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Abraxis BioScience, Inc. (ABBI)

Q3 2007 Earnings Call

November 8, 2007, 11:30 AM ET

Executives

Christine Cassiano - IR

Patrick Soon-Shiong, M.D. - Chairman and CEO

Lisa Gopala - EVP and CFO

Thomas H. Silberg - President, Abraxis Pharmaceutical Products

Carlo Montagner - President, Abraxis Oncology

Analysts

Elliot Wilbur - CIBC World Markets

Presentation

Operator

Good day ladies and gentlemen and welcome to the Abraxis BioScience 2007 Third Quarter Financial Results Conference Call. My name is Michelle and I'll be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions]. As a remainder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Christine Cassiano, Investor Relations for Abraxis BioScience. Please proceed Ma'am.

Christine Cassiano - Investor Relations

Thank you. Good morning everyone and thank you for joining us today to discuss our third quarter financial results, as well as an update on our pending separation. On the call today are Patrick Soon-Shiong, Chairman and CEO, who will provide an update on the status of the separation of the new Abraxis BioScience from APP; Lisa Gopala, Chief Financial Officer who'll provide an overview of our consolidated financials for this quarter; Carlo Montagner, President of Abraxis Oncology who will provide an update on Abraxane and our plans for Europe, and finally Tom Silberg, President of APP who will provide an update on the Generics business and our manufacturing facilities. Following the general update for the third quarter, Patrick and Tom will also spend time providing some additional insight to the slides we filed with the SEC today. These slides were also available on the Abraxis BioScience website.

This conference call is being broadcast live on the internet at abraxisbio.com, as well as earnings.com. A playback of this call will be available for approximately six months and maybe accessed on the internet at both websites. As always, I'd like to mention that during the course of this call, we'll make certain forward-looking-statements and actual results could differ materially from those stated or implied.

I would now like to turn the call over to Patrick. Patrick?

Patrick Soon-Shiong, M.D. - Chairman and Chief Executive Officer

Thanks Christine and good morning everybody. As mentioned earlier, we'll first go through a general update on the third quarter and then Tom and I will provide some additional detail, specifically surrounding the 8-K that was filed today. The 8-K provides additional detail on APP's business. As you also note, we've also issued a press release this morning that provide additional detail on the pending separation of the Abraxis business.

This year has been a very exciting year for us, a year in which we analyzed each business in more detail than ever before and implemented new strategies that allow each company as separate organizations to grow and prosper. As part of that process, our teams have worked very hard at completing the necessary stages to finalize the separation. To that end, the Internal Revenue Service has approved our private letter ruling that provide us the assurance that this transaction will be tax free to all shareholders. The Form 10 is now effective and we expect to be convening this to shareholders immediately and the detail of the debt financing has been finalized. We're very pleased with BA3 rating assigned to the secured credit facilities by Moody's. We expect that Standard & Poor's will publish their rating shortly and we believe that these ratings together, support our firm conviction in the long term growth of APP.

Although it's been an intensive focus on the separation, I'm especially proud of how our teams have continued to drive operations and to see the ongoing core strength of each business. From a revenue perspective, we are pleased to see that Abraxane has remained on target. From the APP perspective, while revenues have been affected in the recent quarters by supply issues and raw material, our teams have overcome some of these challenges, and I fully expect to see this business will continue to grow and prosper.

Consistent with what we have seen in the years past, revenue in the third quarter for APP products has been lower than what is seen in the second and fourth quarters, which reflects the seasonality of the acute care businesses through the third quarters. Both Tom and Lisa will go into more detail later in the call.

In anticipation of the separation of the Company we've increased our hiring of personnel resulting in increased G&A spend. But beyond that numbers, we've made a significant progress on several fronts. On the proprietary side, the future of Abraxane is strong, we have great potential for growth in the months and years ahead, as new indications for Abraxane are realized.

As we announced a few weeks ago, we reached a definitive agreement with the FDA under the special protocol assessment process. On the phase III trial design of the company's pivotal study for the treatment of non-small cell lung cancer in the first line setting. The primary endpoint of the study is overall response rate; and enrollment will begin in the fourth quarter of this year. The enrollment for this trial is aggressively being pursued. The SPA are also been submitted to the FDA worldwide head-to-head for the phase III registration trial comparing weekly Abraxane, to every three week Taxotere for the treatment of the first line metastatic breast cancer and as well as the phase III trial for melanoma.

And finally, I would like to provide a brief update on our manufacturing facility we purchased in Phoenix. The recent FDA inspection of this facility went very well. This inspection was the first official one for this facility under Abraxis banner and we're excited about the addition of the facility and what it will mean to our manufacturing capabilities long term.

Abraxis will be serving as a contract manufacturer for some of Watson's products, out of this facility for the next several years; and we also will extend the capability to this facility to create a center of excellence for the nano technology platform, as well as next generation manufacturing capabilities.

So, with that let me turn the call over to Lisa. Lisa?

Lisa Gopala - Executive Vice President and Chief Financial Officer

Thank you Patrick. What we did over the last quarters, the tables provided with the press release include segment reporting. These two segments consist of APP, which is primarily comprised of our hospital-based operation and manufacturing; and ABI, which focuses on the internally developed proprietary products and includes our operations at Abraxis Oncology and Abraxis Research.

Total revenues for the quarter were $241 million, a 19% increase over the same period last year. The hospital-based revenue increased $254 million. APP revenues are now expected to be in the lower range of the guidance previously provided, which is approximately 9% over 2006 revenues.

In the third quarter, Abraxane revenues increased 65% to $86 million which includes $77 million in net sales. As has been the case each quarter, since we initiated our co-promotion with AstraZeneca, we've recognized $9 million in deferred revenue related to this agreement. The companywide first profits for the third quarter of 2007 were $144 million or 60% of revenues. This includes recognition of deferred revenues in AstraZeneca.

In the quarter, gross margins at APP segment was 48%, first was 55% in the same period last year. This excludes the purchase price amortization and products acquired from AstraZeneca. The decrease in gross margin was primarily a result of the extended fat maintenance at our Melrose Park facility, chronic mix and higher distribution related costs associated with freight and fuel exempt.

Gross margin for the ABI segment primarily Abraxane, was 87% in the third quarter versus 86% in the same period last year, which includes the recognition of the deferred revenue under the AstraZeneca co-promotion agreement. Collectively, total R&D expense for the third quarter was $40 million, an increase of 83% from prior year. The APP portion of the R&D expense includes the increase in expense associated with the Puerto Rico manufacturing facility of $6 million. The ABI portion of R&D expense increased, as a result of higher spending on bio stimulus development and expenses related to our nearly acquired manufacturing facility in Phoenix, Arizona.

Selling, general and administrative expenses in the third quarter 2007 totaled $96 million or 40% of revenue versus $56 million or 28% revenue versus last year. They increased and companywide SG&A was due primarily to non-recurring legal cost, additional Abraxane cost for condition expense and expanded marking efforts in North America related to the co-promotion agreement with AstraZeneca and expanded margin activities relating to Abraxane.

On an adjusted basis, net income per share for the quarter was $0.15 versus $0.10 in the previous year. This excludes $15 million non-recurring legal expense; $8 million in amortization of intangibles; $1 million in separation related cost; $4 million in stock compensation and $3 million for the amortization of purchase price rights.

On a GAAP basis, net loss for the quarter of 2007 was $8.4 million or $0.05 per diluted share versus net income of $14 million or $0.08 per diluted share for the third quarter of 2006. As of the end of the third quarter, Abraxis had $34 million in cash on hand and $285 million in long-term debt. The net cash provided by financing activities were $72 million, which includes net borrowings of $120 million under our credit facility and includes a payment of the remaining balance of $67 million of the note payable to AstraZeneca. These net proceeds were primarily used to fund the acquisition of the Puerto Rico and Phoenix, Arizona manufacturing.

Now I'd like to turn the call over to Tom Silberg to provide an update on APP.

Thomas H. Silberg - President, Abraxis Pharmaceutical Products

Thanks Lisa. Both Lisa and Patrick have discussed the financials of the business. So, I would now like to go into more detail on the commercial and the manufacturing operations. I would like to first talk about the positive progress in our manufacturing facilities. As expected, a follow up FDA inspection of our Melrose Park facility was recently completed and I am very proud of the outcome. Our teams in Melrose Park and within our manufacturing organization have done a phenomenal job of going above and beyond what was required; and as a result the FDA concluded its inspection of that facility, and it has received a positive evaluation.

The issues that were previously raised in the warning letter have been addressed in the facility is now within compliance. As a result, in our target with guidance we provided earlier in the year, we have now received multiple approvals out of this facility. I will go into more detail on this later, but I would like to mention now that for two years running, we are the industry leader in ANDA approvals with 14 so far this year.

As Lisa previously mentioned, commercial operations in our Puerto Rican facility began in the fourth quarter with the release of Doxycycline. We successfully completed a several week FDA inspection which has allowed us to begin release of product and to expedite transfer of additional products into this facility. This release began after the conclusion of the FDA inspection of the facility. We expect that additional approvals will be received by the end of the year.

On the commercial front, while we expected that the average selling price for Diprivan would continue to decline, we remain positive about its position in the marketplace. Its market share is holding strong with two of our largest customers and we are now growing share with two of our dual awarded contracts.

Naropin continues to grow in both units and sales and we are moving forward aggressively with additional commercial activities which will be initiated in the first quarter of next year. This quarter we launched Cefotetan which has the longest half life of any first or second generation cephalosporin. This offers surgeons a convenient single dose option for surgical prophylaxis as well as secondary infections.

I am very pleased to say that we are the only supplier of these vial and we now have a contracts with all major GPOs and a long-term private label agreement with Novation. We also launched Doxorubicin which is commonly used in a wide range of cancers and now have a primary position with one of the largest national oncology customers.

I would now like to highlight a few approvals that we have recently received. We have received tentative approval for Irinotecan and full approvals for Epirubicin in four dosage forms, as well as liquid and lyophilized Fludarabine. APP is one of the only companies to receive a tentative approval for Renetecan and we are in the process of securing the contracts.

We are expecting to begin marketing of Renetecan which is the largest oncology product coming off patent in the near term. The branded product patent is expected to expire in February 2008. We also received approval for lyophilized version of Fludarabine as well as the liquid version. We have secured contracts for these products and we expect to launch in the fourth quarter of this year.

Finally with regard to approval updates, we received approval for four dosage forms with Epirubicin, two of which are unique codes and are not currently available in the market. We are one of only two companies who have received approval on all codes of Epirubicin. We expect to launch this product in the fourth quarter of this year.

Finally, we continue to fuel our development pipeline. We have over 60 product candidates in current stages of development and currently have 29 ANDAs pending with the FDA including tentative approvals. Present market value of the pending ANDAs is over $2.6 billion based on 2006 IMS reported sales.

The full development pipeline now represents approximately $9.9 billion in annual branded sales. With the six ANDAs approved in the third quarter and the additional five ANDAs approved in October, we have exceeded our goal for approvals in 2007 with a current total of 14 this year, of course including the four tentative approvals.

I would now like to turn the call over to Carl to discuss Abraxis Oncology and Abraxane. Carlo.

Carlo Montagner - President, Abraxis Oncology

Thanks Tom. As has been mentioned, the net sales of Abraxane for the third quarter of 2007 remain strong. Sales increased 79% to $77.3 million versus the third quarter of 2006. We continue to be pleased with the financial results we have seen so far this year with 11% growth in net sales this quarter versus the $69.6 million reported in the second quarter.

Two sets of data by NDC and IMS have captured the increased demand for Abraxane and highlight positive growth trends. According to IMS, Abraxane unit amount this quarter increased 57% versus the third quarter of 2006. For the third quarter in a row, Abraxane remain the fastest growing Taxane in the market. On a rolling six month, Abraxane led the Taxane market with 27% unit volume growth while both Paclitaxel and Taxotere's growth was only 1% and the overall Taxane market increased by 3%.

Abraxane holds a 32% patient share in the metastatic breast cancer market. In the second line plus metastatic breast cancer segment, Abraxane continues to lead this segment with a market share of 42.8% in September 2007. This reflects an increase of 10.1 percentage points versus September 2006. In second line metastatic breast cancer, there has been an increase of Abraxane usage in combination therapy.

This increase is mainly attributable to combination therapy with the Herceptin and Avastin. The combination of Abraxane and Avastin has increased 20% to 28% since January 2007. Beyond the growth of the Abraxane in the U.S. we also announced that we would commercialize Abraxane in Europe on our own. As many of you know, we took many months to consider the numerous options available to us, but we ultimately felt that this decision to commercialize Abraxane on our own in Europe was the right decision for the growth of Abraxane, the underlying business and the development of Abraxis as a global company.

We have now begun the process of establishing the necessary infrastructure for the commercialization of Abraxane across Europe. The launch of Abraxane in Europe will initially focus on the United Kingdom, France, Spain, Italy and Germany as these countries constitute approximately 80% of the potential European oncology market. Abraxis will leverage its current commercial organization as well its medical affairs and regulatory affairs teams and as a result, the estimated range of expenses in 2008 will be approximately $30 million to $40 million. As we had expected internally, we announced the positive opinion from the CHMP to the approval of Abraxane for the treatment of metastatic breast cancer in Europe.

An important aspect of this positive treatment is that it recognizes progression free survival and overall survival in the proposed life. Based on the clinical trial data submitted, the same of which was used to garner approval in the U.S. and Canada, the data demonstrates Abraxane had significant superiority in the clinical end points of response rate, progression free survival and survival when compared with Taxol in metastatic breast cancer.

We along with our commercial partner in India, Biocon Limited also announced the approval of Abraxane in India for the treatment of metastatic breast cancer by the countries Drug Controller General. Commercial introduction of the Abraxane in the Indian market is expected in 2008, following the completion of the appropriate importation certifications.

Abraxane remains under active review in Australia, Russia and China by their respective regulatory agencies and we expect this to lead in Japan, Korea and Taiwan over the next twelve months.

Finally, from a clinical trial standpoint, we do expect to submit the publication the final analysis from our Phase two randomized call comparing Abraxane to Taxotere in metastatic breast cancer. The plan is to present this data at the European breast cancer conference in Berlin, Germany in April 2008. I'll now turn the call over to Patrick. Patrick?

Patrick Soon-Shiong, M.D. - Chairman and Chief Executive Officer

Thank you, Carl and Lisa and Tom. So before we move on to the Q&A, I would like to direct your attention to the PowerPoint presentation that's been posted on our website and filed with the SEC.

So if you look at that presentation and I'll try and go through some to certain select slides to highlight the elements of that presentation. So if you look at slide number 4, as a reminder slide 4 provides an overview of the details of the transaction. It highlights what Abraxis looks like today i.e. pre-spin versus what each company would look up like after the close of the separation on Tuesday, November 13th.

Let me now focus a bit more on APP in particular and I'll direct you to slide 14, which highlight the increasing volume of United States injectable patent expirations. In 2006 alone, the United States Generic injectable market was approximately $3 billion, in 2008 key drugs are coming off patent such as Renetecan as Tom has mentioned earlier. Up to 2012 there is an increasing number of patent expirations which mean increased potential for growth for APP. Approximately 98 patent expirations representing approximately $13.6 billion in 2006, IMS sales are scheduled to loose patent prediction between 2007 and 2016.

This clearly highlights the opportunity of the injectable business in the United States. Turning now to slide 15, slide 15 clearly demonstrates that APP is a market leader in the general injectable business. On the left hand side of the pie chart, one could see from the APP unit share that over 80% of APP's products rank in the top three in both dollar and unit share.

Over 68% of our products, rank number 1 or number 2 in terms of unit share. On the right hand side one can see as, as Tom has alluded, we have consistently outpaced the industry. And from 2001 to 2007 year-to-date excluding the tentative approvals we have achieved a remarkable ANDA approvals.

Moving now to slide number 16, one could see that APP has really forged a strategic, really development opportunity such that injectable portfolio mirrors that of the overall acute hospital market needs.

So if one looks at the product mix between oncology products, and the ten effective products, critical care products, and anesthetics, APP not only enjoys the most diversified product mix within these injectable space, but mirrors most closely, the overall acute care market needs.

Turning to slide number 17, again I have alluded to this we are now number 1 in the injectable ANDA approvals from 2001 to the third quarter 2007. And as Tom alluded for 2 years running, we would be... we are the leading company achieving ANDA approvals in this injectable space.

Turning to slide number 18 which speaks to our development capabilities in pipeline. One could see counting the ANDA approvals for 2007, we have 14 to-date and we expect to probably like to anticipate another two which will bring us indeed that it could be a remarkable 16 approvals.

We have 29 FDA pending representing a market size opportunity of 2.5 billion in development and stability another 26 representing 6.4 billion and in feasibility 12 representing a market size opportunity of 1.7 billion and thus together with our pipeline approvals closed to $10 billion of IMS market size opportunities.

Turning now to Slide 21, I think slide 21 really speaks to other than the AZ product acquisition. The organic growth of this... which I am most proud, this organization has organically grown form '99 to 2006 compounded annual growth rate of 23% and even if you excluded the AstraZeneca products it will still be 20%.

So at 23% compound annual growth revenue from '99 to 2006 137 to a LTM as we now spoken of the 652 and 2006 revenue of 583 million. We have achieved a 54% gross margin in 2006 with a 43% adjusted EBITDA margin and strong cash flow generation, showing that the strength the financial strength the development strength and the organizational and management strength of this organization. So with that, I would like to ask now Tom to discuss a bit more with regard to information as some of the product slides that are included in this text.

Thomas H. Silberg - President, Abraxis Pharmaceutical Products

Thanks Patrick. As you all know, we tend to look at our business by therapeutic area and we commercialize products and strategize products within each one of our therapeutic areas and what I would like to do, is walk you through those areas and then cover some highlights of our manufacturing facility. So, if you turn to slide 27, I will start with our anti-infective group of products. We have 21 marketed anti-infective products that include both U.S. and Canada and as far as performance, eight of those products are number one in market share here in United States.

This therapeutic area represents a 28% growth since 1999 and relative to product development we have 12 ANDAs pending and seven additional products that are in anti-infective class that are in development. Some of the key products that we have... that demonstrate different strategic approaches to commercializing products from a hospital business. One would be Vancomycin, which is indicated for Staph and Strep infections. It is an example of us entering a very matured generic market and competing quite effectively. Azithromycin, which is indicated for Pneumonia as an example of us being first generic to market, there was one authorized generic on the market and an innovator but our new product development group saw to it that we were able to achieve approval into that market at patent expiration. Ampicillin and Sulbactam is indicated for gynecological infections and that's an example of existing market with existing generic players but a supply problem that we took advantage of and entered the market and have been quite successful subsequently.

On slide 28, we'll talk a little about our anesthetics and analgesics and this is specific to the products that we acquired from the AstraZeneca Company. We did acquire 8 products back in June of 2006, and they represent over a 100 different dosage forms. We have a five-year supply agreement with AstraZeneca to manufacture these products, as well as right of first offer to license Naropin and Diprivan outside the U.S and the right of first negotiation for any authorized generic injectables within the U.S. Some unique parts of this group of products Diprivan and Naropin are patent protected, Diprivan has a formulation patent and Naropin is patent protected. The revenue stream of the entire product line in second half of '06 was around a $112 million and our late last 12-month revenue, we're anticipating $202 million in revenue.

One thing I would mention on this is it took us a very short period of time to completely absorb eight products and 100 dosage forms into the organization, which I think demonstrates our current marketing distribution and SAP infrastructure that exists within APP.

Turning to slide 29, our critical care products, we have quite a few products in this category of 60 marketed injectable products again in the U.S and Canada. In this case, we have 15 products that we are number one in the marketplace and additional 10 products where we share... where we are number two in the market. There were 15% growth since 1999 and again ANDA is pending in 19 additional products in development. Key products here are heparin, HydrALAZINE and Protamines they are examples of blood clotting products and high blood pressure products and a heparin reversal agent. These are all products and institutions use on a regular and daily basis and we have a different examples of mature markets, us being number one in dollar share and units and heparin, number one in dollar and unit share on HydrALAZINE and with Protamine, we are the only company that manufactures and commercializes Protamine again in a ... a product that all hospitals need to have available for any heparin reversal requirement. And we have the exclusivity on that product and of course utilize that to enhance all of our contracting physicians with group purchasing organizations.

On page 30, I'll talk a little on our oncology line we have 16 marketed injectable products, 33 dosage forms and formulations. We are number one in the U.S. for five of these products; we have a 23% growth since 1999. We have nine ANDAs pending and 12 additional products in development. Key products here are Mesna Fluoracil and Ifosfamide. Mesna, which is a chemotherapeutic product, we were the first generic to market. Fluorouracil, which is indicated for colon cancer, it's a very mature market, product has been engineered for a long time. But we dominate that market in both unit and dollar share. And Ifosfamide for colon cancer, we again were the first generic to the market and we overcame a citizen's petition and had 6 months of exclusivity. So, another example of the strategic approach to entry in the market with a key product.

If you skip now to page number 37, I'll highlight our commercial manufacturing facilities, first Grand Island, Grand Island is our largest manufacturing facility, has 342,000 square feet and has a capacity of 160 million annual... units annually. We have a septic biofilling terminals sterilization. We have 6 lyophilizers in Grand Island and you see some of our key products are Oxytocin, Heparin, Diluin [ph] and we also manufacture Abraxane in Grand Island and it is EU compatible for manufacturing.

Grand Island also has a surplus foreign facility, which can manufacture up to 112 million vials annually. It's a dedicated aseptic powder facility; we're the only generic manufacturing company that has its own surplus foreign facility that manufactures first, second, and third generation surplus foreigns.

Melrose Park, slightly smaller facility has a capacity of around 50 million annual units and around 130,000 square feet. It also has 6 Lyophilizers. We primarily make all of our oncology products here as well as Vancomycin, and Azithromycin, and some other fairly important and large products in the anti-infective therapeutic area.

If you move on to 38, I'll just lightly touch on our recent acquisition which is the Puerto Rico manufacturing facility. It was acquired in February 2007, from Pfizer. It's a facility that has around 51,000 to 52,000 square feet and has a capacity... current capacity of around 42 million units. We have aseptic vial filling in this facility, and we also have two lyophilizers as well as the ability to manufacture metered dose inhalers. As was stated earlier in the call, we did get our first approval from Puerto Rico which is Doxycycline. We have two additional products DiphenhydrAMINE and Azithromycin which we anticipate now that the FDA inspection has been ...is completed and is a positive inspection. We anticipate that we will have those two products hopefully commercialize from Puerto Rico before the end of the year and we have 45 additional products that are designated to be transferred from here to Grand Island or Melrose Park to our Puerto Rico facility.

I will turn now the call back to Patrick who will highlight some of the key aspects of the summary income statement which is on slide 44.

Patrick Soon-Shiong, M.D. - Chairman and Chief Executive Officer

Thank you, Tom. And I before I conclude I just want to clarify and when I said about the 14 approvals, I also meant when the two anticipated as approvals as Tom alluded to, the anticipated approvals, which in from Puerto Rico. So, in the sense we anticipate that we'll 14 ANDA approvals in this year.

So, I know you have now been a provided a lot of information in this call so, before I really conclude I read what it is like to then in summary bring you to an important slide, slide 44 which from a historical perspective, really gives you the historical income statement really gives you the historical income statement of the company. And as you could see from that income statement, I'll refer you to the last column which is the last 12 months ending this third quarter and as you could see from that, our revenue has achieved $653 million with a gross margin approximating over 50% and from ...on that basis you will also see that we have given a range of our EBITDA... expected EBITDA range of $258 million to $263 million with a EBITDA margin again approximating 40%, which I think is a remarkable achievement for an injectable base generic company.

I'd also like to mention that Tom will be presenting at the Credit Suisse Conference in Arizona on Wednesday, November 14, focusing purely on the APP business. I will be presenting at the Lazard Conference on November 28 and we'll focus purely on the new Abraxis business. In addition, both Tom and I look forward to spending more time with each of you and in particular, we'll be going on non-deal road shows after the first of this year. So, with this time available, we would now like to address any questions you may have. Operator?

Question And Answer

Operator

: [Operators Instructions]. Your first question comes from the line of Elliot Wilbur with CIBC World Markets. Please proceed.

Elliot Wilbur - CIBC World Markets

: Thanks, good morning. First quick question for Lisa with respect to the segment data that's in the press release, is depreciation amortization included in the pre-tax segment operating income?

Lisa Gopala - Executive Vice President and Chief Financial Officer

Yes, in other; if you look at the table.

Elliot Wilbur - CIBC World Markets

Okay and I guess specifically for the APP segment, you have a number of 57,920,000 in terms of pre-tax segment operating income. I couldn't tell if depreciation amortization was embedded in that number or not?

Lisa Gopala - Executive Vice President and Chief Financial Officer

No it's in other.

Patrick Soon-Shiong, M.D. - Chairman and Chief Executive Officer

Elliot this is Patrick. I'm not sure if you listened to the response it's not embedded in that number and it's embedded in I think other, we are looking for the line which says other.

Lisa Gopala - Executive Vice President and Chief Financial Officer

If you see there is a note on the bottom of the table it'll walk you through what's in other.

Elliot Wilbur - CIBC World Markets

Okay, so it's... all right I'll find it later; it's not in that number. Okay and just... with respect to the revenue guidance for the generic segment now kind of expecting towards the low end of the range I mean is that just simply a function of the fact that it maybe took a little bit longer to get past the FDA issues than you originally expected or is that bit more to kind of fundamental changes in the overall market environment for injectable generics?

Patrick Soon-Shiong, M.D. - Chairman and Chief Executive Officer

Let me take that question, and then Tom can add anything if he wants to add to that. You know I think we got hit very much in the first and second quarter with the raw material issues which actually carried all the way through unfortunately through the third quarter on one of the anti-infective raw materials which we've now resolved by actually making sure we have not only raw material supply but also finished dosage on terms of supply from two other sites, one in Brazil and one in Italy. So and those agreements are now just been executed, so I think moving forward we've addressed that issue. The other issue that hit us unexpectedly was inability of supply from the AstraZeneca products in the first quarter, second quarter and even trickled into the third quarter. AstraZeneca has graciously worked very hard to rectify that and has increased the number of lines that they run now. I think we surprised ourselves and AstraZeneca with regard to robustness of the pull through of those anesthetic products. So you know it's very hard to climb out of those first three quarter events and then we also... that and I think we made the right decision.

We spent inordinate amount of time in this third quarter shutdown and the second quarter shutdown and took it into the third quarter to absolutely ensure that the Melrose Park would meet all standards for the FDA and as Tom said in his presentation went over and above what the FDA required for an over abundance of caution because not only was it planned a responsible for the injectable business, but also for the Abraxane U.S. but also for the Abraxane approval in China, so there was a lot at stake with regard to getting that planned up and we spend not only a lot of money, but a lot of time. So taken together I think, of three things. Number one, the anti-infective raw material supply which we have now resolved with not only I will term it raw material, but I won't term it finished dosage forms.

The AstraZeneca product inability which we have now resolved with AstraZeneca adding another shift to the line and then obviously thank goodness we've already done very well in addressing all the issues in invested largely in our Melrose Park facility. So we felt that on that basis, the year is what the year is. And we will hit the low end of the range, but looking to 2008 with approvals of Renetecan, approval of Epirubicin, the launch of Doxarubicin, the launch of Cefotecan, the launch of Fludarabine, which all came in the third quarter. Actually in the fourth quarter not in the third quarter, in the fourth quarter, I think that's where we why we were very much excited towards and I think this spin of the transaction truly will allow APP to focus its efforts on its business.

Lisa Gopala - Executive Vice President and Chief Financial Officer

Elliot, this is Lisa. Just to answer your question earlier. The depreciation is included in, what has been allocated is just the amortization and the AstraZeneca products and non-cash comp.

Elliot Wilbur - CIBC World Markets

Okay, thanks. And then Patrick or Carlo, can I just ask you a question about the launch of Abraxane in various EU territories and I guess specifically for Carlo, can you just may be give us a little bit of color perspective on the markets that you expect to be launching into means specifically what is the current split between Paclitaxel and docetaxel, is Paclitaxel generic in all those markets or just a couple of them may be rough metrics in terms of volume size or dollar size of those markets?

Carlo Montagner - President, Abraxis Oncology

: Well let me give you general flavor and I think on details I am happy to sort of take that off-line because I don't have the specific details, but the market characteristics is slightly different in Europe than they are here. So let me first address the five key countries and I mention that you know first five key countries represent 80% of the business, but really France and Germany of that 80% of the business represent the overall bulk of those five countries. So we are definitely focusing on those two. So if you look at... so if you look at metastatic breast cancer, Taxotere is clearly the standard in metastatic breast cancer, it was developed primarily in France from Sanofi-Aventis obviously but it is the standard so hence the announcement that we will be presenting our final results of our randomized study versus Taxotere at the European breast cancer conference in April which is a well attended conference 5,000 to 6,000 oncologist from Europe attend that meeting. If you look at Paclitaxel generic, it's a good question because the dynamics there are very different to the U.S. there are less generics there I believe, two... may be three at the very most but the price erosion is much less of Paclitaxel in Europe and has been the case in the U.S. So the price is significantly higher for Paclitaxel generics in Europe generally across the board particularly in France and Germany and the U.K. So, we believe that, why that while we are going to approach the launch in Europe is we are going to focus at first on the U.K. and Germany which are free markets, these are not markets that is dictated by reimbursement and then we will be launching very quickly after we achieve reimbursement in France while this in the later half of 2008 and then focusing on Spain, Italy afterwards but Abraxane will be available for distribution across all the 30 member states of Europe from around April of next year, so.

Patrick Soon-Shiong, M.D. - Chairman and Chief Executive Officer

And also let we add something to that with regard to the color. I think one of the interesting thing as Carlo mentioned in his presentation is that our European label has allowed as opposed to the U.S. label, the progression free survival and overall survival in the proposed label and as Carlo said we will show in the label the data will show that Abraxane had significant superiority in terms of progression free survival and survival when compared with taxol in its indication in metastatic breast cancer. I think that's a very, very important element of that label.

The other thing that I think we will be presenting and has therefore represented that Taxotere is one of the strength as actually in Europe what we have represented at previous meetings and we will now put into final publication as we lock the data is that we have now shown in a head-to-head trail against Taxotere was using weekly Abraxane versus three weekly Taxotere, that we have a statistically significant prolongation and a significant in terms of numbers of months progression free, time to tumor progression I mean, head-to-head against Taxotere was significantly low with toxicities.

So, taking together these two elements the one against Taxotere and the one against Taxol. And as you said, we will be releasing this data in spiral form for European Breast Cancer conference in Berlin in April 2008. Taking together these two real data driven points, we hope and anticipate will be large drivers for us in adoption in Europe.

Elliot Wilbur - CIBC World Markets

Okay thanks Patrick. If you don't mind, just one last quick question for you as well. Any update that you can provide us on the search for CFO and CEO for the injectable side of the business?

Patrick Soon-Shiong, M.D. - Chairman and Chief Executive Officer

Well we are looking, we obviously initiating that. I would first like to congratulate you on your move to Oppenheimer so I see if you can send us your resume. But we are looking at that now obviously very actively both internally and externally. And obviously that's a very clearly important two important positions that will be important drivers of APP. As you said within, we anticipate less than 12 months and may be even significantly less then 12 months. But I can't give you obviously a firm date.

Elliot Wilbur - CIBC World Markets

Alright. I may have to keep all options open, so don't take me out of the running yet. Thanks.

Operator

There are no more questions in the queue at this time. I would now like to turn the call back over to Dr. Soon-Shiong. Please proceed.

Patrick Soon-Shiong, M.D. - Chairman and Chief Executive Officer

Well, thank you all for joining us this morning to discuss our third quarter results and our upcoming separation. If anybody has any further questions, please don't hesitate to contact our Investor Relation. We look forward to spending time with you at our upcoming conferences and as said we Tom and I will both be participating in no-due road shows at the beginning of the year. So this concludes our quarter day and we thank you for your attention. Thank you so much.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.

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Source: Abraxis BioScience, Inc. Q3 2007 Earnings Call Transcript
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