Merck & Co., Inc. Q4 2007 Earnings Call Transcript

 |  About: Merck & Co Inc. (MRK)
by: SA Transcripts


Good day, everyone, and welcome to Merck's Fourth Quarter 2007 Earnings Conference Call. Today's call is being recorded. At this time I would like to turn the call over to Mr. Graeme Bell, Head of Investor Relations. Please go ahead, sir.

Graeme Bell - Senior Director, Investor Relations

Thank you Amanda and good morning. Welcome to our call this morning to review our business results for the fourth quarter of 2007. Joining me on the call today is our Chairman, President and CEO, Dick Clark; Mr. Peter Kellogg our Executive Vice President and Chief Financial Officer and we are also joined by Executive Vice President and General Council Bruce Kuhlik.

Before we get into the details, I would like to go with our logistics as always. On this call, we will review the results contained in the release we issued at 07:30 this morning and you can access this through the Investor Relations section on and I would remind you that this conference call is being web cast live and recorded. The replay of this event will be available later today via phone, web cast and as always our pod cast.

As we begin to review the results, let me remind you that some of the statements made during this call may discuss certain subjects that may contain forward-looking statement as that term is defined in the Private Securities Litigation Reform Act of 1995.

These statements are based on management's current expectations and involve risks and uncertainty, which may cause results to differ materially from those set forth in the statements. The forward-looking statements may include statements regarding product development, product potential or financial performance. No forward-looking statements can be guaranteed, and actual results may differ materially from those projected. Merck you undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

Forward-looking statements on this call should be evaluated together with the many uncertainties that affects Merck's business, particularly those mentioned in the risk factors and cautionary section set forth in Item 1A of Merck's form 10-K for the year ended December 31, 2006, and in its periodic reports of Form 10-Q and Form 8K which the company incorporates by reference and that are all posted on our website.

We'll begin the call with brief remarks from Mr. Clark and Mr. Kellogg, then we'll open the call for questions and expect the call to last approximately an hour. So, with that, I will turn the call over, and we'll begin with remarks from our Chairman, President and CEO, Mr. Clark.

Richard T. Clark - Chairman, President and Chief Executive Officer

Thank you Graeme and good morning, everyone. Earlier this morning we announced the results for the fourth quarter and full-year 2007 and we're joining you now to discuss them in greater detail. I am pleased that today we have another solid set of results with growing revenue and non-GAAP EPS to talk about.

The momentum Merck has gained through our consistent performance over the prior seven quarters is seen in our strong quarter and overall annual results. And we delivered those results notwithstanding an uncertain short-term economic outlook and the impact of major patent expirations. I want to thank everyone at Merck for helping to get the company back on track and out performing in terms of innovation, execution of our new commercial model, and delivering shareholder value.

I am confident that our continued focus on our plan to win will enable us to accomplish our business goals, help us address emerging challenges, and achieve Merck's purpose to discover and develop break through medicines and vaccines.

The results reported today show that Merck continues to deliver on our promise to remain a leader in the pharmaceutical industry. For the fourth quarter we reported revenue of $6.2 billion, which represents top-line growth of plus 3% versus the prior year.

For the full-year 2007 we recorded revenue at $24.2 billion, plus 7% higher than 2006. Based on a continued market penetration and global rollouts of our new product introductions over the past two years, including GARDASIL, ROTATEQ, JANUVIA, JANUMET and ISENTRESS we're on track for sustained growth in 2008 and deliver long-term double-digit EPS growth from 2005 to 2010 excluding certain items.

During 2008, we will continue to assertively launch our new products globally and ensure that as many patients as possible worldwide have access to our innovated and needed medicine and vaccines. Our most established products also continue to deliver strong performances, including SINGULAIR, COZAAR, HYZAAR, ZETIA, and VYTORIN.

Taken together, these established franchises along with our new first-in-class vaccines and medicines such as GARDASIL, ROTATEQ, JANUVIA and JANUMET and ISENTRESS give us a diverse product portfolio that is well positioned to drive revenue growth through 2010. Merck reported full-year 2007 non-GAAP earnings per share of $3.20, which excludes fourth quarter charges related to the U.S. VIOXX settlement agreement and several government investigations. Restructuring charges and an insurance arbitration gain.

Our full-year GAAP EPS were $1.49. For the fourth quarter, non-GAAP EPS were $0.80 excluding previously disclosed items. On a GAAP basis, we had a $0.75 loss per share. Looking at our next-generation products, I am please to report that with the most recent approval EMEND for Injection, we have achieved eight approvals in 24 months. That's a great example of the benefit of our new business model as it relates to the regulatory filing processes.

GARDASIL’s performance in 2007, its first full year on the market was an exceptional $1.5 billion in sales. Fourth quarter sales were $339 million. To date we had distributed more than 20 million doses of the vaccine worldwide since its market launch just a year and half ago in June of 2006. GARDASIL has been approved in 93 countries, and is being ready for launch in 76 of those countries.

Together global revenue for JANUVIA and JANUMET reached nearly $300 million in the fourth quarter reflecting the high value that physicians, patients and payers are placing on our products and on the healthcare benefits they provide. This result also demonstrates that we continue to build on momentum established with our product launches last year. In fact, JANUVIA has already become the second leading branded oral antidiabetic agent in the U.S. in terms of new prescription shares.

As we move into 2008, JANUVIA has achieved second tier reimbursement coverage in more than 200 million lives across managed care commercial formularies in the U.S. Ex-U.S. it is available in more than 65 countries including the recent approval in Canada. In the European Union, JANUVIA already has received full reimbursement in 14 countries.

The introduction of ISENTRESS is realization of Merck's 20-year commitment to HIV AIDS. We're working hard to build on the successful launch of ISENTRESS to ensure that it reaches its full market potential. We will continue to work closely with all stakeholders to foster patient access to ISENTRESS. And to assist patients in need, we have established a support program in the U.S.

I'm very encouraged that our business continuous to deliver substantial growth. This has been another outstanding quarter for Merck as our new products establish their leadership in an increasing competitive market even as old products have got off patent. We are leveraging lessons learned from our new product in vaccine launches and utilizing the new commercial model to further support and consolidate the strong positioning of our established in line brands.

Our success is helping us invest in Merck's future as we continue to fully fund our research spending on investigational product development, the acquisition of NovaCardia and more than 50 new license opportunities in therapeutic areas that are of strategic importance to Merck. Our overall financial results were supported by the strong performance of our partnership and alliances, specifically the Merck/Schering-Plough partnership which is… in 2007 continued to drive our equity income.

I want to take a moment now to address the ENHANCE trial. There are couple of points I would like you to take away from this subject today. First of all, Merck stands behind the safety and efficacy profiles of both ZETIA and VYTORIN. Next, we acted with integrity and with faith in connection with the clinical trial. Third, let's keep this trial perspective. ENHANCE was not powered or designed to assess cardiovascular clinical event outcomes. As many know, we have a large clinical outcomes trial underway called IMPROVE-IT.

IMPROVE-IT trial is intended to measure clinical event dates in more than 10,000 patients with acute coronary syndrome. IMPROVE-IT is examining ezetimibe/simvastatin 1040 versus simvastatin 40, and the relationship between LDL lowering and overall reduction in cardiovascular mobility and mortality in this patient population. Fourth and perhaps most overlooked in the ENHANCE trial.

VYTORIN significantly lower LDL cholesterol compared to simvastatin alone. As the FDA noted last week in a news conference, elevated LDL cholesterol is very well established risk factor for heart disease. These important findings are also reflected in the National Cholesterol Educational Panel guidelines that continue to identify LDL cholesterol as a primary target for lipid modifying therapy, and that recommended lower target goal levels for LDL over time.

Clinical studies, which are included in VYTORIN's prescription information, had demonstrated that VYTORIN lowers patient's LDL cholesterol more than the TORVASTATIN or [inaudible] or simvastatin at the doses study. Many patients with elevated cholesterol cannot achieve their cholesterol treatment goals with diet and exercise. Many of those patients also cannot achieve their treatment goals with statins alone.

As we said, we plan to discuss the enhanced data in a proper scientific context at the American College of Cardiology Meeting in March. Again, let me emphasize that operating with the highest standard of ethics and scientific integrity are the utmost personal importance to me, and are the foundation of this company. We will continue to work hard to respond to any allegations to the contrary. At the same time, Merck will not for a second lose focus of our overarching message and that is improving [inaudible].

For 2008, the company continues to anticipate that many of our in-line and newer franchises will maintain their strong performance, and we look forward to launching additional new products such as Cordaptive if approved and our investigational atherosclerosis compound currently under standard review with the FDA. We anticipate that worldwide revenue will be driven by additional indication for our company's products, and that continued marketing up take and global rollout of our new products as well as other potential new introductions.

When taken together, all of this should help us offset the upcoming loss of marketing exclusivity for FOSAMAX our second largest product in the U.S. In addition during 2008 we plan to file two NDAs for products currently in Phase III, mainly MK-524B for atherosclerosis and MK-364 for obesity. To position ourselves for commercial success in 2008 and beyond we will begin to prepare for their perspective launches.

On earnings per share we are confident in our ability to execute against our plan and are reaffirming our full-year 2008 non-GAAP EPS range of $3.28 to $3.38 excluding certain items. We're making a slide revision to our 2008 GAAP EPS, which now anticipates to be in the range of $3.80 to $4. Peter will provide additional details in a moment.

We are halfway through the strategy outlined in 2005 in our Plan to Win. We have made some real strides realizing the benefits of our strategy. We implemented a new research model, and I am confident that we will bring greater focus and efficiency to our early compound development. We’ve also made significant progress towards creating standard global processes for late stage clinical development. Our new Global Human Health organization is in place representing a significant change from the way we have operated in the past. We're beginning to make in-roads towards a new customer centric commercial model both in the U.S. and in other key markets around the world while also changing the way we support our global market franchises.

Across our global franchises we have introduced new stage gates to help us fine-tune the focus of our research activities on the highest value areas in terms of customer need and probabilities of success. These changes are bringing us closer to achieving our goal of becoming a more flexible, effective and efficient company. For example, our manufacturing division and the Merck supply strategy have led the way in returning Merck to pre-Zocor patent expiry PGM, a year earlier than we anticipated, establishing lead supply chains, leveraging low costs and external manufacturing, and consolidating our manufacturing plant network.

As you know, such global restructuring activities are a part of our overall strategy to further reduce our cost structure and create a leaner and more nimble business model so that we can respond quickly and efficiently to customer expectations, address emerging market demand, and support the drug discovery and development efforts that are core to our business model.

As we implement fundamental changes to every aspect of our business, we remain confident that our current products and anticipated new product introductions as well as our cost savings initiatives will help us position the company to deliver what we promised in December of 2005. To generate revenue growth in the range of 4 to 6% on a compound annualized basis from 2005 to 2010, including 50% of the revenue from the joint ventures from which the company derives equity income. By sustaining our cost management initiative, Merck expects to fulfill our promise to expand the product portfolio while maintaining marketing and administrative expense flat in 2010 relative to 2006 base, and we continue to expect compound annual double-digit earnings growth excluding restructuring charges and one-time items by 2010 from a 2005 base.

In summary, our performance in 2007 is proof that the customer focused more efficient business model we began implementing more than two years ago is delivering results. With our strong portfolio of products, our robust pipeline of potential new therapies, and our leadership team focused daily on improving operational performance, I am convinced that Merck is well-positioned to build on its record of delivering essentially break through medicine and vaccines to the global marketplace.

However, despite a strong 2007 performance, I see no room for complacency. As I will tell my senior management in our Annual Strategy Meeting this week, it is way too soon to declare victory, although we remain confident that our customers will continue to find value in our products, we have much to do to reach our 2010 goals. And we'll need to do even more to realize and sustain the benefit our strategy through 2010, 2015, and beyond.

Now I would like to turn the call over to Peter who will provide additional comment on the details of our 2007 results and 2007 financial guidance. Then we will take your questions. Peter.

Peter Kellogg - Executive Vice President and Chief Financial Officer

Thank you, and good morning. As Dick mentioned, we're pleased with the fourth quarter and full-year business results. Throughout 2007 our in-line product portfolio and our newly launched pharmaceutical products and vaccines help drive strong organic growth overcoming the impact of the Zocor and Proscar patent expiries. We continue to significantly reengineer our business to ensure that we have a sustainable operating model that can weather the upcoming loss of marketing exclusivity for FOSAMAX.

These successes allowed us in 2007 to deliver 10% revenue growth including 50% of our JVs and 27% non-GAAP EPS growth despite patent expirations that exceeded $2 billion. Finally, we continue to make the necessary pipeline investments both internally and externally to position the company for long-term success.

For 2008, we remain on track and we are reaffirming our non-GAAP EPS guidance and the guidance elements for the operating line that support this. Now related to our GAAP guidance we are, one, increasing our restructuring reserve, or restructuring guidance rather for 2008 as we continue to drive efficiencies, and, two, lowering the estimate for the minimum gain associated with the AVLP restructuring in 2008 based on new information that has come in and basically just update the calculation for the minimum gain.

Accordingly, I will discuss our adjusted GAAP EPS guidance for 2008 later. The fourth quarter non-GAAP EPS growth, excluding restructuring costs and certain items was driven by several lines in the P&L, all with strong results. Let's go through these lines individually. First, the revenue line grew 3% reflecting strong performance of our new vaccines and [inaudible], the continued market leadership for SINGULAIR and our newly launched pharmaceutical products including as Dick mentioned; JANUVIA, JANUMET, and ISENTRESS.

Secondly, our product gross margin line showed continued strength and this is the result of sustained operational efficiencies and favorable mix. Finally we benefited in the fourth quarter on the tax line. Now I will go through each of these lines in more detail in a minute, but let me start with revenue. In the fourth quarter our total revenue was $6.2 billion, that's a 3% increase over the same period last year as I just mentioned and it is composed of the following. 1% decline in volume, a 4% increase from foreign exchange, and a 1-point increase from price.

On a full-year basis for 2007 our total revenue was $24.2 billion, and that's a 7% increase over the same period last year including a 4% increase in volume, 2 points of increase from foreign exchange and no growth from prices. And again, this growth was achieved in a year where we overcame $2 billion of patent expires. Now, a major contributing factor to our top line growth continues to be our vaccine business. In the fourth quarter, the vaccines revenue as reported by Merck was approximately $1.1 billion that's a 59% increase as compared to the same period in 2006.

On a full year basis in 2007 our vaccine revenue as recorded by Merck was approximately $4.3 billion. That is a 130% increase over 2006. So, now let's discuss the specific products beginning with GARDASIL. We continue to be extremely pleased with the progress of GARDASIL in terms of the U.S. market penetration and the global rollout. Based on the international approvals, recommendations, reimbursements and launches, we're well positioned to continue to build on the success of this franchise in 2008. In the fourth quarter our revenue of was $339 million, $268 million of which was in the United States.

Now, U.S. GARDASIL sales were down sequentially in Q4 due to seasonality and some supply chain dynamics in the public sector, I would like to discuss each of these separately. First, seasonality in what we call well visits for the adolescent cohort is heaviest in Q2 and Q3, really not surprisingly given the typical pattern of back-to-school visits by this cohort group. This results in a 63% of well visits typically occurring in Q2 and Q3.

Secondly, in 2007 the public sector sales were heavily weighted towards Q1 and Q2 driven by very rapid adoption by all 55 projects following the November 2006 VFC contract. As a result, please note that 64% of the VFC sales occurred in Q1 and Q2. Now, outside the U.S. the Sanofi Pasteur MSD joint venture recorded end market sales for GARDASIL of $231 million in the fourth quarter. Despite the seasonal spike in the U.S. demand for GARDASIL in Q3, global end market sales for GARDASIL reached a new high in Q4, and in its first full year on the market, 2007 revenue as recorded by Merck for GARDASIL was roughly $1.5 billion.

GARDASIL’s performance in 2007 has been unprecedented for a vaccine launch. Now, looking forward in the U.S. we estimate that more than 7 million nine to 26-year-old females have received at least their first dose of GARDASIL, and significant opportunity remains with over 29 million nine to 26-year-old females that is yet to receive a dose of GARDASIL. In 2008, we are focusing on increasing penetration across the initial nine to 26-year-old cohort and improving the compliance rates for second and third doses. We also anticipate expanding label for GARDASIL through incremental indications, including an indication for adult women through 45 years old, an indication for adult women with more than double the eligible population for GARDASIL in the U.S.

To date, GARDASIL has been approved in 93 countries, most under accelerated review, and has launched in 76 countries. In 2008 we anticipate launching GARDASIL in over 20 markets, and as continue the global rollout of GARDASIL, we look forward to capitalizing on this significant international opportunity. So, as per plan, the international launches are just now beginning to pick up, and they will be a significant driver for the franchise in 2008 and beyond.

Now let's move to VARIVAX. In the fourth quarter revenue was $270 million. That's a 187% increase over prior year. This strong quarterly result is the function of two major factors. First, we continue to make progress within the cohort's eligible for second dose Varicella in the first full year of the new recommendation. As of December 31, we estimate 80 to 85% penetration of the routine four to six-year old second dose cohort, and 20 to 25% penetration of the cumulative catch-up population.

Second as a result of the back-to-school surge that makes Q3 the peak period for the youth vaccine business and the unprecedented demand for VARIVAX in 2007, we were able to ship approximately $75 million in back orders for VERIVAX in Q4. By the end of Q4, the back orders for VARIVAX were pretty much negligible. Accordingly, Merck is further increasing production of VARIVAX and expects to meet anticipated market demand for Varicella measles, mumps, rubella vaccine through VARIVAX and MMR2.

Now let’s turn to SINGULAIR. In the fourth quarter our SINGULAIR revenue was $1.2 billion, that's up 20% year-over-year, and on a full-year 2007 basis our revenue was $4.3 billion, up 19% over prior year. The strong growth for SINGULAIR was driven by continued market share gains in the U.S. for both asthma and allergic rhinitis claims, and secondly rapid growth in foreign markets where on a full-year basis we saw 27% year-over-year growth, as a result of additional indications and a differentiated product profile. Despite the recent slow down in respiratory market share and potential new competitive threats, we continue to anticipate strong growth for SINGULAIR in 2008.

Now turning to FOSAMAX, our fourth quarter revenue was $796 million, up 1%, and on a full-year basis for 2007 the revenue was $3 billion, that's a 3% decline. In its last full quarter of marketing exclusivity, FOSAMAX has performed extremely well as a result of differentiation on efficacy, that relates to hip fracture indications and spine fracture indications as well as the relevant managed care status of the brand now and its generic counterpart in the future. An authorized generic strategy is in place to maximize the value of the franchise after patent expires. As we have illustrated with the Zocor expiry in the past, we have the necessary new and in-line products to drive revenue growth through this event in 2008.

Now let's look at total revenues including 50% of joint ventures. In the fourth quarter, our total revenue including the 50% of joint ventures was $7.5 billion, that's a 7% increase if you do the same adjustment in the base period. On a full-year basis for 2007, revenue including 50% of joint ventures was $28.8 billion, a 10% increase over the comparable 2006 figure. As we have stated many times, we have the opportunity to capitalize on our robust product portfolio and deliver solid revenue growth through 2010.

Despite certain patent expires during the time frame that we talked about, we continue to expect revenue growth of 4 to 6% including 50% of our JVs on a compounded annual basis, of course this is driven by our in-line products, our launched products and our potential new products. And of course this 4 to 6% as I mentioned includes 50% of the revenues of the joint ventures from our 2005 base.

Now regarding 2008 revenue guidance, we are reaffirming all elements of our full-year revenue guide guidance. As always to assist your modeling, we provide a breakdown of the product revenues in our other financial disclosure schedule attached to the press release issued this morning. Let's go down to P&L over the next line, which is materials and production. In the fourth quarter materials and production were $1.5 billion. This quarter includes $118 million for costs associated with the global restructuring program, primarily related to accelerated depreciation and asset impairment costs. Excluding these costs, material and production decreased 5% in the quarter.

Our fourth quarter product gross margin was 75.3%. This reflected a 1.9 percentage point unfavorable impact related to the restructuring costs, excluding these restructuring costs, we had a fourth quarter PGM of 77.1%. Just as in previous periods these results were affected by the final product mix. On a full-year 2007 basis, our adjusted product gross margin was 76.6%. Looking forward in 2008 we anticipate… or we continue to anticipate PGM in the 77 to 78% range. This guidance excludes the portion of the restructuring costs that will be included in product costs and will affect the reported PGM in 2008.

Moving to the next line, marketing and administrative. Our Q4 marketing and administrative expense was $1.7 billion, and that's a 27% decrease over prior year. But let me provide you with some additional perspective on that. Included in the fourth quarter marketing and administrative expense is a previously disclosed $455 million gain related to insurance proceeds which the company was awarded in the arbitration with the company's upper level excess product liability insurance carriers. These claims related to coverage for costs incurred in the VIOXX product liability litigation. Also as previously disclosed, in connection with the U.S. VIOXX settlement agreement, the company recorded a pre-tax charge of $4.85 billion, which represents the fixed amount to be paid by the company to settle qualifying claims.

Note that we have broken out this charge on its own line in the income statement. During the fourth quarter the company did not increase the reserve related solely for future legal defense costs of VIOXX litigation. However, in the fourth quarter the company spent approximately $200 million in VIOXX legal defense costs which resulted in a reserve as of December 31, 2007, of approximately $522 million solely for its future legal defense costs related to the VIOXX litigation of which approximately $80 million has now been allocated to Merck's anticipated future costs to administer the settlement.

Consequently as of December 31, 2007, if you add this up, the company had an aggregate reserve of approximately $5.372 billion related to the VIOXX litigation. Excluding these charges in 2006 and 2007, M&A decreased 2% in the fourth quarter and increased 4% for the full year. A significant portion of the increased spending is attributable to fluctuations in foreign exchange rates, which have increased significantly during the last twelve months as I am sure you're all aware. Of course we do see this as a benefit on our top line revenues as I mentioned earlier, but this does increase our marketing and administrative dollars and dollar build.

So, regardless of foreign exchange, we maintain a healthy amount of support behind our growing core and successful new franchises many of which are continuing their global launch activities market by market in 2008. Reflecting our commitment to realizing efficiencies throughout the company and optimizing our cost structure, the component of marketing and administrative consisting of selling and general administrative costs that support our core operations remained down over the prior year.

Finally, we are comfortable with the focus of these investments and it is important to note that we continue our increased focus on cost management, and we are seeing the positive benefits of practical ongoing cost management initiatives including the redesign of many of our critical business processes.

Now looking forward in 2008, we continue to anticipate marketing and administrative expense to be approximately 7.8 to $8 billion for 2008. Moving to research and development, our fourth quarter R&D expenses were $1.4 billion, that's a 20% decrease year-over-year. However, it is a 10% growth when you… if you were to exclude the Sirna in-process R&D charge in the prior year. Our full year 2007 R&D expenses were $4.9 billion, that's a 2% increase year-over-year but again if you make the adjustment for the Sirna in-process R&D charge and restructuring in the base period, it is a 15% growth.

Let me take a moment to explain the R&D result. We remain committed to fully funding our core internal R&D ensuring the continued success of all compounds in all phases of development. Our internal R&D growth remains strong. We continue to invest in Lifecycle Management programs for GARDASIL, JANUVIA, and ISENTRESS and late-stage clinical trials on our MK-524 program, the MK-364, MK-974, MK-7418 from NovaCardia and MK-8669 from ARIAD and the MK-822 and our other investigational vaccines. And I guess it is a good thing that I have to read off that many numbers related to Phase III programs.

In addition, the company continues an active external collaboration and business development agenda funding clinical grant programs, third-party scientific collaborations and licensing transactions, and of course all of that is in our R&D line. Our guidance for R&D in 2008 is that we reaffirm the guidance that we previously given of $4.7 billion to $4.9 billion.

Now turning to restructuring costs, the fourth quarter total cost associated with the global restructuring program was $274 million, $118 million as I mentioned earlier for asset related charges were included in the materials and production line. The restructuring cost line reflects $156 million of costs for employee separation and other related costs associated with approximately 1,200 position eliminations bringing the total to 7200 since the initiative started.

As we continue to reengineer our business, we will look for opportunities to drive further efficiencies. As part of the company's restructuring of its operations, additional costs related to site closings, position eliminations, and related costs will be incurred in 2008. We anticipate the aggregate 2008 pre-tax expense related to these activities to be in the range of $100 million to $300 million.

Now let's turn to equity income. In the fourth quarter our equity income from affiliates was $796 million. Our Q4 performance reflects the continued success of the Merck/Schering-Plough cholesterol franchise in the U.S. and Europe and an increasing contribution from our European vaccine joint venture, Sanofi Pasteur MSD, which I am sure is not a surprise to any of you.

Turning to guidance for equity income, the recent public confusion surrounding the enhanced results although disappointing has caused us to consider whether any different scenarios regarding the potential impact to the franchise are appropriate. At this time, based on the limited data it is too early to make informed judgments or to change the long-term trajectory that is expected for this franchise. At this time, we believe we're looking at more of a reaction in the market than a real ongoing trend. In addition, the equity income contribution that we record is from a portfolio of several joint ventures and partnerships. On an annual basis there are always positives as well as negatives within the portfolio. At this time, we feel no need to adjust our 2008 equity income guidance and are not changing our range of $3 billion to $3.3 billion.

Now turning to the taxes on income, the effective tax rate of 48.7% and 2.8% for the fourth quarter and full-year 2007 respectively reflects the impact of the U.S. VIOXX settlement agreement charge, civil government investigations charge, and the gain related to the insurance arbitration settlement previously referenced. Given the charges in the fourth quarter and the full year, it is helpful to look at the non-GAAP tax rate. Our non-GAAP tax rate for Q4 and full-year 2007 were 18.4% and 24.1%. Of course that 24.1% is at the low-end of our guidance range. These rates reflect the favorable impact of an adjustment related to the termination of Puerto Rico tax benefits and fourth quarter adjustments related to certain federal and state tax items.

Looking forward, we are reaffirming that our full-year 2008 tax rate guidance range stays intact, and I would direct to you today's press release for details. So coming to the bottom line on net income and earnings per share, in the fourth quarter on a GAAP basis we had a net loss of $1.6 billion or on a per share basis that was a loss of $0.75. However, excluding the restructuring charges, the big litigation reserves, and proceeds from an insurance gain, the Q4 non-GAAP earnings per share was $0.80 per share. On a full-year basis, our net income was $3.3 billion, and the GAAP earnings per share was 1… was $1.49, again excluding the restructuring charges, litigation reserves and proceeds from an insurance gain the full-year 2007 non-GAAP earnings per share was $3.20.

Turning briefly to 2008 guidance, I have mentioned several elements as part of the results review, and I would direct to you the details of our guidance contained in today's press release. In summary we are reaffirming our 2008 non-GAAP EPS guidance of $3.28 to $3.38 excluding certain items. On a GAAP basis, we now anticipate GAAP full-year 2008 EPS of $3.80 to $4.

So in summary, the company remains on track, both in terms of strategy and performance to deliver long-term double-digit earnings per share growth from 2005 to 2010, excluding certain items. We have financial strength, and we remain fully committed to maintaining our dividend at the current level. At the same time, we continue to fully invest in all of our key strategic priorities. 2007 represented an important step in a multi-year journey to return Merck to its leadership position in the pharmaceutical industry. While much has been accomplished over the last 12 months, many opportunities remain, and we look forward to capitalizing on them in 2008 and beyond. So, with that said, I will turn the call back over to Graeme. Graeme?

Graeme Bell - Senior Director, Investor Relations

Thank you, Peter. We appreciate your patience as we go through the prepared remarks. We will now open the call to take your questions. We will take them as always in the order they're received and try to get through as many as possible for the duration of the call. So, at this point I will turn the call back over to Amanda who will communicate instructions for the Q&A format, then introduce the first question. Amanda?

Question and Answer


Thank you. [Operator Instructions]. Your first question is from Barbara Ryan with Deutsche Bank.

Barbara Ryan - Deutsche Bank

Oh, thank you so much for taking my question. Just a short one Peter for you and I guess you addressed it that was really related to the tax rate, and I know you went through the other reasons. But I know in Pfizer's case two there was a lower tax rate in part because of the geographic mix, which really swung and then it happened to be in their instance low tax countries as well. And I was just wondering if that played a role as well?

Peter Kellogg - Executive Vice President and Chief Financial Officer

Yes, Barbara, this is Peter. Thanks. Every quarter, we have a little bit of geographic mix, in fact, although I wouldn't say that that was the primary driver this quarter. The reason our tax rate was little off trend in the fourth quarter was… again I am referring this now on a non-GAAP basis, which is I'm assuming what you are looking at. It was more related to the termination of the Puerto Rico tax benefits that we were seeing and also some fourth-quarter adjustments to certain Federal and State tax items, and these were really kind of items that touched our reserves relative what our expectations were as we closed the things out we were able then adjust the reserve.

So it is sort of a… each quarter we looked at our reserves relative to our… what we know about our tax positions and quite frankly in the fourth quarter these were more adjustments to that. So it's a little bit of mix but it is much more the adjustments later those three items that caused this benefit. Again, I would just highlight that it's more happened in the fourth quarter. As we move into 2008, I think we run right back into our ongoing tax rate that we’ve always talked about both in terms of guidance and what you should expect.

Graeme Bell - Senior Director, Investor Relations

Next question please.


Your next question is from Jamie Rubin with Morgan Stanley.

Graeme Bell - Senior Director, Investor Relations

Amanda, perhaps you can move on to the next question, maybe that Jamie's phone is on mute.


Yes sir. Your next question is from John Boris with Bear Stearns.

John Boris - Bear Stearns

Okay. Thanks for taking the questions. Peter, I think you characterized the ZETIA/VYTORIN situation as a reaction in the media rather than an ongoing trend, just three-part question to this. How many weeks or months do you need to be able to establish your trend for the joint venture? Secondly, are you seeing any impact on your ex-U.S. business from all of the media hype in the United States over the enhanced results? And then the third part, can you just talk about first line use in the United States for VYTORIN and what percent of first line use is made above of VYTORIN’s use? Thanks.

Peter Kellogg - Executive Vice President and Chief Financial Officer

Okay, John thanks. So first of all, I think the data we have right now is obviously the daily scripts and then we have one-weekly tabulation in excel [ph]. We are very cautious about leading daily scripts. We acknowledge that's the only thing that's out there to look at, but we often find it doesn't always represent exactly the trend that you would want for the… it doesn't think well with the weekly and monthly recap. So we're very cautious about looking at daily scripts and join broad full-year conclusions on that.

And I think that quite frankly there just has been a tremendous amount of various points of view and opinions floating around the market. It can be a little bit disruptive and create reactions. I really believe that as the full body of evidence is kind of digested in the medical community and as the full data of course of the trial is released, I would expect to see the market trends really emerge at that point based on a much more complete and scientific evaluation of what this trial really means or doesn't mean.

Secondly, the ex-US business really has not been affected. This has been pretty much of a US phenomenon at this point, and I think again the international medical community is… I think, not reacting quite as much to some of the news lines, and probably most of the new lines are a little bit more US centric. Related to the first line usage of VYTORIN… I little bit apologize not able to answer that question, and I think maybe we can come back to you on that later in the call. But John we've noted that, let me come back to that later in the call if we have that data. Okay, apologize for that one.

Richard T. Clark - Chairman, President and Chief Executive Officer

I other point John, when you think about ZETIA and VYTORIN ex-US, we certainly had a very strong fourth quarter. So for example ZETIA grew at 40% versus fourth quarter ‘06 and VYTORIN grew at 84% in Europe. And in the Far East, it was 67% for ZETIA and greater than 100% for VYTORIN. So we continue to see strong growth for ZETIA and VYTORIN outside the U.S.

Graeme Bell - Senior Director, Investor Relations

The next question please, Amanda.


Your next question is from Jami Rubin with Morgan Stanley.

Jami Rubin - Morgan Stanley

Thank you. Can you hear me, okay?

Graeme Bell - Senior Director, Investor Relations

Hi Jami.

Jami Rubin - Morgan Stanley

Can you hear me? Okay, great, just a comment. Peter, we’ve discussed this a lot before in the past, but your stock is down 25% since the ENHANCE controversy on January 14, and I would just think with $10 billion in cash from operations, you've just received $2.5 billion from Astrazeneca, VIOXX settlement is now behind you, hopefully, or really closed. I can't think of a better time to announce a major stock buyback program.

But my question also has to do with, again going back to ENHANCE, are you aware that the negative publicity has in any way affected patient dropouts in the IMPROVE-IT trial? And then my second question… I just wanted to just ask this, but GARDASIL sales outside the U.S. or rest of world sales that you’ve book, your sales were $70 million versus $90 million in the third quarter, yet you are in the process of launching in a number of markets, can you give us a sense of what's going on and how we think about that trajectory going forward? Thanks.

Peter Kellogg - Executive Vice President and Chief Financial Officer

So couple of questions. Let me… why don’t we take them in order that you laid them out. So I think you are just making a comment about the stock buyback. I think the only thing I would just remind everybody and you see it in our press release is that as of December 31, we had $5.1 billion approved by our Board under the current buyback authorization. And that obviously compares to $6 billion outstanding as of September and clearly the points you made are not lost on us, we understand that, in fact we were just saying.

On ENHANCE, on the IMPROVE-IT dropout, I don't think we've seen any reaction at all in that trial approval or participation and nor we necessarily expect to see that at this point. Related to GARDASIL sales, I think clearly one of the things that you do see as you roll out sort of bumps and ins and outs and so forth, and some volatility sometimes as you go through quarters. There were a couple of markets that had pretty heavy activity in Q3 and then didn't have this quite same activity in Q4. But we don't really read that as a trend at all and these are kind of some of the short-term volatility elements that you get in supply chain or just the roll out activity in the market.

Quite frankly, when we stack up all the different data points and the approvals and the authorizations and the activity level, and the awareness of GARDASIL in international market that we're looking at, you know, the kind of things we look at when we put together our plan, really GARDASIL is poised to have a really good year internationally. So, we've… we aren't really concerned about quarter fluctuations and I would encourage everybody to look forward and recognize not only the number of approvals that have come through, but how many of them were actually accelerated approvals and have got our authorization and reimbursement status that is around the world. So I really think we're headed for something, you know, where I wouldn't raise much of that quarterly fluctuations during a launch as really look at the preponderance of all that positioning.

Richard T. Clark - Chairman, President and Chief Executive Officer

I would make two other comments on that Jami. First, as we said GARDASIL sales in 2007 were $1.5 billion and we have a tremendous amount of confidence and expect continued growth globally for GARDASIL in 2008 above that number. And so, we are very confident as we roll it out throughout the world.

The second point which we've said in the past is that females 9 to 26, if you look at the EU and US and other high-income markets it is about 118 million. And as you know with our December submission for 27 to 45 year old women that 118 goes up to 264. And so, there is a substantial up tick and up growth that we can provide based on the enhanced indications for the vaccine. But we are very confident where GARDASIL is going to be in 2008.

Peter Kellogg - Executive Vice President and Chief Financial Officer

And could I just go back to John Boris' question if I may for a moment, just… with regard to managed cash and the use of VYTORIN. So, in the aggregate managed care organizations have all recognize the need for a product with excellent LDL efficacy, notwithstanding the availability of generic simva. But in terms of, the book of business, we basically indicate that about 93% of the business comes from continued therapy, 4% of our business comes from patients who are new to market, who are initiating therapy and who are being naive to therapy previously. 2% of it comes from brand switches and about 1% of utilities with add-on. So that just give us some perspective in terms of where the business comes from relative to VYTORIN. So, with that Amanda, could I have the next question please?


Your next question is from Tony Butler with Lehman Brothers.

Tony Butler - Lehman Brothers

Thanks very much. Given much of the coupons [ph] from the Congressional investigation, I'm curious that how you are feeling about the regulatory nature of Cordaptive and do you think that the FDA is actually shy about approving a new therapy despite the fact that, there were very bullish about nice based outcome studies on the call Friday. And second to that question is, are you actually increasing the number of details today for VYTORIN and ZETIA. And moreover could you go over or at least expressing some comments regarding the future for DTC adds? Thanks.

Peter Kellogg - Executive Vice President and Chief Financial Officer

Well certainly, speaking first of VYTORIN and ZETIA. I think that the joint venture between Merck and Schering-Plough in the last few weeks has done an outstanding job of reaching out to healthcare professionals, possibly 95% of the top specialist and 90% of the PCP's have been called on by our representatives post the press release. All these representatives were provided with a letter that we have sent and really have follow-up calls and so we're really helping the physicians… physician products come correctly and I think we have got favorable response from that as well, favorable response from the patient as that have been put in the majority of the [inaudible].

I think, in addition all the managed care organizations have been contacted by us, there haven't been any changes and so I think we have done a fairly good job of really focusing on physicians to make sure we could put this in proper context and provide them the information that they needed and we are continuing to get good feedback from that.

To your question about Cordaptive, it was reassuring on the FDA call on Friday where they said at this point, we believe it is premature to embark on any systemic changes, now approved with the lower end drugs because we believe there is a long track record of success in the approach that we've followed over the past several decades. So I think that's reassuring from a… not only a Cordaptive basis but to make sure patients stay on their cholesterol lowering products in order to lower their LDL, patients will give off of it based on some of the media hype that you see that would be a terrible [inaudible] from a healthcare stand point. I think that's important and we are evaluating our DTC advertising as we move forward.

Richard T. Clark - Chairman, President and Chief Executive Officer

And Tony, you know I would just add that as we stated in December, with Peter Kim at the Annual Business Briefing we went through with you how extensively we have studied Cordaptive as we were approaching this regulatory submission. So we won't go through that again, but I would just point you that, as a point of reference to our confidence in terms of the filing relative to those remarks. So next question please Amanda.


Your next question is from Tim Anderson with Sanford Bernstein.

Tim Anderson - Sanford Bernstein

Thank you, a few questions please. I would have to imagine that you guys have heavily contemplated getting full enhanced results out earlier than the late March meeting of ACC, you know may be published in something like a medical journal, because until results are published, your reps of course are very limited in what they can say to prescribers, so any comments on that. The second question just going back to DTC, I thought the original word out of Merck was that DTC was temporarily suspended, but that it would resume in a very short course and I'm wondering if that's changed, and then on Cordaptive do you expect that will likely go up for an FDA advisory committee?

Richard T. Clark - Chairman, President and Chief Executive Officer

On the last point, we have not been advised of any advisory committee to date, on your point concerning publishing, we are working with the lead investigator, who will submit the enhanced study for publication and attribute that is done, it assumes we can… and so that is being certainly studied.

Tim Anderson - Sanford Bernstein

Regarding DTC?

Richard T. Clark - Chairman, President and Chief Executive Officer

DTC we are still evaluating to make sure we do it the proper way and so it is, I would say temporarily on-hold.

Graeme Bell - Senior Director, Investor Relations

Thanks Tim, Next question please Amanda.


The next question is from Harlan Sonderling with Columbia Management.

Harlan Sonderling - Columbia Management

Yes, thank you very much. I wanted to ask, in light of the enhanced trial, whether you're changing the sales effort on the ground that is, you're not changing yet the DTC advertising beyond the temporary suspension, you have commented on the results of the enhanced… getting the enhanced results out. What are your reps telling physicians and have you changed that message please?

Richard T. Clark - Chairman, President and Chief Executive Officer

We are making sure that we have all available resources for both the joint venture and the companies to make sure that we are able to get out our press release to make sure that we are able to share the health care providers the physician we put together from the later standpoint. The most critical thing we have to make sure is that we are able to continue to deliver the message that LDL lowering is key, and so in some cases, for LDL lowering the patient may do well on a generic simvastatin. In many other cases, they won't be able to reach full and if that's the case, VYTORIN and ZETIA are the brand products that we have been able to prove clinically lower LDL to the right impact and have the better chance to reach the goal.

And those messages haven't deviated. We got a very safe products in the marketplace and they are very important part of the management program. And our perhaps [ph] the representatives continue to deliver those message and ask those questions. But we are obviously not backing off those two products, because they are so important from a health management standpoint and we are making sure that we can answer any questions, because with the media hype there is a great deal of confusion out there. And we have obviously the excellent comments by the FDA and the other societies that have come out and said LDL lowering is key to this and quite frankly there are no better products for LDL lowering than VYTORIN and ZETIA.

Graeme Bell - Senior Director, Investor Relations

Next question please, Amanda?


Your next question is from James Kelly with Goldman Sachs.

James Kelly - Goldman Sachs

Thank you very much. I just wanted to ask a question to get a little bit more detail on the trajectory of the vaccines. I know you mentioned about the seasonality elements, but there were also some other elements, and I apologize if you did address this in the prepared comments, and I missed it, of some catch up vaccinations, and whether or not that's already substantially done as far as you're hearing back in the chickenpox second dose and catch up there, or any of the other pieces that may be other than… may be other than seasonality? Thank you.

Peter Kellogg - Executive Vice President and Chief Financial Officer

James, this is Peter. Thanks. So lot of different parts to your question quite frankly. So, yes there is seasonality in the vaccines business, as I mentioned just… at least on the pattern of well visits for adolescent, you do see a fairly healthy back-to-school surge. I also commented on the call, I hope this is directly addressing that as of year-end, we estimate that 80 to 85% penetration of the routine 4 to 6 year old second dose cohort of VARIVAX has been achieved and 20 to 25% penetration of the cumulative catch-up population has been achieved. The other thing is we did have some back orders coming at the end Q3 and I mentioned that in Q4 we shifted $75 million to completely fulfill that backorder situation. I think that is the point that you're asking, if I missed it, please come back, I apologize.

Graeme Bell - Senior Director, Investor Relations

Next question please, Amanda?


Your next question is from Roopesh Patel with UBS.

Roopesh Patel – UBS

Thanks. Just a couple of questions, first on VYTORIN and ZETIA, can you summarize for us of the clinical data that is expected to be presented for VYTORIN and ZETIA, besides ENHANCE over the course of the next 12 months. And then on GARDASIL just a clarification, Peter you mentioned that supply-chain dynamics influenced fourth quarter sales, was that just the VFC purchasing patterns over the course of the year or was there something else that influenced fourth-quarter sales? Thanks.

Peter Kellogg - Executive Vice President and Chief Financial Officer

Yes, hi, Roopesh this is Peter. Let me take it in reverse order. I will take your last question first. So the supply-chain dynamics were more in the public sector, you are right. So it was really the VFC contract. And what we saw was very rapid adoption and pick-up of the product by all the different various public sector sales entities. So, as a result that drove heavier sales volume in Q1 and Q2 of us shipping product out, and then as we went to the balance of the year, we saw that some of the supply chain items balanced out and get kind of sorted through and so as we came to the third and fourth quarter, we ended up with a little bit of a rebalancing some of that inventory. And that's… it's a very fragmented system and obviously that is kind of just a dynamic at first sometimes when you roll out these vaccines. Hard to know exactly also what's going on as we go, because there isn't just enormous amount of inventory reporting out here, but it was all public sector.

Richard T. Clark - Chairman, President and Chief Executive Officer

And Roopesh, with regards to the first part of the question with regard to expectations of clinical data dissemination, obviously, we got ACC in March for ENHANCE. With regard to CEASE [ph], we expect to have the data in 2008 on CEASE, then you have Sharp. The expectation is we have clinical data in 2011 and as we’ve mentioned IMPROVE-IT, which is still enrolling, we expect the data to be out in 2011 as well. So between now and 2011, 2000, the four studies will be disseminated. Next question please, Amanda.


Your next question is from David Risinger with Merrill Lynch.

Richard T. Clark - Chairman, President and Chief Executive Officer

David, please go ahead.

David Risinger - Merrill Lynch

Yes, can you hear me?

Richard T. Clark - Chairman, President and Chief Executive Officer


Peter Kellogg - Executive Vice President and Chief Financial Officer


David Risinger - Merrill Lynch

Yes, so to follow-up on CEASE and IMPROVE-IT, if you could please characterize what Merck expects out of the CEASE study that would be helpful. And also if you could please comment on whether there is a possibility of accelerating IMPROVE-IT or the possibility of an interim look at the data before 2011 that could be made public. Thank you.

Richard T. Clark - Chairman, President and Chief Executive Officer

Dave, with regard to those two studies, clearly there are protocols in place and we've shared some of that information with you. We certainly can't foreshadow when exactly the results will be available nor do we have here the exact setup in terms of the Data Monitoring Boards and how the data will roll out of those studies. Clearly the protocols are in process and as you know, this one particular study looking at aortic stenosis and the other one is looking at another patient population. So, across ENHANCE, CEASE, Sharp and IMPROVE-IT, obviously IMPROVE-IT is the critical outcome study in all of that. We feel that there will be an awful lot of incremental data that will gather with regard to these compounds. Next question please, Amanda.


Your next question is from Chris Schott with the Bank of America.

Christopher Schott - Bank of America

Great, thank you. Just three quick questions, maybe just on GARDASIL in Europe, obviously we saw some strong acceleration this quarter. Could you give us a more color in terms of what countries are driving this system and just initial contracts driving that and maybe where you stand versus your competitor in those markets with regards to any tenders that have occurred? For GARDASIL in the U.S., just to clarify, do you expect the vaccine for children sales to continue to be front-half loaded going forward or was that really just been our fact of what you're mentioning it of initial rollout? And then finally if you could give us an update on the potential timing FDA sign off for new batches of Varicella, both [ph] please. Thanks.

Bruce Kuhlik - Executive Vice President and General Council

Yes, let me take, if I can, the second one, which is the vaccines for children dynamic and supply chain. Good question. We don't anticipate this to be an annual cycle at all. This is very much in artifact of the appeasable and the new contract was established in late 2006, and so then the market reaction is picking up the supply and so forth. So this is not a manual cycle, we'd expect. It was much more related to a, if you will, a approval and changing conditions since the market reacted to that. I don't think that there will be any expectation of a seasonality per se and it’s a buy dynamics for the year in public sector. Related to the GARDASIL international markets, in some ways international rollout… first of all, I think it's way too early to have a lot of input on tenders and so forth. But I would say is that, we don't see anything that's kind of an unusual biased at this point relative to any of the markets start rolling out. Typically you do see certain markets pick-up vaccine, rollout internationally a little more rapidly than others, but in some of the bigger markets obviously, you are playing a role, but I don't think there is anything really that a strange dynamic, let's say and the rollout at this point. In fact, I did say that all the numbers are relatively early based. So we are just beginning to roll out and expect 2008 to be an interesting year to watch. Maybe more specifically, Dick [ph] do you have anything to comment on?

Richard T. Clark - Chairman, President and Chief Executive Officer

On the bulk [ph] issue with the FDA, [inaudible] Varicella… it’s too early to tell exactly when we would finalize our submission and they would have approval. As I said on our last call, we continue to see excellent progress and excellent potency out of the lots that are being manufactured. And so we are putting all of the required data together and the submission for the FDA, and if we can't get the data on this.

Richard T. Clark - Chairman, President and Chief Executive Officer

So, Amanda given the time, we have time for one more question, please.


Your final question is from Seamus Fernandez with Leerink Swann.

Seamus Fernandez - Leerink Swann

Thanks very much. Just a couple of quick questions. Can you give us a little bit of visibility on when the 30-month stay expires on Nexium and how -- any kind of a possibility of a Nexium patent settlement would impact the contribution to Merck from AZLP, if there were a settlement, it’s unclear to me, how that would be booked into the overall scope of the partnership. Just a second quick question, Peter, you mentioned new competitive threats in asthma and allergic rhinitis. Can you just give us a little bit more of a sense of what those new competitive threats are in your view? And also last year we had a very, very strong allergy season and the seasonality and I think that it was high. Can you just give us a sense, do we have any visibility right now on whether or not that that season is expected to be equally strong this year or not? And then just a last question quickly on Q4 costs related to the vaccine recalls that we saw, were those material in any way and can we kind of expect those to recur or not recur in the first half of this year? Thanks very much.

Peter Kellogg - Executive Vice President and Chief Financial Officer

Okay. So, you get the award for the most comprehensive set of questions, and let me quickly go through them. But I am afraid, if I miss one, we need to kind of recap. So let me get a little Bruce’s help here. So first let me start back with the Nexium, and basically the stay goes through April of this year. So that's the date where you are going to see the 30-month of stay will expire. Quite frankly, after that when we have no idea of what might happen. However, obviously we are going through normal legal steps right now and have been working on that. If there was some sort of a settlement, it's unclear what that settlement would be, but it’s unclear that it will really affect 2008 anyway. I mean, that would be something that we would all be in the work. So, you are way too early to comment on that, but I'd say at this point we are following the normal steps in a number of legal processes related to that. So, nothing really new to report in nor any sense of anything new that would happen really in that situation. Bruce Kuhlik, Bruce, do you have any other comment on that?

Bruce Kuhlik - Executive Vice President and General Council

No, Peter. Thanks. I mean the stay does, the initial one expire in April. But the fact, the stay expires do not have any bearing on meaning actually that a generic will launch at that time, and we are continuing actively [inaudible].

Peter Kellogg - Executive Vice President and Chief Financial Officer

Okay. In terms of the asthma season, I don't, I think it’s little bit too early to start reading into the asthma season. We would – as the CFO I would love to have a crystal ball, but at this point, I just don't have it. So we just have to play that that season as it goes. So we really don't have any leading indicators and in fact I am not sure there are. On the competitive threats relative to SINGULAIR, really what I was referring to was just new brand entrance in 2008 that we are anticipating a phenomenal lift. I think we are pretty confident in the guidance we have given for 2008 on SINGULAIR. So I didn't mean to create any concern I just want to highlight that SINGULAIR has just been whirling ahead. As you mentioned probably because the asthma seasons, we have been experiencing so forth and to have a $4.3 billion growing to 19% full year in 2007 is something is pretty great. On the other hand, what we are just highlighting is there are the factors as you said, naturally '08, exactly in asthma season and/or new competitors in the market. That was all I will tell you.

Richard T. Clark - Chairman, President and Chief Executive Officer

And then Seamus with regard to your question on the cost of the recall during the quarter, it wasn't material in any particular way. So let me just give you some perspective. The total cost of the recall was approximately $40 million in the fourth quarter, approximately half of that cost was associated with sales credits to customers and the other half was associated with inventory that we had to write down that we had it in supply chain. So, we didn't consider the PEDVAXHIB and COM recall to be a material event to our results.

Peter Kellogg - Executive Vice President and Chief Financial Officer

So, I think that covers all the points they were. So good towards the question, thanks.

Graeme Bell - Senior Director, Investor Relations

So that last question concludes today's conference call. The intimation from today's call both the transcript and the replay will be available on the website for the next several months. And as always Mike Nally whose birthday is today and I will be available all day to take your calls and answer your incremental questions. So with that let me pass it back to Dick for some concluding remarks.

Richard T. Clark - Chairman, President and Chief Executive Officer

Thank you, Graeme, and thanks for joining us on the call today. As we have clearly stated we are very pleased with the fourth quarter and full-year 2007 results. We are not wasting any time looking at where we mirror and congratulate ourselves. We are proud of how far we have come, but we have tremendous amount to do before we hit that finish line. 2008 represents the halfway point towards our long-term guidance. And new challenges pop up every day. We begin our 2008 with a sense of urgency and a sharp focus on what we need to do. We will continue to work hard to build our pipeline and re-engine our business to deliver sustained revenue and earnings growth beyond 2007. I think it's also important to note that in addition to all the activities we are talking about, we have a 150 country launches in 2008 for our products in vaccine, that’s a 150 new product launches. So thank you again. We appreciate your interest and participation. Operator, thank you very much for your assistance.


This concludes today's conference call. You may now disconnect.

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