Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Forest Laboratories (NYSE:FRX)

Q1 2013 Earnings Call

July 17, 2012 10:00 am ET

Executives

Frank J. Murdolo - Vice President of Investor Relations

Francis I. Perier - Chief Financial Officer, Executive Vice President of Finance & Administration and Member of Disclosure, Legal Compliance & Risk Management Committee

Elaine Hochberg - Chief Commercial Officer, Executive Vice President of Marketing and Member of Disclosure, Legal Compliance & Risk Management Committee

Marco Taglietti - Senior Vice President of Research & Development, Member of Disclosure, Legal Compliance & Risk Management Committee and President of Forest Research Institute (NYSEARCA:FRI)

Analysts

Timothy Chiang - CRT Capital Group LLC, Research Division

Corey B. Davis - Jefferies & Company, Inc., Research Division

Douglas D. Tsao - Barclays Capital, Research Division

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Gregory Waterman - Goldman Sachs Group Inc., Research Division

David Risinger - Morgan Stanley, Research Division

Seamus Fernandez - Leerink Swann LLC, Research Division

Aaron Gal - Sanford C. Bernstein & Co., LLC., Research Division

Annabel Samimy - Stifel, Nicolaus & Co., Inc., Research Division

Thomas J. Russo - Robert W. Baird & Co. Incorporated, Research Division

Marc Goodman - UBS Investment Bank, Research Division

Operator

Good morning. My name is Sylvia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Forest Laboratories' First Quarter 2013 Earnings Conference Call. [Operator Instructions] Thank you. I would now turn the call over to Mr. Frank Murdolo.

Frank J. Murdolo

Thank you, Sylvia, and good morning, everyone. Thank you for joining us today for this first quarter fiscal 2013 conference call. Joining me today is Frank Perier, our Executive Vice President of Finance and Administration and Chief Financial Officer; Elaine Hochberg, our Executive Vice President, Sales and Marketing and Chief Commercial Officer; and Marco Taglietti, our Senior Vice President, Research and Development and President of the Forest Research Institute.

By now, each of you should have seen the earnings release that we issued this morning. The release is also available at our website, www.frx.com. By way of Safe Harbor statement, let me add that various remarks that we may make about future expectations, plans and prospects for the company constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and actual results may vary. These remarks involve a number of risks and uncertainties, including the difficulty of predicting FDA approvals, the acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, the timely development and launch of new products and the risk factors listed from time to time in Forest Laboratories' annual report and quarterly reports.

Let me now turn the call over to Frank, who will comment on the business during the quarter.

Francis I. Perier

Thank you, Frank, and good morning, everyone. We began fiscal '13 with the successful completion of our Phase III clinical development program for levomilnacipran. Preparation of the NDA is now underway with plans to submit the filing to the FDA during the third calendar quarter of 2012.

Early last month, we entered into an agreement with Nabriva Therapeutics for the development of Nabriva's novel antibacterial agent, BC-3781. Forest has the exclusive right to acquire Nabriva. Forest's decision to acquire Nabriva will be dependent upon certain contingencies.

A few weeks ago, we hosted an investor day meeting to review our late-stage R&D development pipeline and commercialization strategy. Since Marco and his team and Elaine and Bill Meury just provided a very comprehensive review at the meeting, we are going to abbreviate most of our usual background comments during the morning's conference call. So overall, a productive and exciting start for the new fiscal year.

I'll turn it over to Elaine, who will now review our sales performance for the quarter.

Elaine Hochberg

Thank you, Frank, and good morning, everyone. I was pleased to have the opportunity to speak before you at our investor day meeting on June 20, and it truly is my pleasure to update you this morning on how our commercial portfolio of new and existing products are performing.

Let's start with our newest launches, Daliresp and Viibryd. Daliresp continues to gain momentum in both pulmonology and primary care. Sales for the quarter were $17.8 million, a 35.9% increase over the March 2012 quarter. We continue to be pleased with the prescription data and trends for Daliresp. As of the week ended July 6, there are nearly 230,000 prescriptions written. Overall, total prescription volume in the June quarter increased over 30% versus the March quarter. New prescription share of the total market was 1.68% for the week ended July 6 versus 1.49% for the last week of March.

Over 24,000 physicians have already prescribed Daliresp, and 67% of the physicians that have prescribed have done it more than once. Likelihood to prescribe remains high for both PCPs and for pulmonologists. The support and advocacy, as you know, of pulmonologists is a key need in this category, and continued signs of adoption by this group are very encouraging, with new prescription share among specialists exceeding national [indiscernible] and reaching almost 3%. We are meeting with pulmonologists in the hospital setting, as well as in their practice offices. Through our hospital initiative, we've added 2,000 new pulmonologists to our existing panel of 6,000 pulmonologists. Market share in pulmonology is up almost 50 basis points in the June quarter versus the market -- the March quarter.

Our leading cohort of Daliresp prescribers has more than tripled the market share of the national average. The next cohort, which comprises almost half of all current Daliresp prescribers, has doubled the market share versus national. Both of the cohorts continue to grow, and these are very good trends for Daliresp and good harbingers for future growth.

Turning to Viibryd with sales for the quarter of $37.4 million, a 50.2% increase over the March 2012 quarter. We expect Viibryd's strong growth to be sustained by broad-based audience appeal and first-line use in patients with moderate to severe MDD.

Total prescriptions in the June quarter grew over 25% versus the March quarter. As discussed at our investor day meeting, physicians continue to describe the effect of the drug observed in the clinical trials as meaningful, consistent across multiple depression rating scales and similar to other SSRIs, with a tolerability profile that is favorable. And we continue to hear very positive experiences from doctors and patients.

As of the week ended July 6, approximately 700,000 prescriptions were written by over 55,000 prescribers. Approximately 75% of prescribers are repeat writers. The leading cohort of Viibryd prescribers has an average of 2.5% market share, which is practically 5x the national average and bodes well for continued growth.

In year 2 following product launches, we will continue to promote growth by further educating and informing PCPs about the product Viibryd for such appropriate channels as detailing speakers bureaus, lunch and learns and sampling. It's an opportune time in this product's young life cycle, because PCPs will have time to gain exposure to the product and feedback from their specialist colleagues. Our efforts ultimately aim to give primary care physicians more experience with Viibryd, either to convince them to prescribe for the first time or to expand their use of the product.

Bystolic had a very good quarter and exceeded the $100 million mark for the first time. Sales in the quarter for Bystolic were $107.8 million, representing growth of 38.2% year-over-year. Bystolic has achieved a 4.6% share among specialists. Weekly national share among all prescribers is now consistently above 4% and, recently, almost 15 basis points higher, which demonstrates the product's continued momentum. There are currently 250,000 prescribers of Bystolic, and nearly 99% of using physicians are repeat prescribers.

Overall, Bystolic has performed very well. As we discussed at our investor day meeting, looking forward, we intend to continue to spur Bystolic's growth with the release of additional data to instruct appropriate use of the product, as well as the development and, hopefully, the approval and launch of a fixed dose combination of Bystolic and the market-leading ARB, valsartan. Through a fixed dose combination product, we hope to expand the pool of eligible patients of Bystolic and to generate first-line use as well.

Teflaro has launched into hospitals over a year ago. In that time, the recognition of the quality of our sales efforts and of Teflaro have advanced. Teflaro is showing good uptake in skin, and we await the next respiratory season to continue the share growth that we saw at the end of the last respiratory season intact. Sales of Teflaro in the quarter were $9.4 million, up 19% over the fourth fiscal quarter and significantly up compared to the $2.7 million in the year-ago quarter. Since the product's launch in 2011, Teflaro has generated approximately 348,000 days of therapy, which is an increase of 17% over quarter 4.

Teflaro has a strong user base, with over 3,000 using hospitals purchasing the product. The number of new and repeat accounts is also climbing, with more hospitals purchasing Teflaro each week. Quarter-over-quarter, we've seen an increase of approximately 12% in total accounts purchasing Teflaro. 75% of target hospitals have purchased Teflaro to date. Over 80% of hospitals have purchased Teflaro multiple times. 60% have done so greater than 10x. 50% of target hospitals have Teflaro on formularies, and 54% of those have unrestricted formularies. In total, this is a picture of increasing strength.

Namenda is an important product for Forest. Sales for Namenda were $368.4 million in the quarter with growth of 15.2% year-on-year. We expect Namenda to continue to be a growth product. Furthermore, the launch of an XR product that has a higher dose, a once-a-day formulation and also has a study in combination with oral acetylcholinesterase inhibitors should propel future growth for this important product.

Savella. Savella's sales in the quarter were $26.7 million, growth of 3.5% year-over-year compared to sales of $25.8 million last year. Overall, as we've discussed before, the fibromyalgia market has grown more modestly than anticipated and has proven itself to be a more specialty-driven market than a broad-based PCP category. Savella's share among specialists is still comparable to that of Cymbalta and Lyrica.

Lexapro's patent exclusivity ended this past March. Substitution rates for Lexapro are effectively at 90%. Sales of Lexapro were $110 million in the quarter.

So this concludes our recap of the quarter and the performance of our promoted products. Of course, as we described at our investor day meeting, we are now busily preparing for the potential launches of 2 additional primary care products: aclidinium, our LAMA for the treatment of COPD; and linaclotide, our GCC agonist for the treatment of IBS-C and chronic constipation, 2 common GI conditions treated by primary care physicians and gastroenterologists. We anticipate approval of aclidinium shortly and linaclotide later this summer and are planning to introduce both products to the market either late in the third quarter or early in the fourth calendar quarter.

Now let me turn the call over to Frank Perier for an update on the financial results.

Francis I. Perier

Thank you, Elaine. Let's move on to review the financial results for the quarter. We have just completed our first fiscal quarter following the loss of patent exclusivity for Lexapro, and as expected and reported, our earnings for the quarter reflect the impact.

Reported earnings per share are $0.21 for the first quarter of fiscal 2013 compared to earnings per share in the first quarter of fiscal 2012 of $0.90, which included a charge of $0.14 per share, net of tax, related to the new product license agreement for azimilide, a novel antiarrhythmic agent.

Non-GAAP earnings per share in the first quarter of fiscal '13 equaled $0.28 as compared to $1.07 for the first quarter in fiscal 2012, excluding acquisition-related amortization in both periods presented and azimilide in last year's first quarter.

Total revenues for the fiscal first quarter, which are inclusive of product sales, pretax earnings from Benicar and the Lexapro-authorized generic, interest and other income totaled approximately $821.1 million versus $1.2 billion last fiscal year.

Fiscal first quarter revenues were comprised of approximately $751.8 million of product sales versus $1.1 billion last year, $65.8 million of contract revenue, which included $35.4 million from the Benicar agreement and $29.4 million of Lexapro authorized generic income. Interest and other income totaled $3.5 million.

Turning to wholesale or inventories, we see them really at normal levels, just under 3 weeks and in line with the last quarter.

Moving down to gross margin in the quarter, which came in at 77.6%, this compares with 77% in last year's fiscal first quarter. SG&A spending during the quarter was $382.3 million, up 6.8% from $358.1 million in last year's first quarter. The current level of spending reflects the resources and activities that we believe are required to support our currently marketed products, particularly in our newest products, Teflaro, Daliresp and Viibryd.

Research and development spending for the current quarter was $195.2 million compared to $194.4 million reported in the first quarter last year. As I stated, the prior quarter included the upfront license charge of $40 million for azimilide. Excluding that payment, R&D expense increased 26.4%.

Research and development spending is primarily in support of an expanded late-stage development program spread out over multiple product pipeline projects. There were no development milestone payments in either period.

The company's reported effective tax rate for the quarter was 26.7% compared to a reported rate of 25.3% in the prior year. We expect the annual effective rate to be approximately 23% for fiscal 2013.

Turning to shares outstanding, in May of 2010, the board approved a share repurchase program of up to 50 million shares of the company's common stock. There were no shares repurchased during the current quarter. We have 17.3 million shares remaining under our 2010 share repurchase authorization. Actual shares outstanding as of June 30 were approximately 368,596,000, a decrease of approximately 5.9 million shares from last year.

Our cash and marketable securities balance as of June 30 was approximately $3.2 billion, an increase of $72 million from last quarter. Of the $3.2 billion total, approximately $345 million or 11% of our cash and marketable securities is domiciled domestically, with the remainder maintained by our international subsidiaries.

With regard to our use of cash, we have judiciously managed our cash resources to facilitate growth of the business and return its capital to the shareholders. Since 2004, we have repurchased $4.7 billion worth of stock, including the 3 ASR programs. In addition, since 2007, we have invested $2.8 billion in business development, including the acquisitions of Cerexa, Novexel, the Grünenthal European colistin business and clinical data for a cumulative total of $2.1 billion and invested in an additional $700 million in initial new product license agreements.

Now let me turn the call over to Marco for a quick pipeline update.

Marco Taglietti

Thank you, Frank. Good morning, everyone. So as I mentioned at our investor day meeting last month, creating sustainable growth beyond 2012 has been the motto and the mission of my R&D organization for the last few years because we were well aware that the Lexapro cliff was coming. And in R&D, we have been preparing for it by building systematically, methodically and relentlessly a broad and deep pipeline and the right R&D organization to deliver it.

Having completed a lot of hard work in the last couple of years, we now enter fiscal year 2013 off to a great start. As Frank just mentioned, we expect to receive notice very soon from FDA about the approval of aclidinium. And we are looking forward to the upcoming PDUFA date for linaclotide. In addition, we plan to file 2 NDAs by the end of this calendar year: one for levomilnacipran and one for cariprazine. So by the end of the year, we should have 2 products approved and 2 new NDAs filed. As I said, a great start.

We also continue to move forward with our regulatory filings for Canada, where we received the acceptance letter for our filing for Bystolic a few months ago. Let's start with an update of our respiratory pipeline. As I mentioned, we expect to receive approval for aclidinium by the FDA very shortly. With regard to the fixed dose combination of aclidinium and formoterol, the Phase III studies with a fixed dose combination began in September 2011, and we anticipate the first top line results from the trials to report out during the first half of calendar 2013 and to complete the registration program in the second half of 2013.

Also, in respiratory, we continue to support the launch of Daliresp, and we are conducting additional post-marketing studies to meet FDA's post-approval requirements and, very importantly, to further characterize the profile of Daliresp in the approved indication.

Moving now to linaclotide, we and our partner, Ironwood Pharmaceuticals, submitted the linaclotide NDA in August of last year for the treatment of IBS-C and chronic constipation. In April, the FDA extended the review period for linaclotide to this coming September. We currently don't see any obstacle to the path for successful registration by the revised PDUFA date.

Moving on to our CNS pipeline. On March 7, we and our partner, Pierre Fabre, announced the successful completion of the levomilnacipran Phase III program, a once-daily selective serotonin and norepinephrine reuptake inhibitor for the treatment of MDD, major depression disorder. And on April 26, we reported an additional positive result study for a -- from a Phase III levomilnacipran MDD. So with 3 successfully completed, positive Phase III studies for the treatment of MDD in adults, we are on track to file a new drug application for levomilnacipran during this quarter.

Moving to cariprazine. We and our partner, Gedeon Richter, were pleased to announce in February the successful completion of the Phase III program for cariprazine for both schizophrenia and acute mania. We remain on track to file the NDA for cariprazine for both indications during the fourth quarter of calendar year 2012.

Cariprazine is also under development in Phase II studies for bipolar depression and as an adjunct treatment in MDD. We expect to report the top line results from these studies around the end of calendar 2013 and mid-2014, respectively.

Let's turn to our anti-infectives pipeline. As Frank mentioned earlier, on June 1, we announced an agreement with Nabriva Therapeutics for the development of their novel antibacterial agent, BC-3781. BC-3781 belongs to a novel class of antibiotics, the pleuromutilins. It exhibits microbiological activity against a wide range of gram-positive pathogens, including MRSA and penicillin-resistant streptococcus pneumoniae, as well as certain gram-negative organisms often implicated in respiratory infections. Based on its profile, BC-3781 may have utility in the treatment of both acute bacterial skin and skin structure infection and community-acquired bacterial pneumonia, among other conditions. It would complement our existing hospital antibiotic franchise because, in addition to the intravenous formulation, another formulation will also be developed, providing an opportunity to treat patients after they are discharged from a hospital.

In 2011, Nabriva announced positive results from a Phase IIb study in 207 patients with acute bacterial skin infections, and we expect to advance BC-3781 into pivotal Phase III studies in 2013. With Teflaro approved and launched, our focus now is moving to the combination with avibactam, formerly known as NXL 104. Avibactam is a new broad-spectrum beta-lactamase inhibitor that we are developing in combination with ceftaroline and with ceftazidime. Development of ceftazidime Avibactam is a joint collaboration between Forest and AstraZeneca. Clinical studies are ongoing in complicated intra-abdominal infection and complicated urinary tract infections.

Also, as you may know, on June 22, our partner, AstraZeneca, received a positive CHMP opinion for ceftaroline. Ceftaroline will be marketed by AstraZeneca in Europe under the brand name Zinforo.

With regard to our cardiovascular pipeline, we were excited to report to you last quarter that, as part of our life cycle strategy for Bystolic, we have initiated a Phase III clinical trial to study a fixed dose combination of Bystolic and valsartan for the treatment of patients with hypertension. A multicenter, randomized, double-blind, placebo-controlled study of approximately 3,700 patients to evaluate the safety and efficacy of Bystolic and valsartan in patients with stage 1 or 2 essential hypertension began in January. We expect to report preliminary top line data from the study around the middle of calendar year 2013.

This is all with regard to our development pipeline. Frank, I'm now turning the call back to you.

Francis I. Perier

Thank you, Marco. Before turning back to the business, let me just update you on one matter. Once again, Carl Icahn, a shareholder who owns just under 10% of Forest's shares, has moved to nominate 4 individuals to the Forest board. Forest board has proposed a slate of all 10 of its current directors. The annual meeting is scheduled for Wednesday, August 15, 2012.

So just to recap overall on the business, we are off to a strong start for the year. We have 5 new drugs that we are actively marketing: Bystolic, Savella, Teflaro, Daliresp and Viibryd, collectively demonstrating strong growth and marketplace acceptance. We expect to hear from the FDA soon regarding the approval status of aclidinium and later this summer on the approval status for linaclotide. Assuming approval for both products, we will have 2 new product launches in this fiscal year.

We are on track to file levomilnacipran in the coming months and cariprazine in the fourth quarter of this year. Assuming their respective regulatory approvals in calendar 2013, we expect to launch levomilnacipran and cariprazine in calendar 2014, which would bring us 9 new products -- 9 new product launches since the beginning of 2008.

This portfolio of products represents 6 therapeutic categories: central nervous system drugs, cardiovascular, anti-infective, respiratory, gastrointestinal and pain. We have deliberately and strategically diversified our product portfolio so as not to be dependent on any single product or therapeutic area.

Today, we have one of the strongest and most diverse pipelines in pharma, with multiple branded products in 6 large therapeutic categories. These areas are 6 of the most common disease states that primary care physicians treat. Having a broad portfolio of products to promote to primary care physicians will drive meaningful commercial synergies as we generate significant operating leverage from cross-selling multiple products to PCPs.

For example, we already call on approximately 80% of the physicians to whom we expect to promote linaclotide when approved. Through its broad access to and understanding of these physicians, we can generate higher product sales and more profitable products. Our track record of new product development compares favorably to our specialty pharma peers, as well as many of the industry's largest companies. For example, we have had more new molecular entity approvals and new drug applications/BLA findings over the last 3 years in similarly sized companies and have had the same number or more than much larger companies like GSK, AZ, Merck and Eli Lilly.

We now boast one of the strongest and most diverse product portfolios and pipelines in the industry, in large part due to our strong core competency in our key therapeutic focus areas and our status as a partner of choice, as evidenced by our numerous repeat collaborations.

We have a long track record of successful product selection, product development and sales and marketing execution, and the investments we are making to support our products are both prudent and necessary to help them reach their full commercial potential.

There are, of course, substantial upfront expenses associated with successfully developing and launching new products. However, we have managed our expenses carefully and have kept our costs at appropriate levels when taking into account the many new products we have in development and in the early stage launch phase. This gives us great optimism about our future prospects, and we believe that we will once again deliver substantial progress in the coming year.

Frank J. Murdolo

Thank you, Frank. I will now read the first quarter sales figures for some of our smaller products. Starting with Campral, $4.6 million; Celexa, $3.7 million; Cervidil, $13.3 million; Esgic, $0.5 million; Europe, $32.4 million; Generics, $6.8 million; Lorcet, $0.8 million; Monurol, $0.9 million; Thyroid, $10.4 million; Tiazac, $0.7 million; and then just lastly, the Benicar third-party sales for the reporting period were $251.4 million.

And operator, I think we are ready to start the Q&A session if you would, please.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Tim Chiang from CRT Capital.

Timothy Chiang - CRT Capital Group LLC, Research Division

[Audio Gap]

being potentially lower for fiscal '13. I think you said 23%. I think, last quarter, you said it was around 26%. I just wanted to clarify that.

Francis I. Perier

Tim, I'm sorry, you got cut off in the very beginning of the question. I believe it was about the effective tax rate. Is that correct?

Timothy Chiang - CRT Capital Group LLC, Research Division

Yes. Sorry about that.

Francis I. Perier

Yes. That's the -- the one area we just wanted to clarify, we've done some more work on phasing out the year, considering all the changes that we've had to consider with regard to Lexapro, et cetera. And we see the rate now, for a full fiscal year, at about 23%.

Timothy Chiang - CRT Capital Group LLC, Research Division

Okay. And I think you -- just one quick follow-up to that, Frank. I think, last quarter, you mentioned that the bulk of your earnings for this fiscal year would rest in the fiscal first quarter and the fiscal fourth quarter. Is that still the case for you guys?

Francis I. Perier

That is absolutely the case, Tim. And given the changing guidance because of Lexapro, the fiscal fourth quarter has even more impact than the first quarter.

Operator

Your next question comes from the line of Corey Davis from Jefferies.

Corey B. Davis - Jefferies & Company, Inc., Research Division

I have 2. First, probably for Marco. I think Ironwood mentioned in their press release this morning that they're doing a new Phase IIIb study to further characterize the effect of linaclotide on abdominal symptoms in CC. So my question is can you elaborate more on the purpose of that trial? Would it eventually need to -- lead to a new indication or just a label change? Or is it more intended to be just a publication?

Marco Taglietti

So let me say, first of all, it's our -- it's both. It's not just Ironwood. It is together, Ironwood and Forest. It's part of our strategy in general, when we launch a product, to start to do Phase IIIb studies. Try to have a mix of studies, both in trying to both understand and position the product. So studies that we can use for promotion. And so -- studies that are within the labeling; studies that can change the labeling; and studies, as you mentioned, that can be for publication. These belong to the first class I just mentioned. In other words -- so this is a Phase IIIb study on which we want really to show how this product provide an advantage in certain type of symptoms associated with chronic constipation. So symptoms like bloating, some of the discomfort that patients have. In our Phase III studies, we had clearly showed a benefit in these symptoms, but as part of a secondary endpoint. This study will be a study within the labeling -- so to be used for promotion, not just for publication -- to show the type of benefit that this -- that linaclotide can provide compared especially to products on the OTC that do not have this type of effect. So I think it's just part of our strategy to make sure that, as the product is launched, we continue to provide new data that can continue to better define the profile of a drug.

Corey B. Davis - Jefferies & Company, Inc., Research Division

And just to clear up any potential controversy, this is not something that the FDA suggested you might need to do pre-approval first round. This is something clearly...

Marco Taglietti

No, not at all. Not at all. This is a study that we just see as a study that we provide -- when the product is launched and on the market, we'll provide again, some additional, I can say, color to the labeling and to the type of effect that the drug has.

Elaine Hochberg

Corey, this is Elaine. Marco, I think, handled that answer very well. But as you may recall, from investor day, we do believe in elucidating our molecules through time to additional studies. And you also know that probably, chronic constipation is the part of the market that we're going to have to move, I think, with lots of proof sources about the additional benefit that linaclotide carries versus the OTC laxatives. And so this is our first foray beyond the pivotal clinicals to begin to continually address the molecule appropriately with the data needed to persuade both the doctors, the payers and individual patients to come back into the RX world to get the benefit of linaclotide not allowed to them through OTC use.

Marco Taglietti

And in fact -- actually, if I can add on what Elaine just mentioned, for example, some of the success of Bystolic certainly has been due to the fact that since we launched the product, we have conducted almost a dozen of the Phase IIIb studies. All or most of them usable in promotion, again to characterize the profile and to better understand in which setting a physician can use the drug. So Phase IIIb is something that the commercial group and the R&D organization are working very closely to make sure that we continue to characterize the profile of the product.

Corey B. Davis - Jefferies & Company, Inc., Research Division

And my second question for Frank, can you quantify the amortization and which line item it came out of? And going forward, are you going to break that out as a separate line item so we can develop better non-GAAP EPS projections as our official estimates?

Francis I. Perier

Sure, Corey. Yes, we've got 2 places you have some amortization coming out of, cost of sales and G&A. And overall, it's about $0.32 for the year that we -- or $0.30 for the year that's pretty evenly spread throughout the year. So you can almost do like $0.07 to $0.075 each quarter.

Corey B. Davis - Jefferies & Company, Inc., Research Division

What's the pretax absolute dollar figure associated with that? Is that taxed at the same corporate rate?

Francis I. Perier

Yes. You'd just use the same overall effective rate, Corey.

Operator

Your next question comes from the line of Douglas Tsao from Barclays.

Douglas D. Tsao - Barclays Capital, Research Division

I was just hoping you could provide some detail in terms of the duration of therapy that you're now seeing with Daliresp, in terms of the repeat prescriptions, especially given some of the uptick that we've seen in the NRx recently.

Elaine Hochberg

I'm trying to reference my own speech to you. Relative to this audience, we know I have [ph] to repeat and I have go back and look at the [indiscernible] on the overall [indiscernible] because they don't come readily to mind.

Douglas D. Tsao - Barclays Capital, Research Division

Okay. And then Frank, we've seen sequentially some pullback in the R&D line. I was just curious as to what we should expect in terms of the progression as we see it through the rest of the year, especially given sort of a lot of the activity that you have in the pipeline. And then also, turning to the SG&A line, how we should think about the increase in spend as you plan and sort of execute the launches of, hopefully, aclidinium, as well as linaclotide?

Francis I. Perier

Yes. I mean, I don't think we've really seen a pullback in R&D. Again, remember, last year's first quarter included a $40 million [indiscernible] azimilide. When you look at it, we've had a very large investment in this quarter, and we continue to see kind of that level of investment going out for each of the 4 [ph] quarters at least as the year unfolds. Again, I think you're going to see increased investment in the second quarter and probably coming back around the level in this quarter for the next 2 quarters.

Douglas D. Tsao - Barclays Capital, Research Division

And then, Frank, in terms of the spending for the launches of aclidinium and linaclotide?

Francis I. Perier

Yes. I mean, we're anticipating right now that we'll have a third quarter fiscal year launch for both products and that the investments necessary to launch those products have been contemplated in the guidance that we gave back in May.

Douglas D. Tsao - Barclays Capital, Research Division

Okay, so that -- we should expect to see those numbers start to uptick in the third quarter then?

Francis I. Perier

Yes. You'll start to see again some commercial bump in the fiscal third quarter.

Operator

Your next question comes from the line of Greg Gilbert from Bank of America.

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

[Audio Gap]

in the Namenda growth target for the year, as well as gross margin, given that both of those items are tracking below the full year goal. And for Marco, now that you've seen some top line data for Glaxo's LAMA/LABA and it looks like their timeline is faster than you thought, based on comments you made at the analyst day, can you talk about how you see your product fitting in and comparing relative to the preliminary data you're seeing?

Frank J. Murdolo

First question?

Francis I. Perier

Yes. Hey, Greg, could you repeat the first part of the question? For some reason, a couple of people are getting cut off when they come on.

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Sure. I wanted to know if you're still confident in your Namenda growth target for the year and your gross margin target for the year, given that both are tracking below what you said for the year. I realize you only have one quarter in the books, but can you put some color around both of those? Did you hear the second question, Marco?

Marco Taglietti

Yes.

Francis I. Perier

Yes. As far as Namenda, Greg, you hit the nail on the head. We're one quarter into the year, and again, it was a very good quarter. But overall, we feel very comfortable about the strong double-digit growth rate that we've guided for Namenda, and we clearly see it being approximately a $1.6 billion drug. So we're not worried. And the margin rates are just fine and in line with plans. Marco?

Marco Taglietti

Yes. We have seen some of the results. They seem to be decent results so, I think, for GSK. Still, we believe that our combination will have some advantages in terms both of effect and also the fact that we will have, on the LABA side, a very well-known LABA, formoterol. It has been well established in safety and efficacy. And as you know, this is really what FDA will focus on their attention. I don't think the issue with this product will be the efficacy or -- after all, you expect all these bronchodilators to be -- to have good efficacy. I think the issue will be the safety. And as you may have seen in some of the most recent advisory committee, including the aclidinium one, the attention of FDA is also a very rare event. And the report is quite difficult to comment on that because you really -- this is not disclosed by the companies. So I think that we believe that our LABA/LAMA combination, the aclidinium formoterol, will still be a very competitive one. And in terms of timing, well, I think it's always so difficult, very difficult to predict when a product will come first. I always -- one of my favorite story is really when we were developing ceftaroline, and I remember quite a few of the analysts asking us, "Well, what are you going to do? You'll be second to ceftobiprole." Well, look, we were first actually. So -- and actually, ceftobiprole never came out. So I think there is still a lot of room, and I think it's very difficult to compare the products based on the little available information. So -- and we're very confident on -- actually on the data we have seen with our LABA/LAMA.

Operator

Your next question comes from the line of Greg Waterman from Goldman Sachs.

Gregory Waterman - Goldman Sachs Group Inc., Research Division

First, on Viibryd. I think sales were up some 50% sequentially, while prescriptions, I believe, were up some 25%. I was just hoping you might be able to reconcile this for us, whether there are stocking trends or other factors that are playing in there. And then a follow-up on the tax rate assumptions. Does the 23% now contemplated for this year include an extension of the R&D tax credit?

Francis I. Perier

Sure, Greg. Thanks for the question. Yes. On Viibryd, again, sales increased to 50%. The scripts were up 25%. What you're really seeing is kind of a shifting in what we're realizing as the ASP for the products as we get more of the product on formulary and contract. We're able to adjust our rebates for what we think they're really going to be. And so if you kind of average out the ASP between the 2 quarters, you'd probably have right ASP for the year.

Gregory Waterman - Goldman Sachs Group Inc., Research Division

And then on tax rate?

Francis I. Perier

Oh, and on tax rate, no. We -- that does not contemplate a reinstatement of the R&D tax credit. In fact, our advisers would tell us that, that -- we might not even see it in the fiscal year. But no, it really reflects kind of the mix of earnings, where we see the earnings mix happening this year, particularly with the rapid fall of Lexapro.

Gregory Waterman - Goldman Sachs Group Inc., Research Division

And should we see that -- I guess what quarters should we expect to see that tick down?

Francis I. Perier

You'll see it tick down progressively through the remainder of the year.

Operator

Your next question comes from the line of David Risinger from Morgan Stanley.

David Risinger - Morgan Stanley, Research Division

I've got a couple questions. First is a formulary outlook question and then the second is quarterly results progression. So with respect to the formulary outlook for calendar '13, I was just wondering if there are any key changes, positive or negative, that we should be aware of, particularly with respect to Bystolic and some of your new products. And then second, with respect to quarterly results progression, I think, Frank, you may have suggested that the fiscal fourth quarter EPS will be higher than the fiscal first quarter. But if you could just provide a little bit more detail on how we should think about the sequential quarterly progression of revenue and EPS following this June quarter.

Elaine Hochberg

David, regarding the formulary outlook, Bystolic is in a very good and very stable position. We continue to work with managed care appropriately, and we are only hearing good, steady as we go, nothing relative to your question of anything that would be a change-maker at the moment. Regarding the new product, we continue to make headway with our 2 newest that are in the market, and we’re preparing actively now to get ready to add to that the 2 new that will come. And every time we have from our managed care customers, is that they're waiting for us to knock on the door with the 2 new ones. So nothing as a catalyst per se from the current stable of products that we already have marketed and only good prospects from what we can tell, relative to the new ones.

Francis I. Perier

Sure. And with regard to kind of the phasing of the quarters, we're kind of -- what you're looking at is we've just had $0.28 on a non-GAAP basis in the first quarter. You can probably look at -- think about Q2, again with the continued decline in Lexapro, as well as where we're going to be with the royalty on Mylan, I would think of that kind of as a breakeven on a non-GAAP-basis quarter, with the growth in earnings kind of following the growth in sales in Q3 and 4, with a very heavy emphasis on Q4.

Operator

Your next question comes from the line of Seamus Fernandez from Leerink Swann.

Seamus Fernandez - Leerink Swann LLC, Research Division

So just a couple of quick questions around the timing of the launch of linaclotide and how we should be thinking about whether or not -- it sounds like there isn't going to be a scientific launch. But do you have any expectations for when DDMAC materials, or the OPDP materials, may come in? And any change around the thoughts to the guidance that was offered heading into the year? And then similar question for aclidinium, can you just update us on how we should be thinking about the timing of the launch of aclidinium and why the timing may be kind of more towards the fourth calendar quarter this year?

Francis I. Perier

Sure, Seamus. And with regard to both products, as I think I indicated earlier, we're anticipating launches in the calendar fourth quarter, our fiscal third quarter. Given the timing of -- the span of time between the 2 expected approvals -- again, this is all assuming approval -- we expect to have aclidinium launched kind of early in the third fiscal quarter. And -- part of that being the time that it does take for DDMAC to get through the materials, et cetera, as well as we need to have the final label before we can actually produce the product, which is a device. So the packaging, the device labeling itself all has to be -- you have to have that in hand before you can actually produce the commercial stocks. So that takes time as well. So we're looking at kind of an earlier part of the fiscal third quarter for aclidinium and then probably later in the quarter for linaclotide. And you're right. We're not going to go with a 2-stage launch. We're just going to go with full commercial launches for each of those products, hopefully, upon approval, both in the fiscal third quarter.

Operator

Your next question comes from the line of Ronny Gal from Sanford Bernstein.

Aaron Gal - Sanford C. Bernstein & Co., LLC., Research Division

The first is, respectfully [ph] about the COGS -- just going on Greg's question. Frank, you said that the COGS are fine this quarter. Should we essentially expect this percentile gross margin in the -- for the rest of the year? Or do you expect, as kind of Lexapro comes out of the numbers, the gross margin will change up or down? And second, regarding Bystolic, really 2 questions. Should we expect a slowdown in the growth trajectory of that product now that it appears that 99% of the prescribers have already adopted it? And can you just comment a little bit about the progress of the patent challenge of the drug now that it's being consolidated?

Francis I. Perier

Yes, Ronny, let me address your first question and with regard to gross margin. Again, the gross margin rate was a little strong in the quarter. And again -- because we still do have some Lexapro sales in there. It'll come down a little bit, but not dramatically. And we expect it to be right basically on plan. And again, with regard to Bystolic, we continue to penetrate the market with Bystolic, adding -- we added at least about 1,000 -- 400 new doctors a week for Bystolic at this point. So we, again, continue to see both the doctors who are using it use it even more. You have an established base of patients who tend to be very sticky and stay on the product because of the very nice tolerability profile of the product. So that -- it's really kind of an expanding base of users, which helps to drive that tremendous growth, which is about 38%, that we saw in the quarter.

Aaron Gal - Sanford C. Bernstein & Co., LLC., Research Division

So maybe I just heard it wrong. I thought that Elaine was -- mentioned that 99% of the prescribers were repeat prescribers?

Elaine Hochberg

Yes. There's 250,000 of them. So you can imagine how that number floods out on a weekly basis to 400 new. But where I would go with that, Ronny, is that they wind up adopting very quickly. So the cycle to trial to adoption is very quick. Now, of course, in a mature drug, growth rates always do slow down. I mean, you've seen that already over the 4 or 5 years with Bystolic. But I believe the growth that we continue to project for the drug is appropriate for where it is and, with hopes of the combination coming out, the franchise really still has a very bright future. I don't know if you do know, but in the category, the typical universe is upwards of 300-some-odd thousand. So we still have a while to go before we sleep in terms of growth not happening.

Operator

Your next question comes from Annabel Samimy from Stifel, Nicolaus.

Annabel Samimy - Stifel, Nicolaus & Co., Inc., Research Division

Just to go back on the cost of goods or the gross margin trajectory, for this year, you mentioned it should be generally consistent. But as you put more products online, some of which were obviously in-licensed from other companies, are there some significant royalties that might change the gross margin trajectory going forward as you increase the number of these products?

Francis I. Perier

Actually, Annabel -- thanks for the question. And again, the overall royalty rates are not that different between the royalty rate that we've been paying historically on Lexapro versus the royalty rates that we're paying on some of our newer products. And in fact, some of our newer products have even lower royalty rates, i.e. Bystolic, since we bought out the royalty. So -- and Teflaro as well. So the overall mix doesn't change -- shift dramatically, but we actually, again, as we forecast for the full year, there's a slight benefit in the overall gross margin.

Annabel Samimy - Stifel, Nicolaus & Co., Inc., Research Division

Okay. So potential for gross margin expansion longer term. Are you suggesting that?

Francis I. Perier

No. I don't think we've ever suggested that. You should just kind of assume that our gross margin rate, as you see it in the current fiscal year and as you saw it in the last fiscal year, remains pretty static over the planning -- longer term planning horizon.

Annabel Samimy - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then on R&D, I know that you mentioned R&D should be relatively consistent. But can you give a sense of the timing of some of the milestone payments? Because that's generally what creates the lumpiness in R&D. So is there any guidance that you can give us there?

Francis I. Perier

Yes. I think that as we're looking now at the phasing, again, you should -- depending upon how the evolution of the R&D studies go. But we currently expect probably a significant portion of the milestones to really be spread between quarters 2 and 3. So that would give you a little bit of -- and a little bit more in quarter 2 than quarter 3.

Operator

Your next question comes from Tom Russo from Baird.

Thomas J. Russo - Robert W. Baird & Co. Incorporated, Research Division

More of a big picture question on the model. It seems like you'd need around $5.5 billion in revenues to get back to your historical operating margin in the mid-30s, assuming operating expense is similar to this year and gross margin around 80. I guess, is that the right way to think about improving profitability over time? And is there a more likely way to expand operating margin in this model than just kind of slowly steadily growing revenues each year toward that level?

Francis I. Perier

Tom, I'm not really trying to give any guidance or expectations out beyond the current fiscal year. But what I will say is that one of the beauties of our business model is that once a product kind of passes a breakeven, if you think about it on a cost of investment basis and think of the whole portfolio, that as you have the whole portfolio growing year-on-year and your investment in -- think of it as details that reps are providing into the marketplace stays relatively static, your return on that investment expands dramatically as your top line grows. That's exactly what we've experienced in the past with Celexa and Namenda and Lexapro, and we're already starting to realize that with some -- with the new product portfolio that we have now, as well as the products that we'll bring into the market. So again, part of the whole strategy has been to take advantage of that commercial leverage that you have in calling on primary care physicians with specialists around the margins, but the bulk of the scripts being generated by primary care physicians, with reps delivering details on multiple products across 6 therapeutic franchises.

Thomas J. Russo - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then maybe on that same topic, Frank, can you just characterize the current appetite for something in business development on the bigger side?

Francis I. Perier

Well, Tom, I think that the appetite in business development is always -- they're always very hungry. And the size of the deal is not what drives our decisions with regard to business development. It's the opportunities itself, and as we evaluate the opportunities, the ability to grow significant shareholder value with each incremental deal, be that an individual product or potentially something larger than an individual product, i.e. another target.

Operator

Your final question comes from the line of Marc Goodman from UBS.

Marc Goodman - UBS Investment Bank, Research Division

Yes, just a quick question on Namenda. Can you also talk about just the revenue shifting back and forth quarter-to-quarter here? It looks like the scripts have been pretty consistent. So there must be some inventory kind of changes. Just give us a feel there, please.

Francis I. Perier

I mean, there's been no real -- an inventory impact with Namenda. And I think if you kind of look at it on a fiscal year quarter versus fiscal year quarter, it's relatively constant. And I think the one impact that you can have is that it will be based upon price increases that we take on the product, and that's when you probably get the biggest kind of bumps in any individual quarter. So it's really kind of fluctuations in the ASP rather than either underlying tablet demand into the channel coming out of the factory or scripts per se. And we continue to see kind of a dislocation between the scripts and the factory demands in the channel.

Marc Goodman - UBS Investment Bank, Research Division

So it's the same issue as last quarter?

Francis I. Perier

Yes, and that's been going on now for multiple quarters.

Elaine Hochberg

Part D probably also has a large part to do with that, relative to the timing. So...

Frank J. Murdolo

Okay. Well, thank you, everyone, for joining us this morning. And operator, that will conclude our call. And we can do some additional follow-up questions as the morning progresses. Thank you all.

Operator

Ladies and gentlemen, this does conclude the Forest Laboratories' First Quarter 2013 Earnings Conference Call. Thank you for participating. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Forest Laboratories Management Discusses Q1 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts