Cephalon, Inc. Q2 2008 Earnings Call

Cephalon, Inc. (CEPH)

Q2 FY08 Earnings Call

July 29, 2008, 05:00 PM ET

Executives

Robert (Chip) Merritt - IR

Frank Baldino, Jr., Ph.D. - Chairman and CEO

Robert P. Roche, Jr. - EVP, Worldwide Pharmaceutical Operations

J. Kevin Buchi - EVP and CEO

Lesley Russell - EVP, Worldwide, Medical and Regulatory Operations

Gerald J. Pappert - EVP and General Counsel

Analysts

Jim Birchenough - Lehman Brothers

Thomas Ellis - Thomas Weisel Partners

Bret Holley - Oppenheimer & Company

Greg Gilbert - Merrill Lynch

Marc Goodman - Credit Suisse-North America

David Windley - Jefferies & Co.

David Buck - Buckingham Research

Annabel Samimy - UBS Investment Research

Gary Nachman - Leerink Swann

Eric Schmidt - Cowen And Company

Presentation

Operator

Good day everyone, and welcome to the Cephalon's Second Quarter 2008 Earnings Conference Call. Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Mr. Chip Merritt, Vice President of Investor Relations. Please go ahead, sir.

Robert (Chip) Merritt - Investor Relations

Thank you. Today we will review Cephalon's financial performance for the second quarter of 2008. Before we begin, let me remind you that certain statements on this call may be forward-looking and are subject to risks and uncertainties associated with the company business.

These statements may concern, among other things, guidance as to future revenues and earnings, operations, transactions, prospects, intellectual property, litigation, development of pharmaceutical products, clinical trials and potential approval of our product candidates.

The company also may discuss certain non-GAAP financial measures within the meaning of Regulation G during today's call. The information required by Regulation G is available in either the earnings press release or the Newsroom section of our website at www.cephalon.com.

Additional information and risk factors affecting the company's business and financial prospects and factors that would cause Cephalon's actual performance to vary from our current expectations is available in the company's current Form 10-K on file with the SEC.

During this call, we will update full year 2008 guidance and introduce third quarter guidance. Please note that guidance will remain in effect unless the company provides subsequent modifications or updates. Our earnings press release is available on the internet at www.cephalon.com.

Investors with further questions should contact me at 610-738-6376. This conference call is being webcast via the Cephalon homepage, and it will be archived for one week after the call.

Speaking on today's call will be Dr. Frank Baldino, Chief Executive Officer; Bob Roche, Worldwide Pharmaceutical Operations who will be dialing us from oversees, and Kevin Buchi, Chief Financial Officer.

Also joining us today are Dr. Lesley Russell, Worldwide Medical and Regulatory Operations, who is also dialing and Gerry Pappert who recently joint us as General Council. Gerry enjoyed extinguished carrier in law including serving as Pennsylvania's Attorney General.

Following remarks by Frank, Bob and Kevin, we will be pleased to answer your questions.

Now, Frank Baldino.

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

Thanks Chip. And good afternoon everyone. The second quarter was marked by two seminal events: the loss of TREANDA for the treatment of chronic lymphocytic leukemia or CLL and the issuance of a patents for AMRIX.

You'll hear a lot more about these two exciting products and the benefits they bring patients later in the call.

2008 is shaping up to be a terrific year for the company. In the second quarter, Cephalon delivered double-digit growth of both sales and adjusted net income, compared to the second quarter of 2007.

Sales for the second quarter of 2008 reached $285 million with adjusted net income of $84.5 million, both well above the high end of our guidance range.

Cephalon stands apart from many publicly traded companies today. AMRIX and TREANDA together with a promising pipeline will be at the forefront of growth for many years to come.

I will let Bob Roche, to talk about the TREANDA launch to date. Bob?

Robert P. Roche, Jr. - Executive Vice President, Worldwide Pharmaceutical Operations

Thanks Frank. TREANDA really is off to a fantastic start. Our team did a great job of designing and building the infrastructure needed to support this product and effectively generate brand awareness. From this foundation, we were then able to quickly and successfully launch the product with some patients receiving their first cycle of TREANDA just two weeks after approval.

Strategically, the TREANDA, CLL launch is built on a platform of unique product positioning, promotional activities and scientific exchange with the medical community. TREANDA's innovative positioning highlights it's unique features and will ultimately establish the brand as a cornerstone of chemotherapy built on three differentiating features.

Number one, for the unique structure, synthesizing in alkylator group with the purine component with dual cell deficits from both apoptosis and non-apoptotic cell death processes.

Number two, it's proven efficacy with impressive overall response rate, progression free survival and duration of response.

And number three, a manageable side effect profile.

Our marketing efforts have included a broad range of promotional activities and our sales team has focused on roughly 4,000 institutions and 2,500 clinical accounts.

In addition, our CLL satellite broadcast promotional presentation reached nearly 700 customers the month after launch. Over 60 physicians and 50 nurses have been trained to present TREANDA promotionally.

And over 150 physicians' speaker programs have been completed within approximately 90 days of launch and another 100 are planned in the next several weeks.

The bottom line for all these efforts has been a positive reception of TREANDA by physicians and their patients, and over $14 million in second quarter sales with a very persistent upward trend.

Moreover, in recent research, physicians report their expected use of TREANDA will increase substantially in the future. Apart from our promotional activities, opportunities for medical and scientific exchange with promotional... pardon me, with the medical community have been extensive.

The medical science liaison team has conducted over 1,000 healthcare provider engagements to date, including over 100 interactions with the top cancer centers and over 300 with oncology thought leaders around the country.

The Medical Information Department has provided over 8,800 responses to request for medical and scientific information from healthcare professionals and patients about TREANDA.

Early anecdotal feedback from the medical community and from our sales forces is very encouraging. Let me share with you a quick story from a Philadelphia area oncologist who has just begun using TREANDA.

This physician had a CLL patients who he had been managing for over 10 years. The patient had received numerous chemotherapy regimens as well as transplant therapy and was no longer responding.

Having exhausted these treatment options, the physician started TREANDA therapy just over month ago. With in this patient's first cycle, they were able to see an 80% reduction on lymphocytic count and increases in both platelets and red blood cells.

Furthermore, the patient's splin [ph] related abdominal pain subsided and he was able to resume many activities of the daily routine. He just received the second cycle of therapy and its tolerating TREANDA very well.

This is just one example of the stories we hear every week from physician and we couldn't be more excited about the differences that we are making in lines of thousands of patients across the country.

The enthusiasm in the medical community and hard work from our team have combined to produce a very strong merge of this terrific new product. Frank back to you.

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

Thank you Bob, continue with TREANDA. Continuous with TREANDA in June; the German CLL Group Consortium again presented interim data from their high profile study of TREANDA plus Rituxan, versus CHOP plus Rituximab and front-line and Non-Hodgkin's Lymphoma, or NHL.

Presented at the 10th international conference on malignant lymphoma meeting at Switzerland, this data continued to show similar efficacy and improved side effect profile for TREANDA plus Rituximab, versus the five drug regimen.

Also presented this conference were positive data from four different studies utilizing TREANDA and the treatment of B-cell indolent NHL in combination with prednizolone and ABELCET [ph] in the advanced multiple myeloma in combination with Rituximab and refractory CD20 B-cell lymphoma and the comparative study versus tiagabine [ph] and CLL.

In July, the Journal of Clinical Oncology published results from our Phase 2 study TREANDA in combination with Rituximab and patients with relapsed indolent B-cell and mantle cell Non-Hodgkin's lymphoma.

We submitted this study as part of NHL filing currently under a consideration by FDA. In this study, favorable response rate of Rituximab and TREANDA was 92%. For the subset of patients who had never received treatment for Rituximab the overall response rate was a 100%.

Additionally, the combination of TREANDA and Rituximab delivered a durable response with medium progression-free survival of 23 months.

On the reimbursement front, we mentioned in our last call the encouraging initial response from payors was [indiscernible] adding TRENDA to their formulary coverage even before launch.

In April, the National Comprehensive Cancer Network or NCCN held a special meeting to update their compendium to include TREANDA for the treatment of CLL and for the two types of NHL.

In June, the sensors of Medicare and medicated services recognized the NCCN compendium as a mandated reference for establishment of coverage policy and coverage decisions regarding the use of drugs and biologics and cancer care.

We see this as our testament to the utility of TREANDA and the way to help those in need obtain access to treatment.

We intend to maximize the full utility of TREANDA by securing additional FDA approved indications. Our nearest term opportunity is to secure approval of TREANDA for the treatment of relapsed indolent NHL patients.

The FDA has accepted our new drug application for this indication and set an action date of October 31st. And our clinical study, as a simulation, TREANDA demonstrated durable objective response rates in patients who have progressed during or following treatment of rituximab or a rituximab-containing regiment.

Data observed exceeded the hurdle rates required by the special protocol assessment, and we anticipate a positive outcome by end of October.

We mentioned earlier, the excitement surrounding the ongoing parallel group study. Later this year, we will be in our own Phase 3 600 patients study, comparing the combination of Rituximab and TREANDA versus Rituximab and standard chemotherapy which can be CHOP or CVP and the treatment of front-line indolent NHL.

We also have plans to begin two more studies in Phase 4. 100 patient study of Rituximab plus TREANDA and relapsed CLL patients and the Phase 1 study combining the ABELCET and TREADA and refractory multiple myeloma patients.

We believe that TREANDA amounted for significant benefits for patients suffering from various types of Cancer. Our continued research coupled with ongoing research in Germany should unlock the potential of TREANDA creating new hope for patients.

A valuable tool for oncologists and a growth driver for Cephalon. AMRIX continues its present of growth as more and more patients are benefiting from this normal therapy. We received consistent positive feedback from physicians about the benefits of AMRIX.

Once-daily dosing all they have to see and low rates of samlons improved the quality of life for those patients suffering from painful muscular skeletal conditions.

To give you a sense of physician feedback, here are a few quotes from recent market research. AMRIX is effective on patients who need it most. Evening dosing will let you get a goodnight sleep when patients have reduced circulation.

They wake up alert, and without a hangover or drowsiness.

AMRIX is unique and inventive, our new way of presenting something we are familiar with. It's the only thing that's long acting. AMRIX has staying power, it's longer lasting and powerful. It's a class act world package. Our describer for the young professionals of the acute pain will need to be active and alerts.

AMRIX became even more valuable to it's stockholders on June 17 when a patent issued covering the unique formulation of the product utilizing it extent to release these. That will extend till 20-25 providing us with the opportunity for many more years of AMRIX exclusivity.

Accordingly, we will increase our marketing and sales support behind AMRIX to ensure it's further success. Keep in mind, the market for scale of muscle relaxants is very large. There are over 45 million prescriptions driven from muscle relaxants each year, and AMRIX has only begun to scratch the surface.

Going forward, we plan to increase our marketing efforts around this product. We have just completed the speaker training for over 200 physicians and were initiating a broad reaching commercial speaker program in August.

Over the next few months we will increased our media reach in general publications in that conventions. And we will increase the maximum value of our co-pay coupons to make AMRIX more accessible to more patients.

To the strong sales for the year, we allocated it for this additional spending without lowering our 2008 earnings guidance.

On September 13, we expect to receive a complete response letter from the FDA concerning the FENTORA sNDA. We are working with the FDA and anticipated initiating our coverage program later this year.

We expect coverage to be a first of its kind program, initially intended to mitigate risk associated with release of FENTORA. For FENTORA, it will link to three critical stake holders, the treating physician, the pharmacist and the patient to help ensure the appropriate use of the products.

We are excited about coverage because as the potential to raise the bard in patients safety, provide confidence to physicians and create a new risk minimization standard. Successive coverage program will allow us the opportunity to gain FDA approval for an expanded label.

Our CNS franchise PROVIGIL set a new record of $234 million in sales this quarter. Our next generation product NUVIGIL has the opportunity to expand the treatment indications beyond those for which PROVIGIL has been so effective. And in order to see to see this opportunity earlier, we have decided to move up to launch of NUVIGIL for the second half of 2009.

We think at this time, we will provide a solid balance between our quest to maximize the market penetration of the product prior to generic modafinil, entrants at 2012 while allowing for the flow of new clinical data to support the launch. Based on this launch day, we will begin pre-launch activities later the this year. We will re-demonstrate that NUVIGIL requires less drug to produce similar effects than PROVIGIL.

Moreover, NUVIGIL is effective drug today. These benefits highlight some of the advantages of this next generation weight on this product.

Our initial programs over the next four years will generate new clinical data that we believe will support new FDA approved indications for NUVIGIL. Our study in patients suffering from comorbid obstructive sleep apnea and depression will conclude shortly and we anticipate having commercial clients to this subset of our labeled indication by mid 2009.

Imminently, we will be in the rolling patient who will study, examine the effects of NUVIGIL and subjects suffering from Jet lag disorder.

And this study is positive, we plan file an sNDA for a summer of 2009 for the potential new indication 2010. This remarks the first acute indication for NUVIGIL and open our marketing average to new group of screening physicians.

By the end of this year, we will be studying patients who are experiencing excessive sleepiness secondary to traumatic brain injury. The study hit out another indication NUVIGIL in 2011.

Based on positive results from our Phase 2a study in the treatment of negative symptoms of schizophrenia, we are planning to start a larger Phases 2 study before the end of the year.

If the study goes well, we could have an indication to treat the negative symptoms of schizophrenia during 2012.

The Phase 2 bi-polar study is on tack to complete enrollment in the third quarter this year. Additionally, we will be conducting a power study in cancer related fatigue in second half of 2008.

We want to explore all the possible uses of NUVIGIL and they will inspire to grow our CNS franchise beyond the markets that PROVIGIL created. For the time that doesn't expire till 2023 we have sufficient time to conduct the research needed to secure additional indications in new areas for benefit for even patients.

Cephalon's current product portfolio provides strong growth opportunities for the business for many years to come. In addition, our pipeline of drug candidates is stronger than ever. Lestautinib is a class leader among equipped to tyrosine kinase inhibitors for patients with acute myeloid leukemia.

We should complete enrollment that's when the patients studied later this year for the target to file and NDA in 2009 to date is positive.

CEP-701 also as inhibitor of inject2 pathway which plays an important role in myeloproliferative disorders or MPD.

Since last month there was an exciting other components in blood, including that CEP-701 in clinically achievable concentrations and in this pilferation and inject2 step five similarly in sales from patients with MPD. And therefore, holds promise as a third clinic agent for patients with these orders.

We are currently in the Phase 2 study in MPD and anticipate completion in the second half of 2009. Two Phase 1 included programs currently under way include CEP-11981 a potent orally active VEGF-R tie 2 inhibitor for solid tumors and CEP-18770 a proteosome inhibitor for the achievement of multiple myeloma. We will anticipate completion of both these studies in 2009.

Our temper resistant program continues to progress. We believe our technology could be applied to a number of opiods to have mitigate abused and diversion or extend to release products in a dangerous effects combining alcohol of these products.

This platform technology is important addition to our drug delivery business. In summary, we have a growing portfolio of unique products that are making a real difference patients lives. This year the growth in TREANDA and AMRIX provided us sort of a tremendous opportunity. Specifically, the leverage in new AMRIX spend by investing further in products and begin NUVIGIL free launch pre-launch activities later this year, all within our current net income guides. These investments today should have a significant and positive impact in 2009.

By growing presence in oncology, two successful recent product launches, a solid portfolio of improved products and product candidates and our track record of M&A that is one of the best one in the space.

I have never been more confident in our future. Now, Kevin will discuss our financial performance during the period and provide guidance for third quarter.

J. Kevin Buchi - Executive Vice President and Chief Executive Officer

Thank you Frank. Today we released our second quarter 2008 financial results. We reported sales of $485 million which is an 11% increase over the second quarter of 2007 and exceeds our previously issued guidance of $455 million to $465 million. This quarter amounts our return to growth and our recovery from our loss of active to generic competition. With basic adjusted net income of $84.5 million, a 12% over the second quarter 2007. This resulted in basic adjusted income for common share of a $1.25, compared to a $1.14 a year ago, exceeding our previously issue guidance of $1.10 to $1.20.

During the quarter CNS franchise sales increase 9% from the second quarter of 2007, setting a record of $251.2 million. Consistent with earnings, pain franchise sales at an inflection point as year-over-year growth in sales increased 3% to $134.6 million. The continue decline in U.S. ACTIQ sales was more then offset by AMRIX and European ACTIQ sales. AMRIX sales surpassed the $1 million weak mark, with $17.1 million for the quarter. Our oncology franchise is beginning to ramp with sales of $44.1 million, an increase of 86% over the second quarter of 2007, due primarily to the launch of TREANDA with recorded sales of $14.4 million and continued growth of MISAT [ph] in Europe. Lastly, other sales were $55.1 million, a 10% increase over the same period last year. Our goal is to maintain distribution channel inventory levels between two to three weeks with each of our key products. During the quarter, inventory level decreased slightly remaining near the low end of this range.

Adjusted R&D in the second quarter of 2008 was largely unchanged from a year ago. SG&A increased $20.8 million in the second quarter of 2008. Primarily, due to the promotional spend for AMRIX, TREANDA launch cost and higher payments to Dacata [ph] associated with our procedural sales efforts. Our adjusted tax rate for the quarter was 34.6%. During the quarter that were several adjustments that were made to arise adjusted net income. We excluded $28.9 million associated with the ongoing amortization intangibles and accelerated depreciation related to the restructuring. We excluded $3.8 million associated with the estimates of accrued interest relates to the agreement and principle with the U.S. Department of Justice and relevant federal agencies. We have excluded $1.6 million associated with cost related to CIMA restructuring.

We excluded $1.8 million to reflect the tax affect of these pre-tax adjustments. Over the past few years, we have developed the manufacturing process to the active pharmaceutical ingredient in NUVIGIL which is more cost effective than our prior process the separating modafinil into armodafinil. We have contracted with the third party manufacturer to produce NUVIGIL utilizing this new process. With this new process, we will significantly reduce our manufacturing cost for NUVIGIL and also reduce the future amount of modafinil we will need from our suppliers and our manufacturing facility in Mitry-Mory, France. As a result of these manufacturing plans and our decision to launch NUVIGIL in 2009, we currently are accessing the potential impact of these items in the contacts of our existing agreements to purchase modafinil and our facility.

We have to complete this analysis and update in next quarter on the potential accounting impact. Under our inventory purchase contracts, we have agreed to purchase minimum amounts of modafinil through 2012, with aggregate purchase commitments totaling $69.4 million as of June 30th 2008.

And our manufacturing facility in Mitry-Mory were we currently produce modafinil, we are considering all options including potentially securing third-party manufacturing contracts to increase utilization of the plants or selling or closing the facility. As of June 30th 2008, we had $44 million of proxy and equipment related to the Mitry-Mory facility included on our balance sheet. Based on our current outlook, we have again increased our 2008 sales guidance to the strong sales for our oncology franchise. Total sales guidance is now $1.86 to $1.91 billion, this increase is offset by increased investments in existing products our guidance for adjusted net income for the full year remains between $346 million and $353 million and our guidance for basic adjusted income for common share remains between $5.10 and $5.20 reflecting a basic share count assumptions to 67.9 million shares outstanding.

Guidance for CNS franchise is between $975 million and $1 billion. The pain franchise is between $500 million and $525 million, oncology has increased by $30 million to between $155 million and $180 million and our guidance for other product sales remains between $200 million and $225 million. R&D and SG&A expenditures are targeted to be between $340 million to $360 million and $770 million to $790 million respectively. Our assumed tax rate for the year is approximately 35.5% to 36.5%.

The company is introducing third quarter 2008 sales guidance of between $480 million and $490 million, adjusted net income guidance of between $85 million and $92 million and basic adjusted net income for common share between $1.25 and $1.35 based upon the $68 million shares outstanding and the tax rate of approximately 35.5% to 36.5%. I want to reiterate what Frank said earlier. 2008 is shaping up to be a terrific year for the company. Our revenues are strong and we are going to leverage those earnings to increase our AMRIX marketing efforts to begin NUVIGIL pre-launch activities. These investments are commenced that was a potential that these products has and will board well for future earnings.

That concludes our opening remarks. We will now open this call to you and your questions.

Question And Answer

Operator

The question and answer session will be conducted electronically. [Operator Instructions]. We will pause just a moment. We'll take our first question from Jim Birchenough with Lehman Brothers.

Jim Birchenough - Lehman Brothers

Hi, guys. Congratulations on the quarter. I want to start-off with a big picture question and that is as you invest in AMRIX and TREANDA and in the launch has NUVIGIL, how you balance that with longer term commitments to maintaining earrings growth. I think it in the past you suggested at least the 20% earnings casual [ph] with a longer term with these investments do you still think you can maintain that type of earnings growth?

Unidentified Company Representative

Jim, thanks for the kind words. I appreciate it. I think we are blessed with this wonderful opportunity of having three drugs really at launch mode and launching NUVIGIL next year. And although it's a great opportunity, it's also a challenge to maintain our earnings profile going forward. I think we can do that. We were able to invest in AMRIX and pre-launch activities for NUVIGIL this year. We are changing guidance. We are pretty happy that how we manage through that process and where we are. We haven't guidance for '09 yet. We will in the next conference call, at the end of our third quarter. And we expect '09 to be a great year. And I think Kevin touched on in his call and his comments and I agree, here to us means continued growth in both sales and earnings. So I think we can do it. Only I can be more specific than that at this time for that.

But, I am pretty sure we will be on track to meet expectations in the years ahead.

Jim Birchenough - Lehman Brothers

And then maybe just one more question for Bob. Just on TREANDA. Just wondering Bob, if we can get an update on what the run-rate was coming out of the quarter in TREANDA sales if you have the last week of sales and it's well with breakdown you are seeing between CLL on label and then off label NHL use?.

Robert P. Roche, Jr. - Executive Vice President, Worldwide Pharmaceutical Operations

Robert. Hey Jim. Thanks very much. With regards to specific weakly sales data, we are not providing that kind of information right at this point in time. So it is wise to say that we are very pleased to with the ex-factory sales trend that we are seeing 14 million plus in the fourth quarter was probably the first quarter of actual launch activity is well beyond our expectations. And I think beyond yours as well and we're seeing great things for the product moving forward.

Unidentified Company Representative

Jim, just so you know and Bob hasn't seen this yet, but today IMS number was published for TREANDA effective end of June. For that month, the number was $6 million.

Jim Birchenough - Lehman Brothers

Great. Well thanks for taking the questions.

Robert (Chip) Merritt - Investor Relations

Thanks.

Operator

We will go next to Donald Ellis with Thomas Weisel Partners.

Thomas Ellis - Thomas Weisel Partners

Thanks. I just have a quick question for Kevin on TREANDA. Of the $14.4 million in the quarter, can you help us understand how much of that might have been stocking versus pull through?

J. Kevin Buchi - Executive Vice President and Chief Executive Officer

Yes, no problem. I mean based on the information we received from wholesalers, we believe we had about $2.4 million of inventory at wholesale at the end of the quarter. So about 12 was the pull through.

Thomas Ellis - Thomas Weisel Partners

Oh, that's traffic. Thanks a lot.

Operator

And we'll take your next question from Bret Holley with Oppenheimer.

Bret Holley - Oppenheimer & Company

Yes, I had a question maybe I missed this. So what kind of data can be expect at ASH for TREANDA. Did you go through that and what kind of... should we expect the final data from German Phase 3 or front line non-Hodgkin's stuff?

Robert P. Roche, Jr. - Executive Vice President, Worldwide Pharmaceutical Operations

I don't, haven't an answered that. Lesley do you know anything about that?

Lesley Russell - Executive Vice President, Worldwide, Medical and Regulatory Operations

I believe that they are planning on submitting an abstract on an out basis, so will the final data which is this is a first line study. So medium progression free survival should be in a year. So but I believe that Professor Rommel [ph] is planning to submit an update.

Thomas Ellis - Thomas Weisel Partners

And that's the only data that we should expect at that ASH?

Lesley Russell - Executive Vice President, Worldwide, Medical and Regulatory Operations

That's the big data we should expect at ASH. There may be some smaller studies presented. We would, we ourselves are not presenting anything at ASH.

Thomas Ellis - Thomas Weisel Partners

Okay. And then one other question I had I guess for Frank, you said that the success with the coverage program for FENTORA will help gain FDA approval. How are you defining success; how does that mean major and what kind of discussion has occurred between this company and the FDA?

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

WellI think the couple of things then maybe we'll have Lesley comment a bit on this as well. There is no standard for the FDA, they have no established guidelines for determining whether it's deemed to be an effective risk management strategy and what isn't. Our goal is to ensure safe and effective use of FENTORA and the patient populations indicated for it. If we can demonstrate that effectively, I think will be in a really good shape. And really good shape to me means will we'll be able to pursue a broader label for FENTORA, as we thought we would be doing. And also I think for the larger goal of ensuring patient safety for a rapid onset albeit from general, I think this could be a new standard for all of that. And the things that will help us and help the patients and physicians at the same time. So that's a 30,000 for common. Lesley you want to add anything to that?

Lesley Russell - Executive Vice President, Worldwide, Medical and Regulatory Operations

Very little I think. I think that you heard at the Advisory Committee Meeting, I think the two major concerns for a product like FENTORA were use in opiod non-tolerant patients and they have used in diversion. I think from me and you, the is success it covers it will be defined by significantly reducing and ensuring the patients are to a tolerance and sort of servings to prevent using in appropriate patients. So it's a non-tolerant patient. I think that that's what... we the goal covers and that we would really like to see and I think that would be a success for the program.

Thomas Ellis - Thomas Weisel Partners

Okay. Thanks very much for taking the questions.

Operator

We will take a next question from Greg Gilbert with Merrill Lynch.

Greg Gilbert - Merrill Lynch

Thanks. Good afternoon. Lesley can you describe the clinical studies and their time lines that will support those promotional claims that you have expect to have by mid '09 for NUVIGIL? And I assume that's a process gated by DD Mac [ph] is that correct?

Lesley Russell - Executive Vice President, Worldwide, Medical and Regulatory Operations

Certainly, the promotional pieces will be reviewed by DD Mac, yes. The actual study is the use of NUVIGIL in patients with OSA type II who have comorbid depression. And the purpose of the study is two-fold, one is to show that the drug works in that population and the other is to ensure that business safety issues with a depressed population. So the purpose of the study is two fold and that would be a promotional thing.

The other study which we will or also be available at the time of launch is more sharing mechanism and site of action. I think if you are familiar with the PROVIGIL label, the pictures of cat brain showing site of action of PROVIGIL the goal for NUVIGIL is to replace the cat brain pictures with human brain pictures and they have to show in a more relevant population. What when you visualize the site of the action in the brain and hope to be able to think about mechanism of action. So those are the goals of the program, which we would have available at the time of launch.

Greg Gilbert - Merrill Lynch

And Frank should, I know your not giving '09 guidance but should we assume that Takeda will not be helping you launch this product and if not what are your thoughts at this stage as to whether additional feet on the street or other partnerships will be required?

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

I am still laughing at Lesley's comment about humans being more relevant population than cats. Yes, Takeda deal turns out in as planned in the middle of '09. So Takeda will not be a part of the NUVIGIL launch. We will be more forthcoming certainly at the end of next quarters call, when we do give guidance for '09 of what the launch plans are for NUVIGIL going forward and how that relates to our ability to sell both, NUVIGIL and AMRIX to a larger audience. So, you will see all that coming in the next quarter conference call.

Greg Gilbert - Merrill Lynch

And one more for Lesley, can you characterize your interaction with the FDA on the covers program and do you think the PDUFA date for FENTORA could be pushed back to out more time for that interaction?

Lesley Russell - Executive Vice President, Worldwide, Medical and Regulatory Operations

You never know now and I think you have heard John Duncan's announced that he was giving a revision, permission to push back PDUFA action date. I think hindsight this one is relatively straight forward. We do anticipate in the new... with the new guidelines that compete with the strong selector which I think will outline what we need to do from the risk management perspective. I mean our interactions with the agency remain very amicable. They know that we are committed to updating and revising and enhancing the risk management plan in the form of our own and we are so committed to do that.

Greg Gilbert - Merrill Lynch

And one last one for Kevin. To what extent will be AMRIX couponing program produce net selling price there? Thanks.

J. Kevin Buchi - Executive Vice President and Chief Executive Officer

I wouldn't expect it to be a hugely material change, and of course it is factored into our guidance.

Greg Gilbert - Merrill Lynch

Thanks.

Operator

We will take our next question from Marc Goodman with Credit Suisse.

Marc Goodman - Credit Suisse-North America

Frank or Kevin, can you help me understand what will change in SG&A in 2009 and obviously, you are adding 30 million here to this year. I understand part of it's NUVIGIL and part of it's AMRIX. So are we going to have another increase in sales and promotion expenses that's pretty dramatic for both products again next year. Are we pulling some of that spending into this year such that won't be as big and we obviously have to have more sales reps. I mean can you address any of that at all?

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

Hey Marc, this is Frank. Before can get you some detail on that, it's a really good question. I think when you look forward at the opportunity to bring AMRIX, not only we have a patent issued of course we are going to have this thing for a long, long time. So the opportunity to bring that to a larger and wider audience is important, and NUVIGIL has to be launched to an order that is at least as large as the one we are launching, we are selling PROVIGIL into today.

And as the labels expand for NUVIGIL and we have plans to do that every year going forward for the next three to four years, we are going to have to bring it to increasingly larger audiences. So we are looking at this as a real interesting opportunity to put together a commercial sales force that can address a larger and broader audience for both price at the same time. Remember today that Takeda is carrying PROVIGIL to the primary care audience, and only PROVIGIL.

And we are carrying through our sales and through our contract sales organization inventive AMRIX to our primary care audience. It's a tremendous opportunity going forward to have a sales force that's brings both AMRIX and NUVIGIL to a larger audience. That's something we haven't had the opportunities do in the past and we would be doing that going forward. That's a 30,000 foot comment, Kevin you want to add some color to that.

J. Kevin Buchi - Executive Vice President and Chief Executive Officer

Yes I will bring you down to about 29,000 feet. I mean as you know and as Frank mentioned Takeda sales will begin in the way middle of 2009. So we will be saving money Takeda in the second half of 2009. That's logically going to offset, because as Frank said, we need to replace those details. And we need to detail NUVIGIL in our launch setting and we need to continue to sell AMRIX.

We expect to have revenue growth in 2009. I think that goes without saying and Frank's been pretty consistent, I think in saying that we would like to have a target of growing a bottom-line earnings at a 15% to 20% rates over the next several years. And so we are not backing away from that and we would very much like to be able to meet that target. Having said that we need to finalize our budgets, we need to finalize our plans and we'll be presenting you with details behind our objectives and our guidance for 2009 on the next earnings call.

Marc Goodman - Credit Suisse-North America

Perfect. And on AMRIX, can you just help us how much was inventory in the quarter or may be can you help us with what the price prescription is or because it seems like it was a little higher than what I thought it was going to be?

J. Kevin Buchi - Executive Vice President and Chief Executive Officer

Yes I mean I can give what we believe the inventory numbers to be. We have AMRIX inventory, end of the quarter as reported those by the wholesalers and I say that with that provides of around $3 million. So the pull through was the remainder.

Marc Goodman - Credit Suisse-North America

What price prescription you would be using for that?

J. Kevin Buchi - Executive Vice President and Chief Executive Officer

I would use around $210. That's the number we've used as baseline as data.

Marc Goodman - Credit Suisse-North America

Thanks.

Operator

And we will take our next question from Dave Windley with Jefferies & Company.

David Windley - Jefferies & Co.

Hi thanks. Couple of small ones; on the sales increase, was there any FX effect in the quarter and was there any FX effect that factors into the sales increase?

J. Kevin Buchi - Executive Vice President and Chief Executive Officer

The dollar has been weakening versus last year and so there was... there were some. It's about 6% increased weakness on the dollar strength of the euro versus last year and so of the... roughly $100 million that was reported by the European segment, probably around the 6% of that came from exchange.

David Windley - Jefferies & Co.

Okay. On the cash flow statement Kevin, you have an investment in third party small line. I wondered if you can add some color that, what that was?

J. Kevin Buchi - Executive Vice President and Chief Executive Officer

I believe, if memory serves me correctly that was the accessory investment.

David Windley - Jefferies & Co.

Okay. Thank you very much.

Operator

We'll take our next question from David Buck with Buckingham Research.

David Buck - Buckingham Research

Yes thanks. Couple of small questions; first on can you... for Frank can you just talk about the your understanding of what the next step is in terms of coverage moving that to ACTIQ and when you understand the exploration of your obligation to supply ACTIQ to broader base, and I have a follow up?

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

Well on the covers program, it's our expectation that the agency will ask us to apply covers to ACTIQ as well. We think that's the right thing to do for patients and we are looking forward to doing that. We also believe covers will be a mandated application to all that. So we think it's an important safety feature to add to the mix of this class of product and like I said we expect the agency to require it and we are happy to do that. Your second question, can you remind me with the second questions once?

David Buck - Buckingham Research

What's your understanding and what your obligation as to supply a generic version of ACTIQ?

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

As our contract says, we have to supply bar through September of 20009 and we expect to meet our obligations.

David Buck - Buckingham Research

Okay. And on TREANDA, what's the current status of patent applications and expectations for to getting patent around TREANDA?

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

I think with TREANDA we are working hard to try to extend the intellectual property around or the associate I should say around that. Our efforts are focused on manufacturing processes, high mode processes and the like. Of course competition no matter is no longer available for us in that regard, so we are working hard on it and we will keep you posted.

David Buck - Buckingham Research

Is there anything that's set to file this year?

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

No.

David Buck - Buckingham Research

Okay. Thank you.

Operator

We will take our next question from Annabel Samimy with UBS.

Annabel Samimy - UBS Investment Research

Hi thanks for taking my call, great quarter. I had a question, I guess it's a broader question. What was behind your thinking of moving the launch NUVIGIL forward without the actual label expansion that rather just approaching with a promotional marking material, or promotional studies?

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

Well first of all the data in those promotional... the promotional claims there is data in those claims that's valuable, especially population of patients with OSA that are depressed, which we think is a large population. So we think that's very important but, I think we've spoken in the past about the strategy here. I think there is a balance that you have to achieve, is you want as much time as possible to launch the drug which you want is much differentiation as possible between the two drugs. And that crossover point to us occurred in mid-2009 and that's really what was our decision was based on.

I don't think for a minute this is just a marketing ploy in 2009. This is based on data, data of the new population of patients that have OSA and depression and it's comorbid states and we think a it will have a meaningful impact on that population.

Annabel Samimy - UBS Investment Research

Okay and in terms of your present strategy PROVIGIL you still have in terms of taking price increases on PROVIGIL, either this year or next to...?

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

But you know it's always difficult and complicated to talk about pricing strategy. I think suffice to say our history on pricing is pretty clear. You can look back and see what we have done with PROVIGIL over the years. And of course, we would like to get the economics around NUVIGIL going forward. We've been pretty public around that. So I would suspect that the time of the NUVIGIL launch, the NUVIGIL will be available at a lower price than PROVIGIL and I think get it from that.

Annabel Samimy - UBS Investment Research

Okay, and just quickly on the risk map on the covers and FDA requirements, can you have... any change to your expectations of other generics coming in. Does this let's not make it harder for generics and how do you feel that at least other rapid acting or breakthrough in products?

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

Well, I'll let Lesley talk about the regulations around the risk maps. I think this is something that's important to do is the population of folks, especially in the fentanyl population of rapid onset opiods that, that's a problematic to manage from a safety perspective. Going back to duragesic launch days with J&J about 15 years ago, these issues of safety there coming right up to a current date with FENTORA, is we think covers is something its going to be applied and helpful to the patients and the generics will have to use it too. And how they do that is not so obvious to us, but it's certainly not something that's just going to be applied to one product in the space. Our estimation is it will be applied to all products in the space equally.

Annabel Samimy - UBS Investment Research

Okay, and just one last question on the ...

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

[Multiple Speakers] your first part Lesley, she's asking about the existing regulations on risk maps.

Lesley Russell - Executive Vice President, Worldwide, Medical and Regulatory Operations

Well I think the regulations are changing so that all new the products will certainly be out for a more comprehensive risk management program in the forms of a REMS, or the Risk Evaluation Mitigation Strategy. I mean, I think Frank covered most of it, it seems illogical to me to earn it for one Fentanyl product under a program that includes the registration type system. So, they will have the same risk. So my guess is, actually my firm belief is that all fentanyl-based products the new ones coming on including ACTIQ will be required to do some form of risk management plan along the lines that we've alluded to, including a system-like covers.

Annabel Samimy - UBS Investment Research

And that includes generic as well?

Lesley Russell - Executive Vice President, Worldwide, Medical and Regulatory Operations

I believe so. I mean I think, the closest example is the I Pledge program for Relactatin [Ph] where all the generics had to do the same thing.

Annabel Samimy - UBS Investment Research

Okay

Lesley Russell - Executive Vice President, Worldwide, Medical and Regulatory Operations

So it would make sense for it to be the same here.

Annabel Samimy - UBS Investment Research

And to they have the means for implementing these programs?

Lesley Russell - Executive Vice President, Worldwide, Medical and Regulatory Operations

Sorry I missed you?

Annabel Samimy - UBS Investment Research

Do they have the means for implementing this program?

Lesley Russell - Executive Vice President, Worldwide, Medical and Regulatory Operations

I can't answer you that. I think that if they don't have the means they would probably need to acquire them.

Annabel Samimy - UBS Investment Research

And then just one last question; after your contracted with Barr December '09 then what need to create their own products?

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

I think under the contract, this is Frank again, we are obliged to supply Barr with products to a certain date and which is September 2009 and after that they are supposed to be doing on their own.

Annabel Samimy - UBS Investment Research

Okay.Thanks

Operator

We'll take our next question from Gary Nachman with Leerink Swann.

Gary Nachman - Leerink Swann

Hi, good afternoon. First question is on PROVIGIL, the others seems to have stabilized somewhat recently. Have you guys done anything differently with the sales force promoting that product or does things stay relatively the same?

J. Kevin Buchi - Executive Vice President and Chief Executive Officer

I think the sales force over the last year has done great things in recovering from the impact of the Justice Department. This year that we have I think depend on of course relates most conservative way after simply that happened. I think now we are in the period where they have more confidence is doing the right thing the right way and they're doing with being very aggressive in how they are approaching the marketplace like that. So I think, what you are saying is just is a more confident sales force selling a drug that they have long understood, they are very confident in. Bob you want to add to that at all?

Robert P. Roche, Jr. - Executive Vice President, Worldwide Pharmaceutical Operations

Yes, Gary thanks for the question. I think another key element to that is focus and consistency and really since early in 2007 we have been really focusing on the on the OSA message as the only promotional platform and the only promotional message which the sales force has been asked to deliver and I think we have come up with some very good very positive promotional programs.

We've got a terrific sales management team in place, we have a highly motivated and I think largely recovered if you will group of individuals who recognize that they've got a fabulous drug in their hand and wonder of they have got to continue to build aggressively in the run up to launch of new visuals. So there are lot of excitement out there, halo effect of a new grade drug like AMRIX helped to bring everybody's focus back together, and I think what you are saying and what we were very pleased to see ourselves is a kind of slowing in that would appear to be a decline from the middle of last year and who knows perhaps a rebound to grow through the end of 2008 and early into 2009

Gary Nachman - Leerink Swann

Will some of your incremental spend this year be dedicated to PROVIGIL to and increase supply a little bit, so that when NUVIGIL comes on the whole market is a little bigger than what it was?

Robert P. Roche, Jr. - Executive Vice President, Worldwide Pharmaceutical Operations

Well one of the key factors that have positively influenced product evolution from a parent compound to a follow on compound, Ventiv [ph] and Lexapro for example, has been a strong robust parent compound and PROVIGIL if we are able to at least maintain and hopefully build into 2009, will I think give us the just the platform we need to jump off with a very successful launch of our NUVIGIL in the middle next year.

Gary Nachman - Leerink Swann

Okay. And for AMRIX thinking of the incremental expense of that product we potentially had more sales reps this year and how are the CSO reps going and I guess would you guys consider DTC for that product?

Robert P. Roche, Jr. - Executive Vice President, Worldwide Pharmaceutical Operations

Yeah, we were not intending to bring new sales people on in 2008. We believe that in early 2009, given the multiple opportunities that we have with AMRIX, PROVIGIL and the run up to NUVIGIL and the pain care franchise and keep in mind that AMRIX is promoted both by the CNFs and the pain care organizations, that we will be able to build our sales infrastructure and create the kind of launch platform for NUVIGIL and the kind of continued support infrastructure for AMRIX that will drive both these drugs to continued success. With regards to Ventiv per se they're doing a terrific job and we see that organization as one which we will likely continue to work very closely with and could even consider building as a resource, as the Takeda deal kind of goes away in the middle of the next year.

Gary Nachman - Leerink Swann

Okay, one quick one on TREANDA. What are the average number of vials that patients are getting treated with. I guess in terms of the average dose per day any cycle, do you have that information if you could share?

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

Yes, we are getting that as we speak here. Why don't you hold on one second, 2000 day one and 2000 day two for a 20-day cycle.

Gary Nachman - Leerink Swann

Okay, there was similar as to what we ....

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

For the average weight patients.

Gary Nachman - Leerink Swann

Excuse me.

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

For the average weight patient. You may have someone who is particularly large who might get more, but by and large most patients we give 2000 day one and 2000 day two.

Gary Nachman - Leerink Swann

Okay, so its similar to what was done in the clinical studies.

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

Correct.

Gary Nachman - Leerink Swann

Okay, then last question also on the covers program as the follow-up; how do you think that that will effect the run rate for FENTORA and ACTIQ in terms of being more restrictive and if you implement it by the end of the year to have an impact so much in 2008. But just generally speaking, would you expect declines in demand next year or do you think it could still growth, having that franchise in 2009?

J. Kevin Buchi - Executive Vice President and Chief Executive Officer

I think the premise of the question is really one that that I think about we see, cover as an opportunity. We're looking at covers as if a chance for us for the first time to approach off risk stakeholders in the equation and we see as an opportunity get more confidence in the prescribing have to positions for federal products now federal is one of those drugs where you don't know what you doing you going to run it trouble and physicians have been afraid user it in large, by and large.

So, we think their covers will bring more confidence to it. I think their ability to interact with pharmacist and physicians alike and get the patients trained properly, is an opportunity. And the big opportunity of course is the success in that which Lesley laid out. What that would take is going to bring more expanded label to FENTORA and more sales in futures sales. So we don't see it as hard in terms of growth. We see it as probably is going to give us more opportunity and also a broader label in the long run.

Gary Nachman - Leerink Swann

That's helpful thanks

Operator

And ladies and gentlemen, we have time for one final question today. It does come from Eric Schmidt, with Cowen And Company.

Eric Schmidt - Cowen And Company

Well thanks for taking my call. Maybe some one could address the FENTORA patent challenges that you have received in the last of couple of months and your conviction in that intellectual property?

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

Well Eric I'm going to let Jerry answer the question; I'll come to back to you with my convictions.

Gerald J. Pappert - Executive Vice President and General Counsel

And what I will say Eric is obviously as you know, Watson and Barr filed and as we have filed suit versus both of them to protect out intellectual property and we fully intend to prevail on these disputes.

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

As far as convictions go Eric, I think we don't go lightly into this space. We have very strong patents filed. They are unique and we think we have a very, very strong case to prevail here. So this is part of the new course of doing business with pharmaceuticals. Caught hands you get dragged on market and you gets filed. What it has to do with us is that we have been able to prevail and keep our products work very long time.

Eric Schmidt - Cowen And Company

And since you perceived your AMRIX patent, have you been made aware any progress to your filings there?

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

None to-date. They are very close as AMRIX, we call it AMRIX here.

Eric Schmidt - Cowen And Company

It's the Philadelphia accent. Last question just on the guidance for the pain franchise. Am I now to now to assume that no generic ACTIQ is contemplated in that guidance versus prior expectations for potentially something that prior mid year?

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

Yes that's right Eric. To the extent that we are still not seeing anything, we're still not hearing new information. We've have pushed that out. So we're assuming at this point in time that there will not be another generic in our guidance.

Eric Schmidt - Cowen And Company

Congrats. Thanks... congrats on the quarter and thanks for the questions.

Frank Baldino, Jr., Ph.D. - Chairman and Chief Executive Officer

Thanks Eric. Take care of yourself.

Robert (Chip) Merritt - Investor Relations

Thank you all for joining us today and that conclude today's call.

Operator

Ladies and gentlemen, this does conclude today's conference call. We appreciate your participation. You may disconnect at this time.

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