Bristol-Myers Squibb Co. Q1 2008 Earnings Call Transcript

Apr.24.08 | About: Bristol-Myers Squibb (BMY)

Bristol Myers Squibb Company (NYSE:BMY)

Q1 FY08 Earnings Call

April 24, 2008, 10:00 AM ET

Executives

John Elicker - VP, IR

James M. Cornelius - Chairman and CEO

Jean-Marc Huet - Sr. VP and CFO

Elliott Sigal - EVP, Chief Scientific Officer and President, R&D

Lamberto Andreotti - EVP and COO

Analysts

Tim Anderson - Stanford Bernstein

Roopesh Patel - UBS

David Risinger - Merrill Lynch

C. Anthony Butler - Lehman Brothers

John Boris - Bear Stearns

Jami Rubin - Morgan Stanley

Steve Scala - Cowen & Company

Barbara Ryan - Deutsche Bank

Seamus Fernandez - Leerink Swann

James Kelly - Goldman Sachs

Operator

Good day and welcome to today's first quarter Earnings 2008 Earnings Release Conference Call for Bristol-Myers Squibb. Today's conference is being recorded. At this time, I would like to turn the conference over to your moderator for today Mr. John Elicker, Vice President, Investor Relations. Please, go ahead sir.

John Elicker - Vice President, Investor Relations

Thanks Anthony and good morning everybody. Thanks for joining us on the call. We are here this morning to review our first quarter results. The release was out about 7:30 this morning, its posted on our website as well as the supporting financial information.

With me this morning are Jim Cornelius, our Chairman and Chief Executive Officer; Jean-Marc Huet, our Chief Financial Officer; Lamberto Andreotti, Chief Operating Officer; and Elliott Sigal, Chief Scientific Officer.

I will just take care of the Safe Harbor language first. During this call, we may make various remarks about the Company's future expectations, plans and prospects that constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those discussed in the company's most recent annual report on Form 10-K and in our periodic reports on Form 10-Q.These documents are available from the SEC, the BMS website or from Bristol-Myers Investor Relations.

In addition, any forward-looking statements represent our estimates only as of today, and should not be relied upon as representing our estimates as of any subsequent date. While, we may like to update forward looking statements at some point in the future, we specifically disclaim any obligation to do so even, if our estimates change.

So this morning Jim and Jean-Marc will have prepared remarks, and then we will go to your questions. Jim

James M. Cornelius - Chairman and Chief Executive Officer

Thanks John and good morning everyone. I am very pleased to share with you today a picture of steady financial growth, as well as some insight, as to the direction we are taking with our non-pharma assets. This quarter represents our strongest financial performance, since I became CEO approximately 18 months ago. And we have seen many of the current positive trends continuing throughout the year.

In the market place, we are executing successfully in all key medicines in our portfolio, as evidenced by growth of 20% on net sales from continuing operations. The growth trajectory however, reflects some benefits from EPITEX generic Clopidogrel depressing Q1 of 2007 results. Our pharmaceutical increased 27% in the United States and 14% internationally.

Highlights include 24% worldwide growth of a ABILIFY and a 39% increase in global sales of PLAVIX, as well as continued strong results from HIV and Hepatitis portfolio. Now still very early in it's life cycle our most recently launched drug IXEMPRA for breast cancer just performing quite well.

The sales have grown, we've also increased our R&D investments. Our vast productivity efforts in line with the plan we laid out in December, continue to be on track to realize $1.5 billion in cumulative cost savings and avoidance by 2010. For example, our headcount has dropped from 43,790 in January of 2007 to 41,332 on April 1st of this year, a decrease of almost 6%.

Even allowing for the impact from ERBITUX last year, I'm proud that we're making progress against one of my top priories. That is in addition to top line growth, we're also seeing market improvements in our gross margins and pretax margins. We're achieving this by growing sales faster than expenses and by driving growth in our most profitable products.

We posted first quarter 2008 GAAP EPS from continuing operations of $0.35, including a $113 million of specified items, relating to productivity initiatives. This compared to $0.33 in 2007 and double-digit non-GAAP EPS growth from continuing operations of $0.42. This $0.42 non-GAAP EPS is a penny ahead of consensus expectations, and $0.06 ahead of last years $0.36 in Q1.

As a result of our projected growth trends, we are reaffirming the guidance that we provided for the year. We expect EPS from continuing operations on a GAAP-basis, to be in the range of $1.36 to $1.46. On a non-GAAP basis, that is, between $1.60 and a $1.70. We're also reaffirming that longer term growth, we expect 15% non-GAAP EPS compound annual growth rate from last year or 2008 through 2010.

We obviously believe R&D success is the cornerstone of our strategy, and this is an area of increased investment and important near-term achievements. This quarter we build out our existing portfolio with significant additional indications. For example, ORENCIA'S FDA approval label was expanded, so now physicians can consider using it as a first line treatment option for adult patients with moderate to severe rheumatoid arthritis.

ABILIFY also receive approval in the US for pediatric bipolar disorder, as well as a positive opinion in Europe for a bipolar indication. The progress of our new diabetes medicines, which we are developing and planning to bring the market with AstraZeneca, validates our strategy to forge partnerships that will help us to leverage resources and gain scale.

SAXAGLIPTIN is on track for a mid-year filing with the FDA. We're exciting about the data we'll be presenting on both these medicine at ADA in June, including Phase III data on SAXAGLIPTIN and phase II data on DAPAGLIFLOZIN.

At ASCO in June, we're looking forward to presenting a large amount of data in oncology, including new lung cancer data on ERBITUX, prostate cancer data for SPRYCEL and melanoma data for IPILIMUMAB. Our growing presence at ASCO underscores the success of our strategy, to focus on medicines for serious disease.

We're also presenting at ASCO some data about our Phase II biologic medicine for brain cancer. That we acquired through our October purchase of Adnexus. I'm proud that this acquisition is already bearing fruit. Since we purchased Adnexus six months ago, its Phase I cancer medicine has advanced to Phase II. We've retained all the key talent and recruitment is progressing rapidly. We now have 78 people up from 62 at the time of the acquisition. We've already started two scientific programs, advance three others, and identified eight more that could good start in the next 18 months.

Now a word about our non-pharma business. In December we told investors we'll do a detail valuation of these three businesses to decide how they fit into our next generation biopharma strategy. In January, we completed the sale of our Medical Imaging business for approximately $525 million. We've conducted a rigorous process to explore interest in ConvaTec, a unique and growing business in two important sectors of medical device market. That exercise has generated significant interest at attractive valuation levels.

We are continuing to move forward with ConvaTec and will provide updates in the near future. We conducted a same extensive and disciplined strategic evaluation process of Mead Johnson with the investment banking help, as we did with ConvaTec. We've also listened intently to shareholder feedback on the importance of our portfolio diversification and dividend policy.

Our conclusion is that Mead Johnson Nutritionals is a unique and powerful brand with excellent growth prospects in the global nutritional space. We believe that a subsidiary, initial public offering of approximately 10%, but not more than 20% of Mead Johnson to the public markets meets both the objectives of maximizing the value of the brand and providing BMS with a steady source of profits, cash flow and growth. With its own publicly traded equity, Mead Johnson will be better able to pursue expansion and acquisition strategies to accelerate its growth.

BMS benefits from the increased flexibility and avoids the tax leakage associated with some of the other strategic options considered. The current timetable calls for a registration statement to be filed by year-end, with the actual IPO dependent on regulatory business and market conditions. Any proceeds from this strategic changes to our non-pharma assets will be used for general corporate purposes, including support for our BioPharma strategy.

Now, I'd like to turn the call over to Jean-Marc Huet, our new CFO for a more detailed review of the quarter. I'd like to add that Jean-Marc Huet has brought to his role a degree of high energy and enthusiasm; that exemplifies the kind of culture we're adopting as a next generation BioPharma leader. Jean-Marc?

Jean-Marc Huet - Senior Vice President and Chief Financial Officer

Thanks a lot Jim. I'd like to now just go through Q1 performance, our guidance and then turn to Q&A. So let me start with the overall sales line. Our total sales from continuing operations were up 20%. I think very important here is to mention strong underlying sales growth at 9%, complemented by 5% coming from foreign exchange and 6% impact due to Apotex, which affected our performance in Q1 last year. Again, taking that 20% sales from continuing operations, 11% was from volume, 5% as I mentioned from FX, and 4% from price.

Let me now just turn to sales from our pharmaceutical business, where we were up 21% or 16% FX. This growth is broad based from all our various products, obviously from PLAVIX but also ABILIFY, our Virology business, ERBITUX as well as some of our more recent newer products.

Let me start with cardiovascular. U.S PLAVIX sales were up 45% or 10% plus excluding the Apotex impact, supported by 4% increase in prescriptions in the quarter. Going to neuroscience, ABILIFY was up 24% globally and 19% in the U.S. Again this was supported by a 14% increase in prescription growth driven by the DTC campaign which we launched, and is a reflection also of our new major depressive disorder indication.

We didn't only have good growth in the U.S., but also in Europe, which was up 45% supported by the new Bipolar indication as mentioned by Jim.

Turning to Virology, REYATAZ was up 13% with 12% growth in prescriptions. Our overall SUSTIVA franchise sales were up 21%. This was driven by strong performance by ATRIPLA. ORENCIA sales within immunology were up $87 million, up a 112% versus Q1, 2007, importantly versus Q4, 2007 these sales were up 11%. We are making very good progress on becoming the IV Biologic choice and believe that long term efficacy data and the expanded U.S. label will support this.

Then turning to oncology, our overall SPRYCEL sales were $66 million, including another very strong quarter in Europe. IXEMPRA which as you know we launched in October of last year, generated sales of $25 million.

Quickly turning to the non-pharma business to healthcare business. If you take ConvaTec and Mead Johnson together, our growth was up 15% and excluding foreign exchange up 10% amounting to $1 billion

So, just in summary when it comes to the top line, we had very high quality revenue growth in each business and each geography. The U.S. was particularly strong at 25% approximately growth upside. International business was also very strong, especially if you take out the exclusivity losses of PRAVACHOL and TAXOL.

Let me now take you to gross margins, which obviously given the PTI initiative announced in December last year, will be a point of particular interest. If we take out specified items, gross margins increased by 60 basis points to nearly 70, to be precise 69.9%. This is been driven by PLAVIX, our high margin product but also positive product mix from our other products.

If you compare to Q4, our gross margin increased by a 120 basis points. So it's up versus Q1 of last year, but also versus Q4 of last year. A lot of this increase is driven by the improved efficiency in our manufacturing network.

If I now go by business, our pharma business was up 80 basis points at 71.2% gross margin, Mead Johnson slightly down at 64.3, and the ConvaTec gross margin at 70 basis point, which was down 50 basis points. Again if you take all three businesses, their gross margins were higher in Q1 versus Q4 last year.

Let me now take you to some of the other expense items. Marketing, selling and administration was up 7% .But if you take our FX, only 2% excluding specified items. So good control when it comes to MS&A.

Let me now take you to G&A, which actually ex FX was down versus last year, and this is principally as a result of our productivity efforts. Some of this was offset by an increase in sales and marketing, to support some of the growth drivers that I mentioned. AMP was up 23% or 19% ex FX. This reflects increased investments in ORENCIA, ABILIFY as well as the PLAVIX DTC advertising and spending. And we also put some money behind the launch of IXEMPRA which took place in Q4 last year. This trend of investments in AMP will continue and you will see higher investments in the first half of the year versus the second half of the year.

Let me now turn to R&D, which again excluding specified items were up 9% to $775 million. This reflect higher development spend, increased investment in science, as well as medical personnel and field medical support. So in summary, we have very good pretax margins which was driven by strong sales, profitable sales growth, good gross margins, as well as, effective expense management.

Let me now turn to our tax rate which was at 26.8%. This is above our annual guidance of 24%, which will still remain royalty for the year. This 24% assumes a U.S. R&D tax credit which will only be approved towards the end of the year. As a result, we can only account for this credit in the second half of the year. Non-GAAP EPS from continuing operations grew at 17% to $0.42 from $0.36 in Q1 of last year. GAAP EPS from continuing operations were at $0.35 due to specified items.

So now let me just take you to specified items. These totaled $174 million for the quarter, of this $113 million was related to our productivity initiative which we launched in December of last year. Also important to mention is that, we took an additional $25 million charge related to the previously impaired auction rate securities. This means that we still have $40 million of this part of the portfolio which is the sub-prime part remaining on our books. This represents approximately 13% of par value.

Since the beginning of the year, we have implemented changes in our treasury organization, shifted away from money market investments, and have developed a more conservative cash investment policy based on safety and liquidity. Over two-thirds of our current cash position is today in U.S. treasury-backed securities. We will naturally continuously improve and further focus on stringent risk management procedures and policies.

Last point on our results. Our net debt position improved by $200 million plus/minus, this is naturally after our dividend payment of over $600 million. We will increasingly focus on CapEx especially working capital and cash management going-forward. The full reconciliation of GAAP to non-GAAP EPS is posted on our website.

Let me know turn to guidance before giving back to Q&A. Today we are confirming our full year 2008 GAAP and non-GAAP guidance. Our non-GAAP guidance remains $1.60 to $1.70. Importantly, outlook for our marketing, selling and administration and our AMP ex FX remains roughly flat for the year. With any increase in AMP, which will be offset by decreases in G&A, R&D is still expected to growth at mid single -digit levels.

As Jim mentioned, we are also confirming our three year minimum 2008 to 2010, 15% earnings per share compound annual growth rate on a non-GAAP basis. So in summary, our first quarter underlying operating performance was strong. We saw double-digits sales and double-digit earnings growth on a non-GAAP basis. We improved our gross as well as our pre-tax margins. Thanks you.

John Elicker - Vice President, Investor Relations

Thanks Jean-Marc and thanks Jim. Anthony, I think we are ready to go to questions, and I would just remind everybody on the phone that in addition to Jim and Jean-Marc both Lamberto and Elliott are here to answer any questions you may have as well. So Anthony we're ready to go.

Question And Answer

Operator

Thank you, sir. [Operator Instructions]. I'll take our first question from Tim Anderson at Stanford Bernstein.

Tim Anderson - Stanford Bernstein

Thank you. Few question. Just to be clear, on Mead Johnson when you say you plan on keeping the 80% to 90% of the business for the foreseeable future, can you put a timeframe on that foreseeable future. Is that one to two years, is it five years, is it forever or what exactly? And then on your JV product with Sanofi, PLAVIX and AVAPRO. Is it a realistic possibility that you can sell your interest in those drugs back to Sanofi, which will then that only give you cash but will help take you out of primary care. As in your string of pearls approach can you just talk about your willingness to accept earning dilution with those types of transaction. It seems like most of the smaller targets like Adnexus would be cash burners that would be dilutive.

James M. Cornelius - Chairman and Chief Executive Officer

Tim let me take the foreseeable future. At my age any day in the future is a good day, however I think we see the foreseeable futures out through and including the time period where some of our major products will base their exploration, so I think we can count on very steady and impressive results for example that we saw in the first quarter being included in our consolidated results for the foreseeable future. Lamberto?

Lamberto Andreotti - Executive Vice President and Chief Operating Officer

Yeah. In Sanofi products, we are very much behind both of that, and remember that we have a growth potential for both PLAVIX and AVAPRO, especially PLAVIX. Remember that we are getting ready to launch two important products in the field of diabetes and have a important product in cardiovascular, Apixaban. So we will enjoy our position in the marketplace both in Europe and in the U.S for cardiovascular products, and we will continue to be behind both PLAVIX and AVAPRO.

Jean-Marc Huet - Senior Vice President and Chief Financial Officer

Maybe on the third point on string of pearls obviously we can be much more direct where we could make a next pearl acquisition. I think most importantly is if you take a step back in terms of string of pearls, these can be alliances, partnerships, acquisitions there. There are different ways to make these pearls, and I think obviously this is driven by strategic rationale but dilution will always be a very important part of the equation when we access whichever pearl comes up.

John Elicker - Vice President, Investor Relations

Thanks Tim for the question, next one Anthony.

Operator

We go next to Roopesh Patel at UBS

Roopesh Patel - UBS

Thanks, just a couple of questions. In terms of the strategic initiative to sell ConvaTec and IPO Mead Johnson Nutritionals, I was wondering if you can just clarify whether or not that is likely to impact the three year's earnings guidance that was provided back in December. And if so, could you give us a rough sense as to what its extent might be. And then separately on ERBITUX and its filing in lung cancer, can you talk about prospects or filings just on the basis of the FLEX study results? Do you expect to have additional data to supplement the FLEX data and what's the expected timeline? Thanks.

Jean-Marc Huet - Senior Vice President and Chief Financial Officer

May be, I'll just take the first point. As Jim said; we are well under way in terms of evaluating the different strategic alternatives around ConvaTec. We have not sold it as it stands right now. Having said that, were we to sell ConvaTec and look at our EPS growth, we would aspire to keep that 15% without rebasing the base here, i.e. 2007. And the same goes for Mead Johnson, were we to IPO approximately 10% of the shares towards the end of the year, we would have the same aspiration to not change the base year and keep to an EPS growth of at least 15%.

Elliott Sigal - Executive Vice President, Chief Scientific Officer and President, R&D

Yes Roopesh, this is Elliott Sigal. We are excited about the FLEX results, encouraged by the positive survival outcomes that our partner E-Merck and ImClone announced earlier offline. But the full presentation will at ASCO in June and we are still in the process of going over the complete information in that study. We will after the full information is disclosed, we expect to be talking to the regulatory authorities, to the FDA in the U.S., and I feel that we will be aiming aspirationally for a submission by the end of the year.

John Elicker - Vice President, Investor Relations

Thanks Roopesh. Our next question Anthony.

Operator

We will go next to David Risinger at Merrill Lynch.

David Risinger - Merrill Lynch

Yes thanks very much. I have two questions, first just going back to your 15% plus EPS growth target through '010. When we think about your acquisition strategy, how should we think about potentially dilutive deals relative to that target for minimum 15% EPS growth. And second Jean-Marc if you could please discuss opportunities you see to improve cash flow at Bristol-Myers? Thank you.

Jean-Marc Huet - Senior Vice President and Chief Financial Officer

Okay let me take the first question which is quite similar to the answer on the string of pearls. There are many ways to sort of define this pearl, be it through partnership, alliance, acquisition, development. And I think the dilution will be an aspect whenever we access an opportunity to make sure that we take that into account. On the side of EPS growth as it stands today with our current business with a potential sale of ConvaTec and a potential IPO of Mead Johnson, our aspiration is still to be at least at 15%.

When we get to a stage where we can announce a type of pearl, I think we will be able to be much clearer on any impact on EPS growth. It's clear that right now we would like for the next three years as we have a good view over the next three years to be growing our bottom line at these types of healthy levels.

On the second point, in terms of cash flow. Again, I come from another industry which is a consumer industry and if I compare that the approach to cash, it has been much more astringent and I am talking about overall industry perspective within consumer.

I would take particularly note of working capital as an important driver to creating cash flow in the consumer industry. Again, I am now getting, used and learning very quickly about the Pharma industry, but I hope to be able to bring with me a lot of the tools and measures to drive down working capital that we are successful in my prior consumer world and hopefully introduce those to BMS.

So, I hope that, answers your question. Working capital will be definitely a point of emphasis going forward.

John Elicker - Vice President, Investor Relations

Thanks. Dave. Next question Anthony please.

Operator

We will go next to Tony Butler at Lehman Brothers.

C. Anthony Butler - Lehman Brothers

Thanks very much. Jean-Marc you made reference to debt improving $200 million, and in fact it has been impressive what Bristol's done over the past year to improve that balance. But as Mead Johnson has spun out as an IPO, the question is might the debt strategy for Bristol actually change because the availability of any free cash from Mead is no longer available to the corporate Bristol. And the second part of that is, if in fact that does change then how do you rectify or would you need to rectify the opportunity to then raise more capital outside of selling [ph] the assets that we've discussed today in other words would you need to tap the debt markets again?

And the last question, Jim you had alluded to some near terms pipeline developments, I think with respect to ADO and ASCO. I didn't hear anything a little more longer term and I am really speaking more in terms of APIXABAN and I'm curious if there was an update on that development status that you wish, you or Elliott was to discuss? Thank you.

Jean-Marc Huet - Senior Vice President and Chief Financial Officer

I'll take the first part. I think important as we look at structuring the IPO with a 10% float, firstly we will have proceeds from selling that approximate 10%, secondly we will be owning the dividend stream of approximately 90%. And the good news of being above 80% ownership, these inflows will be tax-efficient. So there will be continued cash contributions from me Johnson, as Jim said for the foreseeable future.

I think that the actual working capital and capital improvements are probably more a place of focus within BMS rather than Mead Johnson. If you look at the way inventories and receivables have been managed to Mead Johnson, they've actually done a very good job over the last couple of years. So a lot of the working capital opportunities especially on the payables and receivables side, is actually within the pharma business. So I think that there's a lot of capital to unlock with BMS irrespective of MJ. So hopefully, those two parts of the equation answers your question.

James M. Cornelius - Chairman and Chief Executive Officer

We're going to bring the same energy and enthusiasm that we brought to the productivity transformation to the cash flow transformation. First step for that was yesterday, I think the announcement of our new Corporate Treasurer. He is a long time very seasoned, experienced veteran of BMS as our new Corporate Treasurer, young man by the name of Jeff Galik.

Jean-Marc Huet - Senior Vice President and Chief Financial Officer

Jim, if I can take Tony's question on the pipeline. Yes Tony, Jim was referring to things we're very excited about in the first quarter that dealt with ABILIFY, several events; ORENCIA, a couple of very important events, as well as being able to expand the label of SPRYCEL, and submit new two year data on SPRYCEL. Looking as your question asks longer term to event coming this year. I'll mention in the area of diabetes and cardiovascular disease APIXABAN, Deep Vein Thrombosis prevention data will be presented towards the end of the year at the American Society of Hematology and that's our first Phase III disclosure. The DVT treatment Phase III program is ongoing. I am please with the progress on our multiple trial approach on AFIB, we'll also have data on in Phase II on APIXABAN in Acute Coronary Syndrome this year.

Also in this therapeutic area SAXAGLIPTIN is mentioned, I believe we're on tract for our NDA submission. We are looking at more globally the submission for mid 2008, and our Phase III data will come out in two different scientific meetings, one at the ADA and one at the European Societies later in the year. Also at ADA DAPAGLIFLOZIN and new mechanism for the treatment of diabetes will have interesting Phase IIB data for you. And finishing this therapeutic area importantly current data on the high loading dose for PLAVIX.

In oncology, we mentioned ERBITUX, SPRYCEL both at ASCO, IXABEPILONE later in the year and progression of earlier pipeline compounds including Angiocept CT-322 and two novel compounds that have added activities to the VEGF mechanism, Brivanib and a pan-HER VEGF program. And immunology, ORENCIA, important data and earlier lines of therapy, earlier RA and RA prevention data, BELATACEPT Phase III data will be available at the end of this year. And in virology we have more data on REYATAZ and progression of our hepatitis C programs.

John Elicker - Vice President, Investor Relations

Great, thanks Tony. Can we go to next question, Anthony?

Operator

Certainly, we'll go next to John Boris at Bear Stearns

John Boris - Bear Stearns

Question was asked and answered. Thanks.

John Elicker - Vice President, Investor Relations

Okay.

Operator

Next to Jami Rubin at Morgan Stanley.

Jami Rubin - Morgan Stanley

Thank you. This is the question for Elliot. Elliot can you comment on rumors in the marketplace that ERBITUX and first-line metastatic lung cancer from your BMS '09 trial has shown an unexpected survival benefit?

Elliott Sigal - Executive Vice President, Chief Scientific Officer and President, R&D

Yes I think there has been some inadvertent misinformation in the market about BMS 099 that study was presented last year. It is a study to complement the FLEX study we announced and showed in public that the trial did not meet as primary end point on progression-free survivals. We've made no announcement in overall survival yet, we are still tracking that. That data was not mature at the time of the presentation, is not matured now, and it will be analyzed in the second half of this year.

Jami Rubin - Morgan Stanley

Is there an interim look at that data that may have led to the speculation?

Elliott Sigal - Executive Vice President, Chief Scientific Officer and President, R&D

Well there is no ability to fully evaluate survival until the numbers of events that we have planned are reached and that hasn't happened yet. There has been no interim look at that data, no plan to look at that data. You can look at the depths at the time of the progression-free survival, but the plan to look at survival is going to happen in the next several months.

John Elicker - Vice President, Investor Relations

Okay. Thanks Jami can we go to the next question please.

Operator

We'll go next to Steve Scala at Cowen & Company.

Steve Scala - Cowen & Company

Well thank you. A couple of questions on PLAVIX for Dr. Sigal. Regarding the current trial, what decides how long the intermediate 150 milligram dose is utilized. The trials designed to use this dose were two to six days, so what decides whether two or six or something in between and to what extent is that intermediate dose used in clinical practice. And relatively, I'm just wondering what Bristol thought of the fact that PRAVACHOL [ph] received the priority review. And one might conclude that FDA views it as an important medical advance that fulfill an unmet need. So I'm wondering what you think of that. Thank you.

Elliott Sigal - Executive Vice President, Chief Scientific Officer and President, R&D

Yes Steve. Let me take the second part of the question. I'm not sure I can fully answer to these specifics on the trial, but I'll give you my view of the clinical practice. With regards to priority review, I think the FDA takes a look at the time of submission in general of whether something in this case compared to standard and care offered potentially some superiority and whether that would advance therapy. And on that basis, if it meets an unmet medical need in an important area, they try to review within six months that doesn't always occur within six months, but that's the inspirational goal.

That does not constitute a full review of the benefit risk, which is now presumably ongoing. I think we've heard a lot about the efficacy and the potential benefit of the TRITON trial, there are a lot of unanswered questions that are needed to characterize to bleeding risk. I'm sure that data is available within the TRITON trial. You can't go across trials for that reason because of the bleeding score.

But with regard to the design of the current, of course trial, this is our belief that achieving a higher loading dose than what's in the label now 300 milligrams may improve the acute setting, and we are doing this so that data is available and that it could go into the label, should it be positive. We do have a maintenance dose. What happens in clinical practice is moving the administration of PLAVIX earlier, and in some cases increase in the loading dose. And I think the relevance of that point is I am not sure that the TRITON trial is really, mimicking real world practice now with the standard of care, but physicians have the ability to have a short-term maintenance of 150 milligrams as part of this trial.

Lamberto Andreotti - Executive Vice President and Chief Operating Officer

Yeah and this is Lamberto. I can add the data we have from U.S. registry indicates that for patient that undergo PCI approximately 40% to 50% receive a loading dose of 600 milligram or higher. That was the real practice difference from what TRITON had. And speaking of TRITON and PRAVACHOL and PLAVIX, let me make a point. I think that the way we see PRAVACHOL today, we see it as product if approved, and I repeat if approved, is a niche product.

And let me qualify what I am saying. We have TRITON has examined a population that represent only a subset of the ACF patients. Those that were intend for PCI, while PLAVIX has much broader number of patients and much broader patient population.

If PRAVACHOL makes it the market, based on the TRITON study, they will complete therefore [ph] in one small patient population that is approximately 15% of PLAVIX phase. And on top of that, TRITON shows that three important subgroups, (inaudible) and TIA, age more than 75 and body weight less than 60. While for those subgroups it was either net harm or no net clinical benefit. So, those patients must be taken away from total potential market for PLAVIX… for Prasugrel, I am sorry. And therefore makes it Prasugrel even more or less than total market for ACS both or PCI.

We are ready if they get approved and if they're launched, it will intensify our presence in hospitals. We continue to speak about PLAVIX, because a PLAVIX is a great product with great data. We don't need titration. We don't need sub-groups of patients being excluded.

And so, our job today is to focus on what doctors need to know in hospitals and how well PLAVIX can be used early, much earlier than in the TRITON study in the right… supported by the right information.

And we continue to look at PLAVIX in other indications, medically-treated ACS patients, the PAD patients, the stroke patients, with a number of great opportunities which we see for PLAVIX. And I must tell you our team is not on a defensive mode. We are in a very upbeat situation where we believe in the product and we continue to support it very aggressively.

John Elicker - Vice President, Investor Relations

Thanks Steve. Can we go to the next question, Anthony?

Operator

We'll go next to Barbara Ryan at Deutsche Bank.

Barbara Ryan - Deutsche Bank

Good morning. Thanks for taking my question. Just a follow-on for Elliot. You mentioned that obviously we are going to get some Phase III data at ADA on SAXAGLIPTIN, and then you did mention that we would get some data later this year at European Society Meeting. I am just wondering is that or would that be the study that you are doing in renal insufficiency?

And I think my understanding was that the FDA has discussed with you your ability to supplement your initial NDA with that data. And I'm just wondering when you are sort of on track to complete that study and file at FDA and when if we might see that data this year? Thanks.

Elliott Sigal - Executive Vice President, Chief Scientific Officer and President, R&D

Yes. Well, I think there has been a lot of confusion around the renal study, because of perhaps different interests and different requirements on different compounds from other manufacturers and what those specific issues are. We have proactively proposed a renal study in the course of making sure the clinicians that use this drug down the line have all questions answered. I am not viewing this as a requirement for the FDA in the initial review. It is data that will be able, we think, targeted around November.

What you'll see at ADA, our Phase III results, another monotherapy study, as well as I believe some add-on to sulfanylureas, so I think it's very interesting that may also depending on what gets in where, be it the European Society. There is a second monotherapy study and then add-on to TZDs targeted in September for the European Society, and we have an initial combo with metformin targeted for the European Society meeting in September.

All these are Phase III data. We have all our Phase III data completed and being assembled with our partner AstraZeneca for potential submission sometime in the middle of this year. So, when we have more information on the progress, I'll let you know, Barbara.

John Elicker - Vice President, Investor Relations

Thanks, Barbara. And I think we have time for two more questions.

Operator

We'll take our next question from Seamus Fernandez at Leerink Swann.

Seamus Fernandez - Leerink Swann

Great. Thanks very much. Just a couple of quick questions. Elliott, I was just wondering if you could comment on a couple of things, just a general question about FDA right now. Since Janet Woodcock took the helm of CDER, it actually does look like we are starting to see more timely approvals from FDA.

Just wondering if you're sensing a similar change at FDA right now with your interactions. Separately just, Elliott, based on what you know of the FDA and the need for panels, do you believe that a panel would be required for Prasugrel, either due to the safely issue that's been raised by TRITON or the new PDUFA IV requirements?

And then lastly, this question is for… as I look it, if you can just let me know… if you… can just tell us what your free cash flow was in the first quarter and how US free cash flow works versus the international free cash? Thank you.

Elliott Sigal - Executive Vice President, Chief Scientific Officer and President, R&D

I'll take the FDA question and I will sincerely say I believe the FDA does what's necessary to do their job. And if you really look carefully at all their decisions, there is a great deal of rationale for it. And I think they are focused on benefit risk. I think there has been a lot of appropriate increased effort on what we all can better, pre and post-marketing to characterize a risk for our patients.

And there are new regulations that are going to help in providing guidance in that way. But I think the FDA in the past and the FDA currently can be expected to focus on benefit risk. Our interactions with the FDA I believe are positive in the sense that we know benefit risk is important to the regulators and to our patients. And we have a big focus on serious diseases, which is strategic in our business strategy.

With regard to panels, you quoted that there is a more common use of advisory panels. I think literally with no more than me on whether they will be a Prasugrel FDA advisory committee. Are we expecting to see one? I would say yes.

Seamus Fernandez - Leerink Swann

Okay.

Jean-Marc Huet - Senior Vice President and Chief Financial Officer

On the last part of the question that you had in terms of free cash flow, in terms of just the definition of free cash flow, the change in net debt was $200 million. Let me just give you one or two of the big parts in that change in net debt. We had CapEx of $250 million. We had a working capital use of $316 million and net earning of $951 million.

So if you are looking at free cash flow, it's $243 million-plus. And the reason why I mentioned working capital is that that was a an important use which again is something that we are going to focus on a lot going forward.

In terms of U.S. versus international cash flows, they don't have to get back to you when it comes to specific numbers. But with the growth of PLAVIX in Q1 as well as MJ in some of our U.S. based assets, I would assume that there has been some very significant operational cash flow in the U.S. versus international.

But in terms of numbers, myself or John will come back to you specifically.

John Elicker - Vice President, Investor Relations

Thanks, Seamus. And now, we'll go to our last question I guess.

Operator

We'll take our final questions from James Kelly at Goldman Sachs.

James Kelly - Goldman Sachs

Thank you very much. Two quick housekeeping ones. The gross margin this quarter was the highest I think we've seen since 2005? And you did explain how it was from all businesses. Is there anything seasonal as we look forward to the rest of the year that could cause that to move around in a material way versus what we saw inside this quarter?

And then secondly, if the R&D tax credit is not renewed, how should we think about the tax rate towards the backend of the year or will it just look like the first part of the year? Thank you.

Jean-Marc Huet - Senior Vice President and Chief Financial Officer

Maybe I will take the second part. First is, based on the past, this R&D tax credit has always been approved on a yearly basis. So, we are very hopeful that will take place.

From an accounting perspective, were we not to get it, then the tax rate would indeed be higher and closer to where we would be in the second half of the year. So, it is also due to this R&D tax credit that we go down to a 24% guidance for the year. But, again, the year 2007, 2006, each time we do get this approval, and we are hopeful that that will happen.

In terms of gross margin, I think the only comment that I would make is given that there was such important growth for PLAVIX, which is a high margin business and the impacts of Apotex was primarily a Q1 of the last year phenomenon, you will have some change in product mix going forward. But that is the only comment as we see the whole year.

John Elicker - Vice President, Investor Relations

So, thanks Jim and everybody for your questions. I will just turn it back over to Jim for some closing remarks.

James M. Cornelius - Chairman and Chief Executive Officer

Okay. Again, I think it was a great quarter. And I say that in three respects: first, operationally, great execution in the marketplace as evidenced by the 20% sales growth; clinical science, Elliot outlined in some detail answers to questions about data yet to be presented about the middle of the year, and we are optimistic; and finally, productivity, which has just begin. We will have its full impact by the time we get to the end of the year. Thank you for your attention.

Operator

This does conclude today's presentation. We thank everyone for their participation. You may disconnect your lines at any time.

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