Noven Pharmaceuticals, Inc. Q1 2008 Earnings Call Transcript

May.30.08 | About: Noven Pharmaceuticals (NOVN)

Noven Pharmaceuticals, Inc. (NOVN) Q1 2008 Earnings Call Transcript May 8, 2008 8:30 AM ET

Executives

Joseph Jones – VP, Corporate Affairs

Wayne Yetter – Executive Chairman

Peter Brandt – President and CEO

Michael Price – VP and CFO

Jeff Eisenberg – EVP

Analysts

Enrique Iribarne – Roth Capital Partners

Lei Huang – Summer Street Research Partners

Larry Neibor – Robert W. Baird

Allyn Seymour – Columbia Management

Patti Bank – Pacific Growth Equities

Noelle Tune – Soleil

Operator

Greetings ladies and gentlemen, and welcome to the Noven Pharmaceuticals first quarter 2008 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Joseph Jones. Thank you, Mr. Jones, you may begin.

Joseph Jones

Thank you, Doug. Good morning everyone, and thank you for joining us. Earlier today, we announced our financial results for the quarter ended March 31, 2008. On the line to discuss our results and developments in our business are Wayne Yetter, Noven's Chairman; Peter Brandt, our new President and CEO; Michael Price, our Chief Financial Officer; and Jeff Eisenberg, our Executive Vice President.

Before we begin let me remind you that some statements today, including our financial guidance, will be forward-looking. Those statements will be made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act. Many factors may cause our actual results to differ significantly from the guidance and other forward-looking statements provided today. Please consider the risks, uncertainties, and cautionary factors discussed in our press release and in our SEC filings.

If you are listening to a replay, this call was recorded on May 8, 2008. We may have made announcements since then relevant to today's topics, so you should review our most recent press releases and SEC filings.

Now I would like to introduce Wayne Yetter. Wayne has served as a Director of Noven since 2001 and as lead independent director since 2004. In January of 2008, he was named non-Executive Chairman of Noven's Board of Directors. Wayne?

Wayne Yetter

Thank you very much, Joe, and good morning everyone. Last year the Board determined that Noven would expand its strategy, leveraging its many assets to grow beyond drug delivery to become a broader-based high-growth specialty pharmaceutical company. The first step in the strategy was the acquisition of Noven Therapeutics, formally known as JDS Pharmaceuticals. Noven Therapeutics gives Noven several advantages. It gives us a leverageable sales force, gives us products already on the market being promoted, and another new product expected to be launched during this year, and that's Stavzor. We also have a pipeline which includes a significant commercial opportunity in women's health, a strong suit of Noven's. This product is called Mesafem and will be discussed further on this call.

The next step in the strategy was hiring the right CEO to advance the Noven business and execute our strategy. The Board committee ran a thorough national search to find that right individual. That committee was comprised of Bob Savage, the former Global Head of Pharmaceuticals for Johnson & Johnson; Pedro Granadillo, a 30-year veteran of Lilly, and myself. During the search period and the interim period, Jeff Eisenberg, the Executive Vice President of Noven, did a superb job taking charge in the interim and he will continue to make important contributions to the Company.

We are confident that Peter Brandt is the ideal leader to lead Noven forward and achieve our goals. He is the ideal candidate based on his deep pharmaceutical industry experience with 28 years at Pfizer, including most recently as President U.S. Pharmaceutical Operations. Peter has a track record of delivering revenue and earnings growth while also engineering change. He also, I might add, spent a significant part of his career in the finance area, so he's an individual that's really analysis driven. His industry contacts and relationships built over the 28 years at Pfizer will be invaluable to Noven as we continue to build partnerships and relationships to grow our business. Most important, Peter is a high-energy, results-oriented, analysis-driven individual with a very, very strong sense of urgency to enhance shareholder value.

With this background I would like to introduce Peter Brandt, Noven's new President, CEO, and Board member. Peter?

Peter Brandt

Thank you, Wayne. Good morning everyone. I would like to start if I can by saying I am pleased to have been asked to lead Noven, and I am very excited to have joined the Company and the team here. I'm also very happy to talk to you this morning about our company. In my career, and in particular over the past year, I have been fortunate to know and meet many small companies and I personally see something very special here at Noven. There are very talented, very committed people, in particular at the management level, in this organization. In addition to that, there really are valuable assets here in this company and we will talk a little bit more about those assets in a moment. And I do believe in the strategy of moving forward into specialty pharmaceuticals, and I believe that when executed properly that should result in high growth for the Company and shareholder value.

Like any company, we at Noven have our share of challenges, but it's clear to me that there is great inherent value here at Noven and that's in three different areas. One is the fact that we have best-in-class patch technology. The second area, or strength if you will, it has a highly successful joint venture with Novartis, Novogyne, where collectively with Novartis we have been able to combine a technology-based product with outstanding people and a marketing and sales operation that has developed strategies that are right on target and has very successfully and professionally executed on those strategies.

Then we turn to Noven Therapeutics, and, as Wayne just mentioned, that provides Noven with a platform to advance into specialty pharmaceuticals. It provides the sales infrastructure and products that we can build upon. And we do have a product that is ready to be launched soon coming out of the pipeline, Stavzor. Very importantly coming in the near future is Mesafem which is a significant opportunity for us as well as for women in need of that remedy.

Now as I mentioned before, all businesses have challenges and Noven is by no means an exception to that rule. But I will say that we look forward to taking on those challenges head on. Now to go through some of those challenges, on the transdermal side we're working to address the manufacturing issues and related gross margin issues. We're going to discuss that in a little bit more detail in a few moments. Now at Novogyne, the joint venture, our challenge is a little bit different. It's a challenge of expanding our leadership position and continuing to gain market share in the face of new competition. And at Noven Therapeutics the challenges are to indeed have a very successful launch of Stavzor in the second half of this year and to build an operating unit that is profitable on a stand-alone basis. Very importantly as a component of that over the next couple of years will be to execute successfully on the Mesafem clinical program.

Now other challenges when we look more broadly across the organization – in terms of the short-term value of the Company we need to look at every one of the investments and analyze whether those investments truly can drive shareholder value, not just in the long-term but in the short-term as well. And as necessary we will refine or adjust the strategy surrounding those investments and then, upon that revision, execute flawlessly against those strategies. The third challenge we have is instilling a sense of focus – a sense of purpose and, if you will, a sense of urgency on the critical issues that we face throughout the entire Noven organization.

So with that as a backdrop, let's now get down to the specifics of the business and the quarter. As we noted in our press release, our first-quarter results highlighted a major strength as well as a significant challenge in our business. The major strength is our Novogyne joint venture. Our first-quarter performance is a continuation of the strong growth that we have posted at the joint venture over the last several years. If you take a look at the history and what we're doing in the first quarter of 2008, Novogyne reported revenue growth of 9% for the full-year 2006; that growth figure increased to 12% in the full-year 2007 and for the first quarter of 2008 we're posting a 19% revenue gain.

Now the net income for the joint venture increased 13% in the full year of 2006; that also went up to 22% growth for the full year of 2007 and now for the first quarter of 2008 growth is 42%. Noven's equity interest in Novogyne increased 16% in 2006, up to 25% growth in 2007, and for the first quarter of 2008 we're posting 69% growth. As Mike will cover in a few minutes, this strong start to the year enables us to increase our full-year guidance regarding the profit contribution from Novogyne.

Now going the other way, our transdermal unit faced significant challenges in the quarter with production issues reducing both hormone therapy and Daytrana revenues and profitability. The production issue that we faced in the first quarter in hormone therapy has been resolved. In Q1 we had a mechanical failure in our coating line that caused us to shut down production while we made repairs and upgrades. Now without minimizing the issue, it was a one-time event; everything we have seen tells us we identified the issue, we fixed the issue and we upgraded the equipment in the process, and now we are up and running smoothly again. In addition to the impact of this event on the timing of production and shipments, a significant amount of product manufacturing during this incident was written off. This issue affected our cost of goods as well as revenue, although we expect to make up most of the lost sales over the remainder of 2008, so that piece of it is a timing issue.

The combined impact took our overall gross margin down to 30% for the quarter. Now had we not faced this issue our overall gross margin in the first quarter would have exceeded 40%. The Daytrana issues are more problematic. For some time Shire and Noven have received complaints from customers concerning the difficulty of peeling the release liner from the Daytrana patch. We're talking about the physical act of peeling the backing off the patch so the caregiver can apply the patch to the patient's skin. While we have made progress on this issue with an enhanced release liner, some patients and caregivers continue to have some degree of difficulty removing the release liner, similar to the concerns that led to last year's voluntary market withdrawal of certain Daytrana lots. Largely due to this issue, over the past year the FDA issued Noven a Form 483 and warning letter. Complicating matters, in April of this year our stability testing identified certain lots with higher peel enforced characteristics making it clear that, while we have made progress, the issue is not behind us.

Our response to the warning letter is under review by the FDA, and we're working with Shire in an effort to address the release liner issue and further improve the product. Now this product is important to Noven's business and, even more important, it offers a unique benefit to patients. As the only patch in the category it is the only product that permits a parent to shorten the duration of dosing to make their particular child's needs. It is our job to see that this issue is addressed with all diligence and, as such, substantial resources are committed to bringing this to resolution.

Now let's turn to our specialty pharmaceuticals business. The Noven Therapeutics products, led by Pexeva, had net sales of $5.7 million in the first quarter. The sales and marketing team at Noven Therapeutics is refining the plan to drive growth at Pexeva and gearing up for an expected second-half launch of Stavzor. Now our challenge in this area is balancing the investment to drive future growth in Stavzor and Pexeva with the impact of that investment on short-term results. Nonetheless, we're excited about the coming Stavzor launch and we believe it will be an important step toward moving Noven Therapeutics' business towards stand-alone profitability.

Now let's turn to a positive development in our Mesafem program. We have recently received the FDA's feedback on our proposed Mesafem protocol. The feedback is favorable and we expect to proceed into Phase III this year. Mesafem, as you know, is a low-dose paroxetine mesylate product that we're developing for moderate to severe vasomotor systems associated with menopause. We believe there is a significant unmet need for a non-hormonal product like Mesafem to help the estimated 5 million women who suffer from vasomotor symptoms but are not on hormone therapy due to concerns raised in the Women's Health Initiative studies. Now before the acquisition JDS met with the FDA on a proposed Mesafem Phase III protocol and received agency comments.

In October of 2007 we submitted a revised protocol incorporating that feedback. The recent FDA feedback we received gives clarity on what we need to do to support approval and we now have sufficient information to commence Phase III. We plan to undertake one 12-week study and one 24-week study; each will randomize approximately 700 patients. The intent of the first study is to demonstrate a reduction in the frequency and severity of moderate to severe vasomotor symptoms associated with menopause at the end of four and 12 weeks. The second study will also seek to demonstrate persistence of benefit at 24 weeks.

Now given when we receive the FDA feedback, we will be starting our clinical program in 2008 a bit later than planned. As Mike will cover in a few minutes, that should cause our research and development spending for the year to come down slightly. Notably, we have not been asked to undertake any long-term safety studies for the product. We're still finalizing the study designs, but we have an aggressive working timeline calling for an NDA submission in late 2010. Any slippage could move that into early 2011. If the product is approved and the market develops as we expect, we believe the commercial opportunities for Mesafem and Noven will be substantial and we can also be positioned to change positively the lives of millions of women suffering from an often debilitating condition.

Now I will ask Mike to review our first-quarter results.

Michael Price

Thanks Peter. We reported net income of $2.6 million or $0.11 per share in the first quarter of 2008 compared to net income of $5 million or $0.20 per share in the first quarter of last year. Much of that decrease relates to the addition of sales and marketing expenses, R&D and amortization costs associated with the acquisition of Noven Therapeutics. We believe that these investments and costs will meaningfully advance the business for the longer-term. The balance of the decrease, however, is largely due to the production issue and the transdermal operations that Peter covered earlier. Of course these issues do not advance the business in any respect and we recognize that they require and they are receiving immediate and concentrated attention.

Net revenues for the first quarter increased 11% to $21.5 million. This increase reflects the addition of $5.7 million in Noven Therapeutics product sales as well as increased license and contract revenues. These increases were largely offset by lower transdermal product revenues primarily due to our production issues. As Peter mentioned, a portion of these lost product revenues are expected to be made up as the year progresses. Our consolidated gross margin was 30% in the first quarter compared to 43% in the first quarter of last year, reflecting the effects of the production issues and higher QA/QC costs, especially for Daytrana.

Research and development expenses in the first quarter decreased 4% to $3.3 million and selling and marketing expenses increased to $4.8 million from just $200,000 in the first quarter of last year, again due to the addition of Noven Therapeutics. G&A expenses increased $1.8 million or 36% also due largely to the Noven Therapeutics acquisition. As Peter mentioned, we had a very strong first quarter at Novogyne, recognizing $8.3 million in earnings from the joint venture representing an increase of 69% compared to the first quarter of last year. The JV's net income increased 42% to $23 million and net revenues increased 19% to $39.5 million. Novogyne's gross margin for the quarter increased slightly to 80%. Novogyne's selling, general and administrative expenses decreased 11%, primarily reflecting lower samples expense due to the timing of sample shipments.

Now let's spend a few minutes talking about our cash position. At March 31, 2008 we had $27.7 million in cash and cash equivalents, $12.7 million in short-term investments and $22.9 million in non-current investments. This compares with $14 million in cash and cash equivalents, $21.6 million in short-term investments and $32.8 million in non-current investments at year end 2007. Our liquidity has improved substantially since our last conference call. At the end of Q1 we held auction rate securities with a fair value of $35.6 million, $22.9 million of which were classified as non-current.

Since March 31, we have liquidated $12.7 million of these securities at par value. So in total, since mid-February when the auctions for the securities first began to fail, we have liquidated over $30 million in auction rate securities, all at par value. At March 31st, with the assistance of a third party valuation expert, we recorded a temporary change in fair value of about $500,000 or 2% related to these investments. This entry did not impact our income statement but is reflected as an adjustment to stockholders’ equity.

Now turning to financial guidance. There are a few areas of prior guidance that we would like to update this morning. Let me say upfront, we don't believe that the net effect of these updates will meaningfully impact our 2008 bottom-line compared to our prior guidance. First, while we are reaffirming our previous revenue range for 2008 of $100 million to $105 million we're reducing our forecast for Daytrana. We currently expect our 2008 Daytrana product sales to Shire to approximate our 2007 level, so we're looking at something in the $13 million to $14 million range. This revision reflects Shire's adjustment to their forecast and related orders for the year.

Second, while we're reducing our gross margin expectations for the year to the mid-30% range reflecting the quality and production issues facing our transdermal business and the particularly low 30% gross margin reported in the first quarter. Third, and going in a positive direction, we're increasing our expectations for growth in our equity and earnings of Novogyne. Based on prescription trends and other factors, we currently expect that line item to increase by 15% to 20% in 2008 compared to 2007. Our prior guidance reflected 10% gross when compared to last year.

And finally the timing of receipt of Mesafem protocol feedback and other factors may cause our R&D expense for 2008 to decrease by a couple of million dollars compared to our prior guidance. Our current analysis suggests that R&D expense for 2008 may be in the low to mid $20 million range subject to further adjustment as we complete our analysis of the Mesafem feedback.

That concludes our financial guidance and now I will turn the call back over to Peter.

Peter Brandt

Thanks Mike. So all things considered, the quarter showed where we're strong and it showed where we need to improve. Novogyne came out of the gate strong and, while we have some challenges on the transdermal side of the business, we have fixed some of them already and we are working diligently on those that remain. We're excited about the upcoming launch of Stavzor and thrilled to have a green light to proceed with Mesafem. I guess in summary, I think we have a very interesting year ahead and I couldn't be happier to be a part of it. So now let's turn the floor over to you and open through to the operator to any of your questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from the line of Enrique Iribarne with Roth Capital Partners. Please go ahead with your question.

Enrique Iribarne – Roth Capital Partners

Good morning gentlemen. This is Enrique Iribarne for Scott Henry. I just have a couple of quick questions. Regarding the Phase III for Mesafem, can you be a little bit more specific regarding when do you believe you will be able to start the trials? And the second question is regarding the manufacturing issues, do you have any major capital expenditures envisioned for us this year?

Peter Brandt

Enrique, this is Peter again. Thanks for the questions. On the Phase III, we fully expect to begin that this year. That should – certainly the design of those studies, we're in the finalization stages of that at this point in time. Obviously you have things such as the investigative meetings, the kick-off meetings, etcetera., actual patient recruitment – definitely planned to begin before the end of this year. I would believe that would be early fourth quarter.

Enrique Iribarne – Roth Capital Partners

Okay.

Peter Brandt

And in terms of capital expenditures on the manufacturing side, I will ask Mike to help us out on that one.

Michael Price

Enrique, thanks for the questions. With respect to the issues that we had, there were no major capital expenditures to correct and upgrade the equipment there, but our capital expenditures budget for the year was in the $4 million to $5 million range.

Enrique Iribarne – Roth Capital Partners

Okay, thank you for that, Mike, and good talking to you again.

Michael Price

Thank you.

Operator

(Operator instructions) Our next question comes from the line of Lei Huang with Summer Street Research Partners. Please go ahead with your question.

Lei Huang – Summer Street Research Partners

Thanks. Just, Peter, on your philosophy, kind of looking at providing short-term value versus long-term value to your shareholders, can you give us some more color on how you think about that? It might be a little too early to ask you to think about that for Noven specifically, but just in terms of how you look at that overall. And then in terms of the guidance, the fact that the guidance was reduced for Daytrana, yet your overall revenue guidance doesn't change. What's making up the difference in the Daytrana shortfall? Thanks.

Peter Brandt

Good questions both. Let me take the first one and I will ask Mike again to handle the one on revenue. In terms of overall philosophy, and I will do my best not to get long-winded on you here. Taking our objective or our mission very seriously of increasing shareholder value, and that's both in the long-term and in the short-term. In terms of long-term, we're very excited about a product such as Mesafem and the strategic direction heading into specialty pharma and expecting that, in the longer term, to be a high-growth area.

If you were to ask me what – if I were to look out five years, what does this company looks like, I guess my answers would be something along the following lines. One, the organization would be one that could be characterized as energized, focused, a fast-growing specialty pharma company. And that would be made up of Novogyne which is a critical component of our company today and will be in the short and long term as well. Then you turn to Noven Therapeutics, and I would expect at that point in time we would continue to be recognized, even more so perhaps, as best-in-class technology which would have spawned numerous successful partnerships. And in terms of Noven Therapeutics, it would be a fast-growing operating unit with a few successful launches under its belt, all of which would combine to drive shareholder value significantly higher than what we're seeing today. Now in the more immediate aspect of how do we approach that, everything is on the table. I mean – and I mean that in two different ways. There are a number of different ways in which we can drive shorter term shareholder value, including such things as share repurchase. So any option, partnerships, share repurchase, ways of getting our shareholder value are on the table for analysis. Have we finalized those analyses and come to conclusion and therefore have a definitive plan that we can share with you today, no. It is a few days if not a few weeks too early to be able to make that statement at this point in time.

But beyond that every strategic investment that we're making in our products, in our markets is under review at this point in time. And to put a little bit more meat on some of that, in some parts of our business, notably Noven Therapeutics, we're not happy with the profit margins by any stretch of the imagination. We fully appreciate and you can't – on the one hand, while you – you know the old saying, you can't cost cut your way to revenue growth, that is indeed true and I believe that and we see exciting things in Stavzor and we're going to see if there's growth remaining in Pexeva and if there is behind both products we will invest. With that said, you can't spend – you don't want to overspend your way to lack of profitability as well.

So every part of the business is indeed under that type of a microscope at this point in time. And to give you just a – we have found some segments of the Pexeva business that are unprofitable so we are pulling back on those and there are a number of other areas within the Company that we're looking at. I would also put on the table to be open about how we're approaching this, I think parts of our company are still suffering from what I would term an integration hangover in particular perhaps in Noven Therapeutics and that affects both the cost of operations, but, more important probably, the efficiency, the effectiveness of the operations. And I think the sooner we can get to a very clearly well analyzed strategic direction with individual accountability and metrics to back up that strategy I think we will be on more solid footing.

So, apologies again for getting a little bit long-winded in your question. I think the pillars of growth are there. I think the news on Mesafem is very positive. I think we will have a good launch with Stavzor. With that said, we have to tighten our belts in a few other areas and explore numerous ways of getting shareholder value increased in both the short and long-term. So with that I will take a breath and I will turn it over to Mike for the question on Daytrana versus other revenues.

Michael Price

Hi, Lei. Thanks for the question on guidance. At year end we gave guidance with respect to revenues of $100 million to $105 million and we're reaffirming that today and we're comfortable that we're within that range.

With respect to Daytrana, at year end we had indicated that we expected 10% growth, we have now scaled that back to indicate that we expect it to be relatively flat in comparison to '07, but overall feel like – that our range of $100 million to $105 million is a good solid range. And with respect to the other guidance that we gave, we feel like the impact of all of the changes that we have reported today have essentially no impact on the bottom line compared to the guidance we gave previously.

Lei Huang – Summer Street Research Partners

I was actually wondering just on the guidance, since you're reducing the Daytrana forecast, what's going to make up that difference for you to affirm your total revenue guidance. Is it the former JDS products? Is it coming from other transdermal products?

Joseph Jones

Lei, this is Joe; I will just jump in. We're reaffirming the range and the adjustment to Daytrana is not sufficient to take us out of that range, so that's how you should view it.

Lei Huang – Summer Street Research Partners

Okay, fair enough. All right. Thank you.

Operator

Our next question comes from Larry Neibor with Robert W. Baird. Please go ahead with your question.

Larry Neibor – Robert W. Baird

Thank you. Good morning.

Peter Brandt

Good morning Larry.

Larry Neibor – Robert W. Baird

Thank you. Good morning. You mentioned that you're facing a new competitive threat in the Novogyne segment, yet you seem to have benefited from a substantial price increase for Vivelle-Dot. My question is do you believe you will be able to retain pricing flexibility in the Vivelle-Dot line, given the new competition? And could you please confirm what the new competition is? Thank you.

Peter Brandt

Jeff, do you want to handle that one?

Jeff Eisenberg

Sure, happy to, Peter. Good morning, Larry. Thanks for the question. Let me start with the second half of the question. The new competition that we were referring to was EvaMist, which launched within the last month. It's a product that we have known for some time that's been coming into the market, a product that you're probably familiar with. It's an estrogen spray product involving a device that was launched by KV Pharmaceuticals. And it is a product that we feel we are very well prepared for. In the past several years, we have had to deal with some additional new competitive entries, mostly in the patches and the creams and gels area. And with the work we have done in advance of those launches similar to what we have done in advance of EvaMist, we feel that our sales force has been very well prepared for all of those launches.

If you look at the history of the creams and gels, they haven't made substantial inroads into the market. In fact, since they launched, the Vivelle-Dot market share has actually increased. EvaMist is a product that we have taken very seriously. We're well prepared for it, and it is too early to say – it has just launched within the last month – what impact it will have, but we believe we're prepared for it. As far as price flexibility, that is something we look at carefully every year. We have had the opportunity over the last several years to increase price. We have worked with our colleagues at Novartis on that, and I think it is too soon to say early in 2008 what 2009 will look like. That is something we will be looking at closely through the year.

Larry Neibor – Robert W. Baird

Okay, thank you.

Operator

Our next question comes from the line of Allyn Seymour with Columbia Management. Please go ahead with your question.

Allyn Seymour – Columbia Management

Yes, I have two questions. The first one has to do with the FDA letter. I presume that the letter has to do primarily with the consumer-related and manufacturing performance of the backing that you take off, and it has nothing to do with any of the performance for the product, actually in a clinical sense. That is the first question. The second question is more of a philosophical one in terms of the way you look at things. You have come from a very large company. Maybe you could talk a little bit about the challenges you see in moving from running a very large division of a company where there are a number of products that are much larger than the total company that we have here and the challenges you see moving into managing this size of a company?

Peter Brandt

Sure. Thank you, Allyn. I will take your second question first, and then I will turn it back over to Jeff to reply to your question concerning the FDA letter. Well-put question. Obviously, you're absolutely right. I have spent the vast majority of my career in a much larger organization, although I would argue going back to ancient history when I first started at Pfizer, is wasn't nearly the size that it has been over the last couple of years. With that said, my philosophical approach is something along the following lines. I think for every key product, every key strategy, every key customer, every key issue, you need to get down to – and I apologize, because to everybody on the phone this will seem rather straightforward and simple, but I believe it. You have to get down to one of the true key drivers. And I think it is a relatively easy exercise to say what are the drivers behind the success of a product, and people can sit there and list out 27, 37, 57 items.

The trick or where you earn your money is getting it down to the two or three that truly are the drivers of performance and that you have the ability to effect, that you can pull that lever one way or the other; not just something that is nice to understand but you haven't got a chance of effecting change in it. Then having your strategies be directed and focused toward those levers, toward those drivers, and then to be able to take that strategy and know exactly not just the end game, in other words, end success or failure, but the intermediate steps that you need to measure to know if your strategy is on target or not. So it has got to truly be metric driven, and in that I believe strongly in personal accountability, individual accountability. So, while you need to bring a team together to be able to have the benefit or the advantage of all of the expertise of people around a table, I believe strongly in individual accountability when you're looking at each of the tactics that make up that strategy, and each one of those tactics having that kind of a metric driven performance measure. So my philosophy is that if you have that type of discipline, then you will know relatively soon if you are on target or not. If you are on target, why not look at doubling down your bet? If you are off target, understand why and correct it and fix it. Now, that is philosophically the approach that I deployed in a much larger company. And so the difference to me – and you're absolutely right, it is one, trying to get that philosophical approach embedded in an organization through different layers of management.

Here, to be honest, it's the same philosophical approach, but you get to do it hands-on. So we would just – to be honest, it's one of the reasons I am excited about being here. To be practiced in the art of managing others who manage others who manage others to try to see it trickle down and take root in an organization; while that can be satisfying, it is certainly also frustrating because it takes time. And that same way of approaching business issues and driving toward accountability and, therefore, success is something that here you can apply the same approach, but you can get much more immediate feedback as to whether it is working or not.

If I can, I will now turn it back to Jeff for the first part of your question – or your first question.

Jeff Eisenberg

Allyn, your question on the FDA letter. First of all, let me just make an observation that the letter is posted on the FDA's website so you can look at it in detail. But the question of whether the issues surround the peel or whether there are other broader issues, fundamentally the issues in the letter surround the peel issue that Peter referred to earlier before the Q&A period. When you look at the issue as Peter described it, it is difficulties in some patches with some patients of actually dealing with peeling the release liner off the patch and then being able to apply it. In some cases if the peel becomes exceedingly difficult, you can pull some of the adhesive off of the backing, which if then the patch were applied could result in less than the total amount of the adhesive, which includes the drug being on the patch. Which is a long way of saying that in that case, you could have an issue with efficacy, but it stems from the fundamental issue of difficulty in peeling the patch. And that's an issue that we continue to work diligently to try to resolve and to further improve the product.

Allyn Seymour – Columbia Management

So sometimes the adhesive comes with the backing that you peel off. So the concern from the FDA is that, in fact, that may impact the performance of the patch?

Jeff Eisenberg

Well, the concern is – yes, the concern is the fact that there are – in some cases, continue to be issues with patients complaining about the difficulty in peeling the product. And while the instructions indicate that if you have a damaged patch, through the course of peeling the product you damage the patch, you're not to use it. There is a theoretical concern that if it is damaged and used that you would be getting less of the drug.

Allyn Seymour – Columbia Management

Okay, all right. Thanks.

Peter Brandt

Thank you, Allyn.

Operator

Our next question comes from the line of Patti Bank with Pacific Growth Equities. Please go ahead with your question.

Patti Bank – Pacific Growth Equities

Two questions on Novogyne. One on the first-quarter revenue increase of 19%; can you break that down into what was due to price and what was due to unit growth? Then the second question is a little bit bigger picture, but I wanted to get your thoughts on the joint venture. My understanding was in the past, there has been an effort to maybe repurchase that back in full from Novartis, and that Novartis basically looked at that as a cash cow with not a lot of people dedicated to it.

So I was wondering if maybe you could just talk about your outlook with the joint venture in terms of either buying it or being able to put more products into it at this point?

Peter Brandt

Hi, Patti. It is Peter. Let me – again, I'm getting into – I don't want to call it a rut, but a pattern here. I will take your second question first, and then I will ask Mike to comment more specifically on the 19% revenue growth in the first quarter. This falls squarely into the category that I was trying to describe before of everything is on the table right now. And so with a fresh set of eyes, we are looking at what are the opportunities for Noven associated with Novogyne. So quite honestly, the options kind of run the gamut. I look at Novogyne and it is highly successful, but in essence, it is a one product joint venture at this point in time. So is there room and could we, therefore, mutually benefit from getting other products into that joint venture? On the surface, I think that is absolutely correct. I think that is something that both parties, Novartis and Noven, are well aware of and also believe that is worth the exercise of analyzing and discussing quite a bit further. Vivelle-Dot in and of itself is a compound that perhaps could use further promotional support or field support. So, that is something that is an option that – one of the ways in which we could accommodate that, however we do that.

Then from a financial point of view, you're absolutely right, what are the options associated with either garnering all or unlocking more of the value associated with the Novogyne joint venture? So, I apologize that I don't have – we are not at the point given the analysis where I can sit here today and tell you, okay, so here are the two paths that we think are the most advantageous to Noven and to Noven shareholders; therefore, that is what we are aggressively pursuing. But I can assure you that it is not a case of us sitting here and saying Novogyne is doing very well, we are very happy with it; it is on auto pilot, and we're just going to let it run its course. That is not the case. We are actively looking at ways in which we can continue to enhance the value to our shareholders through that asset.

Patti Bank – Pacific Growth Equities

Has that been the case on the Novartis side from what you can tell early on?

Peter Brandt

We had a meeting just the other day with some representatives from Novartis, and I think they are very open to exactly these kind of conversations.

Patti Bank – Pacific Growth Equities

Okay.

Peter Brandt

Mike, if I can ask you to cover the first one.

Michael Price

Patti, with respect to the revenue growth at Novogyne, the majority of the growth came as a result of price increases that we put into effect at the beginning of the year, but we did have good solid growth with respect to units during the period as well.

Patti Bank – Pacific Growth Equities

Can quantify that or no?

Michael Price

I think – yes, I would just like to leave it as the majority of it relates to the price increase, and the balance was due to growth.

Patti Bank – Pacific Growth Equities

Just typically in the past, have you typically had one price increase per year, or is that not necessarily the case?

Michael Price

My understanding is historically, it has been one per year.

Patti Bank – Pacific Growth Equities

Then just one other quick question. On SG&A, I may have missed it; did you give guidance for the year for SG&A line?

Michael Price

We gave guidance for SG&A at year-end, and what we said is that we expect it to be in the upper $50 million range.

Patti Bank – Pacific Growth Equities

Thank you.

Joseph Jones

Hi Patti, this is Joe. I just wanted to double back on the price prescription question. Just wanted to point out that for the quarter with 7% total prescription growth for Vivelle-Dot and 4% growth for the franchise as a whole, that is really the best quarterly performance that I can remember in some time. So, there certainly is underlying demand driving the business. It's been quite satisfactory in the quarter.

Patti Bank – Pacific Growth Equities

Thank you. That is helpful.

Operator

Our next question comes from the line of Noelle Tune with Soleil Securities. Please go ahead with your question.

Noelle Tune – Soleil

Good morning, thanks for taking the questions. Two quick ones. First, I was hoping you could maybe narrow down the window for the launch timing of Stavzor, just something a little more fine-tuned in the second half of '08. Then my last question is on Daytrana milestones. Can you remind us of how many of those are left?

Peter Brandt

Hi Noelle, this is Peter. I have the pleasure of answering the first one first this time. I would be happy to narrow it down. Our target right now is to launch Stavzor in August. Mike or Jeff, could I ask you to comment on the Daytrana milestones?

Jeff Eisenberg

Sure, and maybe just touch on that question as well, too, why August? We have talked about this before. The exclusivity period expires at the end of July, so that is the trigger event that will allow us to then launch the product. As far as Daytrana milestones, there is one remaining, a $25 million milestone payable that would be triggered when Shire's trailing 12-month sales exceed $75 million.

Noelle Tune – Soleil

Okay. Where are they right now with the trailing sales?

Michael Price

Hi, this is Mike. When they reported revenues this quarter, the cumulative revenues for the previous 12 months totaled $72 million to $73 million. So they are approaching that threshold.

Noelle Tune – Soleil

Great, thanks very much.

Peter Brandt

Thank you, Noelle.

Operator

Gentlemen, there are no further questions in the queue at this time. Would you like to make some closing comments?

Joseph Jones

This is Joe. I just have some housekeeping remarks, and then we will wrap up. We will be filing our 10-Q in the next day or so. So there will certainly be more information about the topics we talked about today there. We are available throughout the day today and, of course, going forward to answer any other questions that you might have. I think I would also point out that our annual report and our proxy statement are now in the process of distribution, so those of you who are shareholders should be seeing those quite soon. That is all we have for today. Thank you all for joining us. We really appreciate you taking time to learn about our business and prospects, and we hope to be speaking with you soon.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time.

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