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Shire plc (SHPGY)

Q3 2007 Earnings Call

November 1, 2007, 10:30 AM ET

Executives

Cléa Rosenfeld - VP, IR

Matthew Emmens - CEO and Chairman of the Management Committee

Angus Russell - CFO

Analysts

Brian White - Deutsche Bank AG London

Corey Davis - Natexis Bleichroeder Inc.

David Buck - Buckingham Research Group Inc.

Dani Saurymper - Goldman Sachs Equity Securities (UK)

David Steinberg - Deutsche Bank Securities Inc.

Frank H. Pinkerton - Banc of America Securities

Ken Cacciatore - Cowen and Company, LLC.

Graham Parry - Merrill Lynch International

John Boris - Bear, Stearns & Co.

Martin Wales - UBS Warburg (UK)

Presentation

Operator

Thank you for standing by and welcome to the Shire's Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, the 1st of November, year 2007.

I would now like to hand the conference over to your speaker today, Cléa Rosenfeld, Vice President, Investor Relations. Please go ahead.

Cléa Rosenfeld - Vice President, Investor Relations

Thank you very much Sabrina. Good morning and good afternoon everyone. Thank you for joining us today for Shire's third quarter 2007 financial results. By now you should all have received our press release and should be viewing our presentation via our website on www.shire.com. If for some reason you have not received the press release or unable to access our website, please contact Souheil in our U.K. Investor Relations department on 44-1256-894-160, as he will be happy to help you.

Our speakers today are Matthew Emmens, Chief Executive Officer; and Angus Russell, Chief Financial Officer.

Before we begin and as always, I would refer you to the slides, the second slide of our presentation and remind you that any statements made during this call, which are not historical statements, will be forward-looking statements, and as such, will be subject to risks and uncertainties, which, if they materialize, could materially affect our results.

Today's agenda is as follows. We begin with a summary of Shire's third quarter performance and third quarter highlights from Matthew Emmens, and Angus Russell will continue with the financial review of the quarter, then finally Matt will summarize the key points for this quarter. We will then open up for your questions. Could I please ask again, in the interest of time and so that everyone gets a chance to ask the questions on this call, that you limit yourself to two questions? As always, Eric and I will be more than happy to follow up with any subsequent questions at the end of this call or after. Thank you very much for your understanding.

And now over to you Matt.

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

Thank you Cléa, thanks for your interest in Shire and welcome to our 3Q. I will start out by saying that our strategy of a rapidly growing biopharmaceutical company is certainly on track with very strong quarterly results. You'll see that both total income and our top line is very, very strong. We are upgrading our revenue growth guidance to at least 30% from our previous level of at least 25%, and as you have seen the numbers, you'll see why.

Looking at highlights on page 6, our product sales were up 41% to $543 million. Our total revenues were up 35% to $609 million, and our net cash provided by operating activities was up 51% to $124 million.

Moving on to page 7, a look at our portfolio highlights. Our ADHD franchise now exceeds 30% of U.S. market share. Moving to VYVANSE, which was launched July 2nd, you are seeing a 4% total market share now, so we've basically been able to get 1 percentage share for each month in the market. We'll have more to say on that in a minute, but we are pleased with that launch.

Our adult indication PDUFA date is April 28th of next year, so we are excited about that as that represents a very large opportunity, not only in the U.S., but in Europe and other countries.

Looking at DAYTRANA, as you know, we had some issues with the backing, the liner, and we had a limited withdrawal of a limited quantity of those patches, and we are now manufacturing... Noven is now manufacturing those with an enhanced process that provides improved ease of use.

Moving to our GI franchise, it now exceeds 23% share of the total 5-ASA market. LIALDA, our latest weekly market share is 9.3% of new prescriptions and 6.9% of total prescriptions. Noteworthy there is that we are not losing it on the PENTASA side, so we are very pleased with that. We are getting prescriptions from both new patients and switches from other brands.

Looking at JUVISTA, our license with Renovo, we had positive Phase 2 clinical trial results recently. We continue to be very encouraged by the product's potential.

Moving on the page 8, we look at Human Genetic Therapies, ELAPRASE is now available in 34 countries and it's approved and launched in Japan. It's becoming a major contributor to our total portfolio. Looking at REPLAGAL, it continues to grow, it's now in 41 countries. We have significant growth for the quarter with new patients starting therapy in European markets, as well as through geographic expansions in Canada, Latin America, and also Japan.

Our Phase 3 clinical trails for GA-GCB, at least three of them are ongoing and we are enrolling patients at a better pace than we did last quarter.

Moving on to Renal, FOSRENOL is now available in 23 countries and we recently launched the product in Canada, the Slovak Republic, and Poland. I would tell you also that FOSRENOL sales, 40% of the total FOSRENOL sales are coming from Europe now, very rapidly growing in Europe. And DYNEPO was recently launched in Ireland and Italy, and we are having very good results in Germany and you are seeing that have some sales for the first time this quarter that are significant.

With that, I will move on and introduce Angus Russell, who will go more in depth with our numbers.

Angus Russell - Chief Financial Officer

Thanks Matt. If you just turn to the next slide, slide 10 and look at total revenues in a little bit more detail. As Matt already mentioned, total product sales were are up 41% and overall revenues were up 35. If you look beneath that and look at the proportion of the sales growth that's coming from products just launched really in the last two years, you can see that analyzed in the top right hand corner in the table there. The first point I would make is to highlight that even the base business, prior to the launch of all these new products is growing at 16%, very, very healthy performance in its own right from products that have been on the market for quite a few years. But if we look at this wave of new products launched in the next two years, interesting to note that they are now contributing 23% of our entire sales base, and that's in contrast to the same period last year when these products were only contributing about 7%. And if you look at it in dollar terms, it means we've added almost $100 million of new sales between this quarter and the comparable quarter last year.

At the bottom, you can see how our growth has accelerated in the proportion of new sales across the course of this year. In the first quarter, I reported that this number was 13% of sales, last quarter it was 19% and now 23%. And I think this trend will continue certainly through the rest of this year and well into the first half of next year.

If we look at the next page, slide 11, and look at the usual analysis of our major products sales, looking at the movement between the underlying script growth and total sales growth, ADDERALL XR, underlying growth in that, in script terms was 3%, that's a 6% growth in the ADHD market during this period, but that has been reduced for ADDERALL XR because obviously we are now beginning to lose share as we put VYVANSE into the market and patients are converting from ADDERALL XR use to VYVANSE. The difference largely between the 3% and the reported 20% is 7% price increase that we took in January this year, and then some wholesaler stock movements that occurred between the two periods.

VYVANSE and DAYTRANA, I'd like to take you through in a little bit more detail on the next few slides, so we'll come back to those in a moment; but carrying on down, PENTASA, 2% in the underlying market growth of this product, that's 4% growth in the 5-ASA market and a very minor decline from 17.4% to 17.1% during the period. I think that's a lot less than anybody expected in terms of concerns that we would cannibalize our own drug with the launch of LIALDA, that's not occurred, we have been able to maintain and actually grow the sales of PENTASA during this period. Difference between the 2% and the 18% is really to do with some price increases in the preference for the new 500 milligram dose strength over the 250 milligram dose strength.

LIALDA, as I said, is an excellent launch, and Matt will cover this in more detail when he talks about launches later on again, but obviously we had no sales in the comparable period, the product only launched about six months ago, six and a half months ago; we've got $16.3 million worth of sales in the quarter.

ELAPRASE continues very rapid uptake and new patients being signed quite rapidly and introduced to treatment and reimbursements being negotiated very successfully. So you can see an excellent result of $55 million of sales in this quarter.

REPLAGAL, again for a product that's been in the market some years, we entered new markets this period. It's driven the growth up 26%. That is a little bit flattered, there is an 8% foreign exchange benefit in that number of 26%, but nonetheless still very good strong underlying growth.

And FOSRENOL, rather large number there, 135%, a lot of that is to do with the very rapid uptake and the excellent performance again by European marketing teams in launching that drug across multiple markets now in Europe, and that contributed two-thirds of that 135% rise. The other third of that came from, if you remember, a de-stocking in the comparable period last year to do with what we call the optimized formulation when some of the older formulation came back to us and was de-stocked by the wholesalers. Stock levels this year are totally unaffected there, quite normal throughout this year.

CARBATROL, one of older products but still producing nice cash return, the market decline for carbamazepine is actually 5%. We are in line with that having held on to our share and there is no pricing benefits or stock movements there really worth talking about, and you see the reported number also 5%.

And finally, XAGRID, again excellent performance as an open drug across the European markets, very strong growth in the period of again 26% here with a 9% foreign exchange benefit included within that.

Now let's move on looking at the next slide and talk a lot more about VYVANSE and DAYTRANA, which are quite complex this period because of launch issues and in the case of DAYTRANA, as Matt already touched on, the withdrawal of some of the products from the market.

First off, with VYVANSE on slide 12 wanted to show you this chart just to demonstrate why the figures are as they are during the quarter. What's clear hopefully from this chart, which is a week by week representation of the prescriptions and the coupons that have been redeemed in the period, as you can see and as we would expect, in the early weeks of Q3, as the product went out, by definition, most of the scripts were being offered in the form of coupon redemptions. So a lot of the scripts that were out there, people were getting as free treatment.

I just draw you attention to the bullet points at the bottom of this slide. Every redeemed coupon is accompanied by a script. I put that in there because there has been a lot of confusion judging by some of the calls we have taken in last few weeks where I think people are thinking about the products in the industry where you get free samples and free samples do not have an accompanying script. With a coupon, I stress again, it's only a form of payment, if you like, or free supply of that script, the script actually does get recorded, but it comes for 30 days completely free.

Next point is significant, related to that, is that it's only for the first 30 days treatment. Thereafter, you would have to pay for script as normal and we keep you know records of that to ensure that it's only the first 30 days. You can see statistically over 300,000 scripts now have been written since launch.

Final two points, I draw your attention to on the slide is the coupons having risen up in the early weeks have now reached a fairly consistent stable level, and those are the red bars that you see on the slide in recent weeks. That's good in the sense that we are getting a very constant level of new starts on the drug week-by-week, but you can now see that as a proportion of the total scripts being written, which is the green line, in these most recent weeks, couponing now has fallen to a much, much lower level than you can see to the left hand side of the chart in the early weeks, which are the weeks that are of course included in this Q3 results.

So, let's turn and look at the next slide and see how does that translate into effective numbers. So, let me walk you through this slide. Sales demand in the left hand column you can see, during Q3 was 217,000 scripts for VYVANSE, and on the right hand side you can see, I have given you the numbers to how you multiply, there's on average 28.3 capsules per script at a price of $3.41. That gives you a total demand for the quarter of $20.9 million.

On top of that, we actually made new shipments to refill wholesalers who would dispatch material to pharmacies during the quarter and unlike the first shipment we made, which, as you know, has to be deferred under revenue recognition, we can instantly book the restocking of the pipes. So, in the quarter, we actually shipped another 10.2 refills for the wholesalers. So, that gives a total underlying gross sales number of 31.1, as you can see on the slide.

Against that, as I've just said from the prior chart, you can see very clearly that a lot of that material that went out in the early weeks was given to patients as a free trial for 30 days. Therefore, couponing is very high in this particular quarter, 39% of sales, $12.3 million.

On top of that, there are both normal wholesaler discounts and rebates being offered, but it's a higher number in this period because a significant amount of the 8.2 you see here was actually a one-time discounted offer to the wholesalers to enable us to ship a very large quantity, the $56 million that appears on the box on the right hand side. For them to hold that amount of working capital intake, a personal risk themselves on our product launch, we have to provide some incentives, discounts to cushion them on that, and so that's included as a one-time item within the $8.2 million.

So when you look at this, you see that, a mix of all that, is that two-thirds of the sales were reduced by these early sales coupons and discounts and rebates. What I've then included in the box on the right is to say that we believe that somewhere in the second half of next year, as we get towards the back-end of next year, this 66% number will fall back to about a 28% number in terms of gross to net discounts and rebating on a very small, I imagine by then, level of couponing compared to total scripts being written each week.

Just to give you a calibration, ADDERALL XR today has a gross to net discount of about 24%. So to be at 20% just 18 months after launch, puts us pretty close to ADDERALL XR like economics. Right now, I could say already that in these current weeks as we move from October into November, we're probably already at discount ranges of coupons and rebates combined at 66%, is probably in about a 40% to 45% range as we speak.

Just on the other box on the right hand side, let me just reconcile for you again the deferred revenues. You can see, as I said, that we shipped almost $56 million, $55.9 million in Q2. We made a very early shipment in Q3, which by then also had to be deferred because there was no real demand yet at the beginning of the quarter. So that brought the total shipments up to almost $58 million, against that $57 million, $58 million. Against that, you can see then we booked this 20.9 of true sales demand. So at the moment, we still have revenue deferral of $37 million. It's my expectation that by the end of this year, we will have worked our way through that remaining $37 million and to remind you that on top of that, like, as you can see what happened in this quarter, any fresh shipments will be booked straight into the sales line.

Now turning to the next slide and looking at the similar analysis for DAYTRANA, you can see again and I'll walk you through in the same way, 183,000 scripts during the period for DAYTRANA and with the economics of that shown again on the right hand side, you can see that produced true sales demand of $21.7 million during the quarter, a very small piece of destocking, but $21.6 million then of underlying sales.

Our couponing went up again compared to prior quarter and that was a lot to do with the issue about product withdrawal and trying to resolve the liner issues during the past quarter, to obviously incent patients to stay on the drug, whilst we resolve those issues, we did again offer a short-term couponing program to keep the market incented to keep taking the drug.

On top of that, you can see the returns, $4 million we booked as returns, which was linked specifically to the one-time withdrawal of a proportion of the patches... the older patches that have the liner problem and then there is the normal level of wholesaler discounts and rebates. You can see, again, I am saying that the combined 56%, I expect will, towards the end of this year and certainly into next year, will fall back to a level of 25%, which, as I said, when you compare to ADDERALL XR as well in the normal range of our gross to net discounts.

Now, turning to next page looking at our royalties line, again, very good performance from the royalties given how long this royalty stream has been in existence and the longevity of these products is still very impressive. 3TC shows 1% improvement, although you can see from the footnote, there is a 4% currency benefit, but I still think an underlying 3% decline is an excellent performance for a product at this lifecycle stage of, the 3TC is now in.

In regards to ZEFFIX, you can see a 6% currency benefit within the 10% that means a still good 4% underlying growth, particularly now coming from the Chinese market, but also other markets like Japan and Korea and Asia continue to provide growth for this product. And finally, REMINYL, which is up 3% in total during the quarter.

We look at financial ratios on the next page. I think given despite the level of discounting and rebating and couponing, the broadly based growth across many other fast growing products has meant that our gross margins are only down about 1% compared to the full year last year, and actually year-to-date in Q3, as you can see, at 86%, so are in line with each other, and I would hope that we can sustain that through to the end of this year.

In terms of R&D, you can see that's up at 19% in the quarter, but year-to-date is 18%, and when I talk about full year guidance, I think our year-to-date figure is getting pretty close to how we will end up as a percent of sales and this is in line with our indicated position on R&D as a percent of product sales.

SG&A, again, very happy to say this, I think it's trending down to where my expectation has been for some time and as I have talked with many of you before, last year remember, and you can see it shown on the right, we were at 52% because we had to put a lot of infrastructure and cost upfront before we actually made many of these product launches. Now with a strong revenue performance, we are seeing that full... down to 46% in this quarter, 47% year-to-date, and I think that range is a pretty good anchor for the year in total. And that's, as you can see, something like a 5% to 6% improvement in operating margin across the course of this year.

And then looking at that operating margin itself, maybe starting with the bottom line, first looking at as a percentage of total revenue, obviously 28% last year, 31% year-to-date this year, and 29 in this quarter, I think the current, again, quarter and year-to-date numbers something in that range, maybe around the 30% level is fair, but of course this does get flattered by the revenues coming from royalties, which dropped straight into this number.

So, I'll try to give you a representation as how we look at the business and run it a lot internally, which is to think about our product sale performance, and there you see at the low point with all the costs that we have to put in last year drove that figure down to 16% for the year, but already year-to-date we are back up to 22%. We were 21% in the quarter; again I think it's a good range for this year. And as I've said to you... many of you before, I would hope that we continue a gradual improvement across the course of the next one to two years to get us back up maybe to a 25% number across that to one to two-year period.

Now turning to the next page and looking at net income and EPS. The anchor number that you are well aware in terms of EPS and what we are looking at is a non-GAAP, as we call it, cash EPS number of 66.6 cents, and you can see that effectively represents 32% growth compared to the same equivalent period last year.

If we look over now in terms of the reconciling items between GAAP EPS and this non-GAAP number. Obviously one of the biggest items is the fact that we have to expense in the R&D line, the in-licensing payment to Renovo that was made to secure the JUVISTA license, and that's $75 million or so expensed in R&D. We have got a small gain on the disposal of product right, the EQUETRO, we sold for 7.1, we have no book value, it is an enhanced development, and therefore we were able to book the entire 7.1 cash disposal in these numbers as a profit.

In terms of the next item that we can relates back to TKT. There were a number of minor litigations going on, it's around the time of TKT acquisition. This is one of the slightly larger litigations in that group of various litigations. This was related to the class action suit regarding the share price drop after the fact that REPLAGAL in the U.S. was rejected by the FDA, and there was a share price fall and a class action suit was brought against the company. I am pleased to say we've reached the settlement; the gross settlement is $50 million. We have been able to make a claim for $23 million of insurance. So what we've booked here is the remaining provision of $27 million and that closes that particular litigation.

We've got some intangible asset amortization going through and that's the piece that we take out, remember to get our cash EPS number. It's risen quite a bit this quarter because now of course we are bringing the VYVANSE amortization on to the books. And then there is a normal FAS 123 adjustment and tax effects on all those above items.

If you move on to next slide, look at cash generation, again very strong performance. I mean, this business these days is not throwing off between $700 million to $800 million a year of underlying cash flow. Against that, we have got the $75 million that I just mentioned, payment to Renovo plus the additional amount of $50 million that we bought 6% of the equity in Renovo, so all of that has gone out in this period as a cash payment to Renovo as $125 million.

We have got some fixed asset purchases broadly based across the business, mainly plant and equipment of $30 million. We have got some product milestones, $26 million, and the largest item is the $25 million that we paid to Noven for DAYTRANA with its annual sales having gone through $50 million and that's as per the original business development agreement.

Asset sales, well, $7 million of the $8 million is the EQUETRO item I just talked about, money coming in. And our net interest received of $8 million has just outweighed our tax paid in the period of $7 million, so a small cash inflow.

And finally, other financing is the shares that we have to buy in the market to fulfill option grants; there was a net $61 million outflow in regards to some of those purchases.

On the right hand side, you can see in the books our net debt position is shown at $495 million, within the cash at $638 million. Just to remind you there's a substantial proportion... that's shown in the footnote to the left, there's a $473 million provision within that 638 in regard to the pending litigation for the dissenting shareholder case with TKT.

On to the next page then; and the last two slides; really to talk about the guidance for the full year; so we've upgraded our revenue growth. You can see revenues in the quarter of 35% to 32% to-date, very strong performance. Given us the confidence to now say that clearly our revenues will be at no less than 30% for the full-year, another full 5% upgrade on the previous quarter.

R&D has risen a little bit against the previous range, not so really having seen this very strong line... strong top-line performance immersion across the year, we've decided to invest and initiate faster some of our R&D programs. We have very large IIIb/IV programs in place now to support and drive that top-line. That will continue certainly into next year to continue to support this strong top-line performance.

SG&A similar story. We've marginally increased the previous range really again in respect to driving that top-line and investing in promotional costs, which is having a very beneficial effect to the top-line growth. In terms of our... and putting in this product... in percentages to product sales, R&D, I expect it should end up, as I said, around the 18%, maybe 17% to 18% range for the full-year product sales. And with SG&A, I expect this to be in the 46% to 47% range compared to product sales.

As we turn over the page here and look finally at the other elements that we have given you some forecasting help with in the past. D&A less amortization and you can see the amortization, our guidance is down a little bit now, up 70%, we said 80% previously, but it's moderated a bit in our forecast now. And depreciation going the other way, up from 20% to 30%. So bring them together and the guidance is pretty much the same across the total D&A category.

And then on tax charge, obviously we have had some one-time benefits in this quarter. Some of that came from revelation of various reviews and audits. Like any company, we obviously are subject to tax audit and review. Some of those concluded during this quarter and concluded in a favorable manner to us and we have been able to take a favorable review in our tax provisioning in respect to that.

And finally, obviously the deduction of the substantial amounts of marketing expense in the U.S., particularly associated with the VYVANSE launches let us be able to deduct those costs against our U.S. profits and obviously the U.S. environment for us is one of the higher tax jurisdictions. So in the mix of our entire global operations being able to deduct all those expenses has been quite beneficial in the quarter. So that's now enabling us to take the tax charge for this year down from 26% to probably something around the lower 20s for the year as a whole.

And that's it. With that, let me hand back to Matt to give you a lot more detail about a couple of the big product launches.

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

Thank you, Angus. It's no secret there has been a lot of interest in our launch as I thought I would take a minute and give you our view of how they are going and what the prospects are.

First I will turn over to VYVANSE, which is going to be... and we will flip to page 24, the first page of that. I think there has been some misunderstanding. I would like to just go over kind of where we are positioning this drug and why we are doing that. It is positioned as a new class of ADHD medication and it is not, I repeat not a replacement for AXR. We used the word switch, that's probably unfortunate. That's one way of looking at it, but basically if we had chosen to have this product as a substitute for ADDERALL XR, we would by that nature of that, limit ourselves to what the market would be, A, and we would suggest that this drug could be substituted. It is not a new chemical entity, it is not a line extension and it is not substitutable in the broader sense.

So later on that's going to become important, but we now have a very distinctive profile of this drug, not just because we are saying there... if you look to the left of this slide, there is immediate release stimulants, there is long-acting formulated stimulants, there is non-stimulants in this new class called long-acting prodrug stimulants.

The drug is intrinsically long-acting and we are getting feedback from parents, physicians and patients that take this drug that has a different profile than any drug in the market, and you will see by where we are getting the business from that they are voting with their hands in their prescriptions.

The drug has a broad appeal. It is not just a line extension as I talked about and patients are actually seeing a difference when... they feel different, when they take this drug they feel better, I will get to that in a minute.

The other flaw I think is that for some reason everybody thinks that the growth of this drug will stop in April 2008. We have this big deadline coming up... it's '09. And that's not the case. This drug is a new chemical entity and it is showing the growth rates that we'd expect of it and we expect that growth to continue well on beyond that in terms of a typical new chemical entity profiles. So there is no magic date there. Yes, that will affect ADDERALL XR, but this drug is being perceived as a different drug and being prescribed as a different drug.

So let me get in to that, turning to page 25; we call it the first prodrug stimulant. This is the intrinsically long-acting thing that gives us a predictable blood profile, and activity at least to 6 PM. We have consistent time to maximum concentration and that's very different than what we get from ADDERALL XR or IR or some of the other drugs in the market. They are unpredictable in terms of their onset and offset and their overall length of activity or effectiveness. We have seen significant efficacy throughout the day, even at 6 PM., and patients and physicians routinely tell us that that's the difference they see with this product. The adverse event profile is very similar to what we have expected and in fact we get better remarks on this drug than we get from ADDERALL XR. And you see the same thing you do with all stimulants. You get more adverse effects in the first week or two and then they decrease rapidly in the second and third weeks. So the liking effect is the third thing that we stressed, but however the most important thing is length of activity and smoothness.

Turning to page 26; VYVANSE patients reported coming from ADDERALL XR and other brands; we studied 10,045 patients that were started on VYVANSE and have enrolled and completed the baseline surveys. This is part of the couponing program as we get data back from these patients.

At baseline, 84% had used the prescription for ADHD prior to VYVANSE, so they are coming off of other drugs and you can see where they are coming from. Obviously about 40% from ADDERALL XR, but you can see that we are getting them from everywhere, including CONCERTA and STRATTERA, which is very interesting because that's exactly what our strategy is, is to go after the broad market. And it's interesting that we are getting quite a bit from STRATTERA because that is perceived as to be the safest drug in the market. So some of that liking effect safety we think is attracting people to prescribe this drug as an alternative to other drugs in the stimulant class.

Moving to 27; among patients who switched from ADDERALL XR to VYVANSE, 75% reported further improvement in their most bothersome symptoms. Now, what they did in this study is the same database that I just described, but they took another sample out of this of 455 patients, and they asked them what their most bothersome symptom was. The first was obviously inattention, and the second was hyperactivity, and the third was impulsiveness. Interesting, 96% of people in this survey said that they are either better, 75%, or about the same, 21%, adding up to 96% people think that they are better on this drug than anything else that they were on before that. That's amazing.

28; if we look at 8 out of 10 parents reported they intend to continue their child on VYVANSE after switching from ADDERALL XR, and this was when they were on drug for 40 days. So again, 96% said they either would, that was 80%, or maybe 16%, they're still thinking about it. But you don't see a lot of negative here. Usually by this time, two or three months out from the sales force, we would know if we have an Achilles' heel, a problem, a hook that the competition has to get at us, and I can tell you that we don't see any of that. Basically we see physicians trying the drug, getting very positive results, and very positive feedback from parents regarding how long the drug is acting and how smooth it is. We don't seem to get some of the effect drop off at the end of the day that you do, it's a personality effect that this drug doesn't seem to have at the same rate. So that's what they feed back to us, we can't promote that obviously, but we're just listening.

If we go to page 29; I mentioned we're taking product share from all products in the category and you can see how that's happening. That's a good thing. It means that they perceive this drug to be not only better than ADDERALL XR, but everything else out there, and that will help us over time. The perception of the drug is positive. The patients' willingness to stay on is positive. The leading indicators qualitatively don't get much better than this.

Turning to page 30; we have emphasized this once before, we want to do it once again. There has been a lot of projection based on weeklies and monthlies. We just want to show you how this market works and basically you can see when there is a holiday in summer, the prescriptions to total markets go down dramatically, 40% or so. And then when you see a Labor Day or a Thanksgiving or a holiday season coming up in December, you can expect the market to go down. So I think there has been some overreaction to that. We just want to show you historically how that's affected, and emphasized that the Back to School... we still got several more weeks to Back to School season. You can see it doesn't really fall off till the end of this month.

If we go to page 31; there has been some things written about Managed Care which are puzzling. There has been some things written about pricing and sensitivity in the market. We have not seen this. I would tell you our coverage is progressing as planned. It takes usually about 6 to 9 months to get a significant amount of Managed Care formulary acceptance and we are about a third of the way right now of getting the status that ADDERALL XR has. So we are well on track to meet that. We are not having the difficulties that people seem to be explaining to us; it's a mystery to us.

We've had... three of the top six targeted Managed Care organizations have added VYVANSE to preferred status basically in the last four weeks. We have a lot of negotiations ongoing and as I said, we expect parity with ADDERALL XR formulary status within 18 months and we are not getting the resistance that has been described in some of the papers I read. I don't understand it.

Okay, 32; VYVANSE demonstrated strong efficacy in adults with ADHD. You probably know that. We just presented it at one of the large meetings in a double-blind study, placebo-controlled, 4-week study with forced dose escalation in 420 adults. The adults were 18 to 55 years of age in that study. All doses were effective compared with the placebo as measured by the standard in this therapy class. We saw significant improvements. The adverse effect profile was similar to that seen with other ADHD drugs and trials in adults. And one of the big things that everybody was saying because it lasted longer probably disturbs sleep, it did not in this, the quality of sleep was the same. So pretty straight forward, this was the basis for our filing and we didn't have any surprises here. We think this will be a terrific ADHD adult product.

Moving on to 33, just to summarize; we had good uptake, we are getting to about a percent share a month. We are getting it from all sectors based on their participation. We are getting switching from drugs that were perceived to be the safer drugs, drugs like STRATTERA, and we are getting prescriptions from CONCERTA. So the strategy for this drug was to go to broad appeal and have a larger opportunity than there would be if just... if it was just an ADDERALL switch, which probably in itself if we had done that would basically make people think that you could substitute that. And based on the favorable clinical profile of this drug's substitution, I think we would have a lot of resistance based on the patients and based on the physicians because of the symptom release... the symptom relief, excuse me.

We are tracking in line with the industry's best successor molecule launches. Again, this is a not a line extension, it's not like XR to IR, it's a new chemical entity and has a patent to go along with that and basically the clinical profile is markedly different in the minds of physicians and us. I say markedly in that they can... they basically tell us back that they are seeing longer activity to 6:00 P.M. and sometimes beyond, and they are telling us that they see more smoothness in the uptake and the offset of this product.

So we are getting good refill of the prescriptions, good data. We have got a few more weeks to Back to School. I mentioned the positive feedback. The Managed Care coverage is going as planned, in fact, maybe a little bit better. And VYVANSE has a tremendous growth potential beyond 2009. We do not believe that the absence of ADDERALL XR in this setting, albeit at a lower price, a generic price, is going to have a significant impact on the growth of this product.

We will bring the product to Europe. We believe there is a tremendous opportunity to build that market there, particularly the adult market, and we also have the potential for other indications and are doing exploratory work for that right now. So, VYVANSE is going to be around for a while based on our patents. It's going to be geographically diverse. We are going to take it to other places and we are going to take it to other indications.

Moving on to LIALDA launch update, it's on page 35. Growth continues, you can see by the chart it's fairly steady. You can see a nice separation between, and the same growth path between the news and the refills. That shows that we are still in a very good launch trajectory. Our growth continues. We have 6.3 monthly total Rx share and 9% of the news in September. So this is healthy. This is a successful launch.

If we turn to page 36, you can see that we have not harmed our own PENTASA too much of a degree at all. And I think some of the models had significant erosion and that we are not seeing there. And our total share of the market has reached 23.3%. So we are pretty pleased with that and we expect to see continued share growth in the market.

Moving on to 37, one of the big things is where is this going to come from and how often do these patients flare, when do they come in, et cetera. So, if we look at early data from June, you can see that it was roughly split 26% new patients, 23% switches, and then we had refills in there already. So, it's coming from all sectors and we are getting not just when they flare and that's very healthy. We are getting new patients, but we are getting switches off existing drugs, and you see that in the market share data.

So to conclude, we've upgraded our guidance. We are pleased to do that. The business is very healthy and that health is coming broadly from many products and areas of our business. Our revenue growth will be at least 30% in 2007, up from our previous guidance, which was at least 25%. Our launches are going very well. I think we are demonstrating a high level of ability to execute VYVANSE, we are getting enthusiastic response from physicians, all our leading indications are positive. We've had over 300,000 prescriptions to-date. We have had roughly 40% of physicians that have been willing to try this drug to-date, and we have had nothing but positive feedback. The buzz out there is very, very good, and patients like it, moms and dads as you saw want to keep their kids on it. And we expect that to continue to help this product grow.

ELAPRASE has had a rapid uptake in the U.S. and now the EU. As you know, it has been a very positive contributor. This drug is now running significant numbers that help our top and bottom lines.

LIALDA growth continues, I just said that. FOSRENOL, strong growth in Europe. Europe represents about 40% of FOSRENOL business just in less than a year out there. So it's really a runaway success in Europe. And DYNEPO as you know, launched in Q1, we've had great reception in Germany, moving into other countries now, and starting to see the dollar show up. And our R&D pipeline is moving forward.

With that, we will take questions.

Cléa Rosenfeld - Vice President, Investor Relations

Go ahead Sabrina.

Question And Answer

Operator

Thank you. We will now begin the question and answer session. [Operator Instructions]. Your first question comes from Brian White from Deutsche Bank. Please ask your question.

Brian White - Deutsche Bank AG London

Good afternoon. Just a couple of quick questions. Firstly, looking at the data you've supplied, based on the reception to VYVANSE, does this mean that there's really no need for products like INTUNIV in the future? I guess, we haven't had much of an update on that for a while. And then just secondly, have you seen much off-label usage of VYVANSE in adults?

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

Yes, Brian, I'll answer those backwards for you. Generally, ADDERALL had about 40% adults, the last data I saw it was about 30% adults. For VYVANSE you know we can't promote this, it's just the physicians now believe that these drugs work in all kinds of patients. And we will have the indication and the ability to promote in April of next year. And the INTUNIV we believe has a place in the market. We have some interesting data on that product. As you know, we're in negotiations, we have an approvable letter. We haven't been in a big hurry to launch simply because we want to solve those things, get the best label we can. And in the meantime, it allows us to focus on VYVANSE, which I think is the superior opportunity.

Brian White - Deutsche Bank AG London

Okay, thank you.

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

Thanks, Brian.

Operator

Your next question comes from Corey Davis from Natexis. Please ask your question.

Corey Davis - Natexis Bleichroeder Inc.

Thanks very much. I just have a couple of them. First, I realize JUVISTA is still a ways away, but... does it makes sense at some point, would you have to buy a commercial infrastructure to get into that market, i.e., a company already in that space or is it such a focused market that it's just as easy to set up your own sales force in that area?

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

Yes, good question, Corey. We've certainly thought about it. Obviously, when you license a product that has that potential, you start to think about how you're going to do it. And we think we could do it either way. We're going to try to do it in a very thoughtful way. We haven't made any decisions on that yet. We certainly reviewed our alternatives and what the implications for cost and return might be. Stay tuned.

And we see it as a regenerative business, not as a potion and lotion type of answer. We don't want to be out there with just derm products. We really want to go towards what the future is, and more importantly, we want to go towards out of pocket pay, in that segment about 70%... 75% of all those procedures and drugs are paid out of the patient's pocket with no third party reimbursement. So that certainly takes the pressure off of any pricing squeeze that may be coming now or in the future.

So, stay tuned. You're thinking like we're thinking. But again that infrastructure, we're not too excited about traditional derm business, would be my point.

Corey Davis - Natexis Bleichroeder Inc.

Okay. Great answer. Second question, I'm not sure if you addressed this at all or if I missed it. VYVANSE in '08, you've got estimates on the Street all over the place. How should we think about this without asking you for guidance? Should we straight line the current trajectory of scripts or is there something that can happen to accelerate the slope of that line?

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

Yes, it's a little bit tough to call. We're getting so much positive qualitative, it could accelerate... that's an unknown. I think the 1% a month that we're seeing is a good rate. It's certainly a good rate if you take ADDERALL XR out of your mind and you start looking at some of the other products that have been introduced over the last five years, you start to see that as a benchmark of a pretty good launch. Not pretty good, a great launch actually, it's among the best.

A straight line of that would be okay. I don't know which one to tell you. Certainly we're out there full force, we're out there with a favorable market. I mean, I'll tell you, I've never seen products with this willingness to treat and this willingness to come back and this perception that it's giving better relief than something out there. So... and there's really nothing negative here there could be... you could have some uptick. But I wouldn't give you guidance to that. I would say it could happen. I don't see any problem with a straight line, but again, this is all forward-looking and a best guess.

Corey Davis - Natexis Bleichroeder Inc.

Very helpful. Thanks, Matt.

Operator

Your next question comes from David Buck from Buckingham Research. Please ask your question.

David Buck - Buckingham Research Group Inc.

Yes, thanks for taking the question. Matt, you talked a little bit about the couponing impact, which I think is helpful. Can you talk a little bit about what impact you think managed care is going to have on the growth of VYVANSE? You mentioned that you're only about a third of where you expected to be on...

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

No, no, no, no.... what I said is that we're a third of the way to where we are with ADDERALL XR. Please, please let's get that straight. That's not true. If anything, we're ahead of where we expected to be, a little bit, because that's our... again, our standard is XR in terms of acceptance by managed care.

I would tell you, we are not getting huge pushback. I would tell you another thing. One of the pieces of our strategy, which we emphasize when we see you on one-to-ones is that we want symptomatic disorders. And here it really comes into play. You have a patient that feels better and believes that this is a better drug on this drug, and you have a parent that wants that drug, I think managed care will be very careful in terms of considering this drug for approval because it is better.

And secondly, I don't believe when ADDERALL XR does go away in '09 that this will be substitutable. The profiles of these drugs are different enough where we don't have to prompt somebody to tell us they're different. And they're going to feel different if they change them and that's going to be a problem.

So as I said, we're not seeing any problem in managed care. That is a misnomer. People have written about it and I don't know where they're getting that from. We're not having a problem. I talked to our sales people yesterday, and they told me right now with three months' effort, they're a third of the way where they are with ADDERALL XR in terms of acceptance and also tiering.

So it's a little better than we expected. We think that we can be where ADDERALL XR was in the same timeframe that ADDERALL XR got there, which we said was about 18 months.

David Buck - Buckingham Research Group Inc.

Just to put it another way. I mean, why [inaudible] acceleration that in VYVANSE if the managed care does pick up towards ADDERALL XR levels, why wouldn't it be above the 1% or so script growth?

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

I think it's just a matter of physicians trying it. It's a new chemical entity, they want to see what it does and I think they want to get feedback from their patients and that's starting to happen.

David Buck - Buckingham Research Group Inc.

Okay. And one other one on... you talked in the past, Matt, about the ability as we get past some of the launch phase to leverage the SG&A as a percentage of sales. Can you give current thoughts on that, what you're seeing in terms of...

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

Yes, you're seeing it already and I'll let Angus comment on it, but you're basically seeing that start to happen. We were above 50% SG&A before all this started and I think Angus just mentioned that. You're seeing us now in the high 40s and our goal would be to get it down to the, well, lower than that at some point. And we're working to... we're going the right way. Angus, do you want to make some comments about that?

Angus Russell - Chief Financial Officer

Yes. Just going to back to it, I thought... we sort of said that on page 16, I mean that was the point I was making, Dave, which is that we're at 52% last year, we're at 47% year-to-date this year and 46 in the quarter. And I said I, the full year guidance, even with a small dollar increase, it calibrates to being still in that range of 46% to 47%.

So I reiterate again, that's a whole 5% to 6% improvement in operating margin that's come from reducing SG&A. And I also said when I was presenting that slide a moment ago that I expect that over the next one to two years, we will see that continue to improve. Not perhaps by the same degree we've seen in this full year because we've got growth of over 30% now on the top line. But certainly, I do expect to see a continuous improvement going forward and we will anchor that a bit more when we get to give some guidance for next year.

David Buck - Buckingham Research Group Inc.

Great. Okay, thank you.

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

Thanks, David.

Operator

Your next question come Dani Saurymper from Goldman Sachs. Please ask your question.

Dani Saurymper - Goldman Sachs Equity Securities (UK)

Yes, a couple of quick questions if I may. Just Angus, coming back to the divestment of products to Almirall, can you just talk us though... you've given us the quantity of sales, any indication of profitability of those revenues? And related to those divestitures, should we anticipate any further divestments as you look through your portfolio and review that? Secondly, when can we expect the further abuse testing studies to come through on VYVANSE? And I will leave it just there. Thanks.

Angus Russell - Chief Financial Officer

Okay, yes, the Almirall products, I think you said previously, the sales of that were in the sort of mid 50s type range. And the EBIT on that is... it's like $10 million, $12 million, something like that. It's sort of around that sort of range. I mean, clearly they move around a bit from time, but that would give you a range of EBIT to take out your models. So I'd say just put low 50s of sales or mid 50s of sales and about a 10 to 12 EBIT. Sorry, what was your second part, Dani, you were saying that other thing, other divestments?

Dani Saurymper - Goldman Sachs Equity Securities (UK)

Well, potential for further portfolio reviews?

Angus Russell - Chief Financial Officer

Yes, it's an interesting point. I mean I'm keen and I think lots of people I talk to know that the point I always stress that it's as important in this industry... I strongly believe it's as important to clean up your portfolio over time as well as making good acquisitions to make good divestments. I think we feel that that divestment we've just done is good, in the sense that it allows us to concentrate on our core products. I think it's good for both parties. I think for Almirall, they're looking for good products for Europe and these products as I just said, are profitable and growing still. And that's been a good deal for both parties.

But for us, what we're trying to do here is move from products that were, if you like, part of Shire's history, not a lot of those were small regional products. What we're trying to focus the business on is now the big core global franchises that we're trying to build. So as we build up the global ones, we're looking gradually through the portfolio. If these products are very cash-generative, like a CARBATROL or a XAGRID, then they're cash generators for us to keep. And a single product of that magnitude is still worth having. But there are other things we're focusing on, and other things that you will see us probably do over the course of the next 12 months in continuing to clear up the portfolio.

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

Angus likes to think he's in sales. And when he sells, he runs in and says 'I sold something!' And I tell him it's more important to sell things over time. Sorry about that. Anyway.

Angus Russell - Chief Financial Officer

And then there was the final question you had as well. What was that?

Dani Saurymper - Goldman Sachs Equity Securities (UK)

Yes, I think there's some further abuse testing studies to come...

Angus Russell - Chief Financial Officer

Yes, that's right, yes we did say that. We were interested obviously in the first studies that were run by the New River folks. We've continued to look at that and we have run some slightly larger studies and they're being evaluated. There's a series of those and I don't think we will be in a position to comment on that until probably around the middle of next year. So stay tuned for that. But I would suggest that no one should be banking on anything there. As I say, it was interesting information, we want to explore it further, but not till the middle of next year.

Operator

Your next question comes from David Steinberg from Deutsche Bank. Please ask your question.

David Steinberg - Deutsche Bank Securities Inc.

Okay. Thanks. On FOSRENOL, it looks like your marketing initiatives in Europe are doing well and the product has done nicely in the first year. In the U.S. though you've enlisted a bigger company to help you and despite all these efforts, you are still at about 9% share. Is there any new initiatives you can take or are the prescribing habits of the prescriber base entrenched so that you are just not going to move the needle there? How should we think about trends going forward in the U.S. for FOSRENOL? And then secondly, Angus, on the tax rate, I know you had a benefit this quarter. Any spillover into '08 and '09 in terms of potential lower tax rates?

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

Okay. Just on FOSRENOL, you pointed out an issue, we are disappointed with the U.S. We are ecstatic with the European performance. It's interesting we did some of the perceptual work recently on the product in the U.S. and it's perceived as the most effective, which is nice. There is this lingering doubt in their mind about metals, and we have six years' data now and we haven't had any issues with it being a metal, but our competition has successfully planted that in their mind. I am not so sure we can ever change that, so I don't... there is a limited time in which we will invest in the rate in the U.S. that we continue to. We haven't pulled that plug yet. But obviously Europe is doing terrific and the drug is going to be a couple... it's going towards a couple of hundred million dollars if we keep going in the right direction. So it's a significant contributor.

But I would say the U.S., I don't have great hopes for it, it's late in the game now. Usually when you get this far out it's difficult to change a trend and make it meaningful. So I am disappointed. I think our guys tried really hard. I think that the two year jump that our competition had on us allowed them to put a lot of doubts, none of which were substantiated by the way in the minds of physicians, but they have caused it to be reserved and we often get either second or third line therapy, and that's very, very difficult to change at this point.

So, I would say we are going to give it one more little push, we are trying something new. I won't mention what it is in terms of what we are going to do with our reps in the doctors' office. For competitive reasons I won't mention it, but again I don't think you are going to see it jump to a 50% growth rate or something. So...

Angus Russell - Chief Financial Officer

Tax rate. Tax rate David...

David Steinberg - Deutsche Bank Securities Inc.

Yes.

Angus Russell - Chief Financial Officer

Yes, just go back to what I said, let's just recap again because it then allows me to talk about what how that rolls forward. I said there were two issues really about the benefit in this quarter on the tax. One was this mix effect was that, say, with the large amounts of upfront expense in Q3 in regard to VYVANSE launch and one or two of the other launches in the U.S. From a mix effect across a global company, we were able obviously to have deductible tax expense in the quarter in a relatively high tax jurisdiction. So that's a mix effect and that is difficult until we sort of got some of our budgets in and we know first we have to decide our budgets and we are in the middle of that process right now, then we look at the mix of all the profits and what that means for our tax charge. So that's something we are sort of working on this part of the budgeting process.

The other one was really just a one-time benefit associated with these reviews and tax audits that have come to conclusion. They take 6, 9 months to run and they have come to conclusion in this quarter and that's allowed us to get a much clearer picture of the liabilities in various markets, it was principally the U.S. and the UK where a sort of a regular normal reviews, annual reviews were being done by the revenue authorities. So, one of them I'd say I'd characterize those latter ones as just one-time befits. A mix effect, I have got to look at that in the context. So what I would I ask as I say I think is that you continue with your 26 projection for next year and then as part of the guidance when I come out with that probably, obviously next Q, we will give you a much more specific steer on the tax. But I hope that we can do something, but I don't know that. So I'd just ask you to leave it at the 26 level for now.

David Steinberg - Deutsche Bank Securities Inc.

Fair enough, thanks.

Operator

Your next question comes from Frank Pinkerton from Banc of America. Please ask your question.

Frank H. Pinkerton - Banc of America Securities

Hi, first question, just to clarify on the earlier question that was asked about abuse. Is that the New River pain products that you gave guidance, you wouldn't update until middle of '08?

Angus Russell - Chief Financial Officer

No sorry, Frank, that was... I think the question was in respect to abuse liability in regard to VYVANSE in ADHD, so it was that question.

Frank H. Pinkerton - Banc of America Securities

Can you then please update us or give us any update you have on the... I guess the products that were in New River that were abuse deterrent pain products and if those are going to be carried forward and where those stand?

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

Yes, we are continuing to work. In fact, we are encouraged by the possibility of a pain product based on the New River technology. We had to reformulate and do some things, so we are being a little bit quiet about it. But we think there is a product there that works and would have... would be attractive to the market for some of the reasons that have been previously cited. Stay tuned. Yes, it's going to be middle of next year also just coincidence, but our guys are working on it, we should have an update for you. We are planning on doing some R&D overviews for you next year of what we are working on. We haven't done that in a while.

Angus Russell - Chief Financial Officer

Probably worth adding, it came up earlier, but just to reinforce because it's part of the whole thing Matt mentioned on the slide, final wrap-ups, in VYVANSE we're looking at other indications for VYVANSE. And again, we've started a couple of programs there, we don't speak about them yet because they are obviously going through sort of proof of concepts and early evaluation, but we try... I think what we try and do is some time in the first half next year, is give broad update on the VYVANSE molecule and its application, both in abuse liability in ADHD, the pain product in terms of looking at carrier wave, if you like, in other uses, and then VYVANSE in other indications. So, we'll try and do an overall summary of that some time around the middle of next year may be.

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

Yes, we have some other interesting ideas for carrier wave technology tank at this point.

Frank H. Pinkerton - Banc of America Securities

Okay, great. And then just as follow-up, can you explain, I guess rationale or the strategy you are going to employ with pricing between all of your ADHD kind of drugs going forward? Is... are certain ones going to be priced at a premium, is there a way to drive adoption or sales of certain products by changing prices in other products? What's the kind of goal and philosophy you guys are going to take on the pricing side?

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

We don't discuss prospective pricing for many obvious reasons, but I would tell you that this is not a particularly price-sensitive situation. I've said that, people don't believe it. So I'll tell you what I believe. I believe that the most effective drug in this market will be paid for by both third parties and out-of-pocket as it is now. And I don't think any creative pricing strategy is going to have a marked effect on adoption. It's about effectiveness, it's about what the psychiatrist or the treating physician wants and it's about the feedback they get from their patients in this market, it is an unusual market. Psychiatry in general is that way and there is a huge patient loyalty in this market to a product that works for them and I just don't see it being a huge factor and I don't think that it's one we want to pin our success on.

Angus Russell - Chief Financial Officer

Just for clarity, because it's a post-quarter event and I think a lot of people are aware of it, it's a publicly announced price increase. But just for the record, basically we put an 8% price increase through in ADDERALL XR on the 1 of October. So just to make sure everybody... I know most people are aware that because like I say it's a publicly announced price increase, but just to make sure for the record everybody does know that.

Cléa Rosenfeld - Vice President, Investor Relations

Next question?

Operator

Your next question comes from Ken Cacciatore from Cowen and Company. Please ask your question.

Ken Cacciatore - Cowen and Company, LLC.

Hi, thanks. Just a couple of questions. First, from my understanding of the press release, you indicated that you might be able to launch a couple of the lower doses of VYVANSE. So I was wondering if you could let us know what part of the market maybe this has hindered you at, or how does it compare to ADDERALL XR in terms of the lower doses? And then, Matt, more of a theoretical question, as you continue to do work with VYVANSE and build the safety dossier on it on the lower abuse, at what point do you stop feeling comfortable that you... as you're manufacturing ADDERALL XR, if you believe it's actually less safe than VYVANSE and you have a lot of time with VYVANSE, do you just stop feeling comfortable manufacturing ADDERALL XR, or go to the agency and ask... and kind of discuss that with them?

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

Okay, two questions in that. We don't think that ADDERALL XR is unsafe, and based on just ethics, I wouldn't withdraw the drug. I think it would look like you were trying to manipulate the market. I think that the thing to do is gradually let it die or naturally as it dies ultimately in 2009. I don't think you are going to see us do anything like that. I think that we have a superior drug in VYVANSE. I think the market recognizes it, and I think the adoption will be a steady growth that will be impressive over time.

As far as the intermediate dose, as we call them, they are not lower doses. And there hasn't been a dosage issue with any of the feedback we've received in the market in this drug. As you know, we got three... we have three doses now. We have some in between doses for better titration coming, simply because it's an offering that allows the physician more flexibility. I can tell you that the perceived need of it is not going to knock your socks off in terms of any changing growth.

Angus Russell - Chief Financial Officer

We did the same with XR, Ken, just so you're aware. Historically, I mean, it's been our patent, we launch with three dose strengths and then as Matt said, we call these betweeners, the in-between thing doses and we did the same with XR. We launched with three and then within about six months we added the final three, so that gave us a range of six every sort of 5 milligram strength and this is just replicating that -

Ken Cacciatore - Cowen and Company, LLC.

Okay.

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

Our impression is there is actually less of a need for in-between doses, although we will have them in this drug because of the smoothness it has. You don't get the spiking which seems to be a little more noticeable when you're using XR.

Ken Cacciatore - Cowen and Company, LLC.

Okay. And I don't know if I saw it in the presentation, but can you give us a sense of the target physician penetration rate with your sales force at this point?

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

Yes, we cover roughly half of the prescribers. We basically aim the representatives' efforts at the physicians that prescribe the most and we do it in deciles like everybody else does, and we've basically gone to... we used to do, say, the top three deciles because they wrote about 75% or 80% of the business. It's usual in the business. We are actually covering a little better than that now, over 40%

Ken Cacciatore - Cowen and Company, LLC.

Okay, thanks, guys.

Operator

Your next question comes from Graham Parry from Merrill Lynch. Please ask your question.

Graham Parry - Merrill Lynch International

Thanks for taking my questions. First of all, could you just quantify the stoking benefits both in ADDERALL XR, but also for the total revenue line in dollar terms across the entire portfolio?

And then, secondly, on tax, the $46 million of tax adjustments that you've used to get to the cash EPS number, could you just clarify whether that includes or excludes the $23 million or so of write-backs that you have booked in the reported number? So does the cash EPS include or exclude that tax benefit? Also, what tax rate are you using to get to that $46 million? So is it 34% excluding the write-back or is it 17% on the non-cash items plus the write-back?

And then, finally, one for Angus on growth rate into 2008 on costs. Obviously, you are early in your budgeting process at the moment, but you previously talked about some slowing off in cost growth, I think, to sort of high single to low double digit rate. Is that still way you're talking at the moment, without giving any specific guidance?

Angus Russell - Chief Financial Officer

Yes, I think all those tax effects, Graham, I would suggest, in the interest of time and everybody else on the call, give us a separate call, we can talk to you about... talk you through the non-GAAP and all the tax effects because that's quite complicated, so.

Cléa Rosenfeld - Vice President, Investor Relations

Yes, we will do it offline, Graham.

Angus Russell - Chief Financial Officer

Yes, we will do that offline. But 2008, well, as I said before, I mean, that was the other question. Again, I said we've made a substantial improvement this year in terms of SG&A costs as a percent of product sales. I say again, and I told you already the financial full year guidance for this year, '07 is going to put us in the 46% to 47% of product sales, not of total revenues, a product sales range, down from 52% last year. As I just said, I hope that we can continue that trend. So, yes, there the is a point is I do expect both the dollar increase in both R&D and SG&A costs, we are working through all of that with our colleagues in the businesses, as you said, in our budget process, which hopefully will be complete around the middle of December. And then, so whilst dollars go up, I expect, with what I imagine will be a good still strong line top performance... top line performance, that we will see some improvement. It's not going to be clearly at the same rate of a 5% and 6% benefit on SG&A in just one year with that top line performance this year we have been able to deliver that. But I certainly want to continue making progress and I will set those targets for you all next year.

Graham Parry - Merrill Lynch International

And the stocking effects?

Angus Russell - Chief Financial Officer

Stocking effects, I mean, again, maybe it's something we should do offline with your particular interest in that. I mean, just because they are different on every product, so trying to express that is meaningless across the entire product range.

But I mean, what I would say is stock levels are normalized. I mean, what we now have is 3... 80%, more than 80%, 85% of our business is basically with three wholesalers in the U.S., the three, Big Three. Within there, we now have these contracts which anchor us into a range, which is about the range of between... it's around three weeks of demand in terms of the stocks they have to hold and there is a few days flexibility, but it's a lot tighter in these new contracts that have been introduced in the past year or so that limits their ability to flex that in any other way. So you don't see the old de-stocking, stocking effects that used to go through everybody's books years ago with big swings and the wholesalers.

So, general overview I would make on here is the stocking, de-stocking is pretty small across the entire product range, with the only exception being that aberration I mentioned on FOSRENOL in last year, where we saw those provisions put through for returns of one of the dose strengths that we launched earlier in the year. But absent that, I mean, stock levels are at a very normalized level on every major product and the movements in this quarter are relatively small. But we can talk to the specific numbers offline with you if you have an interest.

Graham Parry - Merrill Lynch International

That's great, thanks.

Operator

Your next question comes from John Boris from Bear Stearns. Please ask your question.

John Boris - Bear, Stearns & Co.

Okay, thanks for taking the question. It's a two-part question related to VYVANSE. First part, Matt, you indicated about the 300,000 scripts generated, I think you have given about a little over 130,000 coupons. Can you just comment on how you might be tracking the stickiness of those coupons? By stickiness I just mean how many of them have shifted to being a cash paying customer from initial 30 days supply. And then, where do you see as the rate of couponing going forward? And then, just a follow-up on the abuse liability studies.

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

Yes, hi, John. Basically, you're going to see the couponing gradually fall-off over the next, say, 18 months to a lower level and Angus will give you that... kind of where we end up with that. And we get a very, very high refill rate out of the coupon people, if they are willing to go do that and try it, it's... again, the guys told me it was over 90% and maybe we've got a better number as Angus looks at this, let's see.

Angus Russell - Chief Financial Officer

Yes, hi John. I mean, this goes back to slide 12. I don't know if you were there to pull up the slide, but that was what I took you through on slide 12, which is a representation of this exact picture, which is that the red bars on the slide... if you are in glorious Technicolor... the red bars are the level of coupon redemptions and, as I said, what you're seeing is they rose up in the early weeks, but now you can see a pattern of several weeks of very consistent leveling of couponing. In other words, we are getting a very consistent number of new patients who just got this first 30 days for a coupon. No one can get more than 30 days and what you are seeing, obviously, is a continuous refilling growth of the scripts.

So, I mean, I think this chart... if you look at just the calibration and the scaling here, you can see that we're somewhere between 25% to 30% of scripts now being couponed. And that's substantially down from when the early weeks, we were half to sort of 60% in some of the early weeks of Q3, which is why you have such a high couponing discount against them. But I think if you look at that slide and then the specific slide on the numbers, which was on slide 13, where I said we are at 39% discounts as an average across the quarter starting at 60% to 70% of all scripts in the beginning of the quarter, probably falling off to this 25% to 30% range by the end of the quarter. And now we are seeing it at this sort of 25% to 30%, but it's going to come down now as we get refills because we are holding the level of coupons, we are not accreting that and that's very clear, I hope from slide 12.

John Boris - Bear, Stearns & Co.

Okay, thanks.

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

It would be unlikely that we would go up in coupons -

John Boris - Bear, Stearns & Co.

Okay.

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

So it's either going to stay the same or go down and become a smaller percentage as the sales improve.

John Boris - Bear, Stearns & Co.

Thanks for the clarification on that. And then, just on the abuse liability studies that you have ongoing. Can you just comment on timing of filing and then any kind of negotiations you have had with DEA, FDA about the ability of those studies to be able to move the product from C2 to C3?

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

Yes, I wouldn't bet the ranch on C2 to C3. We have always kind of cautioned on that and I would tell you that probably timing of any kind of data that we have will be the middle of next year. We have a number of studies, it's not just one, and we have some that are ending now that we are analyzing, but we'll probably put it together as a package. I think the real thing is the important is... you got to remember that, from a physician standpoint, when New River was touting this drug, basically, their primary thing was about safety and abusability and all that stuff. That didn't play well with physicians. As we got out there later, as we bought the product and started doing our soft... the softer research, we... basically, it came... the most important thing and the thing that bothered them is the duration of activity, particularly as it relates to inattention. And the second one was the smoothness, this onset, offset, causes... can cause personality differences in kids, especially they tend to get a flat affect when they come off the drug or else they might get a little buzz when they go into it. And this drug does not do that, and that is very important to them. The third attribute was this whole abusability thing, they just... it's kind of like, not my patients. So it's nice to have, but the other two are the ones that are going to drive the business.

So again, as I said, I wouldn't hang my hat on it because I think it's going be difficult to change the C2 to C3 thing. I just... we always thought that was a challenge because it's basically an interpretation and it's a big statement when you say it. But I think the perception of the physician that this gets better would be helpful, but, again, remember it's the third attribute. So we are spending some more of our time focusing on the length of activity, also in some of our Phase 4 trials to reinforce that. But I will tell you the number one sales person for this product seems to be the parents of the kids that go on it. They come back in and they tell them that it works late into the day, which they like as the kid comes from school at that time. And that's often very dysfunctional for a family, and they say they feel better on this drug. And the parents notice that the behavior change is marked during that afternoon period. And that's the number one thing we get and that's what the doctors tell us back, and that kind of reinforcement circle is a very powerful thing for us and it reinforces certainly the message that our guys bring in.

John Boris - Bear, Stearns & Co.

Thanks.

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

I think we can take one more question. I don't want to drag on forever. As you know, you can always call us and we try to get back to you pretty quickly and especially with specific information. But I will take one more.

Operator

Your next question comes from Martin Wales from UBS. Please ask your question.

Martin Wales - UBS Warburg (UK)

Hello, one more question. Your R&D spend, which, obviously, at the start... or I think at the end of last year you commented on a certain level of spend, it appeared you weren't going to spend that money, at the end of... I guess, for the full year results, then it became apparent, obviously, you started to invest more in Phase 3, 4 studies to drive the products forward. Can you just give me a sense on how much money you are spending on clinical trials versus how much is, I guess, maintenance should we call it, i.e., how much is to feed the people -

Angus Russell - Chief Financial Officer

Yes, it's an interesting ratio. If I understand... well, you are saying maintenance. I don't know if you are talking about sort of overhead, if you like, people, we look at infrastructure and people and then how much is pure project spend, money just spent with CROs or whatever in the actual project. Is that what you were referring to?

Martin Wales - UBS Warburg (UK)

That's exactly it, yes.

Angus Russell - Chief Financial Officer

Yes, we are sort of around the industry standard. I mean, when we benchmark this, when you look it. It's about a one to one ratio, generally speaking. I mean, we have had a lot of benchmarking work, as I said, done as part of our performance review of everything and that's the normal feedback that you get about a development-based company like this, is that it's somewhere around one to one. We have been a little bit below that in the past, which I think was demonstrable of sort of perhaps the lack of some areas, the sort of areas we have beefed up and that's particularly important ahead of these... this degree of launches with things like medical liaison to support the product launches, and we have recruited quite a lot of new medics in the past year to support and they have been giving us great support and really helping drive these products launches. So it brought us up and we are sort of now beginning to move towards that one to one. It's probably still slightly beneath it, but we are getting near it and I think, as we move into next year, we will probably achieve that sort of ratio.

Martin Wales - UBS Warburg (UK)

But in general terms, it's almost a virtuous circle, if sales growth continues to grow strongly, you continue to invest in supportive studies, which hopefully in turn drives the sales growth. Is that right, what you think about it?

Angus Russell - Chief Financial Officer

That's absolutely it, Martin. I mean, it's pretty normal in the industry again to invest for one to two years post these launches. We think there is a lot of strong clinical data we can bring by doing more IIIb/IV programs to continue to drive the top line and that's what we made a decision on. We were holding back some of those programs until we saw how well the product's done. With clearly this sort of top line performance and the acceleration across this year, that's what we put in the press release, that we have now initiated some of those programs probably about a quarter earlier than we otherwise would have done.

Martin Wales - UBS Warburg (UK)

Nice one. I will save my other questions for offline.

Angus Russell - Chief Financial Officer

Okay. Thanks, give us a call.

Matthew Emmens - Chief Executive Officer and Chairman of the Management Committee

We appreciate everybody coming on the call today. I would just say I think it would be hard to find a company that's growing at this rate at this size in this segment. Our growth is coming across a broad range of products and geographies and we are continuing to invest in the business and I think our future is bright and sustainable. So we appreciate it, and we look forward to seeing each of you on an individual basis as we usually do. Thanks. Have a good day.

Operator

This concludes our conference for today. Thank you for participating. You may all disconnect.

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