Wyeth Q3 2007 Earnings Call Transcript

| About: Wyeth (WYE)
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Wyeth (WYE) Q3 2007 Earnings Call October 18, 0000 2:00 AM ET

Executives

Greg Norden – SVP, CFO

Bob Essner – Chairman, CEO

Bernard Poussot – President, COO

Joe Mahady - President, Global Business, WyethPharmaceutical

Doug Rogers – President, Wyeth Consumer Healthcare

Justin Victoria - IR

Analysts

David Risinger - Merrill Lynch

Steve Slaughter - UBS Global Asset Management

Roberto Cuca – JP Morgan

Roopesh Patel - UBS

Chris Schott - Banc of America

Jim Kelly - Goldman Sachs

Mario Corso - Summer Street Research

John Boris - Bear Stearns

Tony Butler - Lehman Brothers

Seamus Fernandez - Leerink Swann

Jami Rubin - Morgan Stanley

Steve Scala - Cowen

Operator

Welcome to the Wyeth third quarter earnings conference call.(Operator Instructions) I would now like to turn the conference over to ourhost, SVP and CFO Greg Norden. Please go ahead, sir.

Greg Norden

Thank you, operator. Good morning, everyone and thank youfor joining us. With me on the call today are Bob Essner, Chairman and CEO;Bernard Poussot, President and Chief Operating Officer; Joe Mahady, PresidentGlobal Business Wyeth Pharmaceutical and SVP; Doug Rogers, President, WyethConsumer Healthcare; and Justin Victoria, Vice President, Investor Relations.We will begin, as usual, with some brief remarks from management and then openthe call for questions.

Before we begin, let me remind you that certain statementsmade today that are not historical facts are, by their nature, forward-lookingand involve risks and uncertainties. Actual results may differ materially fromsuch forward-looking information. This has been more fully disclosed in ourpress release issued this morning and in our periodic SEC reports, includingquarterly reports on Form 10-Q and the annual report on Form 10-K.

Now let me turn the call over to our Chairman and CEO, Mr.Bob Essner.

Bob Essner

Thank you, Greg. As you have seen from our press release,Wyeth had another strong quarter. Looking at our pro forma results, you see a9% increase in revenue, a 14% increase in operating income and a 7% increase indiluted earnings per share.

For the first nine months, revenue increased 10%, operatingincome increased 18% and pro forma diluted earnings per share increased 10%.Overall, a very good quarter and nine months, and we remain on track for astrong year.

We continue to expect pro forma diluted earnings per shareof $3.48 to $3.56, an increase of 11% to 13% over 2006. This target is a reflectionof the continued strong performance of our products and our commitment tomanaging our cost structure. Greg will provide more details on our financialresults in a few minutes.

This is the last quarterly earnings call before I step downas CEO in January. I would like tobriefly discuss the succession process, and how excited I am about Wyeth'sfuture under Bernard Poussot's leadership. Succession planning is one of themost, maybe the most, important duty of a CEO and a board of directors.

The process that resulted in the selection of Bernard wasbegun five years ago and involved a thorough and long-term evaluation of thecharacter, track record, and potential of several candidates. We have testedBernard with increasing responsibility over the years, culminating in hispromotion to COO and his election to the Wyeth Board of Directors last January.

Perhaps the timing of our recent announcement caught some ofyou by surprise, because we did not engage in the drama of a public horse racefor succession that a few of our competitors carried out recently. But ourprocess was long term, thorough, and in accordance with my plans to turn overthe CEO position around the age of 60. It is my great pleasure that we have, inBernard, an outstanding individual to lead Wyeth. I will stay on as Chairmanfor a transitional period, and will do everything I can to help Bernard and thecompany during this time.

Bernard Poussot

Thank you, Bob and good morning to all of you on the calltoday. Let me start by saying that I'm very grateful to Bob Essner and Wyeth's boardof directors for their confidence in electing me to the CEO position, which Iwill assume on January 1. I am proud to be part of Bob's management team and tohave been able to contribute to all that we've built at Wyeth under Bob'sleadership. I am both excited and humbled at the upcoming opportunity to leadWyeth forward from this strong base.

Lastly, this appointment is a testament to my teams at Wyeth,who have delivered outstanding and sustained performance over the last ten years,including the successful transformation of Wyeth into a leading pharma company.

So thanks again, Bob. Now let me turn the call over to Gregto review our financial results in detail.

Greg Norden

Thanks, Bernard. Turningnow to our financial results, as Bob noted earlier the third quarter wasanother strong quarter for Wyeth. Diluted earnings per share on a pro formabasis were $0.90 versus $0.84 last year, a 7% increase. For the nine monthsyear-to-date diluted earnings per share was $2.74 versus $2.48 last year, a 10%increase. I'll refer you to our press release for detail regarding the proforma adjustments. My comments this morning will refer to the as-adjustedP&L included at the end of our press release.

Net revenue increased 9% to $5.6 billion. Excluding theeffects of foreign exchange, our increase in revenue was approximately 6%. Ournine month year-to-date growth in revenue was 10%, or an increase of 7%excluding the effects of foreign exchange. Pharmaceutical revenue grew 10% forthe quarter, and we saw good growth across most of our portfolio of marketedproducts. In addition to the strong revenue growth in our pharmaceuticalbusiness, we also saw solid contributions from consumer health care and animalhealth. Bernard will provide more specifics on the performance of thesebusinesses and products in a few moments.

Gross profit growth for both the quarter and nine monthsyear-to-date was consistent with the increase in revenue growth and within the72% to 74% range that we projected at the beginning of the year.

SG&A spend for the third quarter in absolute dollars wasslightly lower than the level of spend in the previous quarter. The year-on-yearSG&A growth of 8% was predominantly due to the effects of foreign exchangeand one-time costs related to the restructuring in several of our Europeanmarkets. Adjusting for the effects of this, SG&A growth for the quarter wasabout 3%. Year-to-date, SG&A growth was 4% versus the prior year, and 1%adjusting for the effects of foreign exchange and reflects our continuing focuson managing these costs to a level meaningfully below the rate of growth ofrevenue.

R&D spending increased 5% in the quarter and 9% for thenine months year-to-date, and remains on track for a mid single-digit increasefor the full year.

Operating income increased by 14% for the quarter and 18%for the nine months year-to-date.

Our tax rate was 29.6% for the quarter, and for the ninemonths year-to-date the tax rate was 29.3%. We still project the full year taxrate to be within the 27% to 29% range that we projected at the beginning ofthe year.

In summary, we had a very strong quarter and first ninemonths of 2007.

Now, before turning the call over to Bernard, I would liketo take a few moments to discuss our recently announced $5 billion sharerepurchase program and our dividend increase. Over the past several years, wehave seen a strengthening of our balance sheet. This is largely the result ofour strong operating performance and receding diet drug litigation payments. Infact, Wyeth moved to a net positive cash position during the first half of 2007,after many years of being in a net debt position.

The improvement in our balance sheet and net cash position,coupled with our confidence in the continuing success of the company, gives usthe opportunity to consider additional ways to generate shareholder value. Webelieve that the expansion of our current share repurchase program to $5billion and our 8% increase in the dividend are a reflection of thatcommitment, yet still affords us the financial flexibility we believe isessential in our industry.

This program also allows us to continue to invest inM&A, end licensing, and other opportunities that will drive future revenuegrowth and operating performance. We have purchased approximately 24 millionshares this year at a cost of about $1.2 billion. Our share repurchase programis an open-ended program with no time limit, and we intend to fund it with cashgenerated from our ongoing operations.

Now, I would like to turn the call over to Bernard for moredetail on our products and an update on our pipeline.

Bernard Poussot

Thanks, Greg. I'llbegin my comments with the observation that the third quarter demonstratesWyeth's continued outstanding performance in the marketplace. Wyeth worldwidehuman pharmaceuticals revenue was $4.7 billion, an increase of 10% over 2006.That performance was driven by particularly strong international revenue growthof 16% in the quarter, or 10% excluding the effect of exchange rate. For thefirst nine months, human pharmaceutical revenue was $13.9 billion, up 10%.

Consumer health revenue was up 8% in the quarter, also witha strong international component where it is up 19%, driven by our key brandsincluding Advil, Centrum and Caltrate. Adding to our brands, with a strong consumerheritage in this business, are new opportunities such as Advil PM and ourrecently launched Centrum Cardio.

Fort Dodge Animal Health continues on a good track with revenueup 11% in the quarter, on the way to a billion-dollar business this year forthe first time in our history. The future of our animal health business isbright, with a deep pipeline of innovative products. We are now well underwaywith U.S. andEuropean launches of ProMeris, our new flea and tick products for dogs andcats. This is the first major new product in the largest animal health categoryin over ten years, and a likely blockbuster for this category.

Now let me comment on the performance of a few of our keybrands. Prevnar worldwide revenue was up 24% this quarter and 29% for theyear-to-date. The U.S.sales were up 16% in this quarter, reflecting solid demand, price increases anda purchase of 500,000 doses of Prevnar by the CDC for the U.S.vaccine stockpile. We do not anticipate a stockpile purchase in the fourthquarter of this year.

International performance for Prevnar of 33% growth in thisquarter reflects government ordering patterns and continued penetration intoexisting markets where Prevnar has been launched, including growth in the 17existing national immunization programs. In the next several quarters, five newnational immunization programs are planned to start.

We recently announced the filing for regulatory approval ofPrevnar in Japan.Japan is adeveloped market with about 1.1 million births per year. Japanwill be a significant market addition for Prevnar once we receive regulatoryapproval. Before I close on Prevnar, let me note that in October, Prevnarpassed the $2 billion mark level for 2007, making Prevnar the first ever $2billion vaccine.

Next let me turn to Enbrel. Latest audited sales data showsthat Enbrel has climbed to the number 6 position in the world among allpharmaceutical products and number 4 inEurope; a tremendous global success. Amgen will report sales of Enbrel for the U.S.and Canada nextweek. International revenues reported by Wyeth in the quarter were $527million, up 39%, tracking towards our goal of reaching $2 billion ininternational sales this year.

Effexor revenue in the third quarter was $958 million, up4%. This is despite the impact of generic competition to Effexor XR in Canadaand Effexor IR in the U.S.;franchises that previously generated over $400 million in annual sales for theentire Effexor family. Inventory impact in the quarter was minimal.Year-to-date, Effexor revenue is up just over 1%, in line with our projectionsfor a slight increase in sales versus 2006.

We continue to work hard to support Effexor. In earlyOctober, we launched a new advertising campaign, both print and television, forEffexor XR. The campaign encourages patients who are still experiencing thesymptoms of depression to speak with their doctor about other treatment optionsto deal with these difficult to treat symptoms. This is an area where Effexorhas always performed well.

Protonix revenue in the quarter was $425 million, down 6%.The decline reflects a reduction in wholesale inventory levels following lastquarter's build up and the possibility of a generic entry. Year-to-date,Protonix is up 5%; a good performance given our guidance of low to mid single-digitrevenue growth in 2007.

As you know last month, the court denied Wyeth's motion fora preliminary injunction to prevent the early, at-risk launch of genericpantoprazole by Teva or Sun. In its ruling, the court found that Teva hadraised a sufficient question about the validity of the pantoprazole patent todeny the extraordinary relief of a preliminary injunction, a decision we haveappealed.

The court also repeatedly noted that any of its findingswere only preliminary, and that Teva and Sun would be held to a different,higher burden of proof at trial. We remain confident in the strengths andvalidity of the pantoprazole patent and we project a mid-2008 trial.

Premarin revenue was $283 million in the third quarter;that's up 8%. The increase reflects the impact of price and a normalization ofinventories in the wholesale channel after some supply constraints last yearfrom our Guayama facility.

Our nutritionals business continues to show substantialgrowth. Revenue growth in the quarter was 13% and year-to-date this business isup 17%, nearly a $1.5 billion franchise this year with most of our business inthe Asia Pacific, Middle East and Latin American regions.

Zosyn continues its strong performance for 2007. Revenue inthe quarter was $284 million, up 16%. Year-to-date, Zosyn revenue was $845million, up 17%, making it the world's largest selling injectable antibiotictoday. We have launched our EF formulation in nearly every market around theworld.

We have seen generic competition for Zosyn in someinternational markets, as we had expected. In the U.S.,the base patent expired earlier this year, but we have not experienced genericcompetition to-date. We have not received the response from FDA to our citizen petitionregarding standards for Zosyn generics. We believe our petition raisessignificant issues ranging from Pharmacopoeia standards to patient safety, andwarrants serious consideration.

Our newer injectable antibiotic, Tygacil, has been moving upnicely, in line with our projections. Year-to-date, we nearly hit the $100million threshold and are on track to meet our goal of doubling 2006 revenues,driven by U.S.growth. International performance has been limited by active ingredient supplyissues in certain foreign markets. We expect these limitations to remain inplace until early to middle of 2008 and we look for continued growth in the U.S.and greater success internationally next year.

Let me make just a quick comment on BeneFIX. Last quarter,we reacquired the full commercial rights for BeneFIX in Europe.We noted that there would be a slowing in the second quarter and a rebound inthe third quarter as we transitioned the product back to Wyeth from Baxter inthe European markets. That is why BeneFIX shows a 50% growth in the thirdquarter. We expect the product will now show momentous growth from this new,fully global, higher sales level. Year-to-date, our hemophilia franchisecomprised of BeneFIX and ReFacto has reached sales of $551 million, up 13%.

The MP2 is another growing biotech franchise for Wyeth. Ourrevenue in the third quarter was $93 million, up 25%. As you know, we partneredwith Medtronic on this innovative product. The MP2 in Medtronic’s infuse and inductorpresentations has now been used in approximately 300,000 patients and hasreached a community sales level of $2 billion since launch in 2002.

Before I comment on our pipeline products, let me addressour most recent launches. I'll start with Lybrel, a product that will allowwomen to achieve cycle control over time with their contraceptive of choice.Lybrel has started slowly in its U.S.launch, as is typical with contraceptives, given the high level of patientsampling in this category. Thus it is too early to tell where we willultimately wind up, but we are working hard to build this brand.

Regarding Anya, the European trade name for Lybrel, theregulatory procedure in Europe is progressing based onthe initial approval for Anya by Finlandin October of 2006. We are now in the referral phase of the review and thefinal European regulatory outcome may not come until the third quarter of 2008.

Our other recent launch, Torisel. for renal cell carcinomais going very well. Torisel is being used in the first line, second line andthird line settings and oncologists seem to be responding to our data showingimproved survival in their full riskadvanced renal cell carcinoma patients. Revenue was $10 million in its firstquarter on the market.

Let me next address the products awaiting review and thosewe expect to file applications for in the near term. Following our completeresponse to the earlier FDA approval letter on Viviant, or bazedoxifene, forthe prevention of osteoporosis, FDA set an action date for the end of December'07.

The complete response on prevention provided the requestedthree-year fracture data and other data from our clinical studies. In additionto supplementing the efficacy database, we believe this data will address thesafety questions raised in the approval letter including VTEs and strokes.

Given the current regulatory environment, we are alsoweighing the value of submitting data from two additional clinical studiesfinishing later this year with Viviant in Asia, tofurther support the prevention application.

We also filed a separate application for the treatment ofosteoporosis at the end of July 2007 which has been assigned an action date forthe end of May, 2008. Both of these applications now contain virtually the samevery large database and we would not be surprised if either the agency, or we,decided it is more efficient to review these two applications and move themcloser together, in time.

We have also submitted jointly for prevention and treatmentwith the European authorities during the third quarter.

With the product for menopausal symptoms and osteoporosis,as we announced on October 5, there is additional work we need to successfullycomplete before filing our NDA (new drug application) with the FDA, which we now project no earlierthan the second quarter of 2008.

We will update you on Viviant and the related product,Aprela, as soon as we have additional information relating to the direction andtiming of the NDA reviews and filings, as we address these issues with the FDA.

The NDA and the European MAA for sub.2 methylnaltrexoneremain under active review. To remind you, this product is for the treatment ofopioid-induced constipation in patients receiving palliative care. We continueto be encouraged by the profile of this novel treatment for this significantlyunderserved condition. We are tracking towards a mid-2008 submission for IVmethylnaltrexone.

We filed our Pristiq low dose 50 mg studies in depression asplanned at the end of August, and the FDA has extended the review cycle by sixmonths. We will present the data for these studies at the ACMP conference inDecember. As we have commented before, we expect that Pristiq will be approvedfor depression in the first quarter of next year.

I would also note that we filed for European approval forPristiq in major depressive disorder within the past two weeks.

During this past quarter, we received an approvable letteron Pristiq for vasomotor symptoms that call for the conduct of an additionalclinical trial to support approval. We have had numerous discussions with the FDAin the intervening weeks, and we are working to finalize a design of therequested study which we expect will begin early next year.

Also during the quarter, we and our partner Solvay receivedan FDA action letter on Bifeprunox. FDA requested an additional study tosupport the maintenance use of the product. We, Solvay and the FDA are stillexchanging information on what might be an appropriate study design. We hope tomeet with FDA later this year so it is not possible at this time to clarify thepath forward.

We also filed our registration for Tygacil for community-acquiredpneumonia in July. The additional Phase III clinical trial in hospital-acquiredpneumonia to possible indication will begin early in 2008.

Lastly, our Phase III programs with Prevnar 13 for infantsand adults continued to progress well and we remain on track for filing forboth users in 2009.

So let me conclude. Our underlying base business isperforming very well with strong growth from key products in all our businesssegments and geographies. While we've had some challenging regulatory issuesthis past quarter, we are moving forward to bring these important new productsto market.

So let me now turn the call back to Greg to take yourquestions.

Greg Norden

Thanks, Bernard. Just in closing, we delivered a strongoperating performance in the third quarter; we had a great first nine monthsand expect an outstanding performance for the year.

Now operator, I would like to open the lines for questionsand I would like to ask participants, if they could, to limit themselves to oneor two questions. We may have to limit the time for Q&A, given the fact thatother companies are also reporting today.

Operator, we can open the lines, please.

Question-and-AnswerSession

Operator

Your first question comes from David Risinger - MerrillLynch.

David Risinger - Merrill Lynch

I have two questions. First, with respect to thecardiovascular profile of Viviant, if it's somewhat questionable relative to Evista,I'm just wondering if some ongoing ex-U.S. studies would be all that the FDAneeds to become comfortable with the product? I am also wondering if long-termoutcome data would be required?

Second on Protonix, I just wanted to find out how you seethe risk of an at-risk launch of generic Protonix and I was wondering whereyour discussions with Teva and Sun stand regarding potentially settling thepatent litigation?

Bernard Poussot

David, let me address your two questions, the first one onthe Viviant at-risk profile. We think that a complete response will help the FDAclarify the safety of Viviant on this subject. We do not need the studies youare alluding to, to address that question raised in the first action letter wereceived. We are pretty confident that we have supplied the FDA with strongdata from the three-year fracture data.

On the Protonix front; look, as you realize we are inlitigation on this subject so my comments will be limited. We definitelyobserved that six weeks after the decision we see no commercial activity on thepart of the generics that could have some. We continue to look and monitor veryclosely the situation. We obviously will do everything to defend the franchise.There are a number of options available to us to do so. For the time being, wejust limit our comment to this.

David Risinger - Merrill Lynch

Can you just explain in a little bit more detail theadditional data that you plan to submit to the FDA on Viviant?

Bernard Poussot

We are discussing the possibility to submit two additionalstudies that are being conducted now in Asia, and thisis something we will discuss with FDA in the coming weeks.

David Risinger - Merrill Lynch

How large are they and significant are they?

Bernard Poussot

They are two large studies, one conducted in Japanand one in Asia.

Operator

Your next question comes from Steve Slaughter - UBS GlobalAsset Management.

Steve Slaughter - UBS Global Asset Management

Before my question, Bob, I just want to offer mycongratulations on your upcoming retirement and obviously your many positivecontributions to Wyeth and the industry over the years. I wish you all the bestin your retirement.

Bob Essner

Thank you.

Steve Slaughter - UBS Global Asset Management

Briefly, I am curiousas to your take on the ASRM data on 50 mg Pristiq that was presented last weekon vasomotor symptoms. The nausea rates that we're seeing were in the mid-20s.I'm just interested in understanding how we think about that populationrelative to depression? Do we have any reason to expect there would be adifference between the two populations at that dose for this side effect?

Interestingly, the dropout rates were very low for nausea.I'm just curious as to how long these symptoms continued before they subsided?

Bernard Poussot

You're right, the symptoms disappear very rapidly; actually,the studies show that three days is average, so it's really an adjustment totreatment and the efficacy of the treatment. We're not concerned with this. Wethink that's something that patients can adjust to, especially if we tell in advancethe physicians of this fact.

I remind you that in depression the regiment would be 50 mg andthis is going to be the dose and that dosage should be good for the majority ofpatients. So we think that makes Pristiq in depression, a very competitiveprofile. Remember, we've managed that very well with Effexor and I think it is verymanageable with Pristiq going forward.

Steve Slaughter - UBS Global Asset Management

As a follow on, Bernard, I believe you have an action datein Europe for Pristiq in vasomotor coming up. I'mcurious as to your expectations for that?

Bernard Poussot

I think it's in 2008. I think the file is definitely being looked atby the authorities and I think we have regular interactions, nothing specificto report here. It is following its course.

Operator

Your next question comes from Roberto Cuca – JP Morgan.

Roberto Cuca - JP Morgan

Congratulations to both Bob and Bernard. I had a quickquestion about the Nevada HRT cases. I was wondering if you could review whatthe basis would be for the appeal in which you hope to overturn the judgmentsthere? If you could discuss the extent to which those cases differed from theother cases that have taken place so far?

Second, do you expect that the risk of an at-risk launch forProtonix is likely to affect Protonix sales in the coming quarter or comingquarters? Thanks.

Bob Essner

Let me address the Nevadaverdict, which was highly unusual. I think the trial as we have said, wasriddled with errors and confusion and irregularities and I would say that isthe main thing that distinguishes it from the previous six trials that have beendecided at the trial court level, all of which we have prevailed in.

We have also had several cases decided in our favor onsummary judgment and dismissed by the plaintiffs.

I think we recognize that if you go to trial often enough inthe American jury system, you are going to get outlandish verdicts such as thisand we will appeal it and we believe that the probability we're successful onappeal is extremely good.

Bernard Poussot

On the Protonix side,I will add that we cannot predict what's going to happen but I remain veryconfident that we have a very strong case. We are preparing for the trial inmid-2008, as I said, and we continue to monitor the situation and adapt to anysignal if we see any. For the time being, we see no commercial activity on thisfront.

Operator

Your next question comes from Roopesh Patel - UBS.

Roopesh Patel - UBS

First on Viviant, if the FDA combines the review of theprevention and the treatment indications, can you please clarify the time linefor approval under that scenario? Basedon the data that you have so far on Viviant, I was just curious as to how youexpect to differentiate that drug versus those that are on the market?

Separately on Prevnar, if you can just offer some visibilityon when you expect it to be approved in Japan?

Bernard Poussot

Let me start with thepossible date of the two applications converging. I think it is natural toexpect that this would be around May 2008, which is the action date for thetreatment portion of the filing. We think the dosing converged, in every piece of clinical studyand data that we contributed to one has also been contributed to the other one.These are two very large filing applications and I think it is going to be muchmore efficient and likely for FDA to look at them both at the same time, so May'08.

I'll ask Joe Mahady to comment on the differentiation.

Joe Mahady

As we really discussed last year at our analyst conference,we have always held that the real value of bazedoxifene is an enabling agentfor the combination of vaso with estrogen and that's the Aprela product. But asa single entity, as we've gone through the evaluation of our clinical results,while we see a very similar competitor to Evista, what we have found is thatreally in patients with more significant risk for fracture, that we see anadvantage to bazedoxifene. That won't make it into the first filing here in theU.S., althoughit has a good chance of getting into the European label.

So we see really the single entity as also being atransition product from patients who no longer need the combination of Aprela.So again, we remain excited at that single entity, it's a valuable product; incombination it's a transforming product that it converts both that and estrogeninto an Aprela product that we think will change really how they treatmenopausal symptoms and prevention.

Bernard Poussot

Your last questionregarded the expected approval of Prevnar in Japan,I can tell you that we are expecting an approval in early 2010, based on therecent filing of the application.

Operator

Your next question comes from Chris Schott - Banc ofAmerica.

Chris Schott - Banc of America

First on your SG&A side, you have had several setbacksin your late stage pipeline, I guesssome more expected than others. How does that factor into your spend goingforward? I know you have been keeping expenses under control in here, but haveyou taken the opportunity or do you see opportunities to cut back spendingfurther in the near term at least?

The second question on Aprela, maybe just following on someof the questions of Viviant, how relevant do you see the additional safety datafrom these studies being to your filing there? Do you believe there will be anyFDA concerns that Viviant will be applied to Aprela in any way? I know it's adifferent direction of therapy and different indication, but do you think it'spossible to get Aprela approved if Viviant is still under FDA review? Thanks.

Bob Essner

Let me start with thelast one. Certainly the Aprela application by prior approval and discussionswith the FDA can stand completely on its own. It does not need the Viviantapplication to be approved or even pending.

Our data that we have seen on Aprela are very, veryreassuring with respect to these issues around stroke. Now, that doesn't meanthat the agency won't consider the single entity component in their Aprelareview. But by what we have seen to date, and of course, that's prettysignificant data at this time on Aprela, the stroke question that they raisedaround bazedoxifene, which is a question that is consistent with a certain category,has not manifested itself in the clinical trials around Aprela.

Again, as Bernard said earlier, we do believe from the Wyeth'sperspective that the major supplement we made with the three-year data on thebazedoxifene single entity, we believe addresses the stroke situation and putsit very much in a picture that is reflective of what people have come to knowabout raloxifene and the category.

Joe Mahady

On SG&A, if you look at our SG&A trends as I notedfor the quarter, for the year-to-date very, very modest growth in SG&A,plus 4% nine months year-to-date; 1% after factoring out the effects of foreignexchange. We expect to finish the year probably along those lines, very modestgrowth in SG&A.

As far as going forward, there's still are a lot of newproducts that we expect. We expect methylnaltrexone approval in January of nextyear. We expect Pristiq in the middle of the first quarter of next year. So we'regoing to continue to manage SG&A within the guidelines of what we set forthover the last couple of years, which is to grow it at a meaningfully lower ratethan the growth in revenue.

There still is a need for the SG&A spend to support our coreproducts and the new products that are still coming next year.

Operator

Your next question comes from Jim Kelly - Goldman Sachs.

Jim Kelly - Goldman Sachs

Could you help clarify a little bit about the challenge fromSun on Effexor XR? As they claim that they are AB rated for the product, thatmakes sense that the 180-day exclusivity for Teva would hold them up. But asthey are a tablet, how are they AB rated and could they end up coming outearlier? If you could just help square that for us a little bit, that would begreat.

Secondly, for Pristiq in Europe, isthere a reference drug that Pristiq needs to show that it is superior to forapproval in MDB in Europe and what is that drug and whatis the dose of Pristiq?

Justin Victoria

Let me start with the Sun Effexor XR generic. As per theirpress release yesterday -- I believe it was yesterday -- our understanding ofFDA policy, our very clear understanding of longstanding FDA policy that hasbeen implemented many times, is that alternative dosage forms -- that is,tablet dosage forms filed against a capsule product that is referenced with thedrug -- will not be AB rated. So we do not expect that an approval for Sun for an Effexor XR extendedrelease tablet, if approved, would be rated AB.

The question with respect to Pristiq, a reference drug indepression in Europe, Joe?

Joe Mahady

We have studies that are completing with respect to MDB,both with comparisons against Cymbalta or Duloxetine and Celexa and I thinkthey would be appropriate support.

Operator

Your next question comes from Mario Corso - Summer StreetResearch.

Mario Corso - Summer Street Research

On Pristiq for depression, back when the vasomotor decisionfrom the FDA came down, Wyeth's comments were that they did not expect that itwould impact the depression review. Of course, that was before the response tothe approval letter was filed.

So since the response has been filed now and I don't thinkaccepted yet -- correct me if I'm wrong -- has there been any more discussionabout that issue or is it just at this point, just an unspoken assumption thatthe depression indication remains on track, despite the vasomotor symptomissues that came up? Thank you.

Bernard Poussot

Let me tell you, wehave obviously ongoing discussions with the FDA and we have been reinforced inthe belief that the FDA has looked at all the elements of the two dossiers toconfirm that, in their view, the benefit/risk ratio was much better andtherefore could lead to an approval. So we are encouraged and we believe thatwe will be approved during the first quarter of 2008.

Operator

Your next question comes from John Boris - Bear Stearns.

John Boris - Bear Stearns

Bernard, as you assume the role of CEO in January, can youjust outline for us what some of your top priorities will be going forward?

Secondly, on Pristiq to the question Steve Slaughter hadasked about the data that was presented on the 50 mg, are the nausea rates andthe discontinuation rates comparable in the depression studies that you plan onpresenting at the ACMP meeting in December?

If Joe Mahady might be able to give us some color on howmanaged care is viewing this product from points of differentiation?

Then just one question for Greg on the tax rate. I thinkyour current guidance is 27% to 29%. It seems as though the mix of products, atleast going forward, are coming from non-taxed advantaged areas and some of thenew product opportunities, especially Viviant being delayed until next year --at least it seems that way -- is putting some upside pressure on the tax rate.How should we be thinking about that going into '08?

Greg Norden

John, I'll take the tax rate question first and then I'llturn it over to Joe and Bernard. The tax rate year-to-date is about 29%. As Imentioned in my comments, we're still comfortable that we are going to fallwithin the range we gave at the beginning of the year of 27% to 29%.

Looking forward, again the single biggest determinant as youmentioned in the tax rate to a large degree going forward is the product mixand I don't see the tax rate dropping markedly over the next couple years, butthe things that we're doing today to prepare behind our new products -- be itin research or development or pre-marketing-- will yield a lower tax rate whenthose products are launched.

Depending upon the timing and the magnitude and the ultimatesuccess of those products, we hope to see the tax rate drop over time.

But John, I think your question is probably more short termand my answer would be, we don't expect the tax rate to change significantlygoing forward. I'll give a lot more guidance on that on our January call whenwe talk about 2008.

Bernard, I think you have the first question there.

Bernard Poussot

I think my immediate priority is going to continue to workhard at getting those new products approved as fast as we can in a changingenvironment. This obviously requires that we identify areas where we need tobeef up our filing or interaction with agencies and intend to continue to lookat that aspect of business, which is so critical.

We have, as you know, five products in registration plus thetwo Pristiq and Bifeprunox that requireadditional work. That's my immediate priority. Obviously, my countdown periodof two-and-a-half months to go before January 1, I'm looking forward to workingclosely with the management team here at Wyeth and chief among them, BobEssner, to look at areas where we can add, improve or modify what we are doing.

I don't see any urgent need for massive changes, but somegood work with our key executives will help me to define what we should dogoing forward. So I'll talk to you about it early next year when this is moreprecise in my mind.

Joe Mahady

There were two questions that really related to Pristiq. Thefirst was, again, on the nausea issue. Again, a 50 mg dose for depression and a50 mg to 100 mg dose on vasomotor, the results we've seen in those trialsreally don't give us much concern on the nausea issue there; there were veryfew drop-outs for that. The issue was essentially gone after the first few daysto a week and then we see relatively good performance then on the efficacy andremaining tolerability throughout the trials.

We think it will be a little easier to manage than what hasbeen there on Effexor. Again, I have to remind people that the nausea that wealways talk about on Effexor hasn't stopped it from being the number 1 antidepressantin the world today. So we're very encouraged here.

On the managed care side, I think the issues that we dealwith, particularly here in the U.S.,is we have a category in antidepressants that are 60% generic today, so wewould expect like most of the primary products in the category, that we willrun into a lot of generic first formularies. We think in our discussions thatPristiq MDV is a very good opportunity because of its simple dosing; probablyone single dose a day to be both a very effective and even more cost-effectiveoption for them. We think with the right rebate structure it has everyopportunity to be as well available in managed care formularies as Effexor XRtoday. So we're pretty comfortable with that position.

Of course, with the vasomotor addition later on, we'll filla hole that isn't filled today in managed care formularies. I think that willjust strengthen the ongoing position of Pristiq.

Operator

Your next question comes from Tony Butler - Lehman Brothers.

Tony Butler - Lehman Brothers

A question that relates to the productivity initiatives. Oneof the characterizations in the press release related to manufacturing facilityclosures by the end of the fiscal year. Have we seen the effect of thoseclosures in the P&L to date? Will there not be any effect or will there besome effect moving forward into future years, assuming your business staysstatus quo?

I realize to some degree that's dependent upon mix, etcetera, new product introductions. But just as your business exists today, howwill this facility closure actually have an effect, if at all? Thanks.

Joe Mahady

We've made a lot of changes in our manufacturing network todate and I think we're going to continue to look at those going forward.Specifically Tony, our gross margins remain in the 72% to 74% range. I don'tsee that changing dramatically right now as we go forward. A lot of what we dogets baked into that margin.

You may be referring to in the restructuring charge in thethird and fourth quarter the charge is a bit higher due to an announcement byAmgen in the third quarter to close their Rhode Islandfacility. They announced the closure of that early in the third quarter toclose it by the end of the year and Amgen is having a call next year, whichI'll refer you to for more detail on that.

That first facility, it was never a producing facility, itmade the original formulation of Enbrel. Amgen has another facility that is nowmaking the serum-free process which they call BioNeXt and that combined withour facility in Grange Castle.To some degree we're taking some excess capacity out of the network. So thatwill help, obviously, with the Enbrel margins as we go forward.

But the direct answer to your question, I think the marginsthat we have seen are a reflection of the changes we've made. We're not goingto stop here. We're going to continue to look for opportunities to rationalizethe manufacturing and to keep those margins as high as we can going forward.

Operator

Your next question comes from Seamus Fernandez - LeerinkSwann.

Seamus Fernandez - Leerink Swann

Can you just update us on your expectations for timing ofthe release of at least top line data on the Alzheimer's program withbapineuzumab (AAB-001)?

Second, can you update us on your expectations for timing ofa Markman ruling from the Effexor XR impacts trial which I believe occurred inJune of this year?

Finally, can you let us know if you tested the 0.3 mg doseof Premarin with Aprela, and if not, can you explain why you didn't test that?The reason that I ask is because my understanding is that the reproductivegroup at FDA likes to see the lowest effective dose of everything tested inorder to gain an effectiveness margin of safety and efficacy for approval. Sojust wondering if you could give us a little bit of clarity on that?

Justin Victoria

The impacts of the Markman hearing, we don't have acalendar. The hearing was held and as you know, we'll see. Right now there'snot been a trial schedule set for that particular case and one would expectthat we'd have a ruling on the Markman hearing sometime before that trial. Butunfortunately, we just don't know exactly when that might come. We haven'theard anything further from the judge at this point in time.

With respect to top line data on AAB, as we have noted thePhase II study remains ongoing and blinded at this fashion. The data should be availableto us right around the end of the first half of next year, so I think you canexpect to see Wyeth and Eli present top line data from that trial, not beforethe second half of 2008.

Joe, on the Aprela question.

Joe Mahady

I think you're right, FDA does like to see the lowesteffective dose, particularly I think in this category. We're pretty comfortablethat our results on Aprela really show a good dose response and that at thelevel we're at, the dose level I think they'll accept as perhaps the lowesteffective dose. We are pretty comfortable, we've looked at the range and whatwe've got is a lot of data that gives them a clear look at the responsivenessof the efficacy and the safety. I don't think we'll have to consider a combo.

Operator

The next question isfrom Jami Rubin - Morgan Stanley.

Jami Rubin - Morgan Stanley

Thank you. I justwanted to follow-up on the earlier Sun-related question. I guess I'm stillpuzzled as to why you decided not to sue, given that even if Sun's product Effexoris a tablet version, not a capsule and even if FDA does not ascribe it an ABrating, why can't Sun just distribute through another company and launch at alower price and take 20% share of the market?

It just seems to be a risk and I don't know what you lose bylitigating which would block them from entering the market, truly in the 30-monthspace. So if you can just talk about that, because my understanding is thatthere have been six to seven subsequent filings by other generic companies, allof which have been litigated by Wyeth.

Justin Victoria

The key factor, as you note, is the tablet dosage form forSun. They have filed as an ANDA. Given our previous agreement with Teva, andTeva's ANDA, Teva enjoys the generic exclusivity which therefore FDA will notgrant full approval to Sun's ANDA until the exclusivity for Teva is triggered.We think that Sun has quite some time ahead of it before it might come tomarket as a potential competitor.

We have evaluated a number of factors before making a strategicdecision that with this particular product and this circumstance, the bestcourse of action for Wyeth was not to bring suit but to let the non-AB ratedstatus and the existence of Teva's generic exclusivity as essentially a time-blockingentrance of that product to serve best for us.

Jami Rubin - Morgan Stanley

So you are confident that Teva's exclusivity will block Sunfrom entering the market?

Justin Victoria

That is ourunderstanding based on the fact that Teva has the first exclusivity and it wasan exclusivity granted under the previous rules prior to the MMA legislationseveral years ago. That's a key factor.

Operator

Your final question comes from Steve Scala - Cowen.

Steve Scala - Cowen

Would you elaborate on the formulation and bio equivalencerequirements necessary for Aprela that you announced on October 5? Whatspecifically is the issue?

Secondly, on Prevnar 13, Bernard you said it would be filedin 2009. Previously the company had said early 2009. So is early 2009 still ontrack and is the new resistant strain of streptococcus covered by the product? Ifnot, is that going to be problematic from a regulatory standpoint? Thank you.

Justin Victoria

Let me take a shot atthat and then I'll turn the Aprela question over to you Joe.

On the Prevnar 13-valent I think what we said was we expectto file for the infant indication in early 2009. That's still on track and weexpect to file for the adult indication in the latter part of '09 and that'sstill on track.

Your question regarding the sero type I do believe we had a serotype, I think you are referring to, and that is in our 13-valent formulation.

Joe, I'll turn over the formulation and bio equivalencequestion to you.

Joe Mahady

Steve, I think asmany of you may be aware, we had committed as a company a good number of yearsago to move our estrogen containing formulations away from a shellac-coatedcore. That work has been completed in the market with Premarin. It's wrappingup now in the development phase around Prempro. But unfortunately, thatformulation wasn't available when we began the Aprela trial. So obviously theresponsibility now is to link the Aprela trials throughout their development tothe new methylcellulose formulation which is the new estrogen core formulation.

That work is ongoing now. There are a series of biostudiesthat are being conducted as we speak. Given positive results from those trialsand the data we have from the clinical trials, we believe we could make thelinkage argument, allowing us to file then in the second quarter of this year.

Greg Norden

Thanks, Joe. Thank you everyone for participating and Justinand his team will be available later in the day if you have any furtherquestions. Thank you.

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