Sepracor, Inc. Q2 2008 Earnings Call

Sepracor Inc. (SEPR)

Q2 FY08 Earnings Call

July 29, 2008, 08:30 AM ET

Executives

Adrian Adams - President and CEO

Jonae R. Barnes - Sr. VP, IR and Corporate Communications

Mark Iwicki - EVP and Chief Commercial Officer

Mark H.N. Corrigan - EVP, Research and Development

Robert F. Scumaci - EVP and CFO

Analysts

Frank Pinkerton - Banc Of America Securities

Ian Sanderson - Cowen and Company, LLC

Bert Hazlett - BMO Capital Markets

Annabel Samimy - UBS

Matt Duffy - BDR Research

Biren Amin - Stanford Group

Gregory Gilbert - Merrill Lynch

Richard Silver - Lehman Brothers

James Kelly - Goldman Sachs

Presentation

Operator

Ladies and gentlemen, welcome to Sepracor’s Second Quarter 2008 Earnings Conference Call. Hosting the call from Sepracor is Mr. Adrian Adams, President and Chief Executive Officer. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions].

It is now my pleasure to turn the floor over to your host, Mr. Adrian Adams. Sir, you may begin.

Adrian Adams - President and Chief Executive Officer

Thank you, operator and good morning everyone and thank you for joining us for our second quarter 2008 financial results webcast. With me this morning are Mark Iwicki, Executive Vice President and Chief Commercial Officer; Mark Corrigan, Executive Vice President of Research and Development; Bob Scumaci, Executive Vice President and Chief Financial Officer and Jonae Barnes, Senior Vice President of Investor Relations and Corporate Communications.

Before I proceed, I'd like to ask Jonae to read our forward-looking statement. Jonae?

Jonae R. Barnes - Senior Vice President, Investor Relations and Corporate Communications

Good morning, everyone. Various remarks that we make about our future expectations, plans and prospects constitute forward-looking statements for purposes of the SEC Safe Harbor provision. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, which are discussed in our most recent quarterly report on Form 10-Q, which is on file with the SEC and other reports.

In addition, these forward-looking statements represent the company's expectations only as of today. While we may elect to update these forward-looking statements, we specifically disclaim any obligation to do so. Any forward-looking statements should not be relied upon as representing our estimates or views as of any date subsequent to today.

During this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principle. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in our second quarter 2008 financial results press release, which is available in the Investor Relations section of our website.

Back to you, Adrian.

Adrian Adams - President and Chief Executive Officer

Thank you, Jonae and I'd like to thank everyone again for joining us this morning. As you know, we released our second quarter 2008 results this morning and before we begin I'd like to take you through the main areas that we would like to cover during this morning's webcast.

First, I'll review some of the key 2008 objectives we have outlined at the beginning of this year and then we will move on to provide an update on our achievements against these objectives as we completed the first half of the year. I'll then comment on the second quarter and first half financial results. Mark Iwicki will follow with a review of the commercial performance of our product portfolio. He will then introduce Mark Corrigan, who will provide an overview of the progress we are making in broadening, deepening and delivering across research and developments. Finally, Bob Scumaci will cover the GAAP to non-GAAP earnings per share reconciliation and financial guidance for 2008 and I'll make some concluding remarks before opening the call up for questions.

Moving along to our 2008 key objectives, I'll first like to review what we set out to accomplish at the beginning of this year and then give a summary of how we have performed thus far this year against these objectives. Please refer to slide number three. The key objectives that we have been working towards as we progressed through the first half of this year covered, firstly, the continued development of peak performing commercial capabilities with a particular focus on an housing sales force productivity. Secondly, to fully leverage both our existing and new product franchises, an important goal, given all broadened product portfolio after the Nycomed and B Ultra [ph] license.

Thirdly, we are committed to expanding and advancing our research and development pipeline with a view to creating shareholder value all the time. And fourthly, the pursuit of synergistic corporate development and licensing opportunities. With these in mind, I would like to briefly review our 2008 achievements and highlight our many accomplishments during the first half of the year against these objectives, some of which will be covered in more detail later in this call.

Please now refer to slide number four. We have made significant progress towards developing peak-performing commercial capabilities. I am please to report that our overall sales force productivity metrics have improved in many significant areas. Mark Iwicki will be commenting on this in more detail during his part of the presentation.

Since the restructuring and realignment was implemented at the beginning of this year, our valued field forces have begun to gain traction with new call plans, quality training, focused targeting and what we believe our best practice incentive schemes. These are important ingredients of a high performance sales team and we believe that now we have a motivated and talented group of sales professionals in place to leverage the stream of opportunities that lie head. We have also created new professional and consumer campaigns, which seem to resonating well with physicians and patients, as Mark will show later.

During the first six months of 2008, we made gains in leveraging existing and new product franchises and despite highly comparative markets, we are seeing positive developments with our growth driver products LUNESTA and BROVANA. In addition, we launched OMNARIS in April of this year and the sign so far have been encouraging. We also believe that we are well prepared for the introduction of ALVESCO, which is on target for a specialist launch in the fall.

We were also pleased with the settlement of the patent litigation for XOPENEX Inhalation Solution with Breath, a settlement that provide a certainty and reduce the risk associated with litigation for both parties. We continue to make solid progress in advancing our research and development pipeline, a pipeline that we believe is amongst the best in the specialty pharma sector.

As mentioned on our last conference call, we had a successful pre-NDA meeting with the FDA for SEP-2093 eslicarbazepine acetate during the first quarter and anticipate filing the NDA in late 2008 or early 2009 for this exciting compound. Large phase II proof-of-concept studies for two potential new products SEP-441 for anxiety and SEP-289 for depression are ongoing and on track to deliver results in the first quarter and first half of 2009 respectively.

SEP-162, our dual reuptake inhibitor product candidate is also on track with a potential to enter Phase III in 2009. We are also delighted to report that during the second quarter we submitted an IND for SEP-900, a D-amino acid oxidase inhibitor for neuropathic pain. This is a first-in-class compound with a novel mechanism of action.

Also in the second quarter, we begun dosing trails for two other triple reuptake inhibitors, SEP-432 and SEP-425. We are also proud to report that we now have six additional respiratory candidates in various stages of clinical development.

Turning to corporate development and licensing, we have successfully completed several significant agreements this year. In early 2008, we entered into an exclusive U.S. marketing and development agreement with Nycomed from OMNARIS and ALVESCO of ciclesonide. Despite short time lines, we launched OMNARIS in April and are on target to launch ALVESCO in the coming months.

As part of this agreement, we gained the rights to additional ciclesonide pipeline products in various stages of developments, which we believe further strengthened or growing a now robust pipeline.

As you may note, we also signed agreements in the second quarter with Arrow, that we believe will provide Sepracor with an enhanced ability to develop various products in the ciclesonide franchise. In addition to giving us access to a XOPENEX/ipratropium combination product candidate, which is Phase III ready. This product could be launched as early as the second half of 2011.

In June, we also completed the acquisition of Oryx, a specialty pharmaceutical company in Canada. This acquisition establishes a commercial platform from which we will potentially launch in Canada, LUNESTA, BROVANA, eslicarbazepine and other products from the Sepracor research and development portfolio. Overall, we are extremely pleased with our progress we have made this year on all of our planned objectives across the organization.

Let's now move along to our financials beginning with our second quarter financial results. Please refer to our next slide, slide number 5. For the second quarter 2008 total revenues were $294.1 million, an increase of 6.3% versus second quarter 2007. LUNESTA revenues increased by 3.6% over the second quarter 2007 to reach $148.1 million. The XOPENEX revenues were $85.4 million and reflect a decrease of 17.6% versus the second quarter of 2007. The reduction of XOPENEX Inhalation Solution revenues for the second quarter 2008 compared to the same period last year was attributable in part to both reduced volume and the decision made by the Centers for Medicare and Medicaid Services, CMS during the second quarter 2007 to institute a new bundle payment amount for XOPENEX Inhalation Solution and generic albuterol inhalation solution products.

XOPENEX HFA revenues reached $14.1 billion, an increase of 14.2% versus the second quarter 2007. BROVANA is now progressing well following the implementation of a permanent and unique J-Code for the product in January. Revenues in the second quarter reached $13.3 million, which is an increase of 141% versus the second quarter 2007.

OMNARIS was launched in April 2008 and although still early days in the launch, revenues for the quarter was $7.4 million. The second quarter 2008 GAAP EPS was $3.41 versus quarter two '07 GAAP EPS of $0.04. However, excluding an income tax benefit as a result of the release of evaluation allowance on our deferred tax assets and after-tax in-process research and development change and certain other items as detailed in the reconciliation of GAAP to non-GAAP measures attached to this morning's press release, non-GAAP net income for the second quarter was $6.7 million or $0.06 per diluted share. These results compare with a non-GAAP net income of $4.8 million or $0.04 per diluted share in the second quarter of 2007.

Please now refer to slide number six, a slide that illustrates our second quarter and first half revenue performance depicted in a bar chart. As mentioned, our second quarter revenues were $294.1 million, a 6.3% increase from the second quarter 2007. You can see from this illustration the change in our portfolio and the decreasing share of XOPENEX Inhalation Solution as a proportion of total revenues and the importance of our growth products LUNESTA, XOPENEX HFA and BROVANA and OMNARIS with together with our alliance in other revenues account for 71% of revenues as compared to 62.6% during the second quarter of 2007.

Sepracor's revenues, excluding XOPENEX Inhalation Solution, grew by 20.4% quarter-over-quarter. For the first half of 2008, our revenues were $614.9 million, a 1.7% increase from the first half 2007. You can also see that if one excludes XOPENEX Innovation Solution revenues, the growth in revenues was 10.8% over the first six months of last year.

Please now refer to slide number seven, a slide that illustrates our overall financial performance for the first half of 2008. For the six months ended June 30th, 2008 total revenues were $614.9 million, which was an increase of 1.7% versus first half 2007. LUNESTA revenues were $283.7 million through June 30th, a decrease of 2.3% versus first half 2007. XOPENEX Inhalation Solution revenues were $225.4 million, which is a decrease of 11% versus first half 2007. XOPENEX HFA revenues reached $34.2 million, an increase of 3.9% versus first half '07 and the BROVANA revenues reached $23.2 million for the first half, an increase of 321.1% versus first half 2007. OMNARIS, which as I mentioned earlier was launched in April, has total revenues of $7.4 million during the first half of 2008.

First GAAP EPS was $3.52 versus first half '07 GAAP EPS of $0.20, excluding an income tax benefit as a result of the release of the valuation allowance and our deferred tax assets, after-tax in-process research and development charges and after-tax milestone payment and certain other items as detailed in the reconciliation of GAAP to non-GAAP measures in today's press release.

Non-GAAP net income for the first half of 2008 was $68.1 million, or $0.59 per diluted share compared to non-GAAP net income of $56.5 million, or $0.48 per diluted share for the first half of 2007. This represents an increase of 22.9% for first half 2008 non-GAAP EPS over the comparable period in 2007. Included in the results for the six months ended June 20th…June 30th, 2007 is an after-tax charge related to a litigation settlement as detailed in the reconciliation of GAAP to non-GAAP measures shown in our press release.

We are also pleased to report that our cash in short and long-term investments remains strong at $853.3 million as of the end of the second quarter 2008 despite very active and successful initiatives on the corporate development front.

I would now like to hand the call over to Mark Iwicki, our Executive Vice President and Chief Commercial Officer who will review our commercial performance and plans. Mark?

Mark Iwicki - Executive Vice President and Chief Commercial Officer

Thank you, Adrian and good morning, everyone. I would like to begin with a review of our product portfolio. Please refer to slide number eight. As mentioned on our last call, we launched OMNARIS in April into the large allergic rhinitis category, a market we believe presents considerable opportunity for a unique and differentiated product like OMNARIS. The total market opportunity in this category is estimated at approximately $2.3 billion.

Later this year, we plan to launch ALVESCO HFA, a differentiated product with product line extension potential. We are striving for early uptake of the product with key specialists, which will then provide the foundation for a subsequent launch into the primary care market. The total market opportunity for this category, inhaled corticosteroids, is approximately $1.2 billion. We have two products with continued growth potential on our portfolio. We believe LUNESTA has an opportunity for upside potential as share stabilizes in a challenging market.

We also see BROVANA as having strong growth momentum and our goal is to capitalize on upside opportunities across various channels. We have two products for which we will focus our investments to ensure optimized contribution. Our plan for XOPENEX Inhalation Solution is to capitalize on our loyal customer base and generate field force sufficiencies with the launches of OMNARIS and ALVESCO. For XOPENEX HFA, we will further focus our resources during the CFC transition and concentrate resources on doctors and patients that have demonstrated preference for the XOPENEX family of products.

Slide number nine. As most of you are probably aware we underwent a field force realignment and restructuring late last year and this was completed in the first quarter. At the beginning of the year, one of our key 2008 objectives was to significantly increase field force productivity. We believe that we are now seeing increased momentum from our sales organization as a direct result of the changes that were implemented.

Some of the initiatives we put into place include a new geographic footprint with our sales professionals deployed strategically across the U.S. to maximize call frequency to our highest target prescribers. We've also implemented a very competitive incentive program decided to reward our best performers.

I'm very proud to say that we made significant improvements in our performance metrics and year-over-year data as a result. Average calls per day are up 18%. This is steady progress and you can see it on the chart on the left hand side of the slide. Call frequency is up 30% and our calls to target are up a 11%. We're also pleased to report that approximately 47% of our territories has shown positive LUNESTA volume growth relative to the market growth in the past month. We believe these key performance indicators will continue to improve over the reminder of the year.

Turning now to slide ten. For LUNESTA, our market share declined after a launch of generic XOPENEX in April of 2007. More recently the rate of decline has slowed and share appears to be leveling off. As you can see in the slide on the top left shares declined about 0.6 share points since January and has been relatively steady recently.

I'd like to point out that the overall and insomnia market growth rate has been declining and is now trending to a low single digit growth rate compared to a high single digit growth rate that was forecasted at the beginning of the year. We are encouraged by the LUNESTA share development and believe it is in large part due to our improved marketing, sales and managed care efforts.

In addition, LUNESTA has lost less market share than AMBIEN CR despite our decision to reduce considerably the amount of spend on detailing and DTC. Volumes has also remained stable year-to-year and we will continue to make every effort for its performance improvements for LUNESTA during the second half of 2008.

Our priorities during the second half of the year are to differentiate our product from other agents particularly generics and we will maintain our focus on field force productivity. We've made strides in improving LUNESTA DTC efficiency with revised media plans and new direct marketing initiatives.

We also plan to emphasize high-quality meetings and events during the second half. And as you can see on slide number 11, year-to-date, we are already making progress on this front and have significantly increased our meetings and events share of voice to 44% in the sedative hypnotic market. This is especially true with our high decile prescribers. This can be seen in the graph on the lower left hand side of the slide.

Also depicted on the slide in chart in the upper right, you can see that our share of patient request for LUNESTA has improved since the first quarter and is now above AMBIEN CR. We are really pleased with this development as we have launched an improved TV spot and reduced our DTC spending during the first half of 2008. As you can see from the graph, we are also pleased to see our share of new written prescriptions is holding steady in this highly competitive market.

Turning now to slide number 12. BROVANA is a long-acting beat-agonist for the maintenance treatment of bronchoconstriction in patients with COPD. BROVANA has the potential to significantly improve patients’ lives and give them back some freedom in their lives. BROVANA helps patients maintain lung function for a full 12 hours enabling them to participate in activities during the day rather than being home tied to a nebulizer.

BROVANA can make a real difference for some COPD sufferers and we are excited that doctors and patients alike are seeing the positive benefits of BROVANA treatment. BROVANA's performance was strong in the second quarter and first half of 2008. Volume continues to grow and it has staged strong in recent months despite the fact that there are some summer seasonality to the COPD market during the warmer months. I am pleased report that this growth is coming from both retail and non-retail sources and that BROVANA has reached a new peak of performance.

Our new Sepracor managed contract sales team is in training now with the goal of being well prepared for the anticipated launch of ALVESCO this fall. This team will provide us with an opportunity for increased reach the targets for BROVANA with higher call frequency and more meetings and events. During the second half, we will emphasize BROVANA's key benefits and plan to introduce a new sampling plan that we expect to be more effective. We will also devote resources aimed at maintaining and expanding our formulary status with managed care organizations and home health care providers.

Please now refer to slide 13. OMNARIS is our new intranasal corticosteroid that we launched in April for the treatment of seasonal and perennial allergic rhinitis. OMNARIS launch is off to a good start and we are excited to make this great product available to help the millions of patients that suffer from allergic rhinitis. The monthly uptake has been strong and as you can see on the chart on the top left, market share continues to rise. Market data to-date is showing strong prescription growth among key specialties. The product is showing this growth with both allergist and ear, nose, and throat specialists. This is the first time that we have called on ENTs and we think there is upside potential from this key specialty as we improve our relationships during the second half of 2008.

In addition, 33% of our top decile doctors have already prescribed OMANARIS and this metric has been building each week. As I described on the preceding slide, we have a new Sepracor managed contract field team that will begin detailing in the second half of the year and in time for our launch of ALVESCO, this sales team will also be significantly focused on OMNARIS and BROVANA.

We expect to launch new clinical data on OMNARIS this fall and we also plan to commence direct to patient efforts starting in the third quarter including a web-based patient education program. By the end of the year, we will have trained over 1,000 speakers and anticipate delivering greater than 1,800 medical education programs.

Moving on to slide 14, we are really encouraged by the feedback that we are receiving high prescribing physicians. Our sales representatives are receiving very positive feedback from doctors that have used OMNARIS and we have seen the same level of satisfaction in recent market research. Message recall from our sales and marketing initiatives is also positive. As you can see, we've had success with our three core efficacy message. OMNARIS sticks and stays in the nasal mucosa, OMNARIS maintains efficacy all season, and OMNARIS reduces nasal symptoms over 24 hours in seasonal and perennial allergic rhinitis. The quotes I have included on the slide are representative of the findings from recent market research we conducted. We are pleased that many doctors are reporting positive patient feedback and that they themselves have been positive about their patients' use of the product. OMNARIS will continue to be a major priority for Sepracor and the fall allergy season provides a strong opportunity for volume growth in the third and fourth quarters.

Please now refer to slide number 15, which illustrates XOPENEX HFA's performance on a quarterly basis. The short-acting beta-agonist HFA MDI market has been a challenging market for us due to heavy switching and discounting in the class. This is particularly true at the retail level. Shares declined in the first half of 2008, but we were encouraged to see that the volumes in TRX share are up versus the same period in 2007 for XOPENEX HFA. Possibly contributing to the slower growth, we are seeing for XOPENEX HFA was our strategic decision to reduce our resource devoted into XOPENEX HFA in favor of supporting the launch of OMNARIS and the upcoming ALVESCO launch, two of our key future growth drivers.

Our objectives for the second half of year are to emphasized strong consistent detailing to physicians, who have been significant prescribes of the XOPENEX family of brands. We also emphasize and reinforce to prescribers that XOPENEX HFA is the only differentiated molecule in the branded short-acting beta-agonist HFA market. We believe that there is continued opportunity for Sepracor to increase XOPENEX HFA business during the CFC to HFA transition as approximately 39% of which has still not converted to HFAs.

We recently launched X80 sample. This is new canister that has 80 actuations. Since launch, we have been sampling with our retail canister, which has 200 actuations. The 80 actuation canister should provide for plenty of trial for patients to ensure that XOPENEX works well for them, but will enable us to significantly reduce the overall volume of sample, days of therapy in the market.

Finally for XOPENEX HFA, we will continue to capitalize on meaningful managed care opportunities and drive share on targeted accounts for XOPENEX as a preferred position. Our managed care coverage remains solid with unrestricted access from 93% of managed care lives.

Moving now to slide number 16, I would like to comment on the performance of the XOPENEX Inhalation Solution. In the retail market, as you can see in the chart, we are experiencing a bit of share decline due perhaps to summer seasonality in the asthma market. However, volume in retail and home health cares remain steady year-over-year.

During the second half of the year we will be implementing a very targeted approach with the highest volume prescribes and expect to continue non-personal promotion activities with these physicians.

In addition to the launch of OMNARIS in April and our ALVESCO later this year gives us a good opportunity to optimize XOPENEX Inhalation Solution sales and marketing spend with the focus on significantly improved efficiency.

Please, now refer to slide 17. As you can see from the financial results attached to our press release this morning, our overall SG&A spent is down on a comparable basis for the same periods last year and despite this we are seeing solid and generally improving performance from our growth driver products. As mentioned earlier we are beginning to see positive signs for LUNESTA from leading indicators such as an increase in share patient requests and stable NWR ex-share for the product. This is all despite a pullback in DTC spent.

BROVANA's volume has moved to its highest level since launch and we are anticipating further growth during the fall COPD season. XOPENEX Inhalation Solution and HFA are both holding ground in challenging markets. We are seeing positive OMNARIS launch momentum especially with key specialists and will continue to allocate resources toward launch and growth products to optimize contribution across the portfolio. During the reminder of this year we will continue our focus on increasing field force productivity. We've seen great strides in calls per day, frequency to targets and share improvement in many territories. We expect to see these improvements continue.

In addition, pre-launch activities for our ALVESCO are underway and we are looking forward to the commercial launch of this important new product very soon.

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

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

Thanks, Mark. On today's call I will take you through our pipeline, highlight the important results that we are anticipating over the next year and review, in some reform, our exciting new anticonvulsant, eslicarbazepine acetate.

Our respiratory pipeline, depicted above, reflects OMNARIS moving into launch phase in blue and the expansion of the ciclosonide family.

ALVESCO is launch ready with an anticipated introduction of the product this fall. XOPENEX and ipratropium combination and the OMNARIS HFA are both Phase III ready. Thanks to our technology license from Arrow, we are advancing ciclesonide inhalation solution and the combination of ciclesonide with BROVANA.

Turning now to slide 19, to our CNS pipeline, our European and Japanese regulatory efforts continue to advance. Our large multinational clinical study of LUNESTA in combination with [inaudible] is enrolling and we continue to explore other potential LUNESTA line extension opportunities.

SEP-2093 is eslicarbazepine acetate, an anticonvulsant for which we are busy writing the NDA, more on this later. SEP-289 is our lead triple reuptake inhibitor in proof-of-concept for major depressive disorder. It is the first of the three clinical candidates taking this unique mechanistic approach with SEP-432 and 425 advancing behind it Phase I. We believe Sepracor is among the leaders in this field.

SEP-441 is moving forward and we anticipate completing proof-of-concept in the clinic this year. SEP-162 continues to advance through experimental medicine studies towards the possible Phase III start next year.

Turning to slide 20, emphasize as the large number of significant events upcoming for Sepracor over the next year. Looking at some of the key events as they reflect the substantial investments in R&D over the last three years, the second half of this year and 2009 should be exciting. Depicted on top of the time line our regulatory events below clinical studies. Some of the major events on are noted with an asterisk, OMNARIS HFA Phase III start, eslicarbazepine NDA and the four-for-one proof-of-concept results, to name a few.

Finally, on slide 21, I want to share with you our excitement of eslicarbazepine acetate. This novel anti-epileptic drug for the adjunctive treatment for partial complex seizures, recently had summary data presented in Spain. An additional data will be presented at Berlin in September and Seattle in December.

The NDA contains three pivotal trials encompassing over a 1,000 patients. There are two large-scale pain studies being run by our partner [inaudible] in Europe. This medicine has demonstrated a clear efficacy profile, which is well tolerated and is dosed once daily with the minimum potential for drug-drug interactions.

These summary graphs on slide 22 reflect the significant dose-related medium seizure reduction on the left. [inaudible] effective anticonvulsant.

As important and crucial for patients is the quality of life depicted on the right taken from one of the pivotal trials and replicated across. This is particularly important for patients with epilepsy for whom many of the medicines they must take to control their seizures had side effects that erode their quality of life.

With that I’ll hand the call over to Bob. Bob?

Robert F. Scumaci - Executive Vice President and Chief Financial Officer

Thank you, Mark. Good morning, everyone. I'd like to begin on slide 23 with our GAAP EPS for the second quarter of 2008, which was $3.41 per diluted share compared to $0.04 per diluted share for the second quarter of 2007. The GAAP EPS includes an income tax benefit as a result of the release of our evaluation allowance on our deferred tax assets and after-tax in-process research and development charge and certain other items detailed in the reconciliation of GAAP to non-GAAP measures attached to the second quarter press release that was issued this morning. For the first half of 2008, GAAP EPS was $3.52 per diluted share compared to $0.20 per diluted share for the same period in 2007. The GAAP EPS includes an income tax benefit as a result of the release of the valuation allowance on our deferred tax assets and after-tax in-process research and development charges and after-tax charge related to our R&D milestone payment and certain other items detailed in the reconciliation to GAAP to non-GAAP measures attached to our press release this morning.

Turning to slide number 24, excluding an income tax benefit as a result of the release valuation allowance on deferred tax assets and after-tax in-process research and development charge and certain other items detailed in the reconciliation of GAAP to non-GAAP as just discussed in our press release. Non-GAAP EPS for second quarter 2008 was $0.06 per diluted share and these results compare with non-GAAP EPS of $0.04 per diluted share in the second quarter of 2007, once again excluding the income tax benefit as a result of the release of the valuation allowance on deferred tax assets, after-tax in process research and development charges and after-tax R&D charges related to the milestone payment and certain other items detailed in this morning's press release related to the reconciliation of GAAP to non-GAAP measures. Non-GAAP EPS was $0.59 per diluted share compared to $0.48 per diluted share for the first half of 2007, an increase of approximately 22.9%. Included in the results of the six month ended June 30th, 2007 is an after-tax charge related to the [inaudible] litigation settlement.

Turning to slide number 25, as you may recall from our first quarter results Sepracor has begun reporting non-GAAP fully diluted EPS results. These results are reconciled to our GAAP EPS in this morning's press release. However, we felt it’s important to walk through the six-month end June 30th, 2008 non-GAAP results. These results exclude an income tax benefit as a result of the release of our valuation allowance on deferred tax assets. As noted in our most recent quarterly report on Form 10-K… 10-Q, which is on file with the SEC, Sepracor is reviewing various recent transactions to assess based on future profitability, whether deferred tax assets are more likely than not to be realized. This review was completed in the second quarter and the valuation allowance was released. This release resulted in increase to fully diluted EPS of $3.91.

Other reconciling special items include increases to our in-process R&D charges related to licensing development agreements with Arrow, impairment charge on our investment of Acadia Pharmaceuticals and the R&D expense related to a milestone payment to Bial.

Other recurring items include amortization of intangibles related to the Arrow, and Nycomed, and Oryx transactions and a non-cash imputed interest expense related to the Arrow transaction. In a moment, I will provide you with third and fourth quarter recurring charges that you will need for your models.

Now, I'd like to comment on guidance for 2008. So, please refer to slide 26. The first six months of the this year have been very exciting as we have capitalized on various strategic business, development and licensing opportunities. These transactions as well as the release of the valuation allowance on deferred tax assets and the impairment charge of our investment in Acadia have resulted in our need to adjust our GAAP to fully diluted EPS guidance for the year.

In addition, during some of the challenges that Mark Iwicki outlined with respect to our product portfolio we are reducing overall 2008 total revenue guidance from a range of $1.35 billion to $1.45 billion to $1.275 billion to $1.375 billion, which now represents an 8.1% growth over 2007 levels at the mid point of the range.

SG&A expense guidance has reduced from $815 million to $780 million. R&D expense guidance has reduced from $295 million to $275 million, which includes the charge of $10 million related to the Bial milestone payment. We have reduced our overall operating expenses by $55 million, or approximately 5% from our previous guidance.

The new guidance for operating expenses does not include any of the six-month year-to-date special or recurring items including the press release or amounts for those recurring items anticipated in the third and fourth quarters of 2008 with the exception of the Bial milestone charge as previously noted.

The third and fourth quarter recurring charges related to the amortization of intangibles is approximately $3.8 million per quarter and the non-cash imputed interest expense is approximately $3.1 million per quarter.

To further help you with your modeling, there will be no changes to our effective tax rate for this year, valuation reserve has been maintained which we released in third and fourth quarters to offset income tax expense. Beginning in 2009, you should use an effective tax rate of 38%. Please note that 2009 our cash payments for income taxes will be substantially less than our income tax provisions due to the continued utilization of the analog carryforwards, which approximates $1.152 billion at the beginning of 2008.

We will be providing you an update of the 2009 effective tax rate and provide our 2009 guidance. Fully diluted GAAP EPS guidance is now $4.20 to $4.60 per diluted share based on weighted average shares outstanding of a 116 million shares. GAAP EPS includes an income tax benefit as a result on release of valuation allowance on our deferred tax assets, after-tax in-process research and development charges, the after-tax Bial R&D milestone expense, the after-tax charge related to the impairment of our investment in Acadia and certain other items detailed on our reconciliation of GAAP to non-GAAP measures attached to the second quarter press release that was issued this morning.

By the end of the year, we are forecasting cash in long and short-term investments of approximately $900 million. I would now like to hand the webcast over to Adrian for some concluding remarks.

Adrian Adams - President and Chief Executive Officer

Thank you, Bob. Please now refer to our final slide, slide number 27. As part of our long-term planning for Sepracor, we've laid out a clear strategy for building Sepracor into the future and we are now executing against that plan. With this in mind, we have some fundamental near-term corporate objectives that are enablers of this longer-term plan. We are striving for solid performance from our key growth driver products and from recently launched OMNARIS Nasal Spray and from ALVESCO HFA which we plan to launch this fall. This also includes building sales force momentum post re-alignments and restructuring.

We settled the patent litigation for XOPENEX Inhalation Solution providing certainty for this product. Our R&D pipeline has grown considerably this year and existing programs continue to advance. We now have 12 candidates in various stages of development.

Our respiratory portfolio expanded in 2008 with rights we acquired for product candidates and enabling technologies. We have successfully completed several corporate development and license agreements. We announced the agreements with Nycomed and Bial earlier this year. We announced agreements with Arrow that provides Sepracor with an enhanced stability to develop all the products and provide a potential franchise management opportunity with the addition of the XOPENEX/ipratropium combination and we are growing our international presence with the acquisition of Oryx providing a Canadian commercial launch platform.

In summary, we believe that we are well poised to take Sepracor into a new pace of momentum and we believe we are executing well against the plans we put in place in the first half of this year.

At this point, I would like to open up the call for questions and answers. Operator, will you please give the instructions.

Question and Answer

Operator

Thank you. And ladies and gentlemen the floor is now open for questions. [Operator Instructions]. Thank you and your first question will come from the line of Frank Pinkerton with Banc Of America. Please go ahead.

Frank Pinkerton - Banc Of America Securities

Hi, can you hear me?

Adrian Adams - President and Chief Executive Officer

Yes, good morning, Frank.

Frank Pinkerton - Banc Of America Securities

Hi, good morning. Thanks for taking the question. I guess my first question here is, if I can ask two, the first one is on OMNARIS. How do we think about the success in the launch of that product, I know you guys put up some share percentage numbers but we just came out of what would be, I guess, an analogy season that is a small one in the fall, but when we look at a seasonal product like that, how do we gauge the success of the launch in between what would be kind of the peak sales times in your goals for moving the needle on that product may be over the next three to six months?

Adrian Adams - President and Chief Executive Officer

I'll ask Mark to comment in a moment but obviously when we were modeling the acquisition, we've modeled it based on some of the more recent launches and Mark can comment just how we are tracking against some of those products that have been launched quite recently but as I have mentioned I think if one looks at the progress today both on feedback from our customers and indeed the market share up tick is in line with our projection so far and we are very pleased with the qualitative and quantitative feedback we're getting. Mark, do you want to add to that?

Mark Iwicki - Executive Vice President and Chief Commercial Officer

Yes, I think when we launched the product the season was already in full swing. So we didn't catch the total peak of the season. But nonetheless, we feel very good about the performance we've had, share continues to build, I showed monthly data but our weekly data also looks good. And I think what we are most excited about is our sales representatives interacting with the doctors and reporting back that each time a doctor uses OMNARIS they have really, really great results. The sticks and stay message is really coming across loud and clear, patients make many, many comments about the lower volume spray, how it feels. And as you know, if you follow this market, the AQ’s preparation, they can be quite a challenge for many patients. So, we're really excited about the products. We continue to see the share and prescription build, even though we have come out of the season. As you pointed out, Frank, it's certainly a slower season through the summer, but we are expected to pick up again here as we get into the fall.

Adrian Adams - President and Chief Executive Officer

And Frank, I think one of the points that I have mentioned on several occasions, I think one of the benefits of number of the corporate development and licensing initiatives that we have done is that we now have a broadened portfolio, the portfolio that has within it a seasonality, whether it be the allergy season or aspirin that in turn gives us more flexibility in relation to allocation of promotional resources throughout the course of one particular year and we are very pleased with them.

Frank Pinkerton - Banc Of America Securities

Okay, great. And just a second question, I know for a product like LUNESTA, which has gone through a tremendous change, I have seen you taken some price increases, but can you just walk us through the philosophy around price increases and now just when and how you would take them, but ultimately how you interact with the managed-care organizations? This is clearly a drug now that isn't going to end up on any of the Tier 1 physicians in formularies. What's the goal to get to Tier 2 and at what point do you kind of try your hands up and go after different route with may be some of the managed organizations on rebating and other things that you would do for that drug? Thank you.

Adrian Adams - President and Chief Executive Officer

Well, certainly in relation to thrown our hands up, I don't think we naturally do that, I think clearly as you well pointed out, I think when one considers the two key drivers of growth as it relates to volume and price, one looks at a number of aspects. The competitive environment obviously the managed-care environment, and see what the competition do in relation to their activities. What has been clear over the last 12 months is that our overall positioning in footprints in the managed-care area has got very strong. And we believe that in moving forward, I think this market does represent continued opportunities, but our total focus, as Mark outlined in his presentation where we're seeing some very good movements in sales force productivity metrics is to drive volume and not to rely on price. And more certainly, if we see opportunities in the future when one combines all those elements with managed-care environment and competitive environment, if we see opportunities for price movements, then obviously we will assess those but with a clear eye on the managed-care environment. So, Mark, do you want to add to that?

Mark Iwicki - Executive Vice President and Chief Commercial Officer

No, I think we continue to have a very strong managed-care reimbursement situation. It's a mix of Tier 2 and Tier 3. It continues to be slightly stronger than AMBIEN CRs and we believe that's a great footprint for us to move forward. We are confident that we can continue to grow volume in the business with the position that we have today.

Operator

Thank you. Our next question in queue is from Ian Sanderson with Cowen. Please go ahead.

Ian Sanderson - Cowen and Company, LLC

Good morning. Can you hear me okay?

Adrian Adams - President and Chief Executive Officer

Good morning, Ian. How are you?

Ian Sanderson - Cowen and Company, LLC

Well, thanks. On the spending side can you break out the sales and marketing spending versus the G&A and related to the where do you stand on the actual hiring of the 200 new respiratory sales reps and what expenses… incremental expenses were included in that $27 million of sequential increase in the SG&A spend?

Adrian Adams - President and Chief Executive Officer

On the breakdown of our SG&A spend, we don't want to go into details of that particular aspect. When it comes down to the recruitments of the Sepracor managed contract sales organization, as we mentioned in earlier calls and in our interactions since then or Tom Wells [ph] to move forward to develop a footprint of round about 410… between 400 and 410 contract sales representatives that would mirror the footprints that we have with our current… primary current specialist sales force. And that recruitment has been completed. I think we anticipate that they will start to really get active in the latter part of August, beginning of September. When it comes down to when we see the allocation of costs on that, Bob, do you want to comment on that?

Robert F. Scumaci - Executive Vice President and Chief Financial Officer

The cost for the sales force is included in the guidance that we give today and should be evenly spread between… almost evenly spread between the third and fourth quarters.

Adrian Adams - President and Chief Executive Officer

But as we’ve mentioned, Ian, at the beginning of the year I think we were very pleased that as we were developing our overall framework for spend this year if one looks at how we started this year with the proportion of revenues that we reinvested in SG&A 2008 versus 2007 I think we reduced that by a full 10 percentage points and clearly what we have taken action in our revised guidance is to further refine the SG&A spend in line with the opportunities across our growth, launch and maximization products.

Ian Sanderson - Cowen and Company, LLC

Okay. And could I ask you a follow-up question on XOPENEX nebulas, were this sales in Q2 impacted by commercial plan reimbursement changes, in other words are you seeing the CMS decision starting to show an impact on commercial reimbursement and secondly is it impacted by BROVANA sales?

Mark Iwicki - Executive Vice President and Chief Commercial Officer

This is Mark and I'll answer that question, Ian. There are a couple of factors for XOPENEX in the second quarter. One is there is natural seasonality to XOPENEX. So we did see from the first quarter a reduction there. Compared to last year there are probably two main components out there. We did see some volume drop but we also have maintained our volume in the home healthcare area, but at a significantly lower price. Based on CMS's decision, the reimbursement rate to home healthcare providers has dropped and we have contracted with those home healthcare providers to offer them a slightly better price. So, there is a mix of volume and price that contributed to that down... that downturn versus the previous year. And I think your other question around, are we seeing a hit on the commercial... I guess the non or the retail reimbursement or managed care organization pricing, we've not seen that dramatically change since last year.

Ian Sanderson - Cowen and Company, LLC

And are you seeing sort of a competitive act from BROVANA in that home healthcare market?

Mark Iwicki - Executive Vice President and Chief Commercial Officer

BROVANA is growing in that home healthcare market, certainly BROVANA and XOPENEX could be used for the same kinds of patients. So, as BROVANA grows it would take market share from all the products that are in that market including XOPENEX. That is not our main strategy and quite frankly BROVANA and XOPENEX really could be used for the same patient. A patient still needs a short-acting beta-agonist when they are on a long-acting beta-agonist like BROVANA and we market and sell those products together and believe that they are great combination for COPD patients.

Ian Sanderson - Cowen and Company, LLC

All right, thank you.

Adrian Adams - President and Chief Executive Officer

Thank you, Ian.

Operator

Thank you. Our next question in queue comes from the line of Bert Hazlett with BMO Capital Markets. Please go ahead.

Bert Hazlett - BMO Capital Markets

Thank you. Can you hear me?

Adrian Adams - President and Chief Executive Officer

Yes, Bert, how is your family?

Bert Hazlett - BMO Capital Markets

Everything is good, thanks.

Adrian Adams - President and Chief Executive Officer

Very good.

Bert Hazlett - BMO Capital Markets

Thanks for the question and I got a couple, again just following upon XOPENEX HFA and maybe some of the sales force dislocations. If you scale back your efforts in some of the XOPENEX franchises, which it seems you have done, how do you expect that to capture the opportunity that's present within the XOPENEX HFA franchise and I have a couple of other ones as well?

Adrian Adams - President and Chief Executive Officer

Well on that particular one, we commented on this during the call, but one of the good things in relation to XOPENEX Inhalation Solution is that there is a very loyal prescriber base, very focused on the pediatric population and obviously a very strong image of that product and on specialists and primary care physicians. So, key part of our strategy with XOPENEX HFA is to build on that loyalty and from a targeting perspective is to make sure that a lot of our efforts are obviously focusing those areas where we can build on the image and that spin-off benefit to XOPENEX HFA. And clearly, as I mentioned earlier, I think one of the good things about our portfolio now in the seasonality is that we can tune up and tune down during the course of the year, but also fully optimize our target in the sales force prior to this due leverage not just the growth products, but also the products like the XOPENEX Inhalation Solution and XOPENEX HFA. Mark maybe you just want to add to that.

Mark Iwicki - Executive Vice President and Chief Commercial Officer

Well, I think the final comment there is with the new sales team coming on board, we have this greater flexibility to pose XOPENEX HFA and XOPENEX Inhalation Solution to those highest potential physicians and that will be our plan. We also have very strong managed care physicians and we know that the managed care organizations right now are actively working on getting that business converted, and there has been an increase in that activity even over the recent weeks as time draws near for the end of CFCs. So we are optimistic that we can see momentum, both going into the season from our ability to pose some calls to the highest potential doctors and from what the managed care organizations are doing.

Bert Hazlett - BMO Capital Markets

Okay, thank you. Just a brief financial one. There was a $9.1 million loss, an impairment loss on investment, do you expect that to recur and could you just describe that a little bit and then I have a pipeline question or two?

Robert F. Scumaci - Executive Vice President and Chief Financial Officer

Sure, that was related to our investment in Acadia Pharmaceuticals and we wrote it down to the… from our original purchase price, which was part of an overall R&D development deal, down to the June 30th market price levels of Acadia. We don't anticipate that being reduced any further.

Bert Hazlett - BMO Capital Markets

Okay. And I guess from Mark Corrigan, if you could describe the schizophrenia program that's pre-clinical, I believe it's DAAP [ph] inhibitors. Could you describe what types of characteristics you expect that to be to provide for the schizophrenia treatment? Thanks.

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

Sure. So, I think very quickly the science… there has been a glutametergic high composites of disregulation in schizophrenia and quite recently as you know all the products that are currently approved therein are based on dopamine blockade. The Lilly recently reported on a glutametergic trial that was successful, they conducted in Russia, which was probably the first novel mechanistic approach to schizophrenia that we had... that has been reported in over a decade. One of the approaches to modifying the glutamate system is a via modulation of a necessary co-factor for glutametergic transmission and that is D-serine and our DAAO program, which we filed the IND for, is basically an enzyme inhibitor that raises brain levels of D-serine, which further modulates glutametergic transmission. We expect to see... we found actually somewhat surprisingly that it was particularly efficacious in animal model naturopathic pain, which are relatively predictive, as you know the animal models for schizophrenia are pretty weak. So, we filed the IND with that as a lead indication. However, we anticipate filing INDs fro cognition and for schizophrenia as we look to explore how this mechanism may be able to affect brain function and ultimately impact cognition in schizophrenia.

Adrian Adams - President and Chief Executive Officer

And Bert we are pretty excited about that our commend of our discovery organization but as we indicated on our slide I think we are entering a very exciting and hopefully very predictive phase from an R&D perspective with the initiation of a number of Phase III programs and our results from some of our key Phase II programs in the first half of next year and I think this is a very exciting time for Sepracor from an R&D perspective.

Bert Hazlett - BMO Capital Markets

Okay. Thank you.

Operator

Thank you. Our next question in queue will come from the line of Annabel Samimy with UBS. Please go ahead.

Annabel Samimy - UBS

Hi, thanks for taking my call. I guess question on some of the comments that you made back on the third quarter call, you had talked about operating savings was about $80 million to $100 million. With the business development you have done and some of the launches that you have, is that expectation essentially moved at this point, because it doesn't seem that from an expense guidance perspective on the SG&A that there is any change from last year?

Adrian Adams - President and Chief Executive Officer

Bob, do you want to comment on that?

Robert F. Scumaci - Executive Vice President and Chief Financial Officer

I'm sorry, could you repeat what your questions? I didn’t...

Annabel Samimy - UBS

Are you going to be able to realize the $100 million in savings that you had talked about on third quarter call last year that there was a restructuring where you were still to realize about $80 million to $100 million and I guess with all the business development and new launches, is that essentially move point now, because guidance that you are giving is essentially no change from the total SG&A from last year?

Robert F. Scumaci - Executive Vice President and Chief Financial Officer

I think it's not moved, but I think if you look at the $80 million to $100 million I think we will realize those expense savings on the original base, but yes that business development deal has created an increase to that and offset to that.

Annabel Samimy – UBS

Okay. And just on the tax situation for next year, can you just go over that one more time? You said the effective tax rate is 38% for next year. Is there that’s from a GAAP perspective is it different from a cash perspective?

Robert F. Scumaci - Executive Vice President and Chief Financial Officer

Yes, it will be different from a cash perspective because we... as we have the deferred tax assets we will release the... release those assets against the expense. So we will be... we were using NOLs of about $1.1 billion to offset the tax provision.

Annabel Samimy - UBS

This for 2009?

Robert F. Scumaci - Executive Vice President and Chief Financial Officer

I'm sorry.

Annabel Samimy - UBS

This is for 2009?

Robert F. Scumaci - Executive Vice President and Chief Financial Officer

It would be 2009 and probably into 2010 and probably into 2011.

Annabel Samimy - UBS

Okay.

Robert F. Scumaci - Executive Vice President and Chief Financial Officer

So, until we use out $1.1 billion of pre-tax profit we won’t be paying any taxes.

Annabel Samimy – UBS

Okay. And on OMNARIS quickly, to what extent and how much load do you have for that quarter…for this quarter related to the launch?

Adrian Adams - President and Chief Executive Officer

Loading for OMNARIS that was last quarter?

Unidentified Company Representative

Yes, it was last quarter.

Annabel Samimy - UBS

This is all real sales, there is no inventory issues related?

Adrian Adams - President and Chief Executive Officer

Right. There is no inventory issues on OMNARIS at this point.

Annabel Samimy – UBS

Okay. And then one last question and I will get back in the queue. The XOPENEX HFA, I guess a little bit surprising that it has come down quarter-over-quarter and it seems like the conversion has stalled a bit. Can you provide some explanation behind that and what seems to stall the conversion? Is it still the inventories that are in the channel, the CFC inventories in the channel?

Mark Iwicki - Executive Vice President and Chief Commercial Officer

Well, there are still a fair amount of CFCs in the channel. Nobody has great understanding of exactly what that is, but like as I said before I think there is a really good opportunity coming up here in the fall. We have seen the major managed care organizations start to reach out to doctors and patients to alert them to the fact that the time is really approaching rapidly and I think you are going to see it accelerate. I think it is may be not even quite fair to say that it's totally stalled. It's just on a slow progress toward getting it all converted by early next year.

Adrian Adams - President and Chief Executive Officer

I think one other important dynamic to bear in mind as well as one of the reasons why from a strategic and tactical point of view we are building up the loyalty of the broad XOPENEX Inhalation Solutions base is that there is lot of virtual prescribing of albuterol and for patients who receive XOPENEX HFA the doctor has to prescribe that and that is why we are really focusing on installing the benefits of XOPENEX. And in a situation where the considering comes from CFC albuterol products and HFA products they should also make the decision to meet the XOPENEX HFA. Obviously if a prescription is written for albuterol HFA that it can be filled and substituted for two or three branded products. So that's why we are tactically focusing on the XOPENEX loyalty which we believe will be key to capturing some of that 39% of businesses yet to convert.

Annabel Samimy – UBS

Okay. Just one more question, if I may, are you no longer breaking out the different revenue guidance…components of your revenue guidance?

Mark Iwicki - Executive Vice President and Chief Commercial Officer

Correct. We will only be doing that for the full year guidance 2009.

Annabel Samimy – UBS

All right. Thanks.

Adrian Adams - President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question in queue that will come from the line of Matt Duffy with BDR Research. Please go ahead.

Matt Duffy - BDR Research

Good morning and thanks for taking my question. Just a couple on sort of general managed care questions. On the sleep front, you had mentioned that these still have a good mix of Tier 2 and Tier 3 coverage and that looked a little bit better than Ambien CR, but I was wondering if you are seeing the managed care organizations taking active steps to promote generic Ambien such as letter writing campaigns to patients to convert or zero co-pay kind of activities? And then also sort of…also on the managed care front, what is the payer mix that you are seeing so far with BROVANA?

Mark Iwicki - Executive Vice President and Chief Commercial Officer

This is Mark and thanks for you question, Matt. You know on the managed care side we have certainly seen that there is a dramatic increase in XOPENEX prescriptions and I am sure that you followed the generic trends in all the markets and you see this going on. I think it's undeniable that managed care is a part of driving those generic first programs and also in the score carding that they do with prescribers are really encouraging the prescribing of generic. So individual programs it would probably be best to ask them exactly what they are doing specifically in the sleep market, but we have seen that dramatic increase and heard about it from physicians. I think there still remains a tremendous opportunity, because many, many patients just do not get the sleep or improvement they need from Ambien and we feel very confident that LUNESTA is a great choice from many, many patients in this market. And, would you just tell me your second question again please, Matt?

Matt Duffy - BDR Research

Sure, and I guess just the second question was the payer mix on BORVANA, but also just sort of correlated to the generic Ambien versus LUNESTA and for that matter Ambien CR, I think considering doing either small pilot head-to-head trials to follow on I guess there is one head-to-head Ambien trail several year ago that looked very positive. I wonder if they trying to develop more convincing evidence there.

Adrian Adams - President and Chief Executive Officer

I think… Matt, I will comment on the BROVANA question. I think obviously if one look at our total clinical trail base for LUNESTA it is very broad, it is amongst, if not the best amongst the sleep agents. So, we believe from an overall kind of competitive point of view that we have more than enough data at this in time to fully leverage our differentiated position versus generic Ambien in addition to the others products. We do have an ongoing trial as we’ve mentioned in Europe, looking at the common use of [inaudible] with LUNESTA, which we think is also going to be important. We have got an awful lot of ammunitions still left with our clinical trial data batch which we will put to good effect with… in the insomnia market and we still see a lot of opportunity in that market. And on BROVANA?

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

On BROVANA the mix right now is about 50% from retail sources and 50% from non-retail sources. That does fluctuate from week-to-week but that's a good average.

Matt Duffy - BDR Research

And about Medicare versus private [ph]?

Adrian Adams - President and Chief Executive Officer

Right now from Medicare piece of the business that represents… this would be part B and it would be home health care piece of the business so that's probably about 35%, that's a difficult question to pinpoint.

Matt Duffy - BDR Research

Okay. Thanks very much.

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

But overall with BROVANA we articulated both the retail and home health care we are seeing very strong growth, we have been very pleased with the momentum that we have now moved to a different level with BROVANA.

Operator

Thank you. Our next question in queue that will come from the line Biren Amin with the Stanford Group. Please go ahead.

Biren Amin - Stanford Group

Hi, thanks for taking my questions. Could you provide us with the timeline for the ALVESCO launch? Is it on track for second half '08?

Adrian Adams - President and Chief Executive Officer

Yes, we have referenced to second half, yes, one of the great benefits of acquiring a products which is already FDA approved is that we can really put in place some excellent pre-launch and market preparative programs and we’ve been doing an awful lot of speaker training programs etcetera in that regard. And we plan to carry out a paced launch with building in the very important specialist area in the later of part of this year and then building to a broader primary care launch in the early part of next year. So those plans are well in place. I think the Sepracor managed contract sales organization to go with our existing resources will be fully trained and ready to reel it for more of our portfolio including our [inaudible] form the September period onwards.

Biren Amin - Stanford Group

And I guess couple of question on LUNESTA, could you provide thoughts I guess the LUNESTA seven-day sampling program and if you expect that to continue for rest of '08? And also were there any inventory buy in during the quarter for LUNESTA?

Mark Iwicki - Executive Vice President and Chief Commercial Officer

I will take the inventory question. Inventory is relatively flat for LUNESTA second quarter, third... first quarter and the second quarter.

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

And on the seven-day LUNESTA program, that's part of our broader mix of activities that we use to generate trial and we would expect to use that seven-day option in a pulsing manner, it’s not something that we will run continuously all year along.

Biren Amin - Stanford Group

Great, thank you.

Adrian Adams - President and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question in queue will come from the line of Greg Gilbert with Merrill Lynch. Please go ahead.

Gregory Gilbert - Merrill Lynch

Thanks. Good morning, guys.

Adrian Adams - President and Chief Executive Officer

Good morning, Greg.

Gregory Gilbert - Merrill Lynch

Mark, someone just indicated on their call that price in the HFA market has been pretty stable. Do you think that’s a fair statement or you think it differently and just wondering what technical challenges, if not price, are in your way in terms of gaining some share there?

Mark Iwicki - Executive Vice President and Chief Commercial Officer

Sure. Good morning, Greg. I think that is in general are true. I think the important thing as Adrian mentioned is and we've said this a couple of times on calls is that, it is a challenge for XOPENEX HFA because the doctor has to specifically write XOPENEX HFA and with the other products there is wholesale switching that's going on at the retail level. And when it comes to that kind of pricing and contracting done by those manufacturers, we do not have insider clarity into what they are doing. But we do know that when a prescription is written and they are generally written as albuterol MDI that those could be switched to PREVENTOL, VENTOLIN or to [inaudible] product. At a high level, I think there are couple of things that are going on and there is a reason for us to be optimistic still on HFA. We had to reduce resources on HFA to be able to launch OMNARIS into a competitive market and capitalize on that opportunity over the last several months. With the new sales team coming on, we have a great chance to pull some additional HFA and XOPENEX Inhalation Solution calls to the top prescribers. This is a challenging market for us and what we want to really make sure we do is, is get growth on HFA but do it in a profitable manner where we're really maximizing contribution for the brand.

Gregory Gilbert - Merrill Lynch

And then moving over to LUNESTA, clearly the rate of erosion has slowed in terms of share but it seems like that's coming in a pretty large expense, in terms of clinical trials, bodies, new programs etcetera. Just wondering is there a next step in terms of necessary changes here if the share continues to erode, albeit at a slowing rate, where you concluded that it’s worth to continue down the path that you've already chosen?

Adrian Adams - President and Chief Executive Officer

Greg it’s a very, very good question, and I think on the question of large amounts of spend items in support of LUNESTA, I think I would carry out not by saying that really... a lot of the clinical trial efforts that have been done for LUNESTA have been completed. We haven't got the large European study that is ongoing. There are number of objectives behind that, and at least of which is a development in Europe in anticipation of LUNIVIA approval, hopefully towards the end of this year. It will also test the hypothesis of free combination of an antidepressant with LUNESTA and therefore the concept of potential fixed combinations. So, from a clinical trial perspective, we feel that we're managing the overall LUNESTA combination in a very cost effective way. When it comes down to the insomnia market, at the beginning of this year, I articulated that fairly after Ambien genetization [ph] the market dynamics were very different. We saw declines in LUNESTA share and also Ambien CR this year we obviously restructured, realigned and obviously focused our sales force in a targeted manner etcetera. On the call we wanted to really make it clear that we have started to see some very positive signs in relation to market share movement in some of our territories around about close to half of our territories over the last month have some positive movements in the market share. When you make changes in sales force it takes time to filter those through. We believe that all of the particular drivers that should drive market share volume, prescription volume in this market when it comes to quality sales force, quality direction, clinical trial date in support to all products, good managed care access, a lot of those particular aspects that we believe are in good shape now.

In addition we've revised our overall promotional spend in relation to direct to consumer advertising. So we are optimistic for the second half of this year in the event to your point, in the event that we exist this year in relation to the market not having grown as anticipated at the beginning of this year, most analyst were projecting that the market will grow in the high single-digits, it’s probably going exit this year growing in the lower single-digits. Clearly, if we see that situation and we have not seen market share moving up which we're hopeful that it will then clearly we have a broader portfolio from which to make promotional allegation decisions and we will make those decisions in line with the trends we see on the competitive environment. But it's a very good question and I can assure you we're thinking about that.

Gregory Gilbert - Merrill Lynch

Thanks.

Operator

Thank you. And our next in queue will come from the line of Rich Silver from Lehman Brothers. Please go ahead.

Richard Silver - Lehman Brothers

Good morning.

Adrian Adams - President and Chief Executive Officer

Good morning, Rich.

Richard Silver - Lehman Brothers

You may have answered this question already, I apologize if you have. But with regard to the revenue guidance change of $75 million, where did that come from?

Mark Iwicki - Executive Vice President and Chief Commercial Officer

We haven't provided the details by product, Rich.

Richard Silver - Lehman Brothers

Okay. And also you may have answered this question, with regard to the weakness in the XOPENEX in particular the nebule franchise, is that surely a function or mostly a function of the sales force being somewhat diverted to the launch of OMNARIS or were there other factors in the quarter?

Mark Iwicki - Executive Vice President and Chief Commercial Officer

Yes Rich, I think it's a combination of factors. It’s true that we did divert our sales force away from both the XOPENEX brands in order to launch OMNARIS and maintain a strong share of voice on LUNESTA. In addition, we did have to contract additionally with home healthcare providers as the reimbursement rate for XOPENEX Inhalation Solution has come down. So it is a mix of both reduction in volume and some reduction in price. But we're very optimistic once again with the new sales force coming on board and with the high season coming that we can have a very targeted approach with XOPENEX Inhalation Solution and with XOPENEX HFA and see some positive momentum going through the fall into early next year.

Richard Silver - Lehman Brothers

Got it.

Adrian Adams - President and Chief Executive Officer

I think, again one of the key possible strategy moving through last year on corporate ground for licensing was to broaden the portfolio. And if one looks at our broad portfolio on that, in essence we have a number of products that have growth potential in relation to LUNESTA HFA, BROVANA, OMNARIS and soon to be ALVESCO. We think that's a pretty good position to be in. But as I mentioned several times it also gives us very good promotional flexibility to deal with seasonality across the year, but also to dial up and dial down promotional resources as we move through the year and keep an eye on competitive trends. So, we have time for one more question. Operator?

Operator

Thank you, sir. That question will come from James Kelly with Goldman Sachs. Please go ahead.

James Kelly - Goldman Sachs

Great. Thank you and good morning.

Adrian Adams - President and Chief Executive Officer

Good morning.

James Kelly - Goldman Sachs

The question has to do with the earnings guidance for 2008 and I just wanted to make sure I understood what the assumption was of other reconcilable items and you had $2.93 in the first six months. Is there a stated amount that would be included in that reconciliation for the second half of the year? Thank you.

Mark Iwicki - Executive Vice President and Chief Commercial Officer

Yes. If you take the items that we have for the six-month reconciliation, okay, the additional recurring items would be additional amortization of intangibles at $3.8 million per quarter and then additional imputed interest expense of $3.1 million per quarter. So, if you take the six-month plus those two items that will give you the GAAP to non-GAAP reconciliation for the end of the year.

James Kelly - Goldman Sachs

Thank you.

Mark Iwicki - Executive Vice President and Chief Commercial Officer

Okay.

Adrian Adams - President and Chief Executive Officer

Well, thank you operator and thank you all for joining us this morning. We all look forward to update you on our progress on our next quarterly conference call. So, you all have a good day and I look forward to seeing you all soon. Thank you very much.

Operator

Thank you, ladies and gentlemen and this does concludes today's teleconference. An audio replay of today's call will be available for one week starting today at 12 PM Eastern Standard Time. The dial-in number is 320-365-3844 and the pin number is 95415.

Copyright policy: All transcripts on this site are copyright Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.