Sepracor Inc. Q1 2008 Earnings Call Transcript

Sepracor, Inc. (SEPR)

Q1 FY08 Earnings Call

May 1, 2008, 8:30 AM ET

Executives

Adrian Adams - President and CEO

Mark Iwicki - EVP and Chief Commercial Officer

Mark H.N. Corrigan, M.D. - EVP of Research and Development

Robert F. Scumaci - EVP, Corporate Finance, Administration, and Technical Operations

Analysts

Robert Hazlett - BMO Capital Markets

Ian Sanderson - SG Cowen & Co.

Greg Gilbert - Merrill Lynch

Richard Silver - Lehman Brothers

James Kelly - Goldman Sachs

Hudson Boyer - Wachovia Securities

Aaron Gal - Bernstein Research

David Amsellem - Friedman, Billings, Ramsey

Annabel Samimy - UBS

David Steinberg - Deutsche Bank

Presentation

Adrian Adams - President and Chief Executive Officer

Thank you operator and good morning everyone, and thank you for joining us for our First Quarter 2008 Financial Results Webcast. With me this morning are Mark Iwicki, Executive Vice President and Chief Commercial Officer; Mark Corrigan, Executive Vice President of Research and Development; Bob Scumaci, Executive Vice President of Corporate Finance, Administration and Technical Operations; and Amy Trevvett, Director of the Investor Relations and Corporate Communications. I would also like to point out that David Southwell, Executive Vice President and Chief Financial Officer and Jonae Barnes are joining us from the Morgan Stanley Conference in Florida.

Before I proceed, I would like to read our forward-looking statements. Various remarks that we make about our future expectations, plans, and prospects constitute forward-looking statements for purpose of the SEC Safe Harbor provisions. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, which we discussed in our most recent annual report on Form 10-K which is on par with the SEC and other reports that we filed with the SEC.

In addition, these forward-looking statements represent the company's expectations, only as of today. While we may elect to update these forward-looking statements, we specifically disclaim any obligations to do so. Any forward-looking statements should not be relied upon as referencing our estimates or views as of any day subsequent to today. During this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in our first quarter 2008 financial results press release which is available in the Investor Relations section of our website.

With that said, thank you again everyone for joining us this morning. As you know we released our first quarter 2008 results this morning, and before we begin, I would like to make some opening remarks. As you are also now aware we released several important announcements in conjunction with our results this morning, and I am going to take some time this morning to walk you through the details of these important strategic initiatives after I reviewed our overall results. I would then hand the webcast over to Mark Iwicki who will review the performance of our products with an additional focus on the positioning and activities around our newly launch product OMNARIS. Mark will then be followed by Mark Corrigan who will provide an overview of the progress we are making in research and development. And finally, I will cover the financial guidance for 2008 and make some concluding remarks.

Moving along to our financials, I would like to highlight the first quarter 2008 financial performance that is summarized on slide number 3. For the first quarter 2008, revenues were $320.8 million, a decrease of 2.1% versus the first quarter of 2007. LUNESTA revenues were $135.6 million, which was a decrease of 8% over LUNESTA revenues for the first quarter of 2007.

Sales of LUNESTA were impacted by a decrease in inventory levels during the first quarter of approximately of 3 million units compared to year end. As Mark will show, we are pleased with the market share stabilization we have seen with LUNESTA since our sales force reorganization. XOPENEX HFA revenues of $20 million also showed a slight decrease over the same period last year. However, we remain optimistic about XOPENEX HFA as the HFA to CFC transition continues and particularly given recent market share trends.

We were pleased with the performance of XOPENEX Inhalation solution in the first quarter given the impact of the decision made by the centers for Medicare and Medicaid services to institute a new bundled amount for XOPENEX and generic albuterol inhalation solution products which went into effect July the 1st of 2007. XOPENEX revenues of a $140 million reflected a decrease of 6.4% for the first quarter 2008 versus the first quarter of last year. Sales of XOPENEX were also impacted by a decrease in inventory levels during the first quarter of approximately 2 million units compared to year-end. Market share trends within the retail sector remains stable as expected.

BROVANA which was launched in April of 2007 had revenues of $9.9 million for the first quarter 2008 and we have been very pleased with the performance of BROVANA this year following the issuance of a permanent J-Code that came into effect on January the 1st. Prescription volumes have moved to a different level of performance as Mark will show later.

Earnings per share during the first quarter were impacted by significant events, following the success we have had on the corporate developments and licensing front. The first quarter of 2008 GAAP EPS was $0.11 versus the quarter one '07 GAAP EPS of $0.16. However, if one excludes the payment due to Bial following a successful meeting with the FDA, the Nycomed research and development charge and associated recurring non-GAAP amortization, related to intangible assets then EPS grew by around 20% to $0.53 versus the first quarter non-GAAP EPS of around $0.44 for 2007. This also excludes a one time charge related to the Tecistemosol Litigation Settlement. We are also pleased to report that our cash in short and long term investments remained strong at $833.6 million as of the end of the end of the first quarter of 2008, despite very active and successful initiatives on the corporate development front.

Please now refer to slide number 4, a slide that illustrates our revenue performance in the first quarter of 2008. As mentioned for the first quarter, we delivered results of $320.8 million, a 2.1% decrease from the first quarter of 2007, and you can see the change in our portfolio and the decreasing share of XOPENEX as a proportion of total revenues and the importance of the growth products of LUNESTA, XOPENEX HFA, and BROVANA, which together with our royalty revenues account 57.7% of revenues.

Turning to slide number 5; this chart nicely illustrates the impact of the special events and recurring non-GAAP adjustments. GAAP EPS for the first quarter of 2008, decreased from $0.16 to $0.11, a decrease of approximately 31%. However, non-GAAP EPS for the first quarter 2008 was $0.53 compared to $0.44 for the first quarter 2007, a decrease of 20.4%... sorry an increase of 20.4%. As you can see there was a charge of around about 34% related to our onetime after tax in process R&D charge associated with recurring non-GAAP amortization related to the Nycomed agreement and a onetime after tax charge of around $0.08 in connection with a Bial milestone payment due related to a successful pre-NDA meeting with the FDA which has resulted in a decision to proceed to compile and submit the eslicarbazepine full NDA with existing data. We are very pleased with these two events.

Please now refer to slide number 6, a slide that refers to our overall operating highlights for what has been a very busy first quarter of 2008. I would like to begin with our recent success in corporate development and licensing. In early 2008, we established an exclusive agreement with Nycomed for OMNARIS nasal spray and our ALVESCO HFA. The Nycomed products represent two new and exciting products for our sales force to launch in 2008 and the additional ciclesonide pipeline products that we obtained rights to further strengthen or growing our now robust pipeline. These additional development assets include OMNARIS HFA-MDI, a candidate targeted to move into the Phase III, during the second half of 2008, ALVESCO Inhalation Solution, a pre-clinical candidate and ciclesonide in combination with BROVANA, a long-acting Beta-Agonist and early clinical candidate.

We continue to make excellent and important progress on the commercial front. In April, we launched OMNARIS Nasal Spray during the spring allergy season and although it is very early days we are pleased with the early feedback from the field. Mark Iwicki will comment on this in greater detail.

During the quarter our field force restructuring that was initiated in later part of 2007 was completed. Our field force now has new call plans targeting on very competitive incentive programs in place. These are important ingredients of a high performance sales team and we believe that we have a highly motivated and intelligent group of sales professionals in place now to leverage the stream of opportunities that lie ahead.

We have also begun to initiate ALVESCO pre-launch activities. We continue to make solid progress in advancing our research and development pipeline, a pipeline that we believe is among the best in the Specialty Pharma sector. As mentioned we have a successful pre-NDA meeting with FDA for eslicarbazepine acetate during the quarter and anticipate filing the NDA in late 2008 or early 2009 for this product. Our first two programs SEP 289 and SEP 162 for depression and SEP 441 for generalized anxiety disorder are on track and patient enrollment is going well. Additionally we began dosing the triple reuptake inhibitors, SEP 432 and SEP 425 for the treatments of depression in that.

I would now like to turn to the important exciting strategic initiatives we announced this morning. Please refer to slide number 7, this slide provide background on our acquisition of Oryx Pharmaceuticals and acquisitions that expands all commercial operations in to Canada. Oryx Pharmaceuticals is an affiliate of the Arrow Group. Oryx is a specialty pharmaceutical company that has been well known to me from a previous collaboration. They are an excellent company. Oryx markets branded prescription pharmaceutical products to physicians, specialists, and hospitals within Canada and is focused in the cardiovascular, CNS, pain, and infectious disease therapeutic areas. The company's portfolio consists of 14 specialized products, included NIASPAN, ADVICOR, ANGIOMAX, NAPRELAN, CUBICIN, TRILEPTAL, and RESTORIL and is projected to achieve 2008 revenues of approximately of $20 million Canadian.

On to the terms of the agreement, Oryx will receive a payment of US$50 million, approximately 2.5 times projected 2008 sales and may become entitled to receive subsequent payments upon accomplishment of various regulatory milestones. The transaction is expected to close in early June. The acquisition of Oryx fulfills a long standing corporate objective of developing a commercial footprint in the strategically informed Canadian Pharmaceutical Market. Given the growth in our research and development pipeline and the planned submissions of products such as LUNESTA, BROVANA, and eslicarbazepine for marketing approval in Canada, this acquisition should enable us to fully leverage all current and future opportunities in the Canadian market. We are also delighted to take on Board an experienced management team and commercial infrastructure for this demonstrated excellent regulatory and product launch successes over recent times.

Turning now to slide 8, I would like to cover XOPENEX/ipratropium combination licensing and development agreement. This strategic initiative cause a global license and development agreement with Arrow International Limited for a XOPENEX/ipratropium inhalation solution product. This formulation is currently ready to enter Phase III clinical development. This formulation should provide us with a franchise management opportunity that has the potential to broaden our established XOPENEX patient base while retaining all of the well known benefits of XOPENEX.

The combination product will be a lower volume formulation versus current therapy which could reduce treatment time, a potential differentiating feature versus existing therapies. Very importantly this product could be launched in the second half of 2011.

On to the terms of the agreement, Arrow will receive an upfront payment of $500,000, a milestone payments of up to $70 million. Arrow will also receive single digit royalties that escalate based on product sales. This XOPENEX/Ipratropium combination together with the recently acquired ciclesonide products from Nycomed further expands our research and development respiratory portfolio and positions us as a company with one of the broadest respiratory portfolios in the United States market.

Please refer to slide number 9 and the announcement we have made with respect to the Sepracor Arrow licensing and development agreement for enabling technology in supports of both our ciclesonide and BROVANA products. This agreement with Arrow covers know how and intellectual property rights related to stable, sterile-steroids suspension formulations as well as other applicable nebula technology for the use in developing ciclesonide, a corticosteroid in inhalation solution.

As part of this agreement, we also obtain rights to the unique U-Bend technology that allows increased accuracy in dosing through a novel U-bend ampule design and therefore contributes to the enhancement of the ciclesonide inhalation solution development programs for asthma and COPD.

In addition to providing enabling technology necessary for the development for our ciclesonide Inhalation Solution product, which has been a priority for development of the ciclesonide franchise, the agreement also supports a franchise management strategy for a BROVANA combination with ciclesonide, and therefore could expand Sepracor's Inhalation Solution product offerings over time.

Arrow has significant experience and success in developments of Inhalation Solution products particular with corticosteroids and we are excited to have licensed this technology which should assist us in moving forward to inform Clinical development programs in our respiratory portfolio. Under the terms of the agreement, Arrow will receive an upfront payment of $250,000, amounts to impairments of up to $22.5 million in support of the ciclesonide standalone product. In addition, Arrow is entitled to receive an upfront payment of $250,000, a milestone payments of up to $25 million in support of Sepracor's planned ciclesonide-BROVANA combination products. Arrow will also receive a low single-digit royalty on Sepracor's product sales. We are very pleased with this agreement.

Please now refer to slide number 10 and the settlements of the patent infringement litigation with Breath Ltd. This settlement and license agreement with Breath Ltd. resolves the patent litigation involving XOPENEX Inhalation Solution products. The agreement permits Breath to launch the generic versions of these XOPENEX Inhalation Solution dosages on the terms of an exclusive license commencing on August of 20, 2012. Upon launch Breath will pay Sepracor a double-digit royalty on gross products... on gross profits sorry, generated from the sales of generic versions of the XOPENEX Inhalation Solution products. The parties will promptly file a dismissal without prejudice in the United States of District Court for the Districts of Massachusetts that will conclude this litigation.

Sepracor and Breath also entered into a supply agreement whereby effective August 20, 2012 Sepracor will exclusively supply levalbuterol products to Breath under Sepracor's NDA for a period of 180 days and on an un-exclusive basis for up to 2.5 years thereafter. In addition to the royalties described above, Breath will pay Sepracor on a cost-plus supply arrangement for levalbuterol products. Both the exclusive license under the Settlement and Licensing agreement and the exclusive supply obligations under the Supply Agreement could become effective prior to October 20, 2012, if a third party launches a generic version of those dosages of XOPENEX Inhalation Solution or if the parties otherwise mutually agree.

We are very pleased to have reached a resolution of our dispute with Breath Limited, this allows both parties to avoid the uncertainties and significant expenses related to conflict patent litigation. Now that this lawsuit is behind this, we can continue to focus on leveraging the many opportunities that lay ahead with respect to our current product portfolio and our growing research and development pipeline.

I would now like to refer to slide number 11, and to focus on the key strategic enabler of excellence in product portfolio commercialization. I would like to hand the call over to my Mark Iwicki, our Executive Vice President and Chief Commercial Officer who will review our commercial performance and plans. Mark?

Mark Iwicki - Executive Vice President and Chief Commercial Officer

Thank you, Adrian and good morning everyone. I will review individual brand performance for the first quarter 2008 and highlight OMNARIS Nasal Spray that was just launched in April.

Please refer to slide 12. As you can see from the chart on the left side of this slide, the trend for LUNESTA market share has improved. Share had been declining for the past twelve months and is leveled out during the first quarter. We are encouraged by this share development and believe it is in large part due to our improved marketing, sales, and managed care efforts. Volume has also remained stable year-to-year and we expect performance to build momentum in the coming months. Our field force restructuring efforts are complete and the sales organization is quickly making productivity gains in calls per day, calls to targets, and days in the field. These are positive metrics and we believe will lead to increased sales performance over the remainder of 2008. In fact, our detailing and meetings in event share voice is increasing sharply, especially with top decile prescribers.

Our priorities in the second quarter center on the following, we'll continue to focus on field force productivity and recently launched several key initiatives to drive sales. These include improved call plans and a motivating pay for performance incentive program for driving share. We continue to have strong managed care access for LUNESTA with unrestricted access now being available for approximately 86% of all managed care lives. This position is strong comparatively as Ambien CR had 77% access from March 2008.

Recently, we've been successful with key plans at raising share above the national average with targeted pull through programs. We've made significant strives to improve LUNESTA DTC efficiency with both improved media plans and new direct marketing initiatives.

Moving to slide 13. At our National Sales Conference in April, we launched new promotional campaigns for all of our brands. For LUNESTA, we are excited that the new professional campaign significantly strengthens the differentiation platform versus competition. We have conducted extensive market research over the past 2 years, which shows that next day benefits are the key differentiating attributes in this class. According to the research, the top three attributes for choosing a sleep aid are improved next aid function, sleep maintenance, and that the products works for the majority of patients.

Sepracor has extensive data on LUNESTA for each of these three attributes, and we have now incorporated key messages based on these data into both our professional and consumer campaigns. Included in the professional visual aid is efficacy data, that reflects how patients who take LUNESTA show improvements in their next day functioning. Additionally, the professional visual aid reflects data that shows improvements in next day function for patients that have insomnia together with a co-morbid condition such as depression or anxiety. This data demonstrates the significant improvements in sleep measurements together with improvements in next day functioning where LUNESTA is used to treat insomnia in combination with fluoxetine therapy in patients who also suffer from a co-morbid major depressive disorder. This data also demonstrates the significant improvements in sleep measurements together with improvements in next day functioning where LUNESTA is used with escitalopram therapy in patients who also suffer from co-morbid anxiety.

We believe this data is unique within the therapeutic category, differentiates LUNESTA from competition, and supports Sepracor's belief that LUNESTA should be the sleep agent of choice for doctors and patients. These messages are also reinforced in a newly launched DTC ad that shows how a nice sleep after taking LUNESTA can help patients take on the next day with refreshed energy. Together the campaigns have received positive feedback from our customers and are positive early indicators that impact Rx data shows patient request for LUNESTA in doctor's offices has increased recently. We are pleased with this positive development and will stay focused on driving improved LUNESTA performance.

Please now refer to slide number 14 which illustrates the performance of XOPENEX HFA. XOPENEX HFA retail market share has improved in recent weeks. According to IMS, the NRx market share mid-April was approaching 9% of the short-acting beta-agonist MDI market. We are also pleased to see that the TRx trend is improving suggesting repeat business is strengthening. We believe this is a result of our building field force momentum and new promotional programs we have launched to differentiate XOPENEX from other beta-agonists.

Our near-term key objectives are to emphasize strong consistent detailing to pediatricians and primary care physicians who prescribe short-acting beta-agonist and especially those whom have been strong prescribers of XOPENEX Inhalation Solution. This is a highly competitive market that's undergoing a marked transition as CFC containing albuterol MDI's can no longer be provided to patients after the end of 2008. As a result, there has been a significant increase in selling efforts by our competitors. Other branded HFA albuterol products may be experiencing an easier transition from CFC to HFA since physicians writing scripts for these products are already used to writing scripts for albuterol, CFC MDI products.

When a doctor writes an albuterol MDI prescription there is a strong opportunity for it to be filled with a branded albuterol HFA product. This simple switch opportunity does not apply to XOPENEX HFA, as levalbuterol is the active ingredient and not albuterol. We continue to reinforce strongly to doctors that XOPENEX HFA is the only differentiated molecule in the branded short-acting beta-agonist HFA market and we believe that if CFC's are phased out there will be a continued opportunity for Sepracor to increase XOPENEX HFA business.

We are excited to be launching our X80 HFA samples in the next few weeks. This is our new sample canister that has 80 actuations. We have been using our retail canister for many months which has 200 actuations. 80 actuations will provide for plenty of trial, use for the patients to ensure that XOPENEX works well for them but, will enable us to reduce the overall volume of sample base of therapy in the market.

At our national sales meeting we launched the new professional visual aid for XOPENEX that shows that there is a difference. Data is included that demonstrates the efficacy of XOPENEX in clinical trials relative to placebo where Racemic Albuterol was also included as an active treatment arm. Additionally, we've launched new physician education programs to re-enforce the efficacy and safety benefits of XOPENEX. Further the detailing share of voice for XOPENEX has increased in recent weeks. We should continue to capitalize our meaningful managed care opportunities and our managed care coverage remains strong with unrestricted access for 94% of managed care lives.

Moving now to slide 15, I would like to comment on the performance of XOPENEX Inhalation Solution. Encouragingly, we can see from this slide that CMS's implementation of the lower re-imbursement rate for XOPENEX Inhalation Solution has today a little impact on the retail market for the product. Volume was strong on the retail side during the first quarter 2008 and share has remained relatively stable. Further in 2008, we continue to anticipate strong retail demand for XOPENEX Inhalation Solution since a significant percentage of units sold to the retail channel are for patients with asthma particularly pediatric patients.

For the second quarter we have launched a new professional campaign with efforts focused on the very top prescribers. We are working very closely with Home Health Care providers to maintain access of XOPENEX Inhalation Solution during this period where CMS continues to change the reimbursement parameters for XOPENEX. We believe strongly that XOPENEX Inhalation Solution is a differentiated and valuable product and that the experience of physicians who prescribe the product to Medicare beneficiaries and the patients who depend on the product to treat the acute bronchospasms associated with the COPD fully supports this position. In addition, the launch of OMNARIS in April and ALVESCO later this year gives us a good opportunity to optimize XOPENEX's sales and marketing spend with a focus on significantly improved efficiency.

Turning now to slide 16, BROVANA is our long acting twice daily maintenance treatment of bronochoconstriction in patients with COPD. It's estimated that 24 million people in the U.S. have COPD, but only about half have been diagnosed and treated. We are very excited about the recent performance of BROVANA. We have seen a marked increase in volumes since January 1 and the implementation of the unique J-Code for BROVANA.

We are strengthening physician uptake by emphasizing key benefits of BROVANA, which are that BROVANA provides rapid relief from bronochoconstriction within minutes of treatment and that this relief is sustained for up to 12 hours. Patients taking BROVANA typically, have a reduced need for rescue medication, so that patients can get back into their daily living activities. And BROVANA is proven safe and well tolerated. BROVANA is a key growth driver for Sepracor and we have significantly increased our promotional efforts. We recently launched new detailing and education programs and will continue to have BROVANA as a key priority in our call plans and resource optimization mix.

Most patients with COPD are older adults and the majority of them are covered by Medicare. We are capitalizing on the implementation of the unique Medicare reimbursement code for BROVANA which has translated into improved prescription uptake for patient service by Home Health Care Companies. We are partnered with many of these organizations to secure access on their formularies resulting in broad patient access to BROVANA. We are encouraged that unit volume has increased significantly and that more patients are now benefiting from BROVANA.

On slide 17, I would like to transition to OMNARIS Nasal Spray, an exciting product that we launched in April. OMNARIS Nasal Spray is FDA approved for the treatment of seasonal and perennial allergic rhinitis. We believe we have a strong opportunity in the large $2.3 billion inhaled nasal steroid market which has a high degree of unmet need.

There are several marketed products but no single agent works for everyone who can satisfy the complex needs of a diverse patient population. There is a significant amount of switching between products due to the lack of affect and tolerability issues with current products. In fact, our market research indicates that over 40% of patients use two or more products in the past year. This market has seen little innovation over the last five years and we are really excited about OMNARIS. OMNARIS is the only brand that has been designed as a pro-drug and formulated in a hypotonic suspension.

As a pro-drug, the ciclesonide is now converted to the active agent dead ciclesonide until it reaches the nasal mucosal cells. In addition, OMNARIS is formulated in a hypotonic suspension which we believe is an important improvement over other aqueous formulations. A hypotonic suspension enables the ability for OMNARIS to stay where it's sprayed by using the nasal mucosal natural pressure gradient to help absorb OMNARIS.

OMNARIS is a low volume spray as well, especially compared with the market leading products Nasonex and flutiscasone. OMNARIS is also alcohol and scent free. Due to these features OMNARIS sticks and stays so medication is delivered where its needed and nasal symptoms get the message. OMNARIS has strong efficacy, impressive tolerability, and has been proven in clinical trials to be effective against key nasal symptoms.

In addition, doctors and patients can be re-assured as OMNARIS has been studied over a full 52 week time period and the results of this study have shown maintenance of efficacy over this time period and that OMNARIS was safe and well tolerated in most patients. We had a significant pre-launch presence among key opinion leaders at the AAAAI meeting and we will be presenting additional data on OMNARIS at the upcoming ATS meeting.

Our field-force was trained in April and we will have competitive detailing and sampling levels. Early response to OMNARIS has been positive and we expect doctors and patients who will recognize and be satisfied with the efficacy and tolerability of the product. We will offer the full complement of promotional and unique physician education programs to our targets to increase awareness and reinforce the efficacy and safety benefits of OMNARIS. We anticipate building targeted DTC in relationship marketing programs to help drive demand and improve persistency once the patient has been placed on OMNARIS.

We are already working with our managed care customers to ensure access for OMNARIS and when we launched it, we had a differentiated co-pay reduction card to stimulate early trial and ease the cost burden to patients. The launch of OMNARIS is off to a good start and we are thrilled to make this great product available to help the millions of patients that suffer from seasonal and perennial allergic rhinitis.

On slide 18, you can see that Sepracor has what we believe is a very strong respiratory portfolio. Our focus has been on innovative compounds for broncho dilation with XOPENEX Inhalation Solution, XOPENEX HFA, and BROVANA. Through the Nycomed deal we gained access to five products in total. We are very excited to be launching two complementary products this year, the OMNARIS and ALVESCO brands of ciclesonide. We are also aggressively developing an exciting product OMNARIS HFA and gain rights for and will be developing ALVESCO Inhalation Solution and then ALVESCO plus BROVANA combination Inhalation Solution product. There are currently no inhaled corticosteroid plus long-acting beta-agonist Inhalation Solution products on the market.

Our collaboration with Arrow brought crucial enabling technology for the development of ALVESCO Inhalation Solution and the ALVESCO plus BROVANA combination. In addition, we are pleased to have secured rights to a XOPENEX Ipratropium Inhalation Solution combination product. This range of excellent respiratory products should give Sepracor one of the strongest and competitive portfolios for the treatment of asthma, COPD, and allergic rhinitis.

At this time I would like to hand over to Mark Corrigan, who'll provide an update on our progress in the R&D area. Mark?

Mark H.N. Corrigan, M.D. - Executive Vice President of Research and Development

Thank you Mark. As you have heard, we're very excited about delivering on tomorrow's medicines which we've expected to arise from both the progress on our in-house research and development efforts as well as from corporate development and licensing. I will be briefing on this call and happy to answer further deeper questions later. This slide depicts our growing respiratory pipeline updated to include the combination products of levalbuterol and Ipratropium. We have strategically wanted to find an antimuscarinic product to compliment the pharmacologic actions of XOPENEX, arguably to find a short-acting beta-agonist on the market for some time. This in licensing, coupled with the formulation expertise Arrow brings allows us also to advance our ciclesonide nebule program.

Finally for completeness our central nervous system portfolio continues to make excellent progress. With the LUNESTA European and Japanese regulatory and clinical progress, eslicarbazepine acetate, and NDA preparation mode following the successful preNDA meeting with the FDA. FDA indicated they will accept the file based on the ex-U.S. studies, its current clinical program. We are planning on initiating next year a monotherapy program in North American patients and we believe we will get that program started this year. SEP 289 and 441 in Phase II with results expected early next year, SEP 162 is completing experimental medicine studies and we hope to be in Phase III next year. Finally, our triple reuptake inhibitors are now dosed demand and SEP 900 depicted on the pattern of the candidate list is on track for IND in late June, over to you Adrian.

Adrian Adams - President and Chief Executive Officer

Thank you Mark and now I would like to comment on guidance for 2008, so please refer to slide number 23. I shall appreciate the first four months of this year have been very active with many moving parts from a strategic and tactical point of view. Despite this we would like to reiterate our 2008 guidance. We are reaffirming our guidance of 2008 revenues of between $1.35 billion and $1.45 billion which will represent a 14% growth over 2007 levels at the mid points of the range. GAAP fully diluted EPS guidance for 2008 is between the $1.05 and a $1.45 based on average shares outstanding of 119.2 million shares which includes the impact of an after tax in process research and development charge of $37.6 million and the associated full year after tax amortization of the intangible assets of $8.6 million related to the Nycomed agreement. By the end of the year we are forecasting cash and longer and shorter term investments of approximately $920 million.

Please now refer to slide 24, as part of our long term planning for the company, we have let out a clear strategy for building Sepracor in to the future and we are now executing against this plan. With this in mind, we have some fundamental near-term corporate objectives that are enablers of this longer term plan. But first it is related to the continuation for development of a best practice and peak performing sales and marketing organization. Related to this, we will be focused on talent and career management and of course on building excellence in execution with a better aligned, trained, and more productive sales force.

The second is to more fully leverage our existing product franchise. This includes accelerating LUNESTA volume and share growth, growing the XOPENEX franchise, successfully growing BROVANA, and leveraging the permanent J-Code, and successfully launching OMNARIS Nasal Spray and ALVESCO HFA into competitive mass markets.

The third, is to broaden and deepen our research and development studies and this includes fully leveraging our existing global discovery collaborations submitting the NDA for eslicarbazepine acetate, successfully completing the three Phase II proof of concepts studies in depression and anxiety, and progressing the developments of OMNARIS HFA, ALVESCO inhalation solution, ciclesonide BROVANA formulation, as well as the XOPENEX/ipratropium combination. And fourthly on the corporate development front we will continue to aggressively pursue synergistic corporate development and licensing opportunity, in particular we are very interested in identifying earlier like stage products that could help to enhance our development pipeline and of course we will continue to assess M&A opportunities as appropriate.

We believe that we are at an exciting phase of development with the company based on both our existing opportunities and our development pipeline. This can be illustrated nicely with reference to slide number 25. This chart shows that not only have we had a good track record of launching a product in nearly every recent year, but that our projection is that we will have the potential to launch nine new products over the course of the next six years in addition to OMNARIS and ALVESCO this year. This is a potential product launch schedule that is amongst the best in the specialty pharma sector. I would now like to move to our final slide, slide number 26 and to make some conclusion remarks.

As I've mentioned we have had a very busy year-to-date. During the first quarter 2008, we closed the Nycomed transaction, which included five ciclesonide products. We announced today that we have resolved the XOPENEX litigation with Breath Limited.

We are continuing to make excellent progress in deepening and broadening our research development pipeline in core therapeutic areas. This includes an in-license XOPENEX/ipratropium Phase III ready product, a signed technology license and development agreement to facilitate enhancement for ciclesonide and BROVANA franchises and the strategic acquisition of Oryx for commercial expansion into the Canadian market.

We have strong projected 2008 revenue growth and positive revenue and earnings momentum potential going forward. As previously mentioned we have the potential for nine additional product launches from 2008 to 2014. In summary I believe that we are well poised to take Sepracor into a new phase of momentum, and as far as I am concerned we are executing well against the plans we put in place in the first half of last year. And at this point I would like to open up the call for questions and answers. Operator, can you please reiterate the question and answer process?

Question And Answer

Operator

Certainly. [Operator Instructions]. Our first question is coming from Bert Hazlett of BMO Capital Markets.

Robert Hazlett - BMO Capital Markets

Congratulation on the progress for this quarter, we appreciate it. Just a question on the Bial collaboration with eslicarbazepine. I believe there were some pre-clinical trials you were working on, some pre-clinical information. Could you remind us as to the purpose of that and how much risk is there any to the finishing of that study with regard to the timeline you've just established to submitting the NDA? And then secondly, could you comment on the sampling of OMNARIS, again prescriptions to date have not really tracked... how aggressive are you being on the sampling and just a few more terms along those lines? Thanks.

Mark H.N. Corrigan, M.D. - Executive Vice President of Research and Development

This is Mark Corrigan. I'll take the eslicarbazepine preclinical. The file essentially we do not see any of the ongoing pre-clinical work as threatening our current timeline. The main issue for us is the conversion of the file as well as the audits of the European clinical sites. We see those as driving the timeline up for the conversion rather than outstanding pre-clinical work.

Adrian Adams - President and Chief Executive Officer

Bert, we remain very pleased with the Bial transaction, I think to have a product which is on the verge of NDA submission of potential availability at the end of next year, we think is a great exciting proposition. On OMNARIS, your set question, you are right but it is very early days in terms of tracking how the product is doing. All the feedback has been very positive to date but I will ask Mark to comment on, Mark Iwicki comment on the sampling question.

Mark Iwicki - Executive Vice President and Chief Commercial Officer

We have made samples available for all of our top tier physicians and a significant amount of samples so they can really try the product. There are also some early experience, kits that physicians have access to. So we feel very confident that we have a competitive sampling level so that physicians and patients can have a great early trial as well as the fact that we have the co-pay reduction card, so that the vast majority of patients that go to the pharmacy will actually end up with about a $25 co-pay. And I think that's going to ease trial as well.

Robert Hazlett - BMO Capital Markets

Any sense of how much of the... of sampling is in the system and just one other question, are you having any discussions with regard to other generics, with regard to XOPENEX potential generic competitors?

Adrian Adams - President and Chief Executive Officer

I think on the second point Bert is as we have commented over the last 12 months or so certainly since I have been in Sepracor, we never comment in relation to any discussions, litigation efforts or strategy in relation to generic products. So I will not comment on that, as I mentioned we are very pleased with the settlement that we announced this morning. But that we'll probably comment on no other progress, Mark, do you want to comment on any other aspects?

Mark H.N. Corrigan, M.D. - Executive Vice President of Research and Development

I can really appreciate your question but we don't want to comment on exactly how many samples we have distributed.

Robert Hazlett - BMO Capital Markets

Okay. Thank you.

Adrian Adams - President and Chief Executive Officer

Thank you Bert.

Operator

Thank you. Our next question is coming from Ian Sanderson of Cowen.

Ian Sanderson - SG Cowen & Co.

Good morning and thanks for taking the question. Can either of you maybe address the LUNESTA reported sales number in Q1? Was there... is this a trade inventory issue and maybe related to that what pricing trends you have seen? And secondly, I think you referred to the Medicare reimbursement situation for XOPENEX nebules as a transitional period, are you still lobbying CMS for an independent... to restore the an independent J code, and do have some new data to support that argument?

Adrian Adams - President and Chief Executive Officer

On the aspects of LUNESTA, as we commented on the call, I think the sales in the first quarter of this year were impacted by reduction in inventory of around about 3 million units compared to the end of... to the fourth quarter of last year. And we also commented that from a LUNESTA point of view we do believe that a lot of the changes that have been made in the sales force are starting to demonstrate enhanced levels of productivity. We've been very pleased that the market share declines that we saw during... throughout 2007 are now stabilized. And we've seen some good progress over the course of the last number of weeks and months. So, clearly I think we believe that we are heading in the right direction on that. In relation to pricing, we never comment on the pricing aspects of LUNESTA. On your question on the ongoing issues around the CMS, I am going to ask Mark Iwicki to comment on that.

Mark Iwicki - Executive Vice President and Chief Commercial Officer

Yes, we continue to work closely with CMS and probably more importantly to work closely with the home healthcare providers. As I said, we feel very strongly that we want to continue to maintain access of XOPENEX Inhalation Solution for all the patients that have been taking it, and we are going to continue to work on this situation as the dynamics change.

Ian Sanderson - SG Cowen & Co.

And could I just ask a follow up related to that on the XOPENEX ipratropium combination? Are you going to run into exactly the same situation... reimbursement situation relative to generics of DuoNeb?

Adrian Adams - President and Chief Executive Officer

Well, I think that's a very good question. Clearly when we are looking at the XOPENEX ipratropium potential, this is a combination that we've been assessing for some time. I would point out that when XOPENEX was launched, I think we launched that into a generic marketplace and it had a tremendous success based on the benefits associated with, the differentiating features associated with XOPENEX. With the XOPENEX ipratropium combination, I think one of the benefits that we see within the work that has been done to date with, by the Arrow group, we see the potential for a lower volume product, which could have significant differentiating features in relation to currently existing products.

As it relates to reimbursement scenarios into the future I think, from a timing perspective, we see this product coming out in the second half of 2011 and the very same benefits that allowed us to differentiate XOPENEX into generic marketplace we feel the benefits of XOPENEX combined with ipratropium will broaden the franchise of patients that are available for XOPENEX. And at the time of the launch of the product, the differentiating features that I have already outlined that we feel make this asset a very worthwhile asset. So we are pleased with this development, particularly the timing of it.

Ian Sanderson - SG Cowen & Co.

Thank you.

Operator

Thank you. Our next question is coming from Greg Gilbert of Merrill Lynch.

Greg Gilbert - Merrill Lynch

Good morning. I was hoping you could estimate the dollar impact of the LUNESTA and XOPENEX inventory reductions and maybe give us some color on where channel inventory stood for the rest of the products at the end of the quarter?

Adrian Adams - President and Chief Executive Officer

Greg, we don't comment on the average selling price, so giving you the total dollar value, we have to give you the units but, would pretty much give you the average selling price, so we're going to stay away from that.

Greg Gilbert - Merrill Lynch

How about weeks of inventory in the trade at the end of the quarter for all the products versus prior quarter?

Adrian Adams - President and Chief Executive Officer

Sure. LUNESTA went down about a half week with 3 million units. LUNESTA went down about the same amount about half week on the 2 million units we have talked about before. The HFA and BROVANA are roughly the same as far as overall unit inventories.

Greg Gilbert - Merrill Lynch

And I guess the real question is are you at levels that you think are sort of stable, higher and lower going forward?

Adrian Adams - President and Chief Executive Officer

I think they'll fluctuate through the year. I think they might decrease a little bit by the end of the year but that's included in our guidance.

Greg Gilbert - Merrill Lynch

Okay. Thanks. Second question, can you share OMNARIS price?

Adrian Adams - President and Chief Executive Officer

Well I can do is... I can give you the WACC price. The WACC price is 75.59. But I am not going to comment on the net average selling price at this point.

Greg Gilbert - Merrill Lynch

Okay. And then lastly for Dr. Corrigan, I was interested in the language in the press release about the 162 compounds and the expectation for an end of Phase II meeting this year. So I guess the question is, what do you know about this product now that supports that timeline prediction? I thought we were just getting into Phase II. Thanks.

Mark H.N. Corrigan, M.D. - Executive Vice President of Research and Development

Well we currently have been conducting a number of experimental medicine studies in which we think, we have relatively good beat on the dose range from both PET imaging as well as some relatively sophisticated absorption and clinical pharmacology studies. We are working with a known mechanism of action. It's a dual re-uptake inhibitor and we believe that we will have enough of those data and to take it forward and to FDA with the proposal that we have successfully understood enough about the product's behavior in these studies to ascertain its dose with a fair degree of confidence to take it forward into large scale pivotals.

Greg Gilbert - Merrill Lynch

Care toshare anything on possible differentiators there given the competitive climate for the category?

Mark H.N. Corrigan, M.D. - Executive Vice President of Research and Development

Not right now, but we think we obviously believe we've got some of those both on the tolerability side as well as I think some of those studies have really allowed us to pinpoint dose. And then we will have some opportunities in the context of the designs of the Phase III to I think give further differentiation.

Adrian Adams - President and Chief Executive Officer

I think Greg, it's a very good question. I think we are very excited about where we are at this point in time, not only on the success on corporate development [ph] and licensing but the point... the questions you asked in relation to our research and development pipeline, I think as you know I think we are on the verge of a movement where we could have potentially three or four products in Phase III development next year, I think in key areas like depression anxiety. I think we're hoping that as we move into the first, second quarter of next year that we will have some data to be able to demonstrate why we are so confident in our research and development pipeline. So we appreciate the question.

Greg Gilbert - Merrill Lynch

Thank you.

Operator

Our next question is coming from Rich Silver of Lehman Brothers.

Richard Silver - Lehman Brothers

Hi, I don't mean to put too much emphasis on this inventory issue but is there a reason why historically on LUNESTA you have provided dollars in terms of the inventory change and this... and what appears to be the first time, you're only referring to units?

Adrian Adams - President and Chief Executive Officer

Well, yes, I am not really too sure when we actually gave dollars associated with the inventory levels. I know we have in the past given the week's cover and the number of weeks that it has gone up or down, I am not really too sure that we have ever given out dollars associated with it.

Richard Silver - Lehman Brothers

And just in terms of discounting, I think in the past you have provided I believe some commentary on sort of what you have been doing and what kind of... if there has been any change in pricing without quantifying it, again that looks to be somewhat different than historic practices.

Adrian Adams - President and Chief Executive Officer

I think historically we have never commented on our kind of discounting strategies and... or moves in the managed care area. I think as you well know I think over the course of time we have been very successful in building up a very strong managed care position and one that is certainly more competitive than our main competitor Ambien CR. But when it comes to the details of the access that we have and the discounting strategy that we use and obviously from a competitive point of view we wouldn't share that. Suffice it to say that we are focused on driving prescription volume.

Richard Silver - Lehman Brothers

And at this point, given what you have seen in terms of stabilization can you still say with some confidence that you expect to actually begin to gain market share perhaps in the second half of the year?

Adrian Adams - President and Chief Executive Officer

That'scertainly our goal, I think, as you have seen the market share trends as we've progressed during 2007, there were declines and obviously a lot of dynamics within the marketplace during last year that impacted that. I am very confident that lot of the direction and the forecast, focus in relation to targeting and the campaigns that have been rolled out to our sales force will certainly give all the potential for enhanced productivity as it relates to the fundamentals of selling and in particular calling on the right doctors with the right frequency with the right message time and time again. And I think execution is what it is all about and it's execution that will give the potential for the market share evolution.

Richard Silver - Lehman Brothers

Okay and congratulations on the settlement.

Adrian Adams - President and Chief Executive Officer

Well thank you very much we are very pleased with that and I think with all the very exciting development initiatives that we also arrange with Breath and Arrow groups we're very excited about that, thank you.

Richard Silver - Lehman Brothers

Okay, thanks Adrian.

Operator

Thank you. Our next question is coming from James Kelly of Goldman Sachs.

James Kelly - Goldman Sachs

Couple of questions please. First one is could you talk a little bit about the confidence in revenue acceleration going into the remaining quarters of the year given that this quarter with growth of 2% revenue... I am sorry with the 2% decline in revenues is below the mid-point guidance.

Adrian Adams - President and Chief Executive Officer

Yes I think clearly during the call we reaffirmed our revenue guidance for this year in between the $1.35 billion and $1.45 billion figure. So we have not given specifics in relation to obviously product trends within that area. Obviously we're launching OMNARIS and potentially ALVESCO during the second half of this year. We have a number of moving parts, but in our reaffirmation of revenue as for the end of the year, obviously relates to how we see things progress in during quarter 2, quarter 3 and quarter 4. And that's what our view is at this point in time and again I think, a lot of the changes that we have made in relation to sales force execution and really sharpening our marketing messages, we believe gives us some further confidence in our ability to execute with excellence.

James Kelly - Goldman Sachs

You touched on my next question. Should we assume then at the individual company revenue... on individual revenue guidance by product is no longer valid at this time.

Adrian Adams - President and Chief Executive Officer

Not, saying that, obviously on a quarterly basis we don't want to get into kind of giving the breakdowns by individual products. I think in the end I think as we said in the past with the new products like OMNARIS et cetera, it's always a little bit challenging to forecast precisely a new product launch. So, we are reaffirming overall guidance and clearly I think we are very focused on all of the products with the priorities that Mark has been through and everyone of our products is focused on driving enhanced productivity to the goals that we set out at the beginning of this year which together will obviously lead to our guidance of between $1.35 billion and $1.45 billion in revenue and we are very focused on delivering that.

James Kelly - Goldman Sachs

Thank you very much.

Adrian Adams - President and Chief Executive Officer

Thank you.

Operator

Our next question is coming from Denise Kong [ph] with Deephaven.

Unidentified Analyst

I wonder if you can give us an update to your exposure in auction rate securities. I believe the 10-K you mentioned that as of year-end there is $99 million in the long term investment account. I wonder what is the most recent fair value and exposure on those securities.

Adrian Adams - President and Chief Executive Officer

Bob, do you want to comment on that?

Robert F. Scumaci - Executive Vice President, Corporate Finance, Administration, and Technical Operations

Sure. There will quite a bit of information that in our quarterly 10-Q, so, I would really like not... like to get into it at this point in time.

Unidentified Analyst

Okay. And you expect to file your Q relatively soon?

Robert F. Scumaci - Executive Vice President, Corporate Finance, Administration, and Technical Operations

Relatively soon.

Unidentified Analyst

Okay, great. Thank you.

Adrian Adams - President and Chief Executive Officer

Thank you.

Operator

Our next question is coming from Hudson Boyer of Wachovia.

Hudson Boyer - Wachovia Securities

I just had a couple of questions. First of all, can you tell me what percentage of BROVANA prescriptions come from non-retail channels?

Adrian Adams - President and Chief Executive Officer

Mark?

Mark H.N. Corrigan, M.D. - Executive Vice President of Research and Development

Right now we see about 60% coming from non-retail channels and that is accelerating since the beginning of the year and with the access we now have with the home healthcare companies.

Hudson Boyer - Wachovia Securities

Okay. Thanks and also with your EPS guidance, it looks like you lowered it and I understand there is some of the Nycomed in process R&D but wasn't that already in the $1.40 to $1.80 guidance you gave last quarter?

Robert F. Scumaci - Executive Vice President, Corporate Finance, Administration, and Technical Operations

No, it wasn't. We would... we talked about last quarter that we hadn't done the valuation at that point in time. So that... any write-off related to the $150 million payment was not included.

Hudson Boyer - Wachovia Securities

Okay. Thanks and then finally in Q1 non-GAAP R&D spending, is that a reasonable run-rate you consider for the rest of the year?

Robert F. Scumaci - Executive Vice President, Corporate Finance, Administration, and Technical Operations

No. No, I think if you look at historically, we tend to jump around as we go through the year sometimes... you can rely on the trend. But in this case you can't.

Hudson Boyer - Wachovia Securities

Okay. Well thanks for answering my question.

Robert F. Scumaci - Executive Vice President, Corporate Finance, Administration, and Technical Operations

Thank you.

Operator

Thank you. Our next is coming from Ian Sanderson with Cowen.

Ian Sanderson - SG Cowen & Co.

Actually a follow-up. Similar question on the SG&A side, what should we be looking for in terms of spending trends through the balance of the year? In other words, what type of incremental spending is being put behind OMNARIS and then later in the year ALVESCO?

Adrian Adams - President and Chief Executive Officer

In relation to spend, I mean obviously we have reiterated our overall spend levels for SG&A for the full year. As we articulated on our call earlier this year, in addition to the investments we're making across the products, we did announce plans to gradually increase the size of our sales force through a Sepracor managed contract sales organization by at least 200 sales people. So, you'll start to see that ramp up during the quarter two and quarter three. That aside obviously when it comes down to these specifics in relation to promotional budgets and spend across products and obviously we don't comment on that.

Ian Sanderson - SG Cowen & Co.

And have you already started a... sales force expansion via the contract sales force?

Adrian Adams - President and Chief Executive Officer

We've already begun that process, yes.

Ian Sanderson - SG Cowen & Co.

Okay. And can you give us an update of where that stands towards the 200 reps?

Mark Iwicki - Executive Vice President and Chief Commercial Officer

This is Mark. Yes, we've started it and have signed an arrangement with the contract sales organization and have initiated the hiring processes.

Adrian Adams - President and Chief Executive Officer

But at this stage I think it's relatively early, so I think we will start to see the movement towards that 200 number, over the course of the next month or so.

Ian Sanderson - SG Cowen & Co.

Great, thank you.

Adrian Adams - President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is coming from Aaron Gal of Bernstein.

Aaron Gal - Bernstein Research

Thank you for taking my question. First regarding the agreements with Arrow, couple of things there. First is your guidance includes the milestone payments that you project for this year, on the R&D side, and if you can give us a feel for how the milestone payments are distributed between the different, reaching different points of progress, between now and the approval of the product, that's one side. And on the other, kind of noticed a pretty big jump in receivable this quarter, can you just give us an idea where that one comes from?

Adrian Adams - President and Chief Executive Officer

I'll ask Bob to comment on the receivables, as it relates to the transactions with Arrow, obviously we'll be assessing the impact of that on an ongoing basis in relation to one time event. So in other time where we have considered the impacts of that on an ongoing basis we will communicate that and Bob in relation to the receivables?

Robert F. Scumaci - Executive Vice President, Corporate Finance, Administration, and Technical Operations

Sure, receivables is really a function of the timing of the sales, most of the sales are... a portion of... a larger portion of the sales in the first quarter happened in March and we work on a 30 day payment terms, so most of that sales was in receivables at the end of the quarter.

Aaron Gal - Bernstein Research

I got it, so just back on Arrow my understanding is Adrian that currently the milestone payments if they are in '08 are not including the guidance?

Adrian Adams - President and Chief Executive Officer

That is correct.

Aaron Gal - Bernstein Research

Okay and one question, the products are going to launch at 2011 are fairly latent development and apparently beyond the point when the U.S. might reform its health care system, if for some reason you needed to change course after reassessing the impact of the health care reforms, could you discontinue some of those developments or essentially locked in by this agreement?

Adrian Adams - President and Chief Executive Officer

Clearly I think when it comes down to the developments of XOPENEX/ipratropium enhancements to the ciclesonide franchise, these are obviously a conventional research and development programs. We'll assess the progress in that research, we are very focused on delivering against those and also the competitive environment and based on all our projections right now, just to the way in which we see these markets developing over the course of time, we believe that the XOPENEX/ipratropium combination will be a nice addition to our franchise, particularly building off the benefits of XOPENEX. And I mean as you well know in research and development particularly when you got a very deep pipeline as we do have now you can never fully predict progress. But right now we are driving our research and development organization with a view to success and success in bringing this product to market in timelines we have allocated.

Aaron Gal - Bernstein Research

But you have the freedom to exit if you choose to do so.

Adrian Adams - President and Chief Executive Officer

Yes, we have the freedom. Obviously if there is anything untowards that happens then obviously we'll assess that and make the appropriate decision at that point in time.

Aaron Gal - Bernstein Research

Great, thanks very much.

Operator

Thank you. Our next question is coming from David Amsellem of Friedman, Billings, Ramsey.

David Amsellem - Friedman, Billings, Ramsey

Hi thanks for taking my question, just want to ask, I don't know if you talked about the EU approval, but is that on track for approval later this year?

Adrian Adams - President and Chief Executive Officer

I think it's progressing as we have communicated. I think we are still online for potential approval if everything goes well in the latter part of this year and I think the interactions with the regulatory authorities are going well. Mark do you want to comment further?

Mark H.N. Corrigan, M.D. - Executive Vice President of Research and Development

Yes, we anticipate seeing the sort of formal rapporteur comments later this quarter which is in keeping with the 180 day clocks, we responded to their questions, we will see their drafts. So we are really moving through that, there have not been any showstoppers so far and they are on track if they follow their regulatory guidance for an action at the end of the year.

David Amsellem - Friedman, Billings, Ramsey

That's helpful and then for eslicarbazepine, do you have a sense of which medical meeting you might present the Phase III data at and in terms of in a market expansion development, did you plan any significant clinical programs in bipolar disorder?

Mark H.N. Corrigan, M.D. - Executive Vice President of Research and Development

If you refer to the last webcast, there is a slide I believe on... which I detailed the last medical meetings if not, I can follow-up with Investor Relations group, we have that anticipated schedule for our presentations. We will be at the upcoming U.S. and European epilepsy meetings. We are continuing to assess, pursuing alternate indications including bipolar as well as potential migraine prophylaxis. Those are in discussions internally, we are really focused on getting the NDA through and secondarily commencing the monotherapy program in the United States.

David Amsellem - Friedman, Billings, Ramsey

Okay. That's helpful. Thanks.

Adrian Adams - President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is coming from Annabel Samimy of UBS.

Annabel Samimy - UBS

Very quickly on the XOPENEX, you'd mentioned that you are still working on trying to mitigate the CMS reimbursement issues and you are working with some home healthcare companies to do that. What kind of work are you doing with them? Are you trying to create some packaging BROVANA and XOPENEX together? Can you give us a little color on what you might do to mitigate some of that reimbursement?

Mark H.N. Corrigan, M.D. - Executive Vice President of Research and Development

This is Mark Annabel, thanks for the question. The first thing we are doing is really making sure that all of our customers and CMS and all the parties fully understand that XOPENEX is a differentiated product from albuterol. I'm sure you've seen all of the activities that CMS is undergoing and it's important for us to make it clear that we are not just another form of albuterol. We have a great product, it's levalbuterol and it really serves patients and doctors well. And we have very good relationships with the home health care providers and we are just working with them to continue to ensure that there is access for XOPENEX while go through this transaction and work with CMS to hopefully get a very positive outcome.

Annabel Samimy - UBS

Okay, great, thank you.

Mark H.N. Corrigan, M.D. - Executive Vice President of Research and Development

Welcome.

Operator

Thank you. Our next question is coming form Bert Hazlett of BMO Capital Markets.

Robert Hazlett - BMO Capital Markets

: Thanks for taking the follow-up, my question is on the XOPENEX ipratropium combination. You used the language ready to move into Phase III, what are the triggers specifically that will decide when and whether or not you go into Phase III, if you could elucidate those? And then secondly with the number of products you have moving into Phase III with multiple indications, are any of these a potential for out-licensing, just your thought there?

Adrian Adams - President and Chief Executive Officer

Yes, I will answer the second and then Mark can comment on the first. I mean it is a very exciting phase for Sepracor, you're quite right, but we're entering a phase of a lot of research and development activity, quite a number of programs moving very nicely through the pipeline. When it comes down to partnering I think clearly, at this point in time, we are narrow centered on the United States and indeed Canada from a Sepracor specific point of view. We have no presence outside North America and as you've seen with LUNESTA, we've been successful in partnering that asset from a commercial and development perspective with the Eisai in Japan and with GSK in Europe. And clearly one alternative that we do have and we'll be assessing is whether or not there is partnership potential with what are exciting for the profiles that may lead to potential sharing and development costs and also potential commercialization partnerships in the rest of the world. So, that is clearly a possibility for evolution of Sepracor as we move into next year. On the first point?

Mark H.N. Corrigan, M.D. - Executive Vice President of Research and Development

Yes on the first point we are really setting our timeline about the manufacture of clinical trial materials for a very large Phase III and it's a relatively complex when you have the two substances. So that's setting our timeline there.

Robert Hazlett - BMO Capital Markets

Thank you.

Operator

Thank you. Our next question is coming from David Steinberg of Deutsche Bank.

David Steinberg - Deutsche Bank

Thanks. As you look at your product portfolio, you have a lot more of products and you have a lot longer life cycle assets than you've just in the recent past. A lot more opportunities, any thoughts about changing the deployment of assets with regards to LUNESTA? Product isn't growing all that much, the category is somewhat stagnant. And you are throwing a lot of money into DTC. As you go forward, any thoughts about cutting spend significantly on the product showing more of that flow through to investors as well as deploying it to higher growth long life cycle, more life cycle assets.

Adrian Adams - President and Chief Executive Officer

That's a very good question, I mean your comment on the insomnia market, I think I mean it's very difficult to trend off 2007, lot of the different dynamics going on [ph] in that marketplace. We do believe the one thing that has not changed is that, there are a lot of people in the United States who have problems of sleeping. So, we do feel that there is still significant potential within this marketplace. I think that is reflected in the fact that there are still a lot of programs in development in potential competitors into the future. I think one of the actions, we are very focused on now David, is obviously ensuring that we have the right productivity, metrics in place and drivers with peak performance with this.

As we progressed during the second half of this year and into next year, there may well be some other changes in the dynamics in the marketplace, particularly, as Ambien CR potential loses its exclusivity in the first half of the next year. So, we will be considering all options in relation to leveraging LUNESTA asset to make sure that we continue to not only have a significant share of voice but also make sure that we have good coverage in the event that we are actually the key drivers of the marketplace if Ambien CR loses our exclusivity. When we get through a situation of commenting on aspects of spend, I think obviously we have never commented specifically on the direct to consumer advertising spend, it remains an important component. But we recognize that as our portfolio was growing that we need to manage the spend levels in our portfolio accordingly and I think as we progress this year and develop our budgets for next year, that'll be a strong component within our thinking.

David Steinberg - Deutsche Bank

Okay. Thanks, and congrats on the settlement, Adrian.

Adrian Adams - President and Chief Executive Officer

Thank you very much David, I hope all is well with you.

Operator

Thank you. Our next question is coming from Greg Gilbert of Merrill Lynch.

Greg Gilbert - Merrill Lynch

A quick follow up. Is there any update you can provide Adrian on the litigation with them [ph] on the BROVANA product?

Adrian Adams - President and Chief Executive Officer

No, I think obviously we believe that we have a good position from a patent clear perspective. And as we commented, I think we do have some ongoing litigation with those companies, and we will obviously defend our patent IP portfolio where appropriately. And I think that aside, I think we are very pleased obviously to get the litigation with Breath Limited. Behind this situation we are allowing them to come to market in 2012 and we are very pleased with that and we can continue to focus on driving what is excellent potential within Sepracor.

Greg Gilbert - Merrill Lynch

Thank you.

Operator

Thank you.

Adrian Adams - President and Chief Executive Officer

We have time for one more question.

Operator

Our final question is coming from James Kelly of Goldman Sachs.

James Kelly - Goldman Sachs

Thank you very much. On the two agreements with Arrow International Limited where it talks to the single digit royalties. Are these in either case, royalties on top of... is Arrow manufacturing in either one of these cases and are these royalties on top of a cost of goods or does it include cost of goods?

Adrian Adams - President and Chief Executive Officer

These royalties, I think they include cost of goods. So I mean they are conventional agreements with single digit royalties which do not include cost of goods.

James Kelly - Goldman Sachs

So if we were to model the gross margins on them would just be the single digit royalties or would it be.... there would be a cost of goods on which a single royalty is placed on top?

Adrian Adams - President and Chief Executive Officer

There is a cost of goods component. The royalty would be separate from the cost of goods... product cost of goods.

James Kelly - Goldman Sachs

Good, thank you. And then just lastly there has definitely been some scrutiny from some regulatory bodies on the settlements inside the industry. And I was just interested in your comments there on the landscape and your thoughts about with the settlement here please.

Adrian Adams - President and Chief Executive Officer

Yes, I think it's a very good question. We have obviously been well aware of some of those discussions and we have been very careful students of the regulatory issues that potentially surround patent litigation settlements. If one looks at the components that we announced this morning we believe that they are all pro-competitive in essence for the settlement itself, and we are obviously giving access to Breath significantly ahead of our patents in 2021. So from that point of view, we feel it's very pro-competitive. The individual agreements we agreed this morning, I think, obviously we are very excited about the standalone agreements we have got from a development perspective with XOPENEX/ipratropium and the enhancement technologies. So we believe that all of the things that we have done are pro-competitive and we'll withstand this scrutiny by FTC. And we are very pleased to now get on with these research and development programs and obviously we will progress accordingly.

James Kelly - Goldman Sachs

Thank you.

Operator

Thank you. I would now like to turn the floor back to Mr. Adrian Adams for any closing remarks.

Adrian Adams - President and Chief Executive Officer

Well, I appreciate everybody joining us on our call this morning, and as I mentioned in my closing remarks, we remain very confident about the next phase of growth of Sepracor. And we look forward on future occasions to continue to update you on our progress as we continue progressing into the future. So with that you have a good rest of the day and thank you for joining us this morning.

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