Executives
Patty Eisenhaur - Executives Director of IR
Paul Bisaro - President and CEO
Mark Durand - CFO
Analysts
David Buck - Buckingham Research
Ken Cacciatore - Cowen and Company
Marc Goodman - Credit Suisse
Tim Chiang - FTN Midwest Securities
Bob Jones - Goldman Sachs
Adam Greene - JPMorgan
Greg Gilbert - Merrill Lynch
Lei Huang - Summer Street Research
Michael Tong -Wachovia
Watson Pharmaceuticals Inc. (WPI) Q1 2008 Earnings Call May 1, 2008 8:30 AM ET
Operator
I would like to welcome everyone to the Watson first quarter 2008 Earnings Call. (Operator Instructions).
At this time I would like to turn the conference over to Ms. Patty Eisenhaur, Executives Director of Investor Relations. Please go ahead ma'am.
Patty Eisenhaur
Thank you, Jennifer. Good morning everyone. I'd like to welcome you to Watson's first quarter 2008 earnings conference call.
Earlier this morning, Watson issued a press release reporting its earnings for the first quarter 2008. The press release is available on our website at www.watson.com. Additionally, we are conducting a live webcast of this call, which will also be available on our website after the call's conclusion.
With us on today's call are Paul Bisaro, our President and CEO, and Mark Durand, Watson's CFO. Also present and available during the Q&A portion of the call are Tom Russillo, President of the Generics Division; Ed Heimers, President of our Brand Division; Al Paonessa, Chief Operating Officer of our Anda Distribution Division, David Buchen, General Counsel; and Todd Joyce, Watson's Corporate Controller.
During the formal portion of today's call, Paul will provide an overview of our results for the quarter and comment on Watson's strategic highlights for the period. Mark will then provide further details of our financial performance and our outlook for 2008. Lastly, Paul will provide some final comments. We'll then open up the call for questions and answers.
Please note that today's call is copyrighted material of Watson Pharmaceuticals, Inc. and cannot be rebroadcast without the company's expressed written consent. I'd also like to remind you that during the course of this call, Management will make projections or other forward-looking remarks regarding future events or the future financial performance of the company. It's important to note that such statements about Watson's estimated or anticipated future results prospects or other non historical facts are forward-looking statements and reflects Watson's current perspective, existing trends and information as of today's date. Watson disclaims any intent or obligation to update these forward-looking statements except as expressively required by law. Actually results may differ materially from Watson's current expectations and projections depending on a number of factors effecting Watson's business. These factors are detailed in Watson's periodic public filings with the Securities and Exchange Commission, including but not limited to Watson's form 10-K for the year ended December 31, 2007.
I would like to now turn the call over to Paul Bisaro, our President and CEO.
Paul Bisaro
Thank you, Patty and good morning everyone. As you can see from our earnings report we had another strong quarter. We posted GAAP earnings of $0.45 a share and adjusted earnings of $0.55 per share, up over 60% on an adjusted year-over-year basis.
This increase primarily reflects two things, stronger year-over-year performance in our business segments and a significant decline in amortization related to our Ferrlecit product rights.
We continue to view 2008 as a transitional year highlighted by a number of operational initiatives in all three of our business segments. We believe that successfully implementing these initiatives will make us a more effective competitor by leveraging our unique mix of brand engineered products, will allow us to accelerate our growth in 2009 and beyond.
So far this year, we've had some important successes; first the successful resolution of OAI at our facility in Davie, Florida, continuing work on our global supply chain initiative, successfully filing a number of first-to-file ANDA opportunities. And finally, achieving significant milestones in our brand business, including preparing new filings and making preparations for new product launches.
I'd like to spend a few minutes discussing each of these as well as giving you a general update on our three business segments.
First, Davie; earlier this week the Food and Drug Administration notified us that our Davie, Florida manufacturing facility was removed from it's Official Action Indicated or OAI status. This is a great accomplishment for our team and will help us unlock the value of the applications that have been pending at the Davie facility.
Just as a reminder the Davie facility was placed under OAI during 2005, following an inspection by the FDA. At that time the Davie site was the primary manufacturing facility of the Andrx Corporation, which we acquired in November of 2006.
The FDA completed the onsite portion of the inspection on April 10, 2008. At which time it issued a 483 list of inspectional observations. We responded to that 483 on April 17th. and earlier this week we announce that the FDA had lifted the OAI status. Now, subject to satisfying other FDA approval criteria, new ANDAs for products pending at this site are now eligible for approval.
Again this is a major achievement for the Davie facility, not only providing opportunities for new product approvals out of the site, but also enhancing the efficiency of our operation and ultimately bringing down the cost-to-manufacture there.
We will continue to work closely with the FDA to obtain approval of pending ANDAs that are eligible for final approval. And we will maintain our compliance commitments, as we begin to ramp up additional production in the Florida facility.
Turning to our global supply chain initiative, we continue to move forward in enhancing our operating efficiencies and reducing our overall cost structure to creating more streamline for Watson. In fact we've been able to implement many of these initiatives faster than originally anticipated.
As you know, we initiated the site closure process at our Carmel facilities earlier this year. We've already implemented the first down sizing of the facility and are on track with our plans to close the Carmel facility by the end of 2010.
We have successfully transferred the first wave of products from Carmel to our Goa, India facility for production. These products are already in the distribution channel. While this process is a long one and involves the transfer of significant number of product families, we are pleased to report this activity has been running ahead of schedule.
With the inflow of products to our Goa manufacturing site, we are steadily ramping up production at that site. Goa is now scheduled to produce about 1 billion units by the end of this year and we anticipate it will produce about 3 billion units by the end of 2009.
We're also happy to report that our clinical research organization in Mumbai, India is up in running and conducting pilot studies as planned. Again, within this bio-facility, our site has the capability to conduct 20 to 30 bio-studies a year depending on the kind of the study we conduct. And it will figure prominently in our future as it provides us with the enhanced flexibility and lower costs. By having our own bio-facilities, it helps us keep us competitive and allows us to get products filed with FDA faster.
Turning to Generic R&D, we currently have approximately 60 ANDAs on file with the agency. As you have seen, our most recent filings include Generic versions of LYBREL, Yasmin and Sanctura. Two of which, are first to file opportunities. And we remain on target to achieve to our goal of filing more than 20 ANDAs this year with the FDA.
Moving on to our branded division, we continue to see growth from our promoted products and we continue to move forward with our pipelines opportunities. This business continues to performance extremely well for us and we see this is perhaps one of the most under recognized assets in the Watson portfolio.
As you may remember, we announced the NDA filing for silodosin in February and the FDA review of that NDA remains on track. We will be profiling silodosin's strong cardiovascular profile at this year's American Urological Association meeting May 17th through the 21st in Orlando.
Silodosin's cardiovascular profile is something that we believe will be an importance for the older male BPH population that is taking blood pressure medications or that may have a concurrent heart condition. Silodosin, remember, treats the symptoms of BPH or an enlarged prostate, which is the number one condition treated by urologists in the U.S.
Our AUA presentation will be the first of several peer-reviewed presentations clinical data on silodosin planned in 2008 and through the launch in 2009.
Our oxybutynin gel product for overactive bladder will also be highlighted at the AUA meeting, where we will present PK data comparing the delivery of the gel versus our patch product. The strong side effect profile of the gel will also be presented. As an update, our development timeline for oxybutynin gel remains on track and we anticipate having NDA on file with the FDA for this product by mid-year.
We will also be introducing a new delivery system for Trelstar called MixJect, which will offer more convenient and safer dosing for physicians and nurses, and a small gauge needle offering more comfort for patients. We anticipate launching this new delivery system mid-year.
As you can see AUA will be very exiting for us. At the conference, we will be holding an analysts' briefing on the afternoon of May 20th to present an overview of the data being presented and we'll provide access to some of our investigators and key thought leaders in neurology.
Turning now to our ANDA distribution business. The ANDA distribution business continues to be a solid performer. The current quarter results reflect the launch of two significant products late in the fourth quarter. And looking forward, we anticipate additional product launches through the remainder of the year, but predicting their exact timing remains inherently difficult.
In addition the ANDA team continues to work on new initiatives to grow the business. These new initiatives targeting some unique business segments should provide new and steady growth for our opportunities for ANDA in the coming quarters and years.
So as you can see, we continue to execute against our internal plans. We've been very successful in our supply-chain initiative and our brand business continues to show strength. While our primary objective for 2008 is to ensure that our infrastructure and product opportunities are set to support expansion in 2009 and beyond, the result to the first quarter show that we are clearly heading in the right direction.
With that, I'll hand the call over to Mark and he will give you some detailed discussion of the financials. Mark?
Mark Durand
Thank you Paul, and good morning to all. Now, I will provide highlights of our first quarter financial results in a consolidated and divisional basis, as well the describing our current expectations for the year.
The first quarter 2008 net revenue was $627 million consisting of $367 million form generics, $150 million from the brand division and a $145 million of ANDA distribution. Net revenue is down from the $672 million report in the first quarter of 2007 largely due to the loss of revenue on oxycodone ER following termination of our distribution agreement with Purdue.
Although net revenues were lower on a year-to-year basis, our total gross profit remained constant to $247 million which results in an increase in our consolidated gross margin of 2.6 percentage points from 36.8% in the first quarter of '07 to 39.4 in the quarter. Enhanced gross margin was primarily due to the growth of other revenue within our, both our brand and generics divisions.
I'd like to now provide some more detail on the divisional performance. Generics first quarter net revenue was $367 million consisting of $342 million of product sales and $24 million and other revenue. Compared to the first quarter 2007, generics revenue was down $58 million or 14% and down slightly from the fourth quarter's $374 million.
Last year's first quarter had higher sales from authorized generics, in particular oxycodone ER and pravastatin. This quarter's launch of alendronate somewhat offset the loss of oxycodone ER. Oral contraceptive sales in the first quarter was $78 million, down from $86 million last year and down from $90 million in the fourth quarter.
Fourth quarter sales included the launch of Tiliatm Fe, as well as initial stocking-related to a new customer. First quarter sales of 2008 reflect lower purchases related to those fourth quarter activities. We anticipate the quarterly OC sales were normalized between approximately $85 million and $90 million per quarter for the remainder of the year.
Other revenue increased $11 million from the prior year period due primarily to the additional royalties from the Sandoz's sale of generic Toprol XL 50 milligrams.
Generic gross margins improved to 37.4% from 35.8% in prior year period, reflecting the increase in generic other revenue. Both periods had the impact of authorized generics, oxycodone ER last year and alendronate this quarter.
Generic gross margins for the first quarter 2008 also reflect $13 million in cost related to the pending closure of our Carmel facilities. Excluding the AGs and closure costs, generic gross margins increased approximately 3 percentage points. First quarter 2008 gross margins would have been approximately 43% versus 39.5% in the prior year period.
Moving on to the brand division. Net revenue for the first quarter was $115 million. This is up from the $109 million reported in the fourth quarter 2007 and $102 million in the first quarter of '07.
On a year-over-year basis, brand product sales increased 9% to $99 million. Specialty product sales were $54 million and nephrology sales were $45 million. Current quarter's strong product sales reflect solid year-over-year growth of both Trelstar and Ferrlecit. Other brand revenue was $16 million, up $8 million from the prior year quarter, reflecting an increase in revenue primarily related to our licensing arrangements.
Brand gross margin in the fourth quarter was 76.1%, up 1 percentage point on a year-over-year basis. The increase in brand gross margin was due to increased other revenue. And finally, net revenue from the added distribution division was a $145 million essentially even on a year-over-year basis.
New product launches such as generic Altace and Protonix offset price erosion in the business. As a reminder, these results only reflect third-party distributed business for ANDA and do not include ANDA sale of Watson products.
Distribution gross margin was 15.2 %, an increase of 2.5 percentage points from the first quarter of 2007. Distribution cost of sales in that first quarter of '07 included $2.5 million in acquisition-related inventory charges.
Turning now to our operating expenses. Consolidated R&D spending for the first quarter was $38 million, roughly even with spending from the previous year's period. SG&A for the quarter was $107 million, a modest increase of $3 million from the prior year quarter. Amortization for the first quarter was $20 million, a decrease of $24 million from the first quarter last year. Ferrlecit product rates were fully amortized at the end of 2007.
GAAP EPS for the quarter was $0.45 per share and our adjusted earnings excludes $13.7 million related to the planned closure of our Carmel facilities. These costs include severance, retention, and accelerated depreciation. In addition, we had licensing costs, debt repurchase costs and other adjustments, which were detailed in the reconciliation table and our press release.
Excluding these items, adjusted net income was $62 million or $0.55 per share. Adjusted EPS is up $0.21 year-over-year. Approximately $0.12 is due to lower amortization expense related to Ferrlecit and about $0.07 of it is due to the strong contribution from our business segments, primarily the brand segment. Our adjusted EBITDA for the first quarter was $149 million, a 9% increase over fourth quarter 2007 levels.
Now turning briefly to the balance sheet and cash flow. Cash flow from operations for the first quarter was $67 million compared to $88 million in the prior year period. First quarter cash flow reflects an increase in inventory levels, as well as other typical changes in working capital.
CapEx for the first quarter increased slightly over the prior year quarter to approximately $18 million. As of the end of the quarter, cash and marketable securities were $187 million. As previously reported, we paid down $75 million on our senior credit facility. Remaining on the liabilities side is $250 million outstanding under our senior credit facility and $575 million of outstanding convertible debentures.
So at the end of the first quarter, our total long-term debt was approximately $825 million and our debt-to-capitalization ratio has decreased to 30%. We are comfortable with this level of debt right now. Given credit market conditions, we are viewing our debt as attractive financing and we have the capacity to pursue good business development opportunities as they arise.
Before I turn the call back to Paul for concluding remarks, I want to share with you our current expectations and outlook for 2008. We are maintaining outlook. We provided you on February for the full year 2008. We expect consolidated revenues will be approximately $2.5 billion. We expect generic revenues to be between $1.45 billion and $1.55 billion and our original outlook in February assumes the successful resolution to OAI by mid-year. Our current generic revenue forecast assumes that we will be successful in gaining final approvals and launching new products from our Florida facility in the normal course. Key product launches assume from the facility for 2008 include omeprazole 40 milligrams and the Toprol XL.
Also we are maintaining our assumption of 10% price erosion on our base generic business, consistent with what we saw last year. We are also assuming a decline in other generic revenue. A generic version of Wellbutrin XL 150 is anticipated later this year and while we haven't seen a launch just yet, we still anticipate additional competition on the Toprol 50 in the near-term. These are both products we currently received royalties on.
Of course, there are moving parts and we will continue to revisit the assumptions around competition, pricing, and the timing of new product launches. On the brand front, we are maintaining our forecast of between 420 million and 440 million. We anticipate the product sales were moderate throughout the year.
And finally turning to our ANDA distribution business. While we have a number of new business initiatives underway, net revenues will remain dependent large part on new generic product launches. We continue to expect ANDA to contribute between $580 million and $610 million in net revenue and we'll revisit these estimates as the year progresses and we paying more clarity on potential of new product launches. We expect R&D spending to be approximately $160 million, with about two-thirds or so go into the generic business and one-third to brand programs.
SG&A expenses are expected to be between $420 million and $440 million, reflecting slightly higher sales and marketing spend in front of the silodosin product launch, which is anticipated in early 2009. For 2008, the company expects GAAP earnings to be between $1.70 to $1.80 per share and between $1.90 and $2 on an adjusted basis.
Our adjusted earnings excludes approximately $32 million of costs related to the planned closure of our Carmel facilities and these costs again include accelerated depreciation, severance and other related plant closure costs.
In addition, we have $6 million of licensing charges as well as other items as detailed in our reconciliation tables in the press release. When we originally provided our forecast, we anticipated that adjusted earnings would be more heavily weighted towards the first half for the year.
Looking now at our full year forecast, together with our first quarter adjusted results. We now anticipate that adjusted EPS for the remaining quarters should be relatively even throughout the remainder of the year.
Now I'd like to turn the call back to Paul for concluding remarks.
Paul Bisaro
Thanks, Mark. I think you'll see lot of continued activity from us through the rest of 2008. And before I open it up to Q&A, I just wanted to raise couple of additional points regarding our guidance.
Just as a reminder, there are a number of other opportunities that we don't put into our forecast. For example, the enoxaparin or generic Lovenox opportunity, as well as any benefit from business development opportunities that we might anticipate in 2008.
Finally, we don't include any potential upside from patent challenges in our guidance or at least into our patent challenges cases get to a point of relative certainty.
With that, I will turn it back to Patty to open it up for questions and answers.
Patty Eisenhaur
Thanks, Paul. Jennifer, we can get the Q&A started.
Question-and-Answer Session
Operator
(Operator Instructions). Your first question comes from David Buck with Buckingham Research.
David Buck - Buckingham Research
Thanks for taking my question. Paul, a couple of questions for you. If I could just get a sense of what you are expecting the plant closure savings to be for this year in terms of gross margin? And also what do you think the move of more products to go next year will be doing on the gross margin line? And can you talk a little about whether there is any development on the SEASONALE case and just the rationale for the challenge of FENTORA? Thanks.
Paul Bisaro
Well, thanks, David. The plant closure, we have not quantified that the impact of the plant closure on for you yet. What we said last call, we have to stick with this. We do anticipate obviously significant impact. But it won't be until later in 2009, when we see that come through and because there is lot of moving parts with that, we haven't opted to identify how much that would be. So, I will pass on that part of the question.
I think the second question was SEASONALE's and the situation there. Well, we are still in early stages of litigation of SEASONALE. We will continue to, but we have no intention at the moment to do anything with SEASONALE continue to sell it. And we will wait as that case develops.
And the same thing with FENTORA, it's still very early in that case and we are still waiting. We are actually waiting to see the complaint because we haven't yet been sued. That was announced because they announced it in their SEC filings.
David Buck - Buckingham Research
Got you. And just a follow up on SEASONALE, are there any discussions with the other party?
Paul Bisaro
Well, we don't disclose whether we're in discussions or not with other parties. There are always opportunities to discuss potential arrangements, but you'll have to stay tuned for that.
David Buck - Buckingham Research
Fair enough. Thank you.
Paul Bisaro
Okay. Thanks, Dave.
Operator
Your next question comes from Ken Cacciatore with Cowen.
Paul Bisaro
Hi Ken.
Ken Cacciatore - Cowen and Company
Hey, good morning, guys. Just a couple of quick questions. First on Ferrlecit, just wondering if you could give us an update on any of your potential discussions with Sanofi on extending the agreement, and then may be a discussion on around the Ferrlecit petition and any updates there? And then a follow-up question on your Andrx facility?
Paul Bisaro
Okay. Well first on Ferrlecit, we do continue to have discussions with Sanofi on extending the agreement, of course any of those discussions will take time, to the extent that there has been any additional developments, so that it is part of the negotiating process. And as we've stated, we believe the agreement ends at the end of 2009. They have taken the position that it may have actually end earlier than that in early 2009. We of course disagree and that will be just be part of the overall negotiations. But I guess I would say they continue and we will do what we can to try to extend that agreement.
Ken Cacciatore - Cowen and Company
Paul, why is there disagreement on the timing, is there something on contract that's unclear?
Paul Bisaro
Well, we don't think so. But the agreement actually says that the duration of the contract lasts for 10 full calendar years and we began -- the product first got approval in February of 1999. So 10 full calendar years for us means the end of 2009. I guess they don't read 10 full calendars the same way we do.
Ken Cacciatore - Cowen and Company
Okay. And on the manufacturing facility and Mark was talking about some of the guidance predicated on launches. Do you have discussions with the agencies to know that the reviews were actually continued and just held for the manufacturing, or might this be that the reviews now began a new – do you have conviction on where they stand?
Paul Bisaro
Well, let me see if I can answer that. Well what we anticipate the process to be for the new product approvals at Florida will be a filing with the agency, letting them know that the facility is now available for approval. As you may know, these applications were taken through the review process and then they sort of get to the end and the FDA looks at their checklist and says well that we get to the CMC, the bio study and then compliance. And when they got to the compliance part, they could check the box. So we send them a note and said okay now you can check the compliance box. So we're waiting and those notes as you imagine have been sent or are being sent even as we speak. So we don't anticipate any additional delay, but I can't say how long it will take the agency to sort of wrap up whatever have to be done to get the final approvals out.
And then of course we have to prepare the products for market. So we have to do the validation work. We have to do the launch quantities and we have to go. So I think you will see us launching products in the normal course. Obviously the ones that we find most significant will launch first than the ones that we don't think are significant will launch latter.
Ken Cacciatore - Cowen and Company
Great. Thank you very much.
Paul Bisaro
You bet.
Operator
Your next question comes from Marc Goodman with Credit Suisse.
Marc Goodman - Credit Suisse
Yeah. Can you talk about the gross margin on the generic side, what's happening there, just it seems weaker than we thought? And then can you talk about your understanding now of the Lovenox opportunity for you, given the noise that's coming out of everybody else in that space the past couple of weeks?
Paul Bisaro
Well, let me start with Lovenox and then I'll kick over the gross margin question to Mark. On Lovenox, we too have read the newspapers, the press releases and we continue to have discussions with our partner, Amphastar. But as I said in the past, this opportunity is really managed through the FDA by Amphastar. So well, we are providing or will provide them with any healthy need. They are managing that process. So we don't have a lot of visibility as to sort of what's happening at the moment. We will do whatever we can to get that product out and principally that's why we don't have it in our guidance, because we don't have a lot of clarity around sort of when things might happen.
Marc Goodman - Credit Suisse
I mean, given Momenta's comments. I mean when you talk to Amphastar over the past week or so, have they changed their tune, are they feeling a little bit better?
Paul Bisaro
No, I think they've been in contact with the agency and they've responded to the agencies’ concerns and I think they are as optimistic as Momenta as the things might happen. Why I'm telling you those, I don't know. We have to be a little more certain with respect to that. And I think they certainly believe they are going to get approval and they surely know the final timing. But as far as we're concerned, we are going to keep it out of guidance at the moment and reacts to things as it occurs.
Marc Goodman - Credit Suisse
Right. I understand, but it’s just unclear. So all this noise in the past couple weeks, have you actually spoken Amphastar?
Paul Bisaro
Yes. We speak to Amphastar.
Marc Goodman - Credit Suisse
Okay. And so do they feel better about things that have happened?
Paul Bisaro
Marc, I am not going to-- yeah, of course they feel good about it. I mean Momenta feels good about it so as the Amphastar, well they feel good about it for years. So I am not sure if that's a good measure of where we are at.
Marc Goodman - Credit Suisse
I got you.
Mark Durand
And on the generic gross margin just to remind you, we have the facility closure costs. So when you pull those out, well you actually feel very good about the gross margin and actually improved versus say Q4 of last year. So that's it. Sure you are looking at it, with including the closure costs.
Marc Goodman - Credit Suisse
Paul, if we exclude, I mean you are talking about you did $230 million of cost. You just take out the $13 million. And the gross margin was still a little lighter than I would have thought. I was just trying to gauge like what?
Paul Bisaro
Our gross margin actually improved versus, say fourth quarter of last year.
Marc Goodman - Credit Suisse
Okay, all right. And pricing in base business down 10% for the year, first quarter was basically like that?
Paul Bisaro
We are, I think, sticking with our 10% for the year. It seems to be consistent with what we are experiencing in the market place year-to-date.
Marc Goodman - Credit Suisse
Okay. Thanks
Operator
Your next question comes from the line of Tim Chiang with FTN Midwest Securities
Tim Chiang - FTN Midwest Securities
Hi, thanks. Hi Paul. In terms of Ferrlecit in this Sanofi manufacturing arrangement, do you have a contingency strategy or are you working on one. I mean what happens if Sanofi says we don't make it anymore early next year. I mean that obviously would put you into a bind on Ferrlecit, would it not?
Paul Bisaro
Well, we have been working on a number of contingency strategies and we don't feel like we are going to be into a bind at all. We have said that you shouldn't anticipate anything beyond 2009 for Ferrlecit and I am sticking with that. But as through 2009, pretty comfortable that we are going to be still selling the product and it will be a contributor in 2009. We haven't obviously quantified what that is. And, yeah, we are working on contingency plans in the events that we are not able to negotiate an extension of the agreement. There are obviously things that we can consider doing and are considering doing when this nephrology sales force that we have to continue to drive the strong value for the brand segment.
Tim Chiang - FTN Midwest Securities
Okay. And just one follow-up. I remember back in the days of Andrx when they were independent. They would get approvals, but then they could never make their own products and granted. These are tough to make controlled with these products at the day before the facility. I guess what sort of time horizon can we expect post-approval that you'll actually be shipping product to customers on product like omeprazole? Obviously, there would be a lag just because of all the scale ups and quality control.
Paul Bisaro
Well, Tim, we started working on these projects already. We didn't wait for in anticipation of getting off OAI. We started the process of looking at the manufacturing formulas, beginning to start thinking about how we would validate them and so that process is underway, certainly for the most important products. And we're going to do everything we can to get those products out of the door as quickly as possible. We recognize that every day that they're not in the market that's sales loss. So, we have the team now focused on validation efforts and we're going to try to get them out as quickly as possible. Again, we're not going to be able to launch 13 products in one month. So, they're going to come out in sequence. But that's the way to think about it.
Tim Chiang - FTN Midwest Securities
Okay. And then, would you still be getting a royalty from Sandoz on Toprol assuming that you make Toprol yourself as well or with that royalty?
Paul Bisaro
Tim, we haven't disclosed that. We haven't disclosed the terms of that agreement. But I think as you sort of think about metoprolol for us going forward, we would anticipate launching the strengths of metoprolol and that's probably where you should look for the revenue.
Tim Chiang - FTN Midwest Securities
Okay, all right. Thanks a lot.
Operator
Your next question comes from Randall Stanicky with Goldman Sachs.
Bob Jones - Goldman Sachs
This is actually Bob Jones on for Randall, how you are doing?
Paul Bisaro
Good. How are you?
Bob Jones - Goldman Sachs
Good. Just want a follow up on the OAI status. I know in previous guidance, you had mentioned that the resolution was factored and that was mid-year resolution. Given the timing is a little bit ahead of mid year, is there any potential for upside we would see from OAI?
Paul Bisaro
Well, I mean, I think we purposely used mid-year because there is the second part to this and that is giving the final approvals. And while we really gone over a major hurdle here, we're still waiting for the final approvals to come in and then of course we have to complete the validation, build the launch quantities and launch. So it will take us a little bit of time to get there. So I think mid-year is still the right timing. I think the takeaway though is that we have achieved the first hurdle that was and which was the biggest hurdle and now it falls to us to get the products ready to get them out to market. So I take obviously a lot of comfort in that as I look at our operations down there in Florida.
Bob Jones - Goldman Sachs
Staying with Davie facility I know you also mentioned that you'll be shifting other products to the Davie facility. Which product line should we be thinking about as far the ones that will be moving to the Davie facility?
Paul Bisaro
Well, I think you should think about that as we look at the Carmel facility and we looked at the products manufactured in Carmel. We've said that a lot of the sustained releases sort of there is a number -- small number of sustained release products that we manufacture in Carmel. Those are plans to move to the Davie facilities since that facility is particularly well equipped to handle sustained release product, just like the narcotic products that are manufactured in the Carmel facility are scheduled to be moved to the Corona facility in California. So it's just part of the overall process of closing down the Carmel facility.
Bob Jones - Goldman Sachs
Okay. And then just one last follow-up switching over to the distribution business. I know you mentioned that there were new initiatives going on that, that should provide new and steady growth throughout the year. I was just wondering if you could elaborate a little bit on that?
Paul Bisaro
That's good because you actually got my quote. That's perfect. Well, one of the things about these new initiatives is they are designed to be proprietary and we are looking to take on some sort of new areas of opportunity. And so I don't want to go into too much detail because Al will kill me, if I lay all this out. So I think what we will do is just we leave at that and say that we think the distribution business is looking for obviously a lot of different ways to grow and not as be as dependent and that has been on new product launches. Although new product launches will continue to be important to them on a going forward basis at least in a short term.
Bob Jones - Goldman Sachs
Fair enough. Thank you.
Operator
Your next question comes from the line of Adam Greene with JPMorgan.
Adam Greene - JPMorgan
Hi, good morning.
Paul Bisaro
Good morning.
Adam Greene - JPMorgan
Mark, I think you said in your prepared comments that you expect the branded business sell to moderate throughout the year. Does that mean that you expect the sequential decline if you could still be a bit more clear on that? And also does the 2008 branded guidance include any revenue from silodosin in there? And I had a follow-up as well.
Mark Durand
In reverse order, no. For the silodosin question, does not include. And at this point, we are anticipating an early '09 launch on that assuming all progresses is planned and the sequential comment on the brand sales by quarter was really just was I think a strong first quarter. We are still maintaining our same guidance range that we've put forward earlier in the year. And so, we are, just to repeat myself sort of just looking for the quarter-to-quarter sales to moderate in order to still maintain a total number within that range.
Adam Greene - JPMorgan
And also you assuming silodosin an approval letter and a launch in early '09, that the assumption you are going on?
Paul Bisaro
Yes.
Adam Greene - JPMorgan
Okay. Then also on the omeprazole 40 milligram market, how should we think about the market post-exclusivity? How many players you think will see following the end to that?
Paul Bisaro
Not sure, I can answer that question right now. And I guess sort of looking at the orange book, see what kind of tentative approvals are sitting out there if any. But I would anticipate that there would be a several competitors or so, it's probably more of a 180 days kind of opportunity and then sort of moderating pretty quickly after that.
Adam Greene - JPMorgan
Actually, I will sneak one another question on Concerta. Can you may be elaborate on your path to the market, potential path to market anyway to circumvent impacts of exclusivity out there assuming that CP is resolved and then they also win the litigation?
Paul Bisaro
Just like with the launch of the new products, the first hurdle we had to get over in Concerta was getting of the OAI status so that we can get the approval of Concerta. As we look at the other challenges, we have litigation which ended in December of this year and we are waiting for decision from the court. That's probably still some months away. In addition, there is a citizen petition that we needed to address and deal with, and finally there is prior filer that we have to deal with.
So now having sort of achieved the first hurdle or having overcome the first hurdle, we are now going to turn our attention to the other three hurdles and start working on that. Although Concerta is not in our guidance right now for 2008, it does present a possible potential upside in 2008 and more perhaps even in 2009, I don't know. But we will continue to work on Concerta and try to get that product to market as soon as possible.
Adam Greene - JPMorgan
Which of those three are the biggest hurdle for you?
Paul Bisaro
Hard to say, I think the CP. As we said publicly before, we don't think we are going to follow the CP because of dual peak question. Our product is duel peak issue and I suspect the litigation is always the crab suite, you don't know how that's going to work out. And then we have to get over the product filer in 180 days. So we'll work to sort that out. I guess the last two probably because of the highest hurdle.
Adam Greene - JPMorgan
All right. Thank you.
Operator
Your next question comes from the line of Greg Gilbert with Merrill Lynch.
Paul Bisaro
Hi, Greg
Greg Gilbert - Merrill Lynch
Good morning, guys. How are you?
Paul Bisaro
Fine.
Greg Gilbert - Merrill Lynch
Paul, on Concerta, why would there be any hope that you could circumvent exclusivity? And secondly Mark, can you give us some more color on the other income line and what was in there? Thanks.
Mark Durand
Well, Greg there's a number of arguments you can make to avoid or to argue that somebody has waived their exclusivity. And I don't want to share our strategy publicly, so I won't. But it is an old rules case, not a new rules case or I guess actually David points there is a possibility that it's not clear whether it's an old rules or new rules case. If it falls under the new rules, I guess they would have waived their exclusivity because they haven't achieved that tentative in time. And if it is old rules, we would have to make some arguments around sort of not being able to get the product approved. So there is a sort of lots of arguments to be made on this front and we'll make them at the appropriate time.
Greg Gilbert - Merrill Lynch
FDA has not expressed a view on that yet, right?
Mark Durand
Well, we haven't asked them yet.
Greg Gilbert - Merrill Lynch
Okay.
Paul Bisaro
Just a couple of items of modest color, if you will, Greg. Certainly, Toprol royalties is as a component of that and we don't list out and break out the different specifics on our other revenue line. We've got co-promotion opportunities. We also had a licensing transaction that we restructured that involved some deferred revenue components so that's really not a detail but we're able to get into on that line item.
Operator
Your next question comes from Lei Huang with Summer Street Research.
Lei Huang - Summer Street Research
Hi, good morning, thanks. Just a question on all the expenses that you broke out in one of supplements in your press release, can you I guess file detail on what was actually included in COGS versus what's in SG&A versus in R&D in terms of one-time charges?
Mark Durand
The majority of it is in cost of goods.
Lei Huang - Summer Street Research
Majority of it?
Mark Durand
Yeah. I don't want to say nearly all. But it's primarily cost of goods.
Lei Huang - Summer Street Research
Does that include that $6 million license payment?
Mark Durand
No, it does not. Sorry. The only closure costs aspect that is primarily cost of goods, then we have a $5 million payment related to the silodosin licensing arrangement, so that would be an R&D.
Lei Huang - Summer Street Research
R&D.
Mark Durand
And then we've got a couple of items that are offsets on debt repurchases and the sales securities that are obviously in the financing line.
Lei Huang - Summer Street Research
Right. Okay. That's helpful. And then the other question is just on the guidance on, I want to make sure I understand correctly. Is your guidance now assuming more contribution from the new launches versus your guidance from a couple of months ago?
Mark Durand
No.
Lei Huang - Summer Street Research
That's what it sounded like when you --?
Mark Durand
No, what we said a couple of months ago was and the key effect was getting off OAI by mid-year sort of and by extension getting the products approved in Florida around that time. And that's what the guidance had and that's what the guidance will has.
Lei Huang - Summer Street Research
Okay. But the quarterly distribution has changed, is that being driven by the timing of the new product launches?
Paul Bisaro
No, what we said originally was we thought it would be waited more heavily to the first half of the year and the second half of the year. And now we are just providing a little bit more color because we did have obviously a strong quarter. So you can see that we're right. We think it's going to be more heavily rated in the first half of the year than the second of the year. It's just now giving you a little bit more visibility on what we think the remaining three quarters will look like.
Lei Huang - Summer Street Research
Okay, so net-net, your guidance assumption on new launches or timing or anything like that has not changed?
Paul Bisaro
Correct.
Lei Huang - Summer Street Research
Okay, great. Thank you.
Operator
Your next question comes from Michael Tong with Wachovia.
Paul Bisaro
Hi, Michael.
Michael Tong -Wachovia
Hi, just a quick one if you would break out nephrology sales in the quarter? And then your comment about the branded business moderating for the back end of the year, is that more on the nephrology franchise side or the specialty product side? And then finally your R&D guidance for $160 million, is that a GAAP number meaning that it includes the $5 million of silodosin charge?
Paul Bisaro
Yes, take them in sequence. Nephrology sales were $45 million and I'd say the remainder of the year trends are basically similar between specialty and nephrology and the 160 is a GAAP number.
Michael Tong -Wachovia
Thank you.
Operator
You have a follow-up question from David Buck with Buckingham Research.
David Buck - Buckingham Research
Yes, thanks. Just if I am going to repeat on the break out of the branded business against just the specialty line because you just gave nephrology and maybe if you could share Oxytrol and Trelstar? And on the OC front, can you talk about what you are hearing if any interest in market, talk about new competitors coming in? And does the change in OAI status make it more likely that you see another major competitor approved in the near future? Thanks.
Mark Durand
I will take the first. The specialty sales were $54million and nephrology were $45 million. We don't disclose the breakdown of products within that.
David Buck - Buckingham Research
Okay. And were there any price increases during the quarter?
Paul Bisaro
Well, there was probably an effect of some price increases. We took some price increase sort of late in year end. I think you asked about the OC front. Currently, our guidance doesn't assume any major competition from another party to any other parties in 2008. You asked if the OAI status does affect that. Well, it does and I guess it doesn't. Exact question is probably best addressed to Teva. Since they were the ones who acquired the Andrx applications that were sitting at that facility and as part of that agreement, they were transferring those applications out of that facility. So that's really up to Teva to answer that question as opposed to us.
David Buck - Buckingham Research
But is it correct that they were blocked until the OAI status was --?
Paul Bisaro
I am not sure I would describe it as blocked because they were certainly wasted to work around that. It does allow for approvals of some of those applications, however.
David Buck - Buckingham Research
Now on the positive side, any sense of what's happening with the Takeda product. In terms of whether you may be that seeing this year?
Paul Bisaro
Well again, that's a question that's best addressed to Takeda. We have obviously informed them of the change in status and we anticipate hearing from them relatively shortly about what their plans are. And we've not written anything at the moment.
David Buck - Buckingham Research
Is that in the other income guidance or no?
Paul Bisaro
I don't think so, no.
David Buck - Buckingham Research
Okay. Thank you.
Operator
And you also have a follow-up from Ken Cacciatore with Cowen.
Ken Cacciatore - Cowen and Company
Two quick ones here. On the OC's, just trying to understand with the strength in your prescriptions, why you, at least to our expectations, are falling a bit short there. Could you talk about if anything is going on with pricing? And then just a quick update on Duragesic following the kind of mini recall. Thank you.
Paul Bisaro
Okay. The Duragesic, that was a one-time event that they had to do with a batch that was made very early on in the process. There was no interruption in our supply based on that. So, I think that's not of concern.
On the OC prescription front, I think there is probably several things that work here. While OC prescriptions are, in fact, showing a much stronger contribution for us, a lot of it has to do with one important fact and that is sort of Barr and Watson flip-flopped customers. And the customer that we picked up reports to IMS and the customer that they picked up does not report to IMS. So, it sort of changed the prescription reporting. And so, it perhaps shows a bigger change than perhaps actually exists.
Also sales out to the customers, particularly when they change, take some time to work through the system. They've got to work down the inventory of the old product they have before they start selling your product, and that would account for and what Mark alluded to in his discussion about why we think OC sales should return to what we think are sort of more normal quarterly numbers, well, ex-factory numbers for us in the second, third and fourth quarter.
Ken Cacciatore - Cowen and Company
Great. Thank you.
Patty Eisenhaur
With that, thank you everyone for participating and we look forward to following up with you at your convenience. Take care.
Operator
This concludes today's conference call. 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!