we filed this morning identifies certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements we make this morning. The company's SEC filings, our earnings release and the tables, are available on www.Schering-Plough.com.

Finally, I would note that during the call we may refer to non-GAAP measures, including adjusted net sales or just the top-line sales. This is a non-GAAP measure that we define as our GAAP net sales plus an assumed 50% sales contribution from our cholesterol joint venture.

Another two other non-GAAP measures were referred to EPS excluding acquisition related items and an upfront R&D payment. We will also refer to R&D expenses excluding the upfront R&D payment. You can refer to our non-US GAAP reconciliation tables in the "financial highlights" section of our website for a reconciliation of these adjusted figures to our reported GAAP results.

This morning, I'm joined by Fred Hassan, our Chairman and Chief Executive Officer; Bob Bertolini, our Chief Financial Officer; and Carrie Cox, the Head of our Global Pharmaceuticals Business.

Now I'd like to introduce Fred Hassan.

Fred Hassan

Thank you Alex, and welcome to our call. You'll have seen our press release. We are pleased that we had another strong quarter, with continued top and bottom line growth and continued expansion of our R&D engine. This marks the 12th consecutive quarter of double-digit adjusted top-line growth in a very increasingly challenged environment. We are continuing on track on the six to eight year transformational journey of our action agenda, which is the action agenda roadmap we laid out more than four years ago. Pivotal milestones in that transformation were reaching our turnaround phase in the Fall '05 and then the launch of the Build the Base phase in the Fall '06.

During Build the Base, another pivotal action has been our major continuing investments to strength our R&D pipeline and we are beginning to see those investments pay off. Now as we continue the Build the Base phase we have two further transformational opportunities ahead. One of those transformational opportunities is to realize the promise of our advancing later-stage pipeline. And the second transformational opportunity ahead is to realize the promise of our combination with Organon BioSciences. Most especially, to realize the promise of the five, Phase III compounds that this transaction will add to our late stage pipeline. Through this combination, we will have 12 significant projects in Phase III.

I will talk more about these opportunities in a moment. First, let me comment on the third quarter. For the third quarter, we grew 9% GAAP sales growth, adjusted for our assumed 50% share of VYTORIN and ZETIA sales. That is a 12% adjusted sales growth versus the same quarter last year. And for the first three quarters of this year, we delivered GAAP sales growth of 13% and adjusted sales growth of 16%. And we have leveraged our P&L with adjusted EPS growing much faster than adjusted sales growth.

We are continuing this quarter-after-quarter performance by continuing to execute on our core strategy. We are driving top-line growth, and we are reinforcing that growth through financial discipline to drive even faster bottom line growth. We are investing strongly in R&D and other critical areas to drive further growth for the long-term. With the right strategies, with strong people and with the relentless focus on executional excellence, we have transformed this company into a global high-performer. We continue to see good growth contributions from key products, such as REMICADE, NASONEX, TEMODAR and AVELOX. Seven out of our top-10 products continue to grow double digits, including ZETIA and VYTORIN, and our cholesterol franchise continued to be a driver. We continued to grow market share in a very big market.

VYTORIN and ZETIA are the only major brands that have continued to grow their market share during the disruption that began in December '06 that was caused by multi-source generics. The lower is better story continues. Evolving medical science continues to find that reaching lower and lower goals for LDL is better for patients and VYTORIN and ZETIA provides very good options.

During the quarter, we also delivered growth in our Animal Health and Consumer Healthcare segments. Recently, over-the-counter CLARITIN reached a cumulative $2 billion in net sales, since its launch in December '02. CLARITIN is one of the most successful Rx-to-OTC switches in history and now we are pleased to see that switch of the MiraLAX laxative is proving to be one of the most successful switches of '07.

In fact, after only seven months in the market, MiraLAX is already the number two brand in the US with 7% market share compared to the well-known market leading brand in this category with 13%.

In Animal Health, we’ve surpassed $1 billion in cumulative net sales of our multi-species anti-infective NUFLOR and related brands.

This is a major milestone for an Animal Health product. NUFLOR comes from our shared science platform. It's an example of a strategy of creating added-value from a human health molecule, by moving it into Animal Health.

Our steady performance in an increasingly challenging environment reflects our success in attracting and retaining strong people across our customer segments.

Now, let me turn to the transformational opportunities that lie ahead. First, realizing the promise of our current pipeline, what is especially gratifying is that our focus on driving R&D excellence is starting to produce. Four years ago, we said, that we would transform Schering-Plough into a truly science-centered company. Our goal was to build a powerful R&D engine that would drive a steady flow of innovative new products. To do this, we changed this company's previous investment strategy. We used to be on the low-side of investment in R&D, and now we are on the high-side. We've been transforming our processees to drive, innovation, speed, and flexibility, we've been investing in superior people, and we've been using passionate champions to drive up programs and projects.

We've been investing heavily in clinical trials and other dimensions. Today, four years later, we are beginning to see the fruits of this transformation. The most exciting work in our R&D, right now, is the Thrombin Receptor Antagonist, TRA for deadly blood clots. TRA has now started Phase III, the clinical trials for TRA are very large and the investments are also very large. The TRA could be transformational for patients responding to an enormous unmet medical need. And then there is Vicriviroc for HIV AIDS. Vicriviroc has just advanced into Phase III, then Boceprevir for Hep C, another promising compound. Today, Tom Koestler, our Head of R&D, had joined us for this call.

At this point, I'd like to ask him to make some comments, Tom?

Tom Koestler

Thanks Fred. Let me spend couple of minutes talking about the status of our Thrombin Receptor Antagonist program. TRA is a special product that we discovered in the lab at Schering-Plough. It is unique, distinct and complementary to current antiplatelet therapy. As you know, we presented positive Phase II data on TRA in March, which created a lot of interest in TRA. We are glad to report that we have now seen new data which gives us more confidence about its profile.

We just completed two small Phase II studies in Japan that were designed to confirm the safety of TRA in Japanese patients. One involved 120 patients with acute coronary syndrome, and the second study involved 90 patients with prior ischemic stroke. The primary end-point in each trial was safety and tolerability, and in particular adverse events, such as TIMI, major and minor bleeding.

Each trial confirm the results of our previous Phase II trial, that TRA does not increase TIMI major and minor bleeding when added to standard of care therapy, and the TRA is well-tolerated.

In Japan, the standard of care and acute coronary syndrome consist of aspirin, ticlodipine and heparin. When added to the standard regimen TRA did not increase the risk of bleeding. What was surprising about the ACS trial was the efficacy. In the trial, patients presenting with ACS and undergoing PCI were the Primary Cohort of Interest. Those treated with TRA and standard therapy, have significantly fewer myocardial infarctions or heart attacks, than patients who only receive standard therapy.

With only 120 patients in the trial, we did not expect to achieve statistical significance on the efficacy parameter. Now we don’t want to go into all the data, because we are planning to present the data at a future medical conference, but it was a robust finding.

Remember, in our earlier Phase II TRA-PCI trial, patients receiving TRA and standard therapy had 41% reduction in myocardial infarctions compared to standard therapy alone. Then again, most of those myocardial infarctions were peri-procedural events. This was a very impressive finding, but the data were not statistically significant. However, the Phase II ACS study in Japan did achieve statistical significance, but it is important to keep in mind the standard of care in Japan is different than in the US and Europe.

So where do we go from here with our TRA program? We now have more than 1,200 patients from three Phase II studies that point to a favorable safety and efficacy profile for TRA. We now need to confirm those findings in large scale clinical trials. We are pleased to report that we have just started dosing patients in our global phase III development program. The program consists of two trials, one in acute coronary syndrome and one in secondary prevention. Keep in mind that this is not a head-to-head trial against Plavix. This is on top of the standard of care, which usually includes aspirin, plus Plavix. The trials will involve nearly 30,000 patients that will be designed to achieve a global registration dossier, included for TRA in Japan.

It marks that for the first time in Schering-Plough's history, we have undertaken a global program that will accomplish a global registration. It will take some time to conduct the phase III program. But if the trails are successful, TRA could be a transformational product for patients with atherothrombosis.

Atherothrombosis is an area of high unmet medical need and in fact is the largest cause of mortality among all diseases. As a result, atherothrombosis is a huge market in the US and overseas. But to meet the unmet need, there is a need to be improved upon by adding products like TRA which have a new mode of action.

Our Phase III trials are designed to show the potential for incremental efficacy without an increased safety burden.

Let me close with the comment on the strength of science at Schering-Plough. We are proud to note that "Science Magazine" recently ranked Schering-Plough as the "Number Four Employer" in their 2007 top employer survey. Just one year ago, we ranked number 17 out of those top 20 companies. Our significant climb in these rankings demonstrates how far we have come in realizing our action agenda and that we are becoming a company that places a high value on scientific innovation. In particular, Schering-Plough was recognized for doing important quality research, being socially responsible, and being an innovative leader in the industry.

As Fred mentioned, we are also building a strong wave of Phase III products. The next wave of products to emerge from our pipeline will be added to our exiting portfolio of patent protective products. This put Schering-Plough in a good position for the future.

With that, let me hand it back to you Fred.

Fred Hassan

Thank you, Tom. We are seeing growing opportunities in our late-stage pipeline and we are investing to realize their promise. Finally, I will turn to the second transformational opportunity ahead. Our planned combination with Organon BioSciences, we are pleased that even in difficult markets, we have raised nearly $9 billion in financing. We appreciate the confidence of our investors. We are also pleased that we have gained the approval of the EU regulators for the deal. We have also received positive advice from the Dutch Works Council, which is another necessary milestone in this deal. And we continue to work to gain clearances notably with the FTC, and we continue to anticipate that we will be able to close sometime before the end of this year.

As we assessed the comments of this combination, we appreciate even more the fit and the strength we create for the long-term in Human Health and also in Animal Health. We see the fit and breadth in Animal Health as a very important strategic asset of the combination.

A moment ago I spoke to you about the transformation that we have engineered in Schering-Plough's R&D and the dramatic growth of our existing late-stage pipeline. When we add in the Organon late-stage pipeline, our Phase III expansion will be even more dramatic. We will be investing in this rich array of Phase III compounds when most of our existing growth drivers have anticipated exclusivity into 24 team and beyond.

Instead of losing some products, we are hoping that our existing products will keep growing, and we are also hoping that the new products will be add-ons to our existing growth drivers into 24 team and beyond.

As we plan for the integration and then begin to execute from day one, we'll be focused on driving top-line growth, driving productivity gains, advancing key R&D projects and forging a unified high-performance culture. The promise of a plan combination is profound and we are committed to doing our best to realize it.

And now, let me turn the microphone over to Bob Bertolini.

Bob Bertolini

Thanks Fred, and good morning, everyone. As Fred mentioned, we had another strong quarter with continued top and bottom line growth. This morning, I'd like to cover three topics with you. First, our sales performance and factors that affected our earnings; second, our operations; and finally, I'll discuss some information pertaining to Organon BioSciences and our outlook.

First, our sales performance for the third quarter. Our GAAP sales increased 9% to $2.8 billion, reflecting continued sales growth across each of our customer segments. Currency had a 3% favorable impact on the quarter, as the dollar continued to weaken. Adjusted sales increased 12% to $3.5 billion as VYTORIN and ZETIA continue to grow on a year-over-year basis.

So, you can see we've once again generated double-digit adjusted sales growth this quarter. Keep in mind that sales in the third quarter 2006 reflects a one-time benefit from TRICARE. Excluding this one-time benefit, our sales would have grown at a rate 2% higher than we reported this quarter. We continue to see good growth across our portfolio, with contributions from REMICADE, NASONEX, TEMODAR, and AVELOX. We are also pleased to see that our Animal Health and Consumer Health customer segments continue to grow again this quarter.

On the Animal Health side, sales grew 8% with good performance outside the US, especially in poultry, companion animal, swine and aquaculture. We are looking forward to gaining additional scale in the animal health segment, with a planned acquisition of Intervet. Meanwhile Consumer Health sales increased 5% due to the successful launch of MiraLAX and growth of CLARITIN OTC.

Moving on to earnings, we had a few items that affected our earnings this quarter. On a GAAP basis we earned $0.45 per share in the third quarter. Excluding acquisition-related items and enough for an R&D payment, we earned $0.28 per share. Let me explain the two factors that led to the earnings adjustments.

First, we had a net gain of $294 million or $0.18 per share, primarily related to our market-to-market gain on our currency option for the OBS acquisition. And second, we had an upward R&D expense of $20 million or $0.01 per share for Acadesine.

Let me spend the next few minutes on our operations. On a year-over-year basis, the gross margin improved, mostly due to cost savings from our streamlining actions in 2006. On our last earnings call, we noted that we expected our gross margin would be slightly lower in the second half than it was in the first half, primarily due to the seasonality of our higher margin respiratory products. In particular, we had sequentially lower sales of seasonal products like CLARINEX, NASONEX and CLARITIN as the allergy season ended. We also had higher sales of REMICADE, which had an unfavorable product mix effect on the gross margin. I should also note that that we had $29 million of ZETIA sales in Japan during our second quarter, due to initial stocking this helped the first half gross margin.

As a result of these factors, our gross margin was sequentially lower this quarter at 67.1%. Keep in mind that if you include half the sales and half the costs of the cholesterol joint venture, our gross margin for the third quarter will be in the range of our peer group. Moving on to SG&A, we continue to make additional promotional investments to drive top line growth. This is due to increased competitive pressures on some of our key brands and continued spending to gain share for drugs like ASMANEX and MiraLAX. As a result our SG&A expenses increased 9%.

On R&D, as Fred mentioned we are investing heavily in R&D. and we are making good progress with our pipeline. Two of our fast-track products advanced into Phase III trials, TRA and Vicriviroc. Based on the progress in our clinical trials and the number of products we have been licensed this year, our R&D expenses are growing faster than our adjusted sales again this quarter, as we expected.

R&D expenses were $649 million. If you exclude the $20 million upfront payment on Acadesine, the R&D expenses increased 21% versus the prior year. Let me close with a few comments starting with OBS. As you know, we planned to acquire OBS for EUR11 billion, or roughly $15 billion. Of this we planned to use about $5 billion from cash we had on hand before the financing. Since August we raised nearly $9 billion to finance the transaction despite very tough market conditions. We generated strong demand for our financings based on investor's confidence in our long-term prospects.

So we've completed most of our financing and are well positioned for the closing. We now have European Commission approval for the acquisition and we continue to expect that we'll close the transaction by year-end. After the close we'll begin the integration process and we'll harmonize the practices of the two companies. In the fourth quarter we'll again have acquisition related charges and impacts from our currency activities, as we did in the second and third quarters. After closing we will also have purchase accounting adjustments, such as in-process research and development, amortization and depreciation of intangibles and fixed assets as well as a step-up of inventory values that will impact cost of sales.

Due to the complexity of the accounting, we will continue to provide cover on the financial impacts on our next conference call. On our outlook let me provide the following comments. First, we anticipate that sales of VYTORIN and ZETIA will continue to grow in the fourth quarter and in 2008.

Second, as Carrie will tell you, we are confident in our key brands. However, as we mentioned, there was growing competition for our key brands and we will invest to sustain our leadership position.

Third, on R&D, we anticipate that the number of patients in our clinical trials will continue to increase, especially with new Phase III trials for TRA, Vicriviroc, and recently in-licensed products. As a result, we continue to expect R&D expenses will grow faster than adjusted sales in the fourth quarter. Keep in mind, this comment relates to Schering-Plough on a standalone basis only. Given the advancing pipeline, we also expect that R&D expenses will also grow again in 2008.

In summary, we are proud of what our people have accomplished this quarter. You can see that we are continuing to execute on our strategy. First, we are driving the top line, with 12 consecutive quarters of double-digit adjusted sales growth. Second, we are maintaining control of our overhead spending. Finally, we are investing in the future to R&D, and we are delivering a much stronger Phase III pipeline.

Now, let me turn it over to Carrie.

Carrie Cox

Thanks, Bob, and good morning. We have continued to maintain momentum across much of our portfolio, despite increasing competition. Our strategy to drive the top line has been successful, as you've heard. With long periods of expected exclusivity on most brands, we will continue to make the appropriate investments to maximize the return on our brands.

Turning to our product portfolio, our global cholesterol franchise continued its strong performance, with sales increasing 27% to nearly $1.3 billion, with growth well-balanced between the US and international markets. You will recall that our franchise includes sales from the joint venture and Schering-Plough only territories. In the US, VYTORIN and ZETIA remained the fastest growing brands with total prescriptions for the franchise increasing 17% versus the prior, growing more than twice as fast as the cholesterol market.

Among LDL lowering brands, VYTORIN and ZETIA are the only two major products to grow market share this year. Our franchise is uniquely positioned to get more patients to their LDL goal. Managed care organizations have recognized this important value and continue to provide competitive second tier access for both VYTORIN and ZETIA, despite the availability of multi-source generics.

Just last month, guidelines released by the European Society of Cardiology again reinforced LDL as the primary target of lipid-lowering therapy.

As clinical practice continues to shift towards more aggressive LDL management, only VYTORIN provides more than a 50% LDL reduction at the usual starting dose.

Outside of the US, sales from the cholesterol franchise increased 62% to $321 million, driven by strong performances across established markets including France and Italy, as well as in emerging markets such as Greece and Turkey. As expected, sequential franchise sales were affected by last quarter's initial stocking of ZETIA in Japan, which is a typical dynamic in that market.

REMICADE continues to be an important growth driver with Q3 sales increasing 34% versus the prior year. REMICADE quarterly sales have now surpassed the $400 million mark, an all time high, despite increasing competition. A key to this strong performance has been the demonstrated efficacy and the broadest range of indications, all of which are delivering double-digit growth.

As new anti-TNF therapies enter the market, we expect the utilization of biologics overall to increase.

Just last week, REMICADE was granted two positive opinions by the EMEA, further strengthening our position in both psoriatic arthritis and Crohn's disease.

The REMICADE label in psoriatic arthritis will broaden to include claims for improving physical functions and reducing the rate of structural damage. This means that not only may patients see dramatic skin clearance, REMICADE will also help preserve their joint and their ability to function.

In Crohn's disease, the broad clinical benefit of REMICADE is unmatched by any other anti-TNF therapy. With the expanded label, physicians will be able to tailor REMICADE dosing while sparing patients the need for steroids. Data describing mucosal healing, as well as reductions in Crohn's related hospital stays and surgeries, will also be included in the label.

With more than 1 million patients treated globally since 1999, the efficacy and safety profile of REMICADE is well established and combined with Golimumab, our promising Phase III compound, our anti-TNF portfolio is poised to extend our strengths in immunology.

In Allergy, Global NASONEX sales increased 10% with continued strong performance across our international markets. NASONEX remains the fastest growing brand among all nasal steroids capturing nearly 40% of the global category.

In US, NASONEX new prescription growth continued to outpace the nasal steroid market. As we typically see after the Spring allergy season, NASONEX market share dipped, reflecting a seasonal decline. September data show a clear acceleration in the Fall season with new prescription share nearing 35%, an increase of more than 90 basis points versus the prior year.

In Hepatitis, global PEGINTRON sales increased 7%, driven by the strong performance in our emerging markets. We continue to see the category decline gradually across Europe, the US and Japan, where PEGINTRON has maintained clear market leadership. Last month PEGINTRON combination therapy received a positive opinion in the European Union for a retreatment indication in Hepatitis C, a serious unmet medical need.

In the EPIC 3 trial, more than 1,300 patients with moderate to severe liver disease were treated with PEGINTRON after failing previous therapy. Early virologic response at week 12 was again shown to be an important predictor for achieving a sustained virologic response. Even in this tough-to-treat group, nearly 57% of patients who had an undetectable virus at week 12 went on to sustain a positive response at the end of their therapy. Upon approval, PEGINTRON will be the first and only Hepatitis C therapy approved in EU for a retreatment indication.

I also want to comment briefly on NOXAFIL, the first and only agent indicated for the prevention of invasive fungal infections in immuno-compromised populations such as cancer and transplant patient. With mortality rates as high as 90% from these infections, the need for affective agents has never been greater. NOXAFIL has been shown to provide powerful prophylaxis, substantially reducing breakthrough infections and overall mortality rates. Like many other hospital products, NOXAFIL sales will take some time to develop. At this stage in its launch, there has been excellent progress across Europe and the US, where it was launched just a year ago.

We would like to take this opportunity to recognize the extraordinary accomplishments of our people worldwide. We have succeeded in delivering consistently strong results to fight increasingly competitive market conditions. Staying focused on maintaining momentum has served us well, particularly leading up to our planned combination with Organon BioSciences, as we built the high performance company for the long term.

Thanks. And now I will turn the call back over to Alex.

Alex Kelly

Thanks, Carrie. Now we would like to open up the call to answer your questions. In order for us to get through as many as possible, we would like to ask you to limit yourself to one or two questions only, and we will not take any follow up questions. If you do have additional questions, you are welcome to rejoin the queue.

Well, Ann, we are ready to take questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Steve Scala with Cowen and Company.

Steve Scala - Cowen and Company

Thank you, two questions. First for Dr. Koestler regarding Boceprevir. Can you speak to the RVR data which I do not think was revealed last week? What did you see in terms of RVRs? Secondly, a question for Carrie, do you believe that generic Simvastatin has pretty much penetrated the market as much as it's going to? Or how much more growth in generic simvastatin in terms of share do you think is yet to come?

Fred Hassan

Great questions. So, Tom?

Thomas Koestler

Yeah. Steve, as far as RVR is concerned, what we reported in our publication or press release was the early virologic response data at 12 weeks. And I am sure you know that EVR data is what most doctors use as sort of a decision gate, one deciding how to further treat their patients. So, it's a very important parameter and we have a lot of experience in this particular field as you know. So, we think the EVR is very important at 12-week point.

We also have rapid virologic response data, which is your question. And as we mentioned earlier, we want to preserve these data so that we can get the right opportunity to present them at a scientific symposium. We will say that the data was also very impressive.

Fred Hassan

Okay and Carrie?

Carrie Cox

This is largest market that we all compete in. And you know that this is an unprecedented event to have the kind of generic availability that’s been occurring in the cholesterol marketplace. It's a very large market. We see the overall market continuing to grow. But we also believe that generics will continue to have some increased penetration. The rate of growth, of course, has been slowing. But I think in the low efficacy space, you will continue to see further use of generic Simvastatin.

As you know, VYTORIN and ZETIA continue to grow share in this very competitive market. And we believe that while the trend continues and will continue to drive towards lower LDL levels, we will continue to be well-positioned in this very dynamic market.

Steven Koehler

Thank you and next question please?

Operator

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

Chris Schott - Banc of America

Great, thank you, just two quick questions, and maybe just first on the VYTORIN side, it seems that you have had a strong year there, but your share gains do seem to be slowing a bit here. Could you talk a about what percent of your sales are now coming from switches in this market, and any change in that switch-market over the past few months in terms of either, where you are getting your share or magnitude of the gains? And then second, on TRA can you show a little more granularity of how many of the patients in the latest studies to Phase II were at the 2.5 milligram dose, and just any clarity you might have in the bleed rate at that dose versus the "asked standard" of care? Thanks.

Fred Hassan

Okay. Carrie first and then Tom.

Carrie Cox

Yeah, the pattern that you see for the situation with VYTORIN is pretty much the same as it has been over time. We have roughly 60% of the business coming from the new patient market and about 40% coming from switches. There has been some changes in that over the last few years, but it's a fairly steady profile and we believe it also reflects the continued focus on getting patient's LDL to goal and as you know that continues to be a lower goal than ever.

Tom Koestler

Yeah, correct as far as the TRA exposure for the 2.5 milligram dose is, and we are using the 2.5 milligram doses, our maintenance dose in the trials and the reason we selected that dose is based on all of the data we've seen now from three Phase II studies. All of these data show very consistent PD effects, particularly which is trap induced [whatever aggravation] in the patient where we get greater than 80% or more of [quicker aggravation] in addition to the 2.5 milligram dose, seven days and beyond following dosing and that particular setting. In that latest result that we just reported in Japan, as I mentioned, the studies are small studies. There are 120 patients overall in the acute coronary syndrome trial and in the prior ischemic stroke trial there were 90 patients. So again the exposure numbers are not exceedingly high but the pattern of data that we have seen is very consistent with what we had seen. We reported this earlier in the year in Oncology Cardiology, so we feel pretty good about that dose selection.

Fred Hassan

Thank you, Tom and next question please.

Operator

Your next question comes from John Boris with Bear Stearns.

Fred Hassan

Hi, John.

John Boris - Bear Stearns

Thanks for taking the question. I just have a couple. Fred, can you just comment on, as you are approaching the completion of the Organon BioSciences transaction. Can you just layout what your priorities are for integrating that transaction?

And then question for Tom on Phase III for Boceprevir. Can you give any color on the trial design for Boceprevir, going forward?

And then one for Carrie, with the introduction of Apotex's generic Fluticasone, it looks like the lack pricing on Fluticasone is collapsing, and its approaching $10 a bottle. Are you anticipating additional generic entrants and is there the possibility of a Fluticasone first program that could further the shelf-cost deceleration on the NASONEX program or products?

Fred Hassan

So John, I think you are asking four questions or so there. So we will try to get to the first couple. John I will be as fast as I can since there were many questions. I am fortunate to have done many acquisitions. In fact, I think I do have a learning curve history in this area. And the one thing I have learned over the years is that you must have a seamless customer experience or a customer experience that gets better after the transaction. So, really growing the top line is very important. Many transactions fail because the cost-cutting synergies do come through, but people lose focus. And if you miss on the top line by $1 billion or $2 billion you can get all the costs out of the system, but you will still not doing well on the operating profit line. So, we are going to be focusing on the customer experience.

We are also going to be focusing on delivering [profit margin], because that's one of the big promises of this merger and we are going to be doing that one right. We are also very excited about the opportunity to add value here. You have seen this with our past transaction that we did with the Bayer Primary Care business. There was initially a declining market share trend with that business but we turned it around and it's growing very nicely. In fact our market share, without the loss, is now probably double where it was when we inherited it from Bayer. So this company knows how to add value, and we are very confident we'll do a good job with Organon BioSciences. And the next question was for Tom and then Carrie.

Tom Koestler

Yeah, John, as far as you know, we have this naive patient trial which is ongoing. We are looking at 24, 28, and 48, weeks of dosing. So, the Phase II trial that we have reported on, reported on 12 weeks of exposure to the program. Now we have a fast track status with FDA and as you can imagine we have got everything. We do just about right with FDA in terms of plans for going forward. But right now I think it's fair to assume that we are feeling pretty confident about the design of our run-in phase, which is the utilized interferon plus [Ribavirin] for four weeks, before dosing with a protease inhibitor. There is couple of reasons for that. First reason is that it takes four weeks to get the study state with these molecules, which is important.

You had [hit] the prime immune system and we think that priming helps decrease the viral load, and that we think is important. Also based on our learnings because we would like to be able think this would result in a fewer mutations in that particular population, which is an important clinical parameter.

John Boris - Bear Stearns

When will you start Phase III, Tom?

Tom Koestler

Okay. So…

Fred Hassan

Right now, we are not going to comment on that at this point in time. As I said, we are still on Phase II and when we are prepared to initiate Phase III we will let you know. Thank you, and Carrie?

Carrie Cox

NASONEX has continued to grow this year, and in fact we also had very competitive second-tier access. We think this is, in some part, based on the fact that we have a unique range of indications that other competing products don't have, including things like using polyps in actually preventing symptoms of allergic rhinitis, and also use-down to children as young as age two. So this is a unique profile that we anticipate will continue to put us in a good position in the market.

Fred Hassan

We are very proud of NASONEX. This is one of the examples where brand transformation really works and Carrie and her team, I don't think there are too many other companies that can really match us.

And the next question please?

Operator

Your next question comes from Tony Butler, with Lehman Brothers.

Fred Hassan

Tony?

Tony Butler - Lehman Brothers

Yes, hi Fred. Thank you very much for the time. Two brief questions, one again on Boceprevir. You showed some really good Phase II early data. But I am curious with the Liver Meetings upcoming where you presented some of the robust data that you are talking about and if not then, can you give us some idea when you will present that?

And then secondly, as it relates to TRA, can you make any judgments about how the patients themselves, in both of those Japan trials, compare with the patients in the US study that was presented at the ACC? Thanks very much.

Fred Hassan

Tom?

Tom Koestler

Yeah, Tony, thanks for those questions. Yeah, let me take the last one first and that was the TRA patients in the Japan trial. There are two trials, one, that was actually in acute coronary syndrome patients, so these patients were quite robust in terms of what you would expect in the real world going forward with our Phase III program. Now, you have bear in mind that the standard of care in Japan is a little bit different than the standard of care in the US. Now they use an ADP antagonist like Plavix that use ticlopidine, but Plavix is now just being introduced in Japan. So the standard of care in Japan is ticlopidine, aspirin and heparin, which is usually on board. And that’s the way they treat it. And so, it's very similar to what we see in the western world, the US. I assume that the Japanese will begin to catch up once they bring Plavix to use in the marketplace. Your first question was again, Tony?

Tony Butler - Lehman Brothers

I think on the, abstracts and also our whole process of analyzing data and then communicating data?

Tom Koestler

Yeah, we have been saying that we were going to give you an update on the status of our Boceprevir program for quite sometime now, and that’s exactly what we wanted to accomplish at this particular point. Frankly, these data are new, they are robust, they are very new, and we did not have an opportunity to meet the deadline for the upcoming meeting. So, we will find the right form in the New Year.

Fred Hassan

Okay. And next question please?

Operator

Your next question comes from Tim Anderson with Sanford Bernstein.

Tim Anderson - Sanford Bernstein

Thank you, I have a couple of questions. VYTORIN, the sales in the US were down sequentially for the first time since the product launched in 2004, and that’s not too surprising, given the script trends over the last six months. You mentioned several times, that you will continue to invest in key brands to sustain growth. And I am wondering, do you have plans to invest more behind VYTORIN in the US, or do you think you have maxed out spending behind the brand in that market.

And then, on TRA, it is pursuing a single global filing, like you've mentioned, that it will potentially push out timelines that you have previously laid out?

Fred Hassan

Okay. And we congratulate Dr. Anderson on his new job. And at this point, let me ask Tom to first take the TRA question, and then return it over it to Carrie.

Tom Koestler

Yeah, it’s a good question. The global trial that we have initiated will in fact be event driven, it will be time dependent. A lot of that will become clearer for us as we go about a year from now, from where we are today. Our anticipation, our plan clearly is to approach this from a 2010, 2011 launch perspective, so we remain on that particular time-line.

Fred Hassan

Carrie?

Carrie Cox

Thanks Tim. There are still a lot of patients who are not at their cholesterol goal and I think we are still pleased with our performance in the US. We'd have continued to gain share at a time, as you know when other products are losing share or at best in slight decline.

The investment levels appear to be adequate at this point, but as you know, we always work to maintain the appropriate share of ways in investments that are needed in the marketplace. And in this quarter, we are also particularly pleased about the growth that we've seen outside the US. Both VYTORIN and ZETIA ex-US have grown to be very substantial products. And ZETIA or EZETROL, as it is called overseas, is actually one of the leading products in many countries around the world now, particularly in the established markets in Europe.

Fred Hassan

And I think Tim, that's the big advantage. We do have a long runway yet in Europe, and as you know that's always a slow build area but it has always had a long profile. And we are going to be benefiting from a leveraged P&L, when it comes to cholesterol there is no question about it for the next several years. And next question please?

Operator

Your next question comes from Jami Rubin with Morgan Stanley.

Jami Rubin - Morgan Stanley

Thank you. I just had a couple of Boceprevir follow-up question. My first question Carrie is to you, what impact do you see Boceprevir having on your PEGINTRON/Ribavirin franchise; it does seem that these parties' inhibitors may have the effect of cutting in half the duration of the use of PEGINTRON/Ribavirin? And how do we think about that, in term of our models?

My second question is for you Fred, on overall R&D spending, you've talked about R&D spending being above adjusted sales this quarter and it was almost double that of adjusted sales, and you are now entering Phase III trials of TRA with something like 30,000 patients. Obviously, it's going to continue to be strong in the fourth quarter and Bob you'd commented that it will continue to be strong next year. But can you give a little bit more color around the magnitude off-end as you absorbed, or as you enrolled these patients? And how should we think about that going forward?

Fred Hassan

Okay Jami, I'll answer that question first and then I'll ask Carrie to answer the Boceprevir question. It's very clear that the industry is evolving very rapidly and we have to understand that you can't ignore the environment around us. It is very clear that the pressure from the peers and managed care is clearly pointing to the direction that this industry has to spend more money on R&D, as a percent of sales going forward, and we have to find savings elsewhere primarily in SG&A. That is very clear for all the companies as we go forward. We are rather fortunate at Schering-Plough to have had very little attrition in our Phase I and Phase II. We have a very, very rich Phase III pipeline. We will be investing in this pipeline but also we will explore opportunities to partner out some of our Phase III projects in a very sensible manner so that we don't have to do everything by ourselves. But we are fortunate to have this very, very strong Phase III pipeline at this time; it is a pipeline much larger than our size would normally want. And Carrie on Boceprevir?

Carrie Cox

Jami, we are delighted that as new therapies are being developed for Hepatitis C treatment, it looks clearly as if PEGINTRON combination therapy will continue to be the backbone of therapy, and it will be background therapy in the addition of any new regimens that come to market. So, this has actually turned out to be a great benefit for the long-term development of the market, going forward.

Right now, perhaps less than 25% of patients who should be treated are getting treatment today. So, we are hopeful that new therapies coming into the market will help bring in new patients who are either today undiagnosed or untreated. This has been a beneficial development for Hepatitis C patients, as more therapy options could be available in the future.

The patent situation for PEGINTRON as you will recall in the US is expected to have extended exclusivity until 2018 to 2020. So for us clearly, PEGINTRON combination therapy will continue to be an important part of our portfolio.

Fred Hassan

Thank you, Carrie. And next question please?

Operator

Your next question comes from Roopesh Patel with UBS

Fred Hassan

Roopesh?

Roopesh Patel - UBS

Yes, thank you, I just a couple of questions on TRA. First, can you give us a rough sense of when you expect the two Phase III studies to complete enrollment? And then, if you could also clarify if PRASUGREL whenever available, will be part of the standard of care for these trials? Thank you.

Fred Hassan

That's a good question, because we know that trial has been followed closely by all of you. Dr. Koestler?

Tom Koestler

Roopesh, thanks for those two questions. As I just mentioned to the earlier question, this is an event-driven trial, so about a year from now, we will get better sense of that. But the bottom line is, we are still projecting right now 2010 and 2011, in anticipation for the launch of the product. As far as PRASUGREL is concerned, this is also an ADP receptor antagonist just like Plavix. So we would consider this again, as part of the standard of care, and once PRASUGREL and if PRASUGREL were to become a reality, we would certainly stratify in our program to be able to address the safety and tolerability end points.

Fred Hassan

Thank you. And I know there is an important call, so this is the last question please.

Operator

Your final question comes from Catherine Arnold with Credit Suisse.

Catherine Arnold - Credit Suisse

Thanks for taking my question. First of all Fred, if you could tell us how soon after the Organon deal closure, you are going to come out from behind the curtain on important topics like Sugammadex and Organon's pipeline, Integration Synergies Schering [OBS], and some of the things I think the market's been waiting to hear? And then secondly Carrie, I wondered if you could comment on the REMICADE performance in regards to its drivers in foreign exchange, market growth and share gains?

Fred Hassan

That's a very good question, and again, I can go back to my own experience, Catherine. We will use an initial opportunity to share with you the financial reporting aspects of the transaction, and as you know there is complexity with all the changes that have occurred in recent years. But more importantly we will share with you the assessment that we will have of the R&D portfolio, as well as the marketed product portfolio and what we plan to do. I don't think everything is going to come out in one quarter or in one conference call, I think there will be more knowledge and more experience gained as we go forward.

We'll have a very good sense of the combined company, going forward, by the middle of next year. Also there is an R&D day plan for the Fall of '08. We were planning that R&D day this Fall, but because of OBS we had to postpone it. And we want to again remind you that we are very confident about our synergies of $0.5 billion in year three and the $0.10 of share in year one.

And Bob, do have any comments on this?

Bob Bertolini

I think you hit it on the head, Fred. I think we will go through our integration. We'll provide cover Catherine on the accounting of this as we go forward, and as Fred said we're confident with the $500 million dollar synergy number.

Fred Hassan

Thank you, and I would just like to make closing comments. We expect that this would be our last quarter, as you've heard from Catherine, that the present Schering-Plough would be talking about the results and as we get ready for the next step of our journey, the upcoming acquisition of Organon BioSciences. Our people are very excited and very committed and our sales and our earnings, and our R&D pipeline have greatly improved in the past four years. We thank you for your steady support, and we look forward to the continuing success in our company as we go forward. These are very good days for Schering-Plough. Thank you very much.

Operator

Thank you for participating in today's conference call. You may now disconnect.

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