Sciele Pharma, Inc. Q1 2008 Earnings Call Transcript

Sciele Pharma Inc. (SCRX)

Q1 2008 Earnings Call

April 30, 2008, 4:30 pm ET

Executives

Joseph Schepers - Director of Investor Relations

Ed Schutter - President and Chief Operating Officer

Darrell Borne - Chief Financial Officer

Patrick Fourteau - Chief Executive Officer

Dr. Larry Dillaha - Chief Medical Officer

Analysts

Donald Ellis - Thomas Weisel Partners

Annabel Samimy - UBS

Angela Larson - SIG

Scott Hirsch - Credit Suisse

David Buck - Buckingham Research Group

Ken Trbovich - RBC Capital Markets

David Steinberg - Deutsche Bank

Presentation

Operator

Good day everyone and welcome to the Sciele Pharma, Inc. Conference Call. Today’s call is being recorded. At this time, I would like to turn the call over to the Director of Investor Relations, Mr. Joe Schepers.

Joseph Schepers - Director of Investor Relations

Thank you. Good afternoon and welcome to Sciele Pharma’s First Quarter 2008 Earnings Conference Call. I am Joe Schepers, Sciele’s Director of Investor Relations. Our speakers on the call today are Ed Schutter, President and Chief Operating Officer; and Darrell Borne, Chief Financial Officer; Patrick Fourteau, Chief Executive Officer; and Dr. Larry Dillaha, Chief Medical Officer are also on the call to answer any questions you may have during the Q&A session.

Please note that this presentation contains forward-looking statements which are subject to risks, uncertainties and other factors beyond the Company’s control that may cause actual results, performance or achievements to differ materially from those anticipated in any forward-looking statements. These risks, uncertainties and other factors included, but are not limited to those described under “Business Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2007, and our Quarterly Reports on Form 10-Q as filed with the SEC. The company does not undertake to update forward-looking statements to reflect future events or circumstances.

I would like to turn the call over to Ed Schutter.

Ed Schutter - President and Chief Operating Officer

Thank you, Joe and good afternoon everybody. We are in the first quarter of 2008, we are very pleased to report strong financial results, as well as the addition of four new marketed products. These new products included the new Sular formulation, Prandin, Fenoglide and Allegra ODT. Additionally in March 2008 we acquired Twinject from Verus Pharmaceuticals, which we launched in April.

In the second half of this year we expect to introduce three new addition of products, upon FDA approval LARx, the treatment for head lice or LARx and MetPrandin for type II diabetes. In addition we also launched a new Prenate Elite formulation later in the year.

In the first quarter of ’08, we continued to diversify and strengthen our product portfolio with these new product introductions. I really want to emphasize that we built an outstanding product portfolio now in four therapeutic areas, cardiovascular, diabetes, women’s health and pediatrics. These four therapeutic areas are the four pillars that make up the foundation for future growth.

Our growth in 2008 will be driven by our type II diabetes, pediatrics and women’s health products. While we are launching new products in these areas we are also paying very close attention obviously to the conversion of the new Sular formulation.

And before I go any further, I will provide you an update on the new Sular GEOMATRIX conversion. In late March, we began shipping, promoting and sampling new Sular, after about four weeks into the promotion approximately 10% of new prescriptions for Sular were written for the new Sular GEOMATRIX formulation. This is according to IMS Health NPA data for the week ended April 25, 2008.

In the very near term we will make the decision to pull the old Sular formulation from distributors and pharmacy change, which will force a much more rapid conversion. After shipping some orders for old Sular in the first quarter of 2008, we are no longer shipping the old version.

Before we pull the old Sular formulation from the market we believe it is important to have our sales reps promoting the product for a period of time to ensure that we have built complete market awareness. At the same time building up a sufficient supply of new Sular while minimizing the level of old Sular at distributors and pharmacies.

Our market intelligents to-date indicates that there does not appear to be a generic Sular that will be available in June 2008. While, we can’t be 100% certain about this, we only know of the Paragraph 4 by Mylan for the 40 milligram ANDA that was filed in June ’07 and a Paragraph 4 filing regarding the ANDA for the 20 and 30 milligram strengths that we filed in the fourth quarter of ’07. We have now seven products in the pipeline with three of these products under review with the FDA.

Our R&D expenses were 9 million or 9% of sales in the first quarter of ’08 compared with 6 million in the first quarter of ’07. We are very pleased with the progress in our pipeline. We recently announced that the FDA has accepted Addrenex’s NDA for CloniBID to treat hypertension with the Prescription Drug User Fee Act or PDUFA date of December 19, 2008. As most of you know, we have a PDUFA date of July 15, 2008 for LARx, the new head lice product and Novo Nordisk has a PDUFA date of June 15, 2008 for MetPrandin.

We also except to file our NDA for Glycopyrrolate this summer. Finally, we expect to complete our Phase III efficacy portion of the study for pravastatin and fenofibrate combination in the first half of 2008, as well. Later in the call, we will give you more details on the remaining products in the pipeline.

I will now cover the performance of our cardiovascular, diabetes, women’s health and pediatrics products. Starting with the cardiovascular diabetes business, net revenues in this therapeutic area increased a 11 million or 19% to 68 million for the three months ended March 31, 2008, compared with 57 million for the three months ended March 31, 2007. The increase was primarily due to the growth in prescriptions for Triglide and the launches of Fenoglide and Prandin during the first quarter of ’08, as well as price increases that were implemented during 2007.

In February 2008, our cardiovascular and diabetes sales forces launched Fenoglide, which is indicated for the treatment of hyperlipidemia and hypertriglyceridemia and is the lowest dose fenofibrate on the market. Fenoglide utilizes LifeCycle Pharma’s Meltdose technology designed to provide enhanced absorption and greater availability. Total prescriptions for fenofibrate family of products increased 24% in the first quarter of ’08 over the first quarter of ’07 according to IMS Health NPA data.

Our 225 cardiovascular sales reps are focused primarily on the new Sular conversion currently. While emphasis in the remainder of the first half of the year will be focused on the Sular conversion will increase our marketing efforts for Nitrolingual Pumpspray in the second half of the year.

In the diabetes area in the first quarter of 2008, our sales force begin promoting Prandin, which was licensed from Novo Nordisk in December of ’07. Prandin’s dollarized total prescriptions increased 16% in the first quarter of 2008 over the first quarter of '07, again according to IMS Health NPA dollarized data. Upon FDA approval we expect to launch MetPrandin in the second half of ’08. MetPrandin is a combination of repaglinide and metformin for the treatment of type II diabetes. As I mentioned earlier MetPrandin has PDUFA date of June 15, 2008.

Our diabetes sales force consist of a 175 sales rep, we are focused on growing sales of our type II diabetes and fenofibrate products. Additionally the diabetes sales force is assisting with the Sular conversion where needed.

Net revenues from our promoted women’s health products increased $3 million or 20% to $20 million for the three months ended March 31, 2008, compared with $17 million for the three months ended March 31, ’07. This increase is primarily related to prescription growth associated with the successful launch of Prenate DHA in the second quarter of ’07 as well as price increases implemented in 2007.

The Prenate Family products has shown consistent growth increasing total prescriptions by 15% in the first quarter of ’08, compared to the first quarter of ’07. Total monthly prescriptions for Prenate DHA were 40,000 in March 2008, again according to IMS Health NPA data.

Zovirax sales also contributed to growth in women’s health revenues. Zovirax’s dollarized total prescriptions increased 12% in the first quarter 2008 over the first quarter of ’07, according to IMS Health NPA data. The women’s health sales force consists of 175 sales reps, who are focused on the Prenate family of products and Zovirax.

Now for the pediatric products, net revenues from this group increased 4 million or 42% to 13 million for three months ended March 31, 2008, compared with 9 million for three months ended March 31, ’07. This increase is primarily due to the pediatric products we acquired when we purchased Alliant Pharmaceutical in the second quarter of 2007, partially offset by lower Furadantin sales.

Sales of Furadantin were higher than normal during the three months ended March 31, 2007, as the company experienced delays in production delivery during the end of ’06 that were related to manufacturing issues that were then resolved in the first quarter of ’07.

Sciele continues to gain market share for Allegra Oral Suspension and Orapred ODT. Allegra Oral Suspension new prescription market share has increased to 23% at the end of the first quarter of ’08 from 3% at the end of the first quarter of ’07 again according to IMS Health NPA data. New prescription market share for Orapred ODT grew to 5.4% in the first quarter of ’08 from 3.8% in the first quarter of ’07 according to IMS NPA data.

In March 2008, we acquired Twinject, an epinephrine Autoinjector from Verus Pharmaceuticals. We began marketing this product in April. Sales of the autoinjectable epinephrine market have increased 17% per year over the last five years and totaled approximately $200 million dollars in 2007 according to IMS.

Twinject, the licensing of Allegra ODT from Sanofi-Aventis and upon FDA approval the launch of LARx, a new prescription treatment for head lice, are expected to provide future revenue growth in the pediatric product line. To facilitate these launches in the second quarter of '08, the company will add approximately 40 sales representatives to its pediatric division expanding to approximately 140 pediatric sales representatives.

Now, I would like to review the company’s product pipeline. The company’s product pipeline includes seven products; three are currently under review with the FDA and four are currently in pivotal Phase III trials. Sciele has launched five new products thus far in 2008 and expects to launch three new products during the second half of 2008. Upon FDA approval, we will launch MetPrandin for type II diabetes, LARx for the treatment of head lice, as well as a new formulation of Prenate Elite.

The continued introduction of new products from Sciele’s pipeline is expected to be the key driver of the company’s future growth. As I mentioned there are three products that are under review at the FDA.

I want to underscore the significant near-term opportunity we also have with CloniBID. In 2007, there were 11 million prescriptions written for clonidine tablets and over two million prescriptions were written for clonidine patches for the treatment of hypertension according to IMS NPA Data. The market for this product continues to grow, which makes us very excited about the potential for this product. Upon FDA approval, we expect to launch this product in early 2009.

Patient enrollment for the Phase III trials using Clonicel for ADHD was initiated in October 2007. We expect to complete the Phase III efficacy trials in the second half of 2008. We licensed CloniBID and Clonicel from Addrenex Pharmaceuticals, CloniBID for the treatment of hypertension and Clonicel for a attention deficit hyperactivity disorder or ADHD. CloniBID and Clonicel are both 12-hour sustained-release formulations of clonidine hydrochloride.

In September of 2007, Sciele completed enrollment of patients in a pivotal Phase III safety trial using a liquid formulation of glycopyrrolate to treat chronic moderate-to-severe drooling in pediatric patients. This condition often results in cerebral palsy, as well as from other neurological disorders. The Company expects to file an NDA with the FDA in mid-2008. Glycopyrrolate received an orphan drug designation from the FDA, which provides seven years of marketing exclusivity after FDA approval.

In October 2007, the company completed enrollment of patients in the Phase III clinical trial using pravastatin and fenofibrate to treat mixed dyslipidemia. The Phase III clinical trial was comparing the efficacy of the combination of pravastatin and fenofibrate versus pravastatin or fenofibrate alone. The company expects to have the efficacy data from this study in the second half of 2008. Due to the fact that total prescriptions for pravastatin continue to increase, as well as the use of pravastatin combination with fenofibrate we believe this is a significant market opportunity.

Also, in October 2007, Plethora Solutions initiated Phase III clinical trial patient enrollment for PSD502, a product for the treatment of premature ejaculation. PSD502 is a unique, proprietary, rapidly absorbed formulation of two, well-established local anesthetics, lidocaine and prilocaine, dispensed in a metered dose spray. The efficacy studies are expected to be completed in the second half of '08. Sciele licensed the US marketing rights for this product from Plethora Solutions in May 2007.

To summarize, we remain confident in our ability to execute successfully all of our new Sular conversion goals. We believe there is significant growth potential in our pediatric products, Prenate DHA and our Type II diabetes and fenofibrate products. Additionally, we believe the expected launches of LARx and MetPrandin in the second half of this year will continue to add growth for the company. We have successfully diversified our product portfolio and product pipeline.

We plan to further expand our existing partnerships and plan to enter additional business development transactions similar to the Sanofi-Aventis, Biovail, and Novo Nordisk agreements. We may also consider adding an earlier stage product to the pipeline.

Now, I’d like the turn the call over to Darrell to discuss the financial highlights in more detail.

Darrell Borne - Chief Financial Officer

Thank you. As Ed has discussed, this has been a productive quarter for Sciele Pharma. We had a solid increase in first quarter 2008 revenues, increased our gross margins, and invested in four new product launches.

For the three months ended March 31, 2008, net revenues were $100 million, an increase of 22% over the same period in 2007. Net income for the first quarter of 2008, including the impact of an impairment charge, was $11.5 million compared with $13 million in the same period of 2007. Diluted earnings per share were $0.32 in the first quarter of 2008 including the non-cash impairment charge of $0.03 per share compared with EPS of $0.36 in the first quarter of 2007. The impairment charge is related to our equity investment in Plethora Solutions.

Earnings before interest taxes, depreciation and amortization, non-cash impairment and stock compensation expense, or EBITDAS, a non-GAAP measure, were $30.9 million in the first quarter of 2008 compared with $28.6 million in the prior year period. The company believes that EBITDAS is a meaningful non-GAAP financial measure as an earnings derived indicator that approximates operating cash flow. EBITDAS, as defined by the company, may not be comparable to similar measures reported by other companies.

Cash flow per share, also a non-GAAP measure, was $0.56 per share for the first quarter of 2008 compared with $0.54 in the first quarter of 2007. We define cash flow per share as diluted net income per share before stock-based compensation expense net of taxes, depreciation and amortization net of taxes, and impairment on equity investments. The company believes that cash flow per share is a meaningful non-GAAP measure of approximate cash flow on a EPS basis, which is utilized by the financial community to evaluate companies. Cash flow per share may not be comparable to similar measures reported by other companies.

Our gross margin as a percentage of sales was 90% in the first quarter of 2008 compared with 87% in the first quarter of 2007. This increase in gross margin was primarily due to the change in product mix including revenue shared products and lower production cost on the new Sular product and price increases.

Selling, general and administrative expenses, or SG&A, increased 34% to $53.3 million in the first quarter of 2008 compared with $39.7 million in the first quarter of 2007. The increase in SG&A expenses were primarily due to our new pediatric sales force, higher commissions, royalties, and cost associated with the launches of the new Sular formulation, Prandin and Fenoglide. Even with our new product launches in the first quarter of 2008, we continue to maintain tight control of our expenses as SG&A expenses decreased 5% in the first quarter of 2008 compared to the fourth quarter of 2007.

Research and development expenses were $8.8 million for the first quarter of 2008 compared with $6 million for the first quarter of 2007. This increase was primarily related to the new Sular formulation and expenses associated with the Phase III clinical trails of glycopyrrolate and pravastatin and fenofibrate combination. R&D expenses in the first quarter of 2008 were 9% of total sales.

Depreciation and amortization in the first quarter of 2008 was $8 million compared with $6.7 million in the first quarter of 2007. This increase was primary the result of amortization associated with the Alliant Pharmaceutical acquisition.

As of March 31, 2008, the company had $166 million in cash, cash equivalents and marketable securities. During the first quarter of 2008, the company repurchased $10 million or 528,598 shares of its common stock through its share repurchase program. On April 25, 2008, Sciele terminated its existing share repurchase program and adopted a new share repurchase program authorizing the repurchase of up to $100 million of our outstanding common shares over the next 12 months. The company's target is to repurchase over 10% of its outstanding common shares. Our strong balance sheet and cash flows ensure that we will still have sufficient financial resources to execute our business plan.

Turning our attention to guidance for the full year of 2008, Sciele reaffirms its full year revenue guidance for 2008 within the range of 447 to $470 million and full year 2008 diluted EPS within a range of $1.99 to $2.11 per share. This guidance for 2008 assumes an R&D expenditure rate of approximately 8% of revenues and does not include any unapproved products, any potential additional restructuring charges related to the new Sular conversion, nor the potential impact of the new $100 million share repurchase program.

That concludes our prepared remarks. Operator, we are now ready to take your question.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And, we will go first to Donald Ellis with Thomas Weisel Partners.

Donald Ellis

Good afternoon guys. I have a few questions. First for, I guess are on Sular. Can you just kind of give us an update on where the wholesalers and pharmacy stocking goes with the old versus new formulation Sular? And then what percent of the managed care programs have you signed agreements with? And give us an idea thirdly on any price differentials between the old versus the new formulations?

Edward Schutter

Yeah. Hey Don, this is Ed. As far as the Sular conversion managed care plans, we essentially have the exact same Tier 2 coverage that we had with old Sular, which is greater than 70% of lives in the US. So that’s exactly the same and may in fact be a little bit better in some instances. As far as the pricing, it is the same price as the old Sular, there is no differences there. And then as far as the supply, supply is running low of the old Sular and in fact we will probably take steps in the near future to facilitate a more quicker conversion in the marketplace.

Donald Ellis

And then, Darrell, a question for you regarding gross margins. You guys tend to run pretty flat gross margins in the first, second, and third quarters of the fiscal year and a little high in the fourth quarter. Are we going to see that in fiscal ’08?

Darrell Borne

Yeah, assuming that we continue with the price increases that we have done historically, yes, you would see higher gross margins in the fourth quarter. Now keep in mind too, with Twinject, the margins on that product are a little bit lower. So as that impacts the sales mix that will have some impact, but I would assume we would have similar gross margins going forward.

Donald Ellis

Okay. And last question regarding the epinephrine market, you mentioned it's been growing a figure would you say 7%?

Darrell Borne

17.

Donald Ellis

17%.

Darrell Borne

Yeah.

Donald Ellis

How much of that is units versus price?

Darrell Borne

It's only -- price only accounts for about 6 or 7% of that annually. The rest of it is units.

Donald Ellis

Great. Thank you very much.

Darrell Borne

Okay.

Operator

Thank you. We will go next to Annabel Samimy with UBS.

Annabel Samimy

Hi, thanks for taking my question. Good quarter. I have a couple of questions also on Sular as far as in the cardiovascular franchise, I guess the franchise performed a lot better than expected and I was just wondering to what extent is, I guess, last quarter you got it to Sular being about one-third of what it typically is because you weren't shipping anymore. What you have estimated this quarter to have turned out? Would you use capital like two-thirds of sales maybe or just more than what you have guided to just trying to get a sense of what it was that really pushed it forward?

Darrell Borne

You are correct. We were assuming that we have about a month’s worth of new Sular and we were able to ship about two months’ worth of new Sular and that's really the differential.

Annabel Samimy

Okay. And when you are looking at the conversion, you are looking at new prescription, what gets you comfortable that new prescription is the metric that you should be looking at as opposed to total prescriptions?

Edward Schutter

I think what's happening in the field right now is our reps have been making sure that all customers are totally on board with the conversion and physicians, in fact, are writing the new strengths in many cases now. So, the business that we are getting now is primarily new patients that are going in for prescriptions for CCB. What we expect, as I mentioned earlier, to happen in the very near future is there is some things that we can make happen in the marketplace that will facilitate a conversion of refills as well at the pharmacy level and you will see that happening in the near future.

Annabel Samimy

Okay. And then on the pediatric side, what was that happened in the fourth quarter that, I think there was some unusual item in the fourth quarter that made the sales a lot higher than expected, can you just remind us what it was there?

Darrell Borne

Sure. As we had mentioned, in the fourth quarter, we had issues in the third quarter with Orapred ODT and manufacturing and as a result of that it pushed the sales for that product into the fourth quarter. So you basically had third and fourth quarter sales of Orapred ODT. What you are seeing in the first quarter is obviously the seasonality between fourth quarter and first quarter that typically happens along with the fact that you have in the first quarter a slight amount of de-stocking that occurs at the wholesaler level.

Annabel Samimy

Okay. And one more question if I may. I mean, I have always been impressed with the number of programs that you have in the pipeline and the number of programs you have that's about to -- that are about to get approved. I guess at what point does your sales force just gets saturated? I mean there are so many products they can sell?

Edward Schutter

Yeah, that’s a good point. I mean right now because this is one of the reasons obviously we want to four sales forces so that each sales force is handling no more than two products in a current year and you do -- we have pretty much reached the point of saturation for this year. As we move forward in the next year depending on how the portfolio is doing and the number of products that we have to launch, we may have to look at adding new reps in order to manage all those launches.

Annabel Samimy

Okay. Can you just remind us what you have in each of the franchises, it was one -- sorry, can you just go through it again in the women’s health, cardiovascular, diabetes, and in the pediatrics (inaudible) 140? Thanks.

Edward Schutter

Sure, cardiovascular is 225, diabetes is 175, women’s health is 175, and pediatrics was 100 and we are expanding up to about 140, we are in the process of that for Twinject and the lice product.

Annabel Samimy

Okay, great. Thank you.

Edward Schutter

You’re welcome.

Operator

Thank you. We will go next to Angela Larson with SIG.

Angela Larson

Thank you for taking the question and I want to stay a little on the sales force and the SG&A line. As you think about your pediatric sales force trying to promote just two products, it seems like you have a little bit more going on more than that by the end of the year? And also as we look at the SG&A line, you do have a pretty strong SG&A spend if we compare it to what we saw on a quarterly basis last year. Should we be looking for it to stay at that level as you continue with new launches and additional promotional material?

Edward Schutter

As far as the products that are being promoted by the pediatric division, the nice thing that’s worked out for us is if you look at the seasonality of the products, they are very seasonal, you have the Allegra products, which are seasonal with the allergy season, the spring and the fall. The Orapred ODT, which is seasonal with the winter time; Twinject, which is basically a summer seasonality product because of bee stings and other anaphylaxis events. So we are able to post the promotions of those products quite effectively, so that’s working very well. I'm going to Darrell respond to the second half of that question on the SG&A expense.

Darrell Borne

Yeah, as we had mentioned, we changed the configuration of our sales force in the fourth quarter to narrow our SG&A spend going forward, and also as Ed had mentioned to create four different areas for sales reps. Don’t forget the royalties are down in our SG&A line and contrary to a lot of other companies that are out there and that’s a sizable chunk of change. So as our revenues grow, you will continue to have some growth in SG&A. The addition of the 40 sales reps in the peds obviously will add to the SG&A cost structure in the future, but unless we decide to add some additional sales reps, there should not be any sizable increases in SG&A other than what we had anticipated with additional revenues and royalties.

Angela Larson

Okay. And I was hoping you could give us a little color on R&D as well. It does feel like a lot of product are getting approval, which is very exciting, but that does mean you are spending a little bit less money on R&D or are there products that you are acquiring quickly consuming that budget?

Edward Schutter

As far as the R&D spend, what you'll find is if you look at the slides that we have provided at the previous conferences, there is a number of those products that will finish up their work in the second half of this year and we will be filing. So what we are planning on as you can appreciate is as products come off that also leaves room for adding in additional products in the future within that same type of range of a spend that we’ve talked about historically.

Angela Larson

Great, thank you.

Operator

We will go next to Scott Hirsch with Credit Suisse.

Scott Hirsch

Yeah, hi guys. Can you give us a quick sense of what kind of stocking was in the quarter with Fenoglide and maybe Prandin and if those things had an impact, from IMS you can see that maybe some of that cardio and diabetes groups have fluctuated in the quarter and was that an impact of the sales focus on Sular or was that a stocking issue?

Edward Schutter

I think with Scott that with Prandin obviously that product has already been in the marketplace. So, really the benefit that we get there is from the increased sales that we achieve because of the structure of our deals such that we get a certain percentage of sales above the baseline, which was established as 2007 sales and it did experience nice growth and we actually returned Prandin had been dropping in new RXs and it actually returned to positive 3% growth in the first quarter as well as the price increase that was implemented for the product at the end of last year, so that was beneficial. In Fenoglide, we just had a normal stocking level within the wholesalers. It wasn’t that significant, but -- and as you'll see from the prescriptions, it's just now starting to pickup some momentum in terms of the prescription so the benefit was mainly associated with the stocking.

Scott Hirsch

Alright. And then with respect to spending, I am sorry if you guys said a little bit, but how many of these 40 new reps had you already brought on board, were any of them kind of baked into first quarter number, are those all incremental to SG&A here?

Edward Schutter

No, none of them were in the first quarter.

Scott Hirsch

Okay. And then your tax rate a little bit, it kind of have fluctuated over the past, was there any -- was this charge or anything to have an impact on the tax or it would just be the run rate going forward?

Darrell Borne

What you will find, the charge that we had to take was basically in the international jurisdictions, which actually would raise our tax rate slightly. If you recall last year we spent a lot of money on the Sular development, and as a result of that most of that is in the international structure, which penalizes you from a tax perspective. So, to make a long story short, the 32.4% rate that you are seeing right now have some potential to go down longer-term this year, but I would use that as an approximation going forward for now.

Edward Schutter

And Scott, to add to your previous question, we did have higher launch cost associated with the Sular conversion and some of the other products in the first quarter that you won’t necessarily see moving forward, not to that magnitude anyway.

Scott Hirsch

Alright. And then just lastly on pediatrics, can you just kind of describe what the seasonality here really is from an aggregate perspective that may be a result of some of these newer line products?

Edward Schutter

Well, I mean, the Allegra products obviously are the allergy seasons, which you are talking about late March to end of May timeframe and then the September/October timeframe in the fall. And then with Twinject, it really is a seasonal product in the summer. The only other time you see a spike is really in January and that’s when patients get their once a year refill because of the dating with the product. The lice product is really seasonal. You start to see some seasonality increasing in the July timeframe for summer camps and then you really see it increasing in the fall. So it’s going to be a heavy July/August prior to the school year promotion type product.

Scott Hirsch

Thanks very much.

Edward Schutter

You are welcome.

Operator

We will go next to David Buck with Buckingham Research Group.

David Buck

Yes, thanks. I guess this is for Darrell. If I heard you correctly, can you just explain what you said on the stocking for new Sular? I think you said you shipped two months worth of Sular as opposed to the expectation of one month and you are still shipping the old Sular. So can you give may be a bottom line numbers in terms of dollars of what the stocking was for new versions of Sular and what the delta was in old Sular quarter-to-quarter? Thanks.

Darrell Borne

As we had mentioned, we shipped only what we have to, to continue to keep prescripts going on on old Sular during this quarter. And as we had originally anticipated, we were expecting to ship approximately one month of new Sular, but we were able to ship out two months of new Sular to clearly make sure that you had enough in the retail channels to get started with the pull-throughs?

David Buck

Okay.

Darrell Borne

It’s a little bit more than we had anticipated on the new Sular effectively is what it boils down to.

David Buck

Does that boil down to about $5 million?

Darrell Borne

We don’t give out specific revenue by product. But you will see that that is one of the chunks that is different than what we originally anticipated.

David Buck

Okay. And then on Fenoglide, the magnitude of that?

Darrell Borne

It is pretty small royalties, we talk about as far as what Ed was mentioning in the case of Fenoglide which is the large quantities that were needed out there. The other thing don’t forget, Triglide scripts are the fenofibrate family is up 24% year-over-year. And so Triglide continues to grow as a product.

David Buck

Okay. And there is no deferral of the new versions of Sular that was all booked as written out?

Darrell Borne

Correct.

David Buck

Okay. Thank you.

Operator

Thank you. (Operator instruction). We’ll go next to Ken Trbovich with RBC Capital Markets.

Ken Trbovich

Thanks for taking my question and congratulations on the decent quarter. I guess, I am looking for some guidance as it relates to the Sular channel inventory, I know Don started this all of with that question. But you said, you ship two months is the new product and you still ship some of the old, is the shipment, from what I cant tell look likes maybe $7 or $8 million of de-stocking in the quarter, but I can’t, be certain when you guys say that the channel inventory levels are low, are they low enough that you can tell us there wouldn’t be a charge if a generic comes in June?

Darrell Borne

No, we can’t tell you definitely, we are not going to have a charge, but as you can appreciate we are trying to bleed out as much as possible on retails channels. So, when we actually pull the old product it will minimize the charges. We have not been shipping old Sular this quarter that, as we have mentioned we wanted to continue to keep its scripts going we ship what we had to ship on old Sular when we started shipping new Sular that’s when we stop shipping the old product. We will as Ed had mentioned in the near future determine when to pull the port on the old Sular.

Ken Trbovich

Sure. And I guess that’s may be where the confusion comes in, if it didn’t stop shipping the old until you ship the new in late March. Did you ship one month worth, two months worth of the old you know that’s the part where we are all trying to plug a number to figure out what the channel inventory might be or alternatively if you think channel inventories are two weeks, four weeks, where do you think there are at?

Darrell Borne

The channel inventories as we shipped in the first quarter were lower than what you would normally, much lower than what you would normally have in the quarter level.

Ken Trbovich

Okay.

Darrell Borne

Hopefully that helps. We ship what we absolutely had to as far as the old Sular was concerned.

Ken Trbovich

Okay. And then, just with regard to Addrenex, is that in the other income or expense line, is that what we are seeing there?

Darrell Borne

In the other income and expense, which you really -- there is two big numbers that are in there. One, which is the impairment charge on Plethora Solution is about 1.2 million in the other income expense. And then the as you know, we have the equity method of accounting now for Addrenex and so we will continue to take losses. Our percentage of the losses on our P&L is approximately 400,000 this quarter.

Ken Trbovich

Okay. And then, with regard to the sales force and the fact that you are trying to hire 40 reps for pediatric, I guess, I am little puzzled as to the structure and perhaps the impact this has on morale, I mean you like to have over 100 reps in December and we’re here in April and you’re hiring 40 reps, what’s the due of these segment or they are enough or you don’t think there is cross colonization in terms of communication across your sales organization?

Edward Schutter

Well, the 40 reps that we hired, are they were going to be in the process of hiring is really in relationship to the Twinject project. So we didn’t fully realize that was going to be occurring. I didn’t know that was going to be occurring. I should say last year anytime you have realignments with your sales force you are going to have disruption what we try to do during that process is to minimize that disruption relationships and internal as much as possible.

Ken Trbovich

Okay. And so because the cuts weren’t in the pediatric sale force you don’t think it’ll be as bad as it might otherwise be?

Edward Schutter

No, I think the morale of our sales team is fine and they are excited about all the new products that they have the opportunity to launch, which you don’t have with many companies these days.

Ken Trbovich

Okay. And then, the last question is really just to drill on the impact of deals like Prandin and PrandiMet and Zovirax and the rest of them in terms of the Allegra. Can you help us understand the sort of positive impact that has on margins and the contributions that perhaps that has played in the increasing margins we’ve seen here over the last year or so as opposed to reduced cost on things like you know they switch to Fenoglide and the switch to the new version of Sular.

Darrell Borne

I think what you find is clearly the what we call alliance products, not to be confused with the Alliant products. Our products that will have 100% margin because we share basically the gross margin from the parent companies that are actually selling the products themselves. So, it does have an impact on the sales. I think what you will find is, as you look at dollarized [TRX] is upon different products. You can look at the magnitude of those products and clearly you will see that there is other products as they start coming online that have better gross margins. In the future you will see new Sular as we have mentioned has a 10 point pick up in gross margins. Clearly Fenoglide will have a nice pick up in gross margins and of course you have the compacting impact of price increases that we have done historically. So, it is a mismatch. I think what's important to note is we will try to give you the best range of what we would expect the gross margins to be going in the future.

Ken Trbovich

Okay. But as it relates to the Fenoglide having just occurred and the new Sular just launched, it seems like the bulk of the increased then is attributed to the Alliant’s products as opposed to the new product launches that you got in front of you?

Darrell Borne

If you look at last year’s gross margins as we had mentioned in the press release it was 87%, we are at 90% this year. So yes, we had small pick up, but it wasn’t like we went to 95% to 100%. Part of that clearly is because of price increases, part of that is clearly because of new Sular and of course, we have the new Alliant products as well and now we have more than just one.

Ken Trbovich

And will you be breaking out Alliant’s products in the future, when you are reporting?

Darrell Borne

We will include them as we have said within the various cardiovascular, women’s health and pediatric area.

Ken Trbovich

Okay. Thank you.

Operator

Thank you. We will go next to David Steinberg with Deutsche Bank.

David Steinberg

Thanks. Couple of questions. First on Rondec, I know in previous quarters you discussed a pathway potentially to get that product approved and have competitive products removed all Adams Respiratory and Mucinex, could you talk little more about where that all stands?

Larry Dillaha

Larry here. We are actually still kind of doing a lay the land if you will, given kind of what’s going on out in the real world with cough and cold products and the FDA view of those. So you still kind of get the lay of land and we are still -- we haven’t come together with a final formulation and agreement upon development plan with FDA yet.

David Steinberg

Okay. And then, this one is probably for you Darrell. The FASB staff position APB 14A regarding cash shall converts where increased non-cash interest expense is adjusted I think starting the end of this year. If I would get consensus for ’09, you have a about call it $2.45, we calculated that with reduce GAAP EPS about $0.25 for ’09 is that in the ballpark?

Larry Dillaha

It’s probably in that range, clearly the other thing that you got to take in consideration too that will have an impact for next year, as the sizeable share we purchased and we are getting ready to do this year. The other thing is for everyone to note that when we do that it will be very similar to when they changed the rules previously on the convertible debt yields where they shared a comparable number in the previous year period. So, you’ll be showing the same numbers on a comparable basis for ’08 and ’09.

David Steinberg

Right. So your historical growth rate would be faster, is that (inaudible) forward key would be higher, is that right?

Larry Dillaha

Yeah, you would have the impact in 2009, but when you are comparing that to ’08, it would also show the impact in ’08.

David Steinberg

Okay, fair. Thanks a lot.

Darrell Borne

Okay.

Operator

Thank you. And at this time we have no further questions. I would like to turn the call back over to Mr. Ed Schutter for any additional or closing comments.

Ed Schutter

Okay. Thank you very much everybody for participating the call and have a good evening. Bye now.

Operator

That does conclude today’s conference. You may disconnect your lines at this time.

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