King Pharmaceuticals, Inc. Q4 2007 Earnings Call Transcript

Mar. 4.08 | About: King Pharmaceuticals (KG)

King Pharmaceuticals, Inc. (KG) Q4 FY07 Earnings Call February 28, 2008 11:00 AM ET

Executives

James E. Green - EVP, Corporate Affairs

Brian A. Markison - President and CEO

Joseph Squicciarino - CFO

Eric G. Carter, Ph.D., M.D. - Chief Science Officer

Steve Andrzejewski - Chief Commercial Officer

Analysts

Corey Davis - Natexis Bleichroeder

Ian Sanderson - Cowen and Company

Gregg Gilbert - Merrill Lynch

Marc Goodman - Credit Suisse

Michael Tong - Wachovia Securities

Adam Greene - JP Morgan

Angela Larson - Susquehanna Financial

Elliot Wilbur - CIBC World Markets

Andrew Swanson - Citigroup

Operator

Good morning. Thank you for joining today's King Pharmaceuticals' Fourth Quarter and Yearend 2007 Financial Results. Please welcome James Green, Executive Vice President, Corporate Affairs of King Pharmaceuticals.

James E. Green - Executive Vice President, Corporate Affairs

Thank you very much. Good morning, appreciate we are joining us today to discuss our financial results for the fourth quarter and yearend December 31, 2007. Joining me today are Brian Markison, Chairman, President and Chief Executive Officer of King; Joe Squicciarino, King's Chief Financial Officer; and other members of our management team.

Initially I will note that today's call is copyrighted material of King Pharmaceuticals and no portion of this call may be rebroadcast, published or otherwise disseminated without the company's prior express written consent.

Also reports and discussions during this conference call may contain forward-looking statements that reflects management's current view of future events and operations including but not limited to statements pertaining to expectation regarding our product development pipeline, our plan to maximize potential of our existing products, our future financial results and our strategy for long-term growth. forward-looking statements involve certain significant risks and uncertainties and actual results may differ materially.

Creation factors and they cause actual results to differ materially from the forward-looking statements are discussed in the company's press release issued this morning, February 28, 2008, and in the risk factors sections and other sections of the company's Form 10-K for the year ended December 31, 2006 and Form 10-Q for the quarter ended September 30, 2207 which are on file with the SEC.

King does not undertake to publicly update or revise any of these forward-looking statements even if experience or future changes show that the indicated results or events will not be realized. Under generally accepted accounting principles know as GAAP, net earnings and diluted earnings per share includes special items.

In addition to our financial results determined in accordance with GAAP, King provided its net earnings and diluted earnings per share results excluding the special items. These non-GAAP financial measures exclude special items which our management considers to be those items that do not relate to the Company's ongoing underlying business, are non-recurring or are not generally predictable.

Examples of these are listed in the about published items section of our press release issued this morning. We believe the identification of special items enhances the analysis of our company's ongoing underlying business and of our company's financial results when comparing results to those of a previous like period.

However it should be noted that the determination on whether to classify an item as a special item involves judgments by our management. The specifics of special items affecting the fourth quarter and the yearend 2007, and a reconciliation of non-GAAP financial measures to GAAP can be found in this morning's press release. And now I will turn the call over to Brian Markison, Chairman, President and Chief Executive Officer of King.

Brian A. Markison - President and Chief Executive Officer

Good morning ladies and gentlemen, thanks for joining us today. Over the course of 2007, King successfully faced the challenges of a dynamic pharmaceutical marketplace. Thanks to the hard work of our management team and every member of our organization, we are effectively implementing our business strategy to enhance our market competitiveness, focusing on neuroscience, hospital, and acute care medicines.

The pipeline of promising products we have built is important to our long-term strategy and we have diligently advanced our key projects. I am especially excited about the opportunities for the neuroscience franchise as we have assembled a robust pipeline of the innovative, effective, pain treatment products including REMOXY and ACUROX tablets that are designed to resist or deter common methods of abuse associated with many currently available pain killers. These late stage development products, every other potential products arising from these collaborations provide King with both near-term and long term revenue opportunities.

As we previously disclosed, REMOXY has completed Phase III clinical trials and our partner Pain Therapeutics expects to file the NDA later this year. ACUROX tablets is expected to complete its pivotal Phase III clinical trial program in the second half of this year as well.

Turning to other projects in our pipeline, we recently received results from the Phase II clinical trial evaluating binodenoson, an Adenosine A2A receptor agonist for the tropical treatment of chronic, neuropathic, diabetic foot ulcers. Although we are continuing to evaluate the data, the Phase II clinical trial for binodenoson did not meet its primary efficacy endpoint while it did appear to be safe and well tolerated.

We will provide more information regarding our future plans for this program once we complete our final review of that data.

On a more positive I am pleased to report there are second pivotal Phase III clinical trial evaluating Corview [ph] has met its primary end point. Corview is our next generation cardiac pharmacologic stress imaging agent. You may recall that we announced last quarter similar results for our first pivotal Phase III trial evaluating this compound. While the positive results from these two clinical trials, we now expect to file an NDA for Corview with FDA by early 2009. Additionally, we expect to present data from a successful Phase III trial at the scientific sessions of the American College of Cardiology in Chicago on Monday, March 31, 2008.

Our strong commitment to research and development, especially with respect to those initiatives that complement our neuroscience, hospital and acute care platforms, we'll continue to increasingly leverage our core strengths, balance sheet and cash flow to further increase our presence with our key markets through business development.

Now for a review of our financial results for the fourth quarter and yearend 2007, I will turn the call over to Joseph Squicciarino, our Chief Financial Officer.

Joseph Squicciarino - Chief Financial Officer

Thank you, Brian and good morning everyone. I would like to begin by pointing out some significant financial highlights for 2007. Revenues for yearend 2007 totaled a record high $2.14 billion. As part of our strategic acceleration, we restructured our organization and optimized our resources resulting in an expected reduction of $75 million to $90 million in our 2008 SG&A expenses.

For the full year 2007, cash from operations also achieved a record high of $673 million. Our unrestricted cash and investments in debt securities as of December 31, 2007 totaled approximately $1.4 billion, the majority of which was invested in auction rate securities.

During the first quarter, we began converting our investments and auction rate securities to cash and as of today we have approximately $800 million in cash and cash equivalents.

I will now cover fourth quarter and full year financial results. Revenue for the fourth quarter totaled $533 million. Net revenue from our branded pharmaceutical segment, totaled $469 million during the fourth quarter of 2007 and $1.86 billion for the full year 2007. Our Meridian Auto injector business contributed revenue of $42 million during the quarter and $184 million for the full year compared to $165 million in 2006.

Our gross margin to the year was approximately 79% in both 2007 and 2006 excluding special charges. Total SG&A expense, excluding special items and our co-promotion fee for ALTACE equaled $126 million in the fourth quarter and $509 million for the full year. Our co-promotion fee for ALTACE was $37 million in the fourth quarter of the last year and $180 million for the full year 07.

Research and development expense excluding in-process R&D equals $45 million during the fourth quarter and $149 million for the full year. We anticipate that our 2008 R&D investment will increase to approximately $180 million. This increase is primarily due to the development and regulatory milestones related to REMOXY and ACUROX.

Our effective tax rate for the full year 2007 was approximately 33%, excluding special items. Moving to earnings per share, for the full GAAP EPS was $0.75 compared to $1.95 when the special items are excluded. GAAP EPS for the fourth quarter was $0.18 compared to $0.46 when special items are excluded.

Cash from continuing operations for the fourth quarter totaled $246 million. Cash flow in the fourth quarter benefited by approximately $80 million due to a reduced level of accounts receivable, resulting from a change in wholesaler buying patters.

Finally we plan to use our cash to invest in R&D and business development. Importantly we will continue to utilize a disciplined and rigorous approach with respect to these activities as we aggressively execute our long-term strategy for growth in 2008.

Now I would like to turn the call back over to the operator for a question and answer session. Operator.

Question And Answer

Operator

Thank you Mr. Squicciarino. The floor is now open for questions. [Operator Instructions]. Our first question comes from Corey Davis. Go ahead Corey.

Corey Davis - Natexis Bleichroeder

Thanks very much. I had a couple... first how would you describe the pricing dynamics in the thrombin market now that you've got a new competitor there, any pressures left?

Brian A. Markison - President and Chief Executive Officer

Corey, hi it's Brian, thanks for the question. What we are seeing in the thrombin market is a lot of activity, a lot of sales force, competition. But really it's too early to comment at all on pricing based on the market dynamics. We haven't seen anything negative thus far.

Corey Davis - Natexis Bleichroeder

And why so long in between this completion of the Phase III in Corview [ph] in the filing almost a year.

Brian A. Markison - President and Chief Executive Officer

Yes, Corey, I appreciate that. I think when we looked at this program from beginning to end and the need to compare binodenoson or Corview to Adenoscan we were not only comparing it for its ability to cause pharmacologic stress but we are also looking for image concordance between the two agents. And I think the best way to describe this is we have spent a lot of time with our statistical analysis plan and the analysis of the data and that has taken all of the time from now... from then until now.

Corey Davis - Natexis Bleichroeder

Okay. And then last one I guess, I noticed on the court docket on SKELAXIN, that discovery has been delayed and I know Judge Trager is trying to move this along, but is it reasonable to think that you can really get this moving within a few months given the most patent cases take years form discovery to trial?

Brian A. Markison - President and Chief Executive Officer

I don't think it's reasonable, Corey, to expect this to pick up in a couple of months there. Without going into details there is a lot of discovery to do. And the other thing I'd like to reiterate though is we are very, very confident in our intellectual property, in our patents that go out for quite some time.

Corey Davis - Natexis Bleichroeder

I don't suppose you want to comment on the potential for a settlement there on the 800 mix strength.

Brian A. Markison - President and Chief Executive Officer

Look Corey... what I have said before is, we are not adverse to talking to other parties, but right now we are very early in discovery and we will see where it goes.

Corey Davis - Natexis Bleichroeder

Great, thanks Brian.

Brian A. Markison - President and Chief Executive Officer

Okay, thank you.

Operator

Our next question comes from Ian Sanderson. Go ahead Ian

Ian Sanderson - Cowen and Company

Good morning and thanks for taking the questions. A couple of financial questions here. First is the other restructuring cost savings fully baked into that SG&A run rate or what might we look for on a run rate going forward? Secondly can you provide a little bit more color on say your liquidation at the auction rate securities has yielded about 800 million. Should we expect some sort of write-down from what we saw on the December balance sheet in terms of overall cash and securities? And third, the D&A numbers showed a significant step-up in Q4, and just was wondering what that was related to?

Joseph Squicciarino - Chief Financial Officer

Thank you, Ian, for the questions. It's Joe. As far as the SG&A run rate, I was going to reiterate what we said on our last call and that is that we are very comfortable with any savings in SG&A in 2008 of $75 million to $90 million and we are on track to achieve that.

As far as auction rate securities go, we are not anticipating a write-down. As I noted in the script, at the end of the year we had about 1.4 billion in auction rate securities. We experienced our first sales auction around February 11. Since that time we have been able to liquidate approximately $150 million of those investments. So, this is obviously a liquidity issue and not a credit issue but we are not looking at any write-downs at this point in time.

And as far as the increase in D&A in the fourth quarter, we had to accelerate some of our write-downs pertaining to our intangibles related to ALTACE and that explains that increase.

Ian Sanderson - Cowen and Company

Thank you.

Operator

Our next question comes from Gregg Gilbert. Go ahead with your question Gregg.

Gregg Gilbert - Merrill Lynch

Thanks. A couple Brian, just a follow-up on the SKELAXIN settlement question. Did I hear you correctly that... or did I take from your comments correctly that you are not currently in discussions with Sandoz to settle right now.

Brian A. Markison - President and Chief Executive Officer

Greg, we are not in any dialogue. However I... what I will just say is what I had said before which is we are not adverse to talking to other parties.

Gregg Gilbert - Merrill Lynch

Sure. I just wanted to clarify that technicality. On Corview, can you put into context for us Brian what specifically we should be focusing on when we do see the data at ACC; I assume we are not going to get any detail before that, right?

Brian A. Markison - President and Chief Executive Officer

Yes, Gregg, let me turn that over to Dr. Eric Carter, who's with us on the call today. So Eric do you want to --?

Eric G. Carter, Ph.D., M.D. - Chief Science Officer

Yeah, thanks very much Brian and thanks Greg for that question. I know you are not going see any details before the ACC meeting at the end of March and I think that what's important here is that the selectivity that Corview [ph] brings relative to Adenoscan, the gold standard, we believe with the data now from second pivotal trial that really confirmed the first pivotal trial is showing us a very good agreement between the ability to capture these myocardial profusion images and that was clearly our primary goal here. But importantly that in doing so we also have a safety profile and a tolerability profile which we believe is a significant improvement over a Adenoscan and again that's consistent across the pivotal studies. So I would focus on the safety and the tolerability but assure yourself that there is no compromise on the ability to diagnose a myocardial ischemia using this as stress agent that's any different from what can be achieved with Adenoscan.

Gregg Gilbert - Merrill Lynch

Thanks. And Brian when do you plan to discuss the commercial strategy for the product?

Brian A. Markison - President and Chief Executive Officer

We will be in a position towards the end of this year.

Gregg Gilbert - Merrill Lynch

Okay. And lastly Joe can you give us a little more clarity on what you said about wholesaler buying patterns helping receivables and what if any impact was there on sales from the buying pattern issue? Thanks.

Brian A. Markison - President and Chief Executive Officer

Sure. What we saw towards the end of the fourth quarter or I should say beginning... the beginning of the fourth quarter of last year was that we received a significant level of orders in the months of October and November and so as we usually do we monitored orders very closely and when we saw that the order level and our shipments has reached demand levels, we essentially stopped shipping ALTACE and SKELAXIN at the very beginning of December, and as a result of that the receivables turned and we collected them in 2007 as opposed to having those shipments take place evenly throughout the quarter. So we, as I mentioned, experienced a benefit of $80 million of improvement to cash flow in the fourth quarter. All of our inventory levels are... have remained essentially the same and they are slightly lower in the case of ALTACE and SKELAXIN but not significantly so compared to the third quarter. LEVOXYL, we did see an increase in inventory levels and Levoxyl sales benefited in the range of 10 million to 15 million in the fourth quarter. Other than that everything was normal.

Operator

Our next question comes from Marc Goodman. Go ahead Marc with your question.

Marc Goodman - Credit Suisse

A few things Joe. Sorry to make you go back but I just want to make sure I understand on this cash and debt you said you were at 1.4 at the end of the year understand that and then you said something about 800 million today. So I guess my first question is can you just reconcile that, maybe I didn't hear it correctly? And then second of all can you just help us kind of what the rest of the P&L just some other things, and your thinking about just for guidance, tax rate gross margin things like that. And can you all address your thoughts on share buyback right now?

Brian A. Markison - President and Chief Executive Officer

Yes, Mark, hi. I will just start the answer to the question on the share buyback which is something that certainly we look at from time to time, but right now it's not under active consideration as you would expect we are much more interested in putting our money to use on the business development front. With respect to the cash profile of the Company, I will turn it over to Joe.

Joseph Squicciarino - Chief Financial Officer

Okay. Thanks for the question Mark. Let me take it from the top. We ended 2007 with about $1.4 billion in auction rate securities. Through the end of January, all of those securities turned, meaning there was successful options for everything that was in our portfolio, hence no reclassification, no write-down.

As of today we have about... we have been able to liquidate $800 million of that portfolio, we are now in money mortgage funds that are back by US treasuries. I started liquidating that portfolio sometime in the middle of January. So, that has served us well. So as we speak we have about $625 million remaining in auction rate securities and as I mentioned earlier from the day that we experienced our first failed auction which was February 11th, we have been able to liquidate approximately $150 million. So once again it's a liquidity issue and not a credit issue.

Our failed auction rate percentage is very much in line with the market in general, which is about 78%, that's actually slightly better than what we have seen in the overall market. As far as guidance goes, as you know we don't provide specific top or bottom line guidance but let me try and help you a little. As far as R&D goes, I think I mentioned in the prepared remarks that we are looking at a number for 2008 in the range of about $180 million. The increase year-on-year is driven by milestones to our partners pertaining to REMOXY and ACUROX. Tax rate, I would be comfortable if you were looking at that in the range of 34% or so for this year. SG&A as commented on were... we have everything in place or we put everything in place at the end of... in the third quarter of last year with our restructuring to drive savings on that P&L line in the range of $75 million to $90 million

Marc Goodman - Credit Suisse

And gross margin?

Brian A. Markison - President and Chief Executive Officer

Gross margin, absent the... or the capsule for... ALTACE capsule for the full year, we are going to see some degradation in our gross margin percentage and it will be in the range of about 75% for 2008.

Marc Goodman - Credit Suisse

Thanks.

Operator

Our next question comes from Michael Tong. Go ahead with your question Michael.

Michael Tong - Wachovia Securities

Thanks, good morning. Joe just a follow-up on the R&D spend. What would be the spending level if you were to exclude the milestone, just so I get a better understanding of what the continuing rate is. And then as far as REMOXY and ACUROX are concerned when should we expect data presentation if any in more detail? And then finally Brian in quarters past you've talked about your outlook for your ability to maintain exclusivity on SKELAXIN. Usually you give us a couple of quarters' outlook whether you can maintain that exclusivity. Do you care to comment on that right now?

Brian A. Markison - President and Chief Executive Officer

Yes, thank you for the questions. Let me try to tackle them in reverse order. I think with regard to SKELAXIN, given the previous uncertainty around where the FDA was with carve out labeling, that was really what was guiding me more than other concerns with respect to intellectual property and litigation. Because don't forget, core was only litigating with King on a 400 milligram metaxalone product.

So, I think now we are at a position where we believe the FDA is landed on our side with respect to the skinny label issue because we do have a final label and it's been out there for a quite some time and we really have seen no activity on the skinny label front that would indicate the contrary. The other part of it is we do believe as I've said earlier in the validity and duration of our patents and we are going to litigate that with the Sandoz now and there's really not much more I can really add to that.

The second question you had I believe was with respect to REMOXY and ACUROX data. What we said with ACUROX is there will be the end to the Phase III program by the end of this year. So certainly around that timeframe we may be in a position to present data and with REMOXY there will be upcoming Pain conferences and meetings, that I believe that you will begin to see data but nothing much is going to be out there prior to filing of the NDA, all of our attention right now and especially Pain Therapeutics attention is centered around getting the NDA filed before the end of the second quarter. And then with respect to your first question, I will turn that over to Joe.

Joseph Squicciarino - Chief Financial Officer

Hi, Michael. I hope all is well. As far as the increase year-on-year in R&D, the way you should think about that is virtually all of that increase is due to the milestones that we have referred to earlier.

Michael Tong - Wachovia Securities

Great, that's helpful. Thank you.

Operator

Our next question comes from Kim Seth. Go ahead with your question.

Unidentified Analyst

Hi, thanks for taking my question. Just a quick follow-up on REMOXY. There's been a lot of talk about some Tmax or PK data that will help differentiate it from produce intellectual property position. I was wondering if there is any sense of when that might be coming. We've been waiting for it for a while. With handsets it's... that it maybe around the corner. Thanks.

Brian A. Markison - President and Chief Executive Officer

Yes, thank you for the question. There will be no discussion from King on this topic.

Operator

Our next question comes from Adam Greene. Go ahead with your question, Adam.

Adam Greene - JP Morgan

Thanks, good morning everyone. Just wondering if there are any new initiatives planned for AVINZA? Its scripts have been kind of sluggish recently. I know when you first acquired that you thought there would be kind of a transition period. Aside from the 15% or so price increase, have you seen anything else on the margin side? And then also on gross margins, you have about 75% for 2008. But what was the reason that the fourth quarter number was so high relative to other quarters.

Brian A. Markison - President and Chief Executive Officer

Yes, hi Adam, it's Brian. Could you repeat the second part of you question on gross margin because it didn't come through clearly, please?

Adam Greene - JP Morgan

Just why fourth quarter number looked to be kind of an aberration from past quarters?

Brian A. Markison - President and Chief Executive Officer

Great, thank you. And so we are going to answer the AVINZA question first with Steve Andrzejewski, and then we will bounce back to Joe for the gross margin question. Steve?

Steve Andrzejewski - Chief Commercial Officer

Yes, thanks for the question. Regarding AVINZA, after our restructuring in October we retrained about 40% of our field force in November and since that time we have stabilized the market share and our intention is to now grow it. But in terms of how we are going to do that we have gotten some situations of improved managed care reimbursement to Tier-2. For a number of accounts and many of these just became effective January 1 of this year.

In addition on our field force has even greater focus on the AVINZA audience based on the restructuring that we did and all of the efforts with AVINZA are certainly preparing us further as we get ready for REMOXY.

Brian A. Markison - President and Chief Executive Officer

Okay, Joe.

Joseph Squicciarino - Chief Financial Officer

Okay as far as the gross margin question, we were actually pretty much in line on a rounded basis fourth quarter versus third quarter and gross profit 79% in both periods. However we did see an uptick or an upturn versus the prior year and that was driven by two factors. Price increases played a role as well as the benefit that we saw accrue to our gross profits as a result of our sale of the... our facility in Rochester, we had some idle plant there and once that is taken out of the equation, we obviously got a benefit.

Adam Greene - JP Morgan

And your 75% assumption for 2008, what did that assume relative to the sale of ALTACE tablets, is it assuming modest or what type of impact would we see on that?

Brian A. Markison - President and Chief Executive Officer

Well it's a little too early to tell right now but we expect given how it's gone thus far that the impact of ALTACE tablets will be relatively modest.

Adam Greene - JP Morgan

Okay, thank you.

Operator

Our next question comes from Angela Larson. Go ahead with your question Angela.

Angela Larson - Susquehanna Financial

Thank you for taking the questions. Do you expect inventory correction in LEVOXYL to occur in first quarter or is this something that could go out a couple of quarters. And then also on REMOXY and ACUROX, if you could give us a little bit of color about which product or product line do you think addresses the larger market.

Brian A. Markison - President and Chief Executive Officer

Hi Angela, it Brian. Okay I will let Joe go first on the LEVOXYL question and then I will pick it up maybe with Steve on REMOXY and ACUROX.

Joseph Squicciarino - Chief Financial Officer

Hi Angela. Yes, we do anticipate that we will see a work down in the first quarter resulting the amount that amount that I mentioned of the buy-in if you will or increased level of sales in the fourth quarter.

Brian A. Markison - President and Chief Executive Officer

Okay. And Angela, with regard to REMOXY and ACUROX, I think if you looking at dollars, REMOXY in the long acting opioid space could be viewed as a bigger opportunity. If you are looking at total prescriptions clearly ACUROX is going to be playing in a much, much, much larger marketplace and I think those volumes are quite different.

I think those products are excellent opportunities. For example in the extended release opioid market, the way we look at the data, there's about 19 million total prescriptions. But when you look at the short or the immediate acting opioid market, we estimate about 170 million total prescriptions on an annual basis. So, you got... if you do the math and you get a very small share of both those markets, clearly it adds up quickly.

Angela Larson - Susquehanna Financial

Thank you for the color on the market. On the ALTACE tablet, do you just want to leave it as you're expecting a modest impact and does that mean that you are comfortable with your SG&A savings for now or if the tablet really does stay at a modest impact that there might be additional SG&A savings down the road?

Joseph Squicciarino - Chief Financial Officer

As far as the SG&A savings there, Angela, we are... once again we are very comfortable with the range that we talked about $75 million to $90 million and we contemplated allocation of resources, dialing up and down depending upon how we need to modulate investments throughout the year but again we are comfortable with that $75 million to $90 million.

Brian A. Markison - President and Chief Executive Officer

And Angela with regard to the tablet, I think a little more color that I could provide is while we are giving it a good face effort to launch the tablet we see what we can do, we are seeing significant resistance at the retail level in stocking the product which is what anyone would expect given the fact that the generic is already out there and doing quite well.

Angela Larson - Susquehanna Financial

Thank you.

Operator

The next question is fm Elliot Wilbur. Go ahead with your question Elliot.

Elliot Wilbur - CIBC World Markets

Thank you. Brian a question for you, more... I guess more of a strategic question around your Abusiterm [ph] portfolio and perhaps some longer term perspective there. How do you think about or how should we be thinking about perhaps the relative positioning strength of products like REMOXY and those license from Pain Therapeutics which are kind of based on the TRANSDUR technology platform versus ACUROX formulated products which obviously contain an opioid antagonist and I guess the question is more in that 18 to 24 months down the road, you may have competition on Oxycon from products that look similar to the technology that ACUROX is using. So I am wondering if you think there is any sort of strategic advantage to having a platform based on the technology that uses an opioid antagonist versus the transfer technology or this is really more kind of a first to market type of battle.

Brian A. Markison - President and Chief Executive Officer

Yes, I think it's about... it's a great question. With regard to the Pain Therapeutics platform and the technology from direct which we refer to as the ORDURR [ph] technology, and then when you look at the Acura technology, they are both quite different in approach and platform but I think when we look at it they are going to be quite synergistic for our own portfolio. When we look at our sales force coverage and the targets that are necessary to call on for REMOXY and then look at a subsequent launch of ACUROX, we think we are going to have a 75% overlap in the target audience at least initially. And then with regard to the follow-on compounds obviously as the first to win... generate success for the platform the paying market is quite substantial in prescription size dollars as you know and each of these other compounds as they are developed and launched should be able to carve out a nice opportunity for themselves in the marketplace.

Operator: Does that answer your question Elliot?

Elliot Wilbur - CIBC World Markets

Yes, thank you.

Operator

Our next question comes from Andrew Swanson. Go ahead with your question Andrew.

Andrew Swanson - Citigroup

Thanks very much. I just wanted to revisit AVINZA briefly. I know you have made some comments earlier but it does look like the revenue came in maybe a little bit later than we would have expected given the stabilization in the scripts. Is anything happening with pricing within that market and how should we think about price per script if you look into 2008? And then secondly given some of the Myelin comments last night about the day business, any comments and thoughts on your willingness to repurchase EpiPen royalties? Thanks.

Brian A. Markison - President and Chief Executive Officer

Okay, so first back to AVINZA. We really don't see anything unusual happening with pricing in the marketplace. I think the market and of course we have been reviewing the data as much as you would expect. The markets remained relatively stable overtime. Certainly we are looking at a bit of a pick-up for generic extended release morphines if you look at a 12-month period. So I think again very stable market, it's growing, which is good, pricing is not unusual here and I think with us and AVINZA there... the mantra is going to be that just keep our shoulder to the grindstone here and see if we can move some market share and regain some of the position that was lost in managed care during the transition of Ligand to us.

Andrew Swanson - Citigroup

And the EpiPen royalties?

Brian A. Markison - President and Chief Executive Officer

I am sorry, can... Andrew, what's --?

Andrew Swanson - Citigroup

Bayer made some comments about potentially divesting the day business or walking away from specific segments of that business. And I was just wondering, any thoughts you would have on purchasing EpiPen royalties?

Brian A. Markison - President and Chief Executive Officer

Yeah, I think we are always interested in a sensible transaction and obviously EpiPen is a big piece of our Meridian business. But I will state publicly that I have a dislike for auctions, so we will see how it goes.

Andrew Swanson - Citigroup

Thanks very much.

Operator

And our next question is from Gregg Gilbert. Go ahead Greg.

Gregg Gilbert - Merrill Lynch

Hey, just one follow-up Brian. Why did you not launch an authorized generic version of ALTACE capsules, it seems like it would have been easy short-term money. Is there a contractual issue there or is Cobalt supply constrained on their capsule; just trying to understand that? Thanks.

Brian A. Markison - President and Chief Executive Officer

Well I think, as we are looking at the dynamics in the market, we are really trying to give a good faith effort to the tablet. If we were to launch an authorized generic with a partner, the market dynamic again would change as you would suspect and perhaps make it more difficult for us. So I think, we are on the market now, with our capsule, we are out there trying to push the tablet and I think we are going to see where it goes.

Gregg Gilbert - Merrill Lynch

Okay, thanks.

Operator

Sir, there appear to be no further questions at this time.

Brian A. Markison - President and Chief Executive Officer

Very well. I want to thank everyone for joining our conference call today. We really appreciate your interest in King Pharmaceuticals and look forward to speaking with you again when we report our financial results for the first quarter of 2008. Have a good day.

Operator

Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.

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