Sepracor Q4 2005 Earnings Conference Call Transcript (SEPR)

| About: Sepracor Inc. (SEPR)
This article is now exclusive for PRO subscribers.

Sepracor (SEPR)
Q4 and Year End 2005 Earnings Conference Call
January 31st 2006, 8:30 AM Executives March 1, 0000 ET

Analysts

Marc Goodman, Morgan Stanley

Corey Davis, J.P. Morgan

Matt Duffy, Black Diamond Research

Greg Gilbert, Merrill Lynch

James Kelly, Goldman Sachs

Rich Silver, Lehman Brothers

Bill Tanner, Leerink Swann

John Stephenson, Summer Street Research

Robert Hazlett, SunTrust Robinson Humphrey

David Steinberg, Deutsche Banc

Andrew Swanson, Citigroup

Danny Frank, Sturza’s (ph)

Ian Sanderson, SG Cowen

Operator

Welcome to Sepracor’s Fourth Quarter and Full Year 2005 Earnings Conference Call. Hosting the call today from Sepracor is Mr. Timothy Barberich, Chairman and Chief Executive Officer. At this time, all participants have been placed on a listen-only mode and the floor will be opened up for your question following the presentation. Operator Instruction It is now my pleasure to turn this over to your host, Mr. Timothy Barberich. Sir, you may begin.

Timothy Barberich, Chairman, Chief Executive Officer

Thank you. Good morning, thank you for joining us today. With me this morning are Jim O'Shea, President and Chief Operating Officer; Dr. Mark Corrigan, EVP, R&D; David Southwell, EVP and Chief Financial Officer; Bob Scumaci, Executive VP-finance and administration; and Jonae Barnes, Vice President, Investor Relations and Corporate Communications.

Before we begin, I would ask Jonae to read the safe harbor statement. Jonae?

Jonae Barnes, Vice President, Investor Relations and Corporate Communications

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 that we file with the SEC. In addition, these forward-looking statements represent the company’s expectations only as of today while we may elect to update these forward-looking statements, we specifically disclaim any obligation to do so. Any forward-looking statement should not be relied upon as representing our estimates or views as of any date subsequent to today, thanks Tim.

Timothy Barberich, Chairman, Chief Executive Officer

David will begin this morning with a review of the financial performance for the fourth quarter and the year ’05. David?

David Southwell, EVP, Chief Financial Officer

Thank you Tim. For the three months ended December 31, 2005, Sepracor's consolidated revenues were approximately $311.1 million, of which revenues from Sepracor's pharmaceutical product sales were approximately $302.9 million. XOPENEX brand Inhalation Solution revenues were $146.0 million, XOPENEX HFA brand levalbuterol was $12.0 million and LUNESTA brand eszopiclone revenues were $144.9 million.

Net income for the fourth quarter of 2005 was approximately $37.2 million, or $0.32 per diluted share. These consolidated results, compared with consolidated revenues of $131.4 million, of which revenues from Sepracor's pharmaceutical product sales, which is XOPENEX Inhalation Solution, were approximately $117.2 million, and a net loss of $33.7 million, or $0.33 per diluted share for the three months ended December 31, 2004.

For the year ended December 31, 2005, our consolidated revenues were approximately $820.9 million, of which revenues from our Sepracor's pharmaceutical product sales were approximately $769.7 million. XOPENEX Inhalation Solution revenues were $428.5 million, HFA revenues were $12.0 million, and LUNESTA revenues were $329.2 million. Net income for the year ended December 31, 2005 was approximately $5.0 million, or $0.04 per diluted share. These consolidated revenues compared with consolidated revenues of $380.9 million, of which revenues from our pharmaceutical product sales, which was XOPENEX were approximately $319.8 million, was a net loss of $295.7 million, or $3.21 per diluted share for the year ended December 31, 2004.

Included in the net loss for the year ended December 31, 2004, was a charge of approximately $69.8 million, or $0.76 per share, representing inducement costs incurred with connection of the conversion of convertible subordinated notes into shares of Sepracor common stock. As of December 31, 2005, Sepracor had approximately $976 million in cash in short and long-term investments. Tim?

Timothy Barberich, Chairman, Chief Executive Officer

Thank you David. This morning we truly have a reason for celebration. We entered ’05 with the expectation that we would launch LUNESTA and achieve total product revenues of just over $500 million for the company, $160 million of that for LUNESTA, and have an operating loss of about $140 million for the year ’05, instead we have exited ’05 with our first full year profit, having taken the company from a net loss of $295 million in ’04 to a net profit of just under $0.05 per share with significant earnings momentum in the fourth quarter of $0.35 per share, which corresponds to an operating profit of more than $33 million for the quarter.

I would like to take a minute to look back on the achievements of ’05, because I believe it was a very special year for the entire Sepracor team and our stakeholders, one in which significant risks were rewarded with significant successes.

During ’05, we launched two major primary care products, LUNESTA and XOPENEX HFA metered-dose inhaler. We hired, trained, and deployed a significant expansion of our sales organization, the respiratory, especially sales force. So that today, we have approximately 1500 reps in total promoting Sepracor’s products. We submitted an NDA for Arformoterol, the first nebule formulation long-acting beta blocker or bronchodilator for treatment of COPD.

And we advanced, what we believe to be, one of our most important future assets SEP-289 into the clinic for treatment of depression. We also presented important clinical results on the effect of LUNESTA in patients with co-existing insomnia and depression. All the while making significant progress on a quarter-to-quarter basis enclosing the gap on profitability. A great year by any measure, but still one we would expect to surpass in ’06.

We successfully launched LUNESTA in April and over the course of the first three quarters of its commercial life, the drug has captured roughly 14% market share of a large and growing market against the well entrenched dominant competitor in all the generic drugs. In over three quarters – in only three quarters, LUNESTA stands not only as one of the strongest brands in the pharmaceutical industry, but arguably one with significant and growing recognition among consumers in general.

Most importantly, the market for sleep therapy has been virtually transformed. In the past, while nearly 50% of all adults and perhaps 75% of the elderly suffered from insomnia, less than 20% had sought treatment. Today, sparked by LUNESTA’s consumer awareness campaign, over 130,000 new patients per week are presenting at physicians’ offices seeking help. For their part, doctors are much more comfortable prescribing sleep medications knowing that the replicated six months safety and efficacy studies of LUNESTA indicate that LUNESTA can be administered consistently over long periods of time without the complications of next-day effects, tolerance, or rebound. These are side effects, which affect other drugs in this category.

The product profile of LUNESTA as the first in class non-benzodiazepine has gone a long-way toward reducing the reluctance that has existed in prescribing anti-insomnia drugs. And it’s ability to help maintain sleep throughout the night, reducing or eliminating early morning awakenings is important for large groups of consumers who have gone untreated. Women of para menopause or of menopausal age, the elderly, and the stressed, and virtually all CNS conditions from depression and anxiety to ADHD, psychosis, and dementia from Alzheimer’s and Parkinson’s have a significant element of co-existing insomnia.

Since the introduction of LUNESTA, the market has gone from a year-over-year growth rate of 5% to 7% to nearly 30%, and we expect that to continue driven in part by new entrants into the market, and therefore greater awareness on the part of consumers and physicians of the importance of treating insomnia. Overtime, we believe that employers recognition of the positive impact on absenteeism and worker productivity that can be harvested from proper treatment of insomnia will influence access and coverage by managed care for drugs that specifically treat sleep maintenance. The impact of proper treatment of insomnia in patients with coexisting conditions such as, depression and anxiety can have a similar effect, and perhaps weaving more far reaching in terms of economic benefit to society. In the short-term, we do recognize that as new major competitors come into the market, there will naturally be some effect on our market share growth. You will hear from David later that our ’06 guidance reflects the most conservative assumption that our next competitor enters the market mid-year. However, we believe that this market can also absorb additional entrance and ultimately they should expand the scope of this unusual opportunity. I’d now like to turn it over to Jim O'Shea, who will review commercial operations for the quarter and the year.

W. James O’Shea, President and Chief Operating Officer

Thanks Tim, and good morning everyone. A great quarter, completing an extraordinary year with continuing strong XOPENEX UDV sales, the market introduction of XOPENEX HFA MDI, and the outstanding launch of LUNESTA. So first the revenues, overall revenues in the fourth quarter were $311.2 million, up 137% on the fourth quarter ’04, and which brought the revenues for the full year to $820.9 million, up 116% on full year ‘04. The principle drivers of growth being overwhelmingly the sales of LUNESTA and XOPENEX.

On XOPENEX, another strong sales quarter, with fourth quarter sales coming in at a $146 million, up 25% on the fourth quarter of ‘04 and which brought the full year sales to $428.5 million, up 34% on full year ‘04. XOPENEX sales throughout the year have been supported by positive price contribution. Growth in the underlying UDV market and significant growth in the non-retail sector, particularly sale through Medicare and Hospitals. For reference the non-retail and non-IMS reported sector now comes to approximately 40% of total XOPENEX’s sale. Again for reference, we finished the year with the December pipeline of 4.5 weeks of inventory at wholesalers and retail pharmacy.

Now in terms of prescriptions, market shares as reported by IMS. XOPENEX finished the year with a December new Rx market share of 26%. And a total TRx market share of 26.9%. At the doctor specialty level, we finished the fourth quarter with allergists maintaining their market share at 47.1%. Pediatricians lost some ground to 32.5%, while both pulmonologists and primary care doctors increased their TRx market share. Pulmonologists to 32.6% and importantly primary care doctors 17.9%.

In hospitals, we saw a good return to growth in the fourth quarter, ending the year with a December market share of 32.9%, up 2.4% on December of last year. This growth picture was also seen in the prescriber base during the fourth quarter, with over 54,000 doctors prescribing XOPENEX in November, up 7.8% on last year, with importantly for the XOPENEX MDI launch, primary care doctors up almost 12%.

On XOPENEX HFA MDI, following successful profit consolidation on commercial scale at 3M, our manufacturing partner, launching the key builder was completely difficult quarter which enabled us to initiate wholesaler stocking in December, which is completely the long-side or else the extensive sampling product recognition program targeted at a segment of our potential high prescribers. And of course, we completed in December, the representatives training and the commercial launch with the representatives. Full promotion has begun in January now, with the new S34 being really the fine guard sales or supported by the primary cares sales teams.

As David, indicated in terms of revenues the $12 million on sales of XOPENEX HFA MDI in the fourth quarter was with the old stocking. Overall, with continued good sales of UDV, and the launch of the MDI a very exciting time for the XOPENEX franchise in ‘05 and beyond.

I would now like to turn to LUNESTA on the completion of three full quarters on the market. We would track the performance and the launch of LUNESTA as outstanding in terms of the rollout of our marketing, sales, and medical plans. A very swift uptake of the product and very importantly the response of the underlying street market.

On revenue, the sales of LUNESTA in the fourth quarter were $144.9 million, which broke the nine-month sales to the end of ’05 to $329.2 million. For reference, we completed the quarter with around six weeks of inventory at wholesales and retail pharmacy. This very swift uptake of LUNESTA places it firmly in the top 10 of product launches among entries excluding switches after the first 43 weeks of launch.

An impressive performance by any measure, driven by extensive effort. At the physician level, we delivered over 1.3 million detail, almost 90% on target and with over 80,000 physicians receiving a sample of LUNESTA. Making significant efforts also supplemented with over 2,600 educational programs involving almost 50,000 doctors.

These sales activities were supported by extensive medical communication program with 50 hosted or podium presentations at key medical meetings. With patients, the intensive awareness education campaign continued in the fourth quarter with cumulative, which cumulatively has resulted in seven of ten prescription yields and six out of ten OTC users of same products been aware of LUNESTA, a very high figure. Also as a result, we are extremely happy, website you switch on to www.lunesta.com.

We ended the year with one of the largest insomnia database with almost one million patient registrations. These activities were along side in extensive public relationship program. We have to date over 2,500 store replacements on LUNESTA.

On managed care access, we ended the year at a very encouraging level with LUNESTA having unrestricted access in almost 80% of patient lives in the year, obvious the majority accurately. The very extensive loan capital in 2005 as to date convinced over 213,000 doctors to prescribe LUNESTA and we can continue to add 2,000 to 3,000 new prescribes every week.

At the prescription level, over 3.3 million prescriptions were written for LUNESTA in 2005 with importantly an increasing level of patient refills 41.5% in December clearly endorsing patient satisfaction with LUNESTA. The 41.5 % referral rate comparing very well to that of ambience of nine months period, which was 23.3 %. And to further complete the pressure we ended in December with 28% refill reauthorization mix, this is where the doctor reacts to patient on LUNESTA, after the original number of refills has been used up. This brought the total refill rate to 69%of total scripts and continuing a very encouraging sign of both patient and indeed doctor satisfaction with LUNESTA. For reference, the number of tablet prescriptions is currently 29.5 tablet per script.

On market share, the new TRx LUNESTA withstood the introduction of two very aggressive new competitors in the sleep market. First, the necessary distraction in December of the XOPENEX MDI launch pretty well ending the year with a December monthly the new Rx of 13% and the TRx market share at 12.5% and very encouragingly in January as you see by the slide, post the first stretch of competitor launch activity and enthusiasm and indeed closed the launch disruptions with MDI. We are seeing a return to growth with the latest weekly new Rx market share of 13.9% and a TRx market share of 13.4%.

Also, since launch we have seen progressive improvement in the percentage of code on physicians prescribing LUNESTA by doctors as of – with the latest statement January the 6th, showing greater than 80% in that ’04 and above and in the top four baselines well over 90% have prescribed LUNESTA. The relative unit volume of the percentage illustrating there is a clear association between detailing and adoption and LUNESTA’s product profile is certainly persuasive. This was further endorsed in the results of a very large ATU trial, Awareness Trail on Usage study that we completed in December. This trial was a cross stated study in over 600 doctors, over 350 being primary care, greater than 250 being psychiatric. The key findings for LUNESTA were their respondents had a very high awareness of LUNESTA, both aided and unaided that the long-term use safety profile and product efficacy other key advantages of LUNESTA. Also of the three recent product entrants, physicians rated LUNESTA’s profile as providing more significant improvement over currently available hypnotics and significantly more physicians reported that top two box score for LUNESTA’s profile compared to that on ambience profile. The responds were recorded in a 7 point united scale. The key finding for the market in this study were the physicians have a greater understanding of the key sleep difficulty symptoms. The physicians reported increased number of insomnia patients and the patients self referrals and product requests are also growing.

That exist the encouraging picture for the market has been borne out in the IMS weekly drafter. Comparing prescription volumes week ’05 compared to the same week in ’04, we can observe remarkable growth as talked to you by Tim. Firstly, with TRx we see that in the period of January to March, immediately before LUNESTA’s introduction the TRx growth was 5.8%, whereas the growth April to December has taken a major step up to 16.1% and significantly as we take the latest score set as October to December, we observe a growth rate of 20.9%, a further escalation.

This is even further might be find with new Rx. Prior to LUNESTA’s introduction, 7.4%, April to December post LUNESTA’s introduction 19.7% and remarkably in the last quarter, October to December, the new Rx growth rate was 25.3% and actually the last week’s data or January the 20th showed the new Rx market share growth for the market up 35%. Overall, a great picture for the launch of LUNESTA in ’05 and a very positive picture for the sleep market. Finally, I would like to briefly look forward to 2006 and some key activities that would be market share drivers.

Firstly, sales force, following an in-depth analysis of sales force in these, share of both reality and importantly significant market growth, which has dramatically increased the value of doctors across all region. We will add an additional 450 primary care sales forces in ’05. This will enable us to deliver an additional 700,000 primary detail on LUNESTA, which we would deploy to dramatically increase frequency on the top distance and reach amble frequency on the middle to bottom distance. We are already well into the recruiting process and expect to have this third primary care sales force up untrained by May the 1st.

Secondly, following an in-depth analysis of the results of our – our recent dated study as a result of previously outlined and nine months of in market data. We are in a great position to firstly refine the LUNESTA message to physicians to better emphasize LUNESTA’s differentiated product profile. Also, we can refocus the emphasis on key market segment to just patient groups and physician specialty and we can also very importantly fine tune our managed care strategy to further improve access and importantly for the physician to enhance the written to dispense ratio of LUNESTA.

And finally, but not least in terms of clinical data and medical communications. In 2006, we will clearly enjoy a significant investment in LUNESTA’s phase IIIB phase IV program, with a rollout of a number of publications. Depression, second long-term study, coexisting insomnia and menopause, and cost effectiveness, which will be based on the third six months long-term study. Also, currently we are progressing 22 abstract the number of key medical meetings covering important target audiences. And finally, to complete the picture, we also have over 20 investigator initiative studies underway that will undoubtedly add to the LUNESTA’s clinical data set in the future. And with that update, I would now like to hand over to Dr. Mark Corrigan.

Dr. Mark Corrigan, Exec. VP

Thank you, Jim. Capitalizing on what Jim has just talked about, for LUNESTA we completed the number of programs addressing insomnia arising from medical and psychiatric illness and disorders. These data have been presented scientific means as full, comparing menopause data were presented at the North American Menopause Society Annual Meeting at the end of September. The depression data were presented both at the APA meetings as well as the APSS meetings. We pitch the publication of these important results for mid-year. Data from confirmatory second set of six months study in LUNESTA were presented at the American Neurological Association meetings in late December. The rheumatoid arthritis data has been presented to the American College of Rheumatology Meetings in November. In all these studies, LUNESTA was effected improving insomnia and this had a beneficial effect on the underlying disease.

We continue to drive our science forward of understanding comorbid insomnia and its effects on other psychiatric disorders. Our large 600 patient general anxiety disorder is ongoing and we anticipate concluding in time for a submission for the four deadlines for next year future meetings. We anticipate initiating a second large study in depression this year. Other phase IV studies are ongoing and under consideration.

For registration in Japan, we have completed over Phase I studies for LUNESTA and are requesting a meeting with the Japanese health authorities to confirm the acceptability for Phase II/III program. Finally in response to the FDA’s request for pediatric studies, we’ve submitted a package of proposed earnings for their review, these review included pharmacokinetic evaluations in patients, stages 3 to 11, and 12 to 17, as well as an efficacy and safety study, that we proposed proclaim in adolescents with insomnia. We anticipate further discussion needs with the agency in initiating these studies this year.

Reviewing our overall portfolio we continue to advance our assets. We submitted our NDA for arformoterol, our third NDA in three years, and looking forward to managing the regulatory process as it is reviewed by FDA. This is the first nebulized presentation of a long-acting beta-agonist that we believe will offer COPD patients and physicians an important treatment choice. We’re conducting additional preclinical works in other indications including Parkinson’s diseases on SEP-330, our combined norepinephrine and dopamine reuptake inhibitor and should the data vary up may be undertaking further clinical studies this year.

We are on track for an IND this year on SEP-162, another potent combination, noradrenergic and dopaminergic blocker. I am excited about the possibility of yet another IND around the end of the year or early next year emerging for SEP-929 and are first to psychosis that we hope may provide the efficacy of Olanzapine will improve side effect profile.

Finally our collaboration with ACADIA working on Muscarinic project recognition and combination strategies for serotonin receptor binding with LUNESTA for the treatment of insomnia continues to mature. We recently completed our further investment in ACADIA, and are excited about the preclinical is being generated.

Sepracor’s discovery programs are yielding clinical and preclinical candidates that address different balances for pharmacological approaches to clinical conditions. Existing SSRI targeting serotonin and while useful in treating depression and OCB are being supplemented by process address both serotonin and norepinephrine regulation. This approach broadens the clinical conditions amendable to treatment to include both depression and pain stakes. SEP-330 combines both the dopaminergic component as well as the noradrenergic component, which may allow the special benefits in clinical conditions known to arise imbalance of mood, such as wakefulness. Our BBB uptake inhibitor SEP-289 potent to offer potential benefit over existing in depression therapy by incorporating the dopaminergic activity having direct effects on attention, motivation, on reward systems known to be around in major depressive disorders. The potential for greater release and early action in its approach tremendous and will be boon to this field. We are completing our Phase I single-dose program and accept, anticipate being in Phase II this year. Over to you.

David Southwell, Executive Vice President, Chief Financial Officer

Thank you Mark. As usual regarding to overall 2006 financials at this point, let’s start with revenues. LUNESTA revenue guidance is approximately $650 million for 2006. Now as XOPENEX MDI is launched, XOPENEX franchise includes both for UDV and the MDI dosage forms. The guidance for the franchise is approximately $519 million for the year, consisting of $500 million for the UDV dosage form and $90 million for the metered-dose inhalers. Alliance revenue is expected to be a $35 million reflecting the launch of generic Allegra in the US in 2005. Total revenue guidance therefore is approximately $1.275 billion for the year.

On the expense side, the selling, general, and administrative expense guidance is about $755 million, which includes the expansion of our sales force, which Jim discussed. Research and Development is estimated to be $185 million for the year. As many of you know, we are required to begin reporting our stock option expense this year, and this expense item is estimated to be $40 million. As we report quarterly earnings during the year this $40 million will be distributed across the income statement, and guidance will be adjusted accordingly. We’ve left it as an independent line item for now for comparison purposes with your financial models. Based on these revenue and earnings levels and a tax rate of approximately 2%, we’re guiding to basic earnings per share of approximately $1.70 per share. Based on a weighted average, shares outstanding for the year of 105 million shares. On a diluted share count of 121 million shares, this equates to earnings per share of approximately $1.50. Tim?

Timothy Barberich, Chairman, Chief Executive Officer

Thank you David. We will now open the session for questions and answers.

Questions-and-Answer Session

Operator

Thank you. Operator Instructions. Your first question is from Marc Goodman of Morgan Stanley.

Q - Marc Goodman

Just a couple of small questions. One is David, so the stock options is included in that number?

A - David Southwell

Well no, the stock option expense we are breaking out of $40 million for now. But over the year the stock option expense gets distributed across, you know, where the people work. So, would be distributed across R&D, SG&A, and then ultimately some in to cost of goods sold.

Q - Marc Goodman

Right, but it is included in the $1.50?

A - David Southwell

Yes it is.

Q - Marc Goodman

Okay, second question is Mark can you just go back over SEP-929 and just elaborate a little bit more on that product? And then the other question was for Jim, can you just give us the sense of what percent of mail order is LUNESTA now?

A - Mark Corrigan

Yeah, you know, with 929, it is still a very much a pre-clinical asset. We look at, we think it has some extremely promising profile in, potentially from a pharmacologic basis. We will look our anticipated plan as that we are hoping on the work it gets nominated our system. The compounds have to get through a number of hurdles, prior to them being nominated for IND-track and we are targeting about the mid-year for that nomination for IND-track would put it on for an IND by the end of year or early next year. But it is ultimately to treatment for psychosis, so it is got a kind of rich pharmacology, but it does have some attributes to its pharmacology that we think are not going to lead to the types of weight gain and metabolic issues that (indiscernible) has faced.

Q - Marc Goodman

Is this an isomer, or metabolite or where do this product come from?

A - Mark Corrigan

This product was researched, it’s really we are not giving a lot more visibility to it at this point.

Q - Marc Goodman

Okay thanks.

A - James O’Shea

And Marc in terms of mail orders still very, very little mail order included in Lunesta, so we are that still a feature.

Q - Marc Goodman

So like below 5%?

A - James O’Shea

Yes, much below five, much below 5%.

Q - Marc Goodman

Okay.

Operator

Thank you, your next question is from Corey Davis of J.P. Morgan.

Q - Corey Davis

Thanks, my first question for David, since you mentioned the 2% tax rate in ’06. Do you remember what you told on NOLs right now are, how much longer are you going to be able to not report it fully tax the number?

A - David Southwell

The total NOLs are approximately $1 billion and we pay some taxes, you know, due to state taxes and certain things that aren’t that can’t be deducted against the NOLs. So, obviously the length of time that the NOLs lost depends on what our overall profits are. So, that’s you know it is impossible to guide through the amount of time that we’ll have NOLs. We have previously guided to 10% tax rate, this year it looks as though we will have a 2% tax rate.

Q - Corey Davis

Okay, but you plan on stretching out the NOL as long as possible opposed to taking like a lump sum and benefit at one point in time?

A - James O’ Shea

We continue to review the evaluations and when appropriate we’ll make, we potentially will make evaluation results.

Q - Corey Davis

Okay, and next question is any reason not to expect the LUNESTA revenue to be up sequentially in Q1?

A - David Southwell

We are not guiding to quarterly revenues. So, you know, we have a long standing policy at the beginning of the year not getting into the quarters. So, you know, we got it for the year Corey, but we just don’t want to be held to quarterly guidance.

Q - Corey Davis

Fair enough, next one then I am not sure you really needed now the 450 new reps, but any chance you consider to co-promote at a much bigger sales forces assuming the terms are favorable for you?

A - David Southwell

Absolutely Corey, if it did make sense at all, I think all of it has been built into that but it has to be basically, financially, physically right.

Q - Corey Davis

And last question, I am not sure if you guys are aware of this, but I recently found in the clinical trial that gave a head-to-head study that and if it has started between Ambien CR and LUNESTA. Do you have any idea where they might be going with that, how they could possibly win? Not to put you in a spot, but I am not sure if you have seen that?

A - David Southwell

We haven’t seen it.

A - James O’ Shea

Yeah I know. I really don’t have any comment on that. Now it comes up to them.

Q - Corey Davis

That I suspected, congrats on a great quarter.

A - David Southwell

Yeah, thanks.

Operator

Thank you, your next question is from Matt Duffy of Black Diamond Research.

Q - Matt Duffy

Hi, good morning and very nice quarter, thanks. Could you talk a little about the marketing size assumption for your LUNESTA guidance? What sort of growth are you looking for and can you just also talk about Jim some of the key levers in terms of achieving that guidance?

A - James O'Shea

We had three really, three concepts, one is that we will see some price contribution and we will also see as indicated really by the market growth and significant contribution from some underlying market growth and thirdly, we are looking at, we really looked at a pretty realistic assessment of LUNESTA market share taking into account the introduction mid-year of under the strong competitor, so three items we are looking at.

Q - Matt Duffy

And are you considering price alterations both with XOPENEX and LUNESTA going forward?

A - James O'Shea

We – I always look for price alterations as you can imagine, we actually took the price rise in January.

Q - Matt Duffy

Okay, and could you talk briefly about Arformoterol, the current dynamic for the market and how the patient the COPD patients are treated and then where you see Arformoterol sitting in overtime? Thanks.

A -- James O'Shea

Right, we haven’t really talked too much about Arformoterol, if you look at it, we are pretty excited about it. If you look at, we’re driving this really it represent as you know, foundation for COPD therapy accordance the goal guidelines and we actually look there are about 12 million patients with COPD in the United States and with the combine retail and Medicare market, it’s currently valued at that’s about $ 3 billion and that’s broken up roughly into retail $2 billion, Medicare $1 billion and the - so a sizeable market and actually growing. If you look at also the make up in terms of patients, the vast majority of the COPD patients and the prescriptions come from the 65 years old and older and a high proportionate of those patients really like to use nebulization. So, what we have here really is a product which will be the, a product with very rapid onset of actions and a long duration of effect and really the only one in a nebulized form to attack this market. So, we are pretty excited in terms of building the respective franchise for this.

Q - Matt Duffy

Great thanks, just one last thing what was the size of the price increase on LUNESTA?

A - James O'Shea

On LUNESTA, it was 9%.

Q - Matt Duffy

9%, okay thanks.

Operator

Thank you, your next question is from Greg Gilbert of Merrill Lynch.

Q - Greg Gilbert

Thanks good morning guys. Can you talk a little bit Jim about the LUNESTA trade levels that crept up a bit quarter-on-quarter and where do you see that going overtime and perhaps why did they creep up?

A - James O’Shea

Yeah, I think, I said right in the beginning Greg, I am looking at those sort of time to four to six weeks. Many times near the end of the year they actually you get wholesale of either because of manufacturing shut down over the Christmas period or indeed the anticipating price rise that they tend to build up a little bit of inventory and indeed they did a little too around about six weeks. Again, I would see it normalizing and staying within the four to six week period, four to six weeks of inventory throughout the year and actually just for reference, we actually calculate as you know inventory on this case it was December inventory out there divided by demand and actually demand in January as you have already see it tight, so they have already, that inventory level has come down in real terms.

Q - Greg Gilbert

On January price rise, did you do anything on XOPENEX or it was just LUNESTA?

A - James O’Shea

No, we did a 7.2% on XOPENEX as well.

Q - Greg Gilbert

Okay and am I right to assume that for LUNESTA given that your two or three most places the majority of that 9% actually stick?

A - James O’Shea

As much as we possibly can get.

Q - Greg Gilbert

And Mark, moving onto you, given your reference comments about a driving study that they expect to see in their label, despite the fact that you may think it’s got the wrong comparative in it, is Sepracor considering such a study?

A - Mark Corrigan

Yeah, well as you know, unlike norepinephrine product the FDA didn’t ask us to do driving studies because we were clean, were as proceed one in the DSST. On norepinephrine again we are completely are conducting our driving studies just to fully understand how our product performs and we were conducting those this year.

Q - Greg Gilbert

And then have you met with the FDA yet Mark on the second depression study and can you share any color as to where that might go label no label?

A - Mark Corrigan

Yeah, we did, we met with the FDA and it was useful because we got clarification about what might be required from their standpoint at least initially in terms getting a label claim. We know that we are conducting our second large trial and, you know, I think we’ll need to see the results of that prior to understanding whether that will meet with FDA as asked us to do or whether and so where we think its an important for us to understand a number of scientific attributes about whether its going to have beneficial effects on second trail, conform the first trial and obviously if those bear out and they are terrific, we will be talking to FDA further about it.

Q - Greg Gilbert

And lastly for Mark and Tim, the pipeline gap that you have is really between Phase I and NDA stage levels, how aggressively are you looking at Phase II and Phase III opportunity at this point, what’s your tolerance to take some P&L head if you found the right opportunity?

A - Mark Corrigan

Well, I think it’s obvious that we are as everyone is looking at opportunities where we can leverage our development and marketing infrastructure and there aren’t many companies that have the critical mass presence in primary care, linked with development capability that can actually be legitimate marketing partners in the US. So, we like everyone else assess those things as they come long, we haven’t made any decisions at this point, but if they are accretive in a relatively short period of time we are extremely interested.

Q - Greg Gilbert

Thanks guys.

Operator

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

Q - James Kelly

Good morning. The question is about the SG&A guidance relative to the fourth quarter run rate. David, if we take a look at SG&A in the fourth quarter, you know, about $210 million that’s $841 million if we annualized it and comparing it to the 755 guidance I am just interested and then on top of that of course in 2006, the 450 primary care physicians sales force increase, what pieces in the fourth quarter of 2005 should we not think about coming in and also one should assume that to be lot of DTC again in 2006, especially we are new competitor, I was thinking about the push and pulls a little bit? Thanks.

A - David Southwell

There are two things in the fourth quarter that are, that don’t occur in the other quarters. One is that we have the launch expenses associated with XOPENEX MDI, which was obviously a one-time and the other is that the fourth quarter is when we pay commissions to our sales reps. So, that obviously wouldn’t happen going forward. The $755 million number that we have given you for this year takes into account the cost of, you know, new sales forces coming on in May, as Jim discussed. So, it includes, you know, good, good levels of DTC advertising, good levels of our sales force. So, it’s certain amount of your number and if there is some level of seasonality to it that adds numbers to the fourth quarter. So that’s why, that’s why we can’t just annualize the fourth quarter.

A - James O’Shea

In defense of our sales force, we will be paying just to clarify we will be paying commissions.

Q - James Kelly

Yeah.

A - James O’Shea

But, I think what David’s point was that clearly we outperformed our own expectations and as a result, the sales force did such a great job. They had unusually high commission rate in the fourth quarter because we structured our commissions so that a lot of it is paid in the fourth quarter. So, the other issue is that we look at the total marketing and sales budget as an integrated strategy and we are not necessarily and we can balance investments and sales force versus investments in DTC and so that’s probably reflected in the overall run rate for ’06 versus the fourth quarter in ’05 rate.

Q - James Kelly

Great. Just one more question if I may on sampling and HFA, just if there is any thoughts on how that is affecting demand and especially given the likes the time that someone could use a given sample on just that dynamic? Thank you.

A- James O’Shea

Yeah, it’s a good question. We didn’t actually initiated very expensive sample, we quoted sample recognition program in December it actually went to 4000 the top, the top potential uses I think it’s got 40,000 sample. It is necessary we can imagine we will get the best way recognition in these high potential doctors. But it does actually put, I have to swallow a little bit, it does actually push back a little bit, they need to prescribe until they work through the samples. But we think it is worthwhile.

Q - James Kelly

And the samples are sold monthly if you will doses of the products?

A - James O’Shea

Yes, they are. They were actually be the full 200 shot to take over.

Q - James Kelly

Great, thank you.

Operator

Thank you, your next question is from Rich Silver of Lehman Brothers.

Q - Richard Silver

Yeah, hi, just a follow-up on the depression work, can you give us a sense of when you’ll have those results, and when we can hear sort of the next step in the process of potential label expansion? And then secondly, in terms of the publication of the first study data, and when we can expect that, you had mentioned early this year and whether there would be any change at all in terms of marketing, message marketing literature that might be, allowed by DDMAC and then I have one more question.

A- James O’Shea

This is James, I’ll take the publication side and Mark could take relatively the clinical side. In terms of publications, we are now looking which in terms probably in to mid year before the publication on depression comes out. We are in to the final stages in terms of edit checks and so on, but it’s about mid-year. When that happens obviously the rollout we will, obviously appropriate in terms of putting across the information.

Q - Richard Silver

And the question about the discussions with the FDA and the actual timetable for that second study?

A- James O’Shea

Yeah, we anticipate concluding the second study next year.

Q - Richard Silver

Next year?

A- James O’Shea

Yes.

Q - Richard Silver

Okay and any sense on when? First half, second half?

A- James O’Shea

Not really at this time, I can give you an update, when we see where we are lined up.

Q - Richard Silver

And when, is it, it hasn’t started yet, has it?

A- James O’Shea

No, but we had, we are in sight identifications where we are now.

Q - Richard Silver

Okay, so could we expect it to start by midyear of this year?

A- James O’Shea

We will start it this year, I am comfortable with that.

Q - Richard Silver

Okay, then one more question in terms of the 650 guidance that you are providing and you may have mentioned this already, but what assumptions would you be making on market share gain, you know, end of ’05 versus end of ’06, and market expansions how do you see that playing out?

A - James O’Shea

Well the overall 650 number is based on a lot of different factors, and I think we’d rather not go into all of the different factors, you know, that it is based on, but we think all our assumptions are reasonable, as Jim said, you know, we have been pretty conservative with respect to competitive introductions and things like that.

Q - Richard Silver

Okay, thanks.

Operator

Thank you, your next question is from Bill Tanner of Leerink Swann.

Q - Bill Tanner

Thanks, David may be a question for you just kind of understanding a little bit better on the sales and marketing spending flexibility you might have in ’06. Sounds like you are kind of locked and loaded on the reps, but just curious on and if there is an Indiplon delay or if you get a pediatric extension for Ambien, how could that potentially going to affect the numbers in terms of expenditure?

A- David Southwell

Well, if we have an Indiplon delay, I suppose that. It’s hard to tell whether that’s good for us or bad for us. You know, I think actually another competitor coming on the market is going to grow the market. So I think it’s really not appropriate to talk about what affect that will have. It’s not going to really effect the marketing stand, I mean, we are out there we are hiring the sales reps, they will in place in May. We certainly intend to keep them independent of what happens to Indiplon. And our other programs are really independents of it, so I would say from an SG&A perspective which is where your question came from, that number is really independent of those two things.

Q - Bill Tanner

So no protraction in any of these launches but generally an impact in your DTC expense?

A- David Southwell

Well, we adjust the DTC spend during the year based on what’s going on, but at this point we would say no.

Q - Bill Tanner

Okay, and then I guess it’s one other quick thing, maybe it is a little early to be notified the arformoterol NDA, has that been accepted yet?

A- David Southwell

Yes, we have predictive date of October 12.

Q - Bill Tanner

Okay thanks lot.

Operator

Thank you, your next question is from John Stephenson of Summer Street Research.

Q - John Stephenson

Hi, this is John Stephenson, thanks for taking my question. Just a couple of quick ones, and you mentioned there are about 40,000 samples put into the channel on XOPENEX MDI, and I was just wondering if all the cost associated with that were borne in Q4?

A - David Southwell

Yeah, they were.

Q - John Stephenson

Great, and then just a quick one on the DTC spend on LUNESTA, I know that you don’t provide exact guidance on what you are spending, but if could provide a little bit of color on the sequential flow of the spend rate on DTC advertising throughout in 2005 and whether or not it was typically higher in Q4 relative to the prior quarters?

A - James O’Shea

You know, we don’t get into that partially for competitive reasons, as we may know and we first launched LUNESTA we did specify DTC spending and then we stopped getting into it for competitive reasons.

Q - John Stephenson

Okay

A - James O’Shea

Well, you know, the DTC is spread, but we don’t get into how it spread.

Q - John Stephenson

Okay, and just really quickly, lastly, what lessons have you learnt from some of the recent physician experience with LUNESTA in terms of how they are utilizing the product, are they utilizing that appropriately and what are you emphasizing going forward in your educational programs on the product?

A - James O’Shea

They seemed to be using it as directed in terms and also you should know the three milligram that now accounts for 53% of the prescription. So, there’s an increasing use towards the three milligram, which is good, because that really was the prime dosage in the clinical trial. The clinical trials in terms of the NDA. And what we have learnt really is that, and I won’t go into this too much really for competitive reasons as you can imagine. But really gave us a huge amount of data in terms of the emphasis of the various profile point, and really the things that we are going to be chipping really are the of the maintenance, long-term affect, not with the efficacy and it’s given us really good road bucket, rolled in that in terms of how we can be putting a more refined message across in ‘06 that we are pretty excited about.

A - Mark Corrigan

This is Mark, let me just make it clear, we have our permanent effort Arformoterol FDA process issue that we submitted the NDA on December 12th, and under the User Act, essentially we the FDA has got 60 days after submission for review in order if its actually file-able. So, we are still looking for their 60-day meeting and 75-day letter, so that will when we fully accepted as a file.

Operator

Thank you, your next question is from Robert Hazlett of SunTrust Robinson Humphrey.

Q – Robert Hazlett

Thanks, good morning. My question is, it is for Jim and I guess it has do with LUNESTA and Ambien market growth. Jim, as you look at the growth of this market, are these new patients coming to the market, or are they switches from benzodiazepines or that do you see users coming in or are they combination of all three and can you talk about how you expect that to grow in ‘06 maybe versus ‘05 as you look at those different products?

A - James O’Shea

With intensively new patients coming into the prescription market, undoubtedly there is actually brand new patients in terms of haven’t actually tried any sleep medication, but normally they would have tried OTC medication before coming into prescriptions. But the clear flow attempts that we are looking at almost a 130,000 per month coming into the prescription market and I actually see that continuing. The switch part of the business of the market, actually normally is relatively low, is only about 5% to 6% turnover in terms of switch. It tends to go upwards and downwards in terms of actually quite frankly, in terms of the new entrance in the market to make a sort of dissatisfied through the patients who then go on to the new product, and therefore we actually saw with Ambien CR I think is the large part of that early prescription were coming from dissatisfied patients on Ambien going to Ambien CR. So, going forward, we are looking I think still for the market growing on the back of dipping into that pool of unsatisfied insomniacs, who really haven’t tried prescription drugs before, so new patients.

Q - Robert Hazlett

Okay, and just one for Mark, when do you expect the combination insomnia therapy will ACADIA to get into clinic?

A - Mark Corrigan

Well, we need to identify the, we are in still lead identification with them so that wouldn’t be until early 2007 maybe everything goes well.

Q - Robert Hazlett

Okay, thank you.

Operator

Thank you, your next question is from David Steinberg of Deutsche Banc.

Q - David Steinberg

Thanks, nice quarter guys, nice to see you at the end of this year after all these years. Couple of business development outline questions, any plans, can you update us on where you stand on licensing LUNESTA outside the United States, particularly Japan and Europe, if discussions are ongoing and then secondly, I know Tim you have talked about Sepracor being a potential US partner of choice for Japanese and EU base research companies and what kind of guidance could you give us on potentially in licensing this year?

A - Timothy Barberich

Well, I’ll answer the second question, and the guidance we’ll give is when something happens. So, you know, as you know assets from Europe and Japan are feeling far between, there are some and we are very interested in some. But it is until you are able to actually conclude an arrangement its really not we are speculating on, and we are not really impressed in terms of time, you know, our need, frankly, is to have something in our pipeline that can emerge in the ‘09, ‘10 timeframe and so that’s what we are targeting. The other question you have to repeat for me.

Q - David Steinberg

Yes, on LUNESTA, plans on licensing it overseas, Jim and development plans, if any?

A - Timothy Barberich

Very strong, very aggressive in many ways, we have actually said that and we do firmly believe there’s clear value in LUNESTA ex-US, and I think at this stage it would be fair to say that we have, we are generating significant interests from potential partners in terms of looking at both Europe and Japan.

Q - David Steinberg

Okay thanks.

Operator

Thank you, your next question is from Andrew Swanson of Citigroup.

Q - Andrew Swanson

Thanks, I ask the same question in a slightly different fashion. In other words, nine months in, can you talk a little bit about the return on investment of a dollar of DTC spend in the insomnia market and how that compares to a dollar spend in terms of an additional rep? Thanks.

A - Timothy Barberich

You know, maybe I can start with that and Jim might add some color. If you recall, we throughout the year increased our SG&A guidance, which was not entirely DTC by the way because it also included the build out of the respiratory sales force. But, we increased our SG&A guidance by a total of $115 million from beginning of the year through to the end of the third quarter and we at the same time increased our guidance on revenues by $230 million. We actually achieved an increase of $250 million over our original guidance in revenue and we spent slightly less than the 115 incremental SG&A. So, that investment while it was I think poorly understood as we responded to the growth in the market was obviously very effective and there is no set rule in terms of the return on investment of DTC dollar because it all depends on the environment in which you are spending it. If we have new competitors it might be different in terms of how it supports your overall integrated program versus direct sales for instance. So, you are really trying to balance shared voice at the doctors’ office and the drive of new patients into the doctors’ office and maximize the conversion and that’s, that’s a combination of several different tools and, you know, we are really not, it’s not really a hard and fast rule. So, if we say we are adding, say primary cash sales force of $450 million, next year, 450 people sorry, it’s hard to say there is a direct incremental sales associated with just that piece, it’s really the integrated marketing piece.

A - James O’Shea

We do actually see that there is an integrated program from driving the new patients in and then actually turning them to be talking questioning the doctor about insomnia and then hopefully asking for LUNESTA, you then need to make sure you have well with all the resources to share a voice to make sure that you captured those patients at the doctor end and that’s all we are doing, really its balancing the share of voice at the doctor end and also making sure that we are actually driving those new patients in and quite simply we are actually seeing a good return on the investment from both sides.

Q - Andrew Swanson

Thanks very much.

Operator

Thank you, your next question is from Danny Frank of Sturza’s (Ph).

Q - Danny Frank

Yeah, hi guys, good quarter, couple of questions, the first thing is this, David, in the guidance the fourth quarter was somewhat retarded by the sales force and the vacation and holiday period, the market share has jumped dramatically or has rebounded lets say from the fourth quarter and then you are adding an additional sales force, you’re raising price, and the market is growing at this, let’s say 20% rate. How does that equate with 600, with the guidance for LUNESTA’s sales?

A - Timothy Barberich

Well, in some respect, you are asking a question, Danny that has been asked before, which is for us to get into all of the different components that make up the LUNESTA revenue guidance. And, you know, we don’t want to do that because all of the components change, you know, during the year. We think it’s a reasonable guidance, you know, while the market shares have bounced back very nicely since December, as we expected but they have, and you know this number that we have given is our best guess and the costs that are associated with it are, were created to, you know, be appropriate for the revenue level.

Q - Danny Frank

Okay, and Jim one of the amazing thing is this, you have grown the market you have gained share in all the generics of Elixir Ph which you will call less or efficacious products, have also surprisingly grown and help share, could you take us through the, and the additional sales force and theory is kind of go after markets that you haven’t really addressed yet, that should gone our share. Could you address the profiles and things that you are doing both with the depression data as well as other items to begin taking share from the lesser efficacious products?

A - James O’Shea

Well, obviously our problems with depression data than, this is where we are really progressing the publication as fast as we possibly can do. There is real value in every sense for a fair review journal to be reviewing the data. We can then use that very aggressively Danny. But obviously it has been exposed pretty aggressively at medical meeting and buyers and being discussed by peers, and that’s very important and we’ve actually got some very rich medical press on that. So I think that the data is getting out there, it really is in front of us, in terms of how we are going to be, then using that data on the back of fair review journals, but they are only going to be positive as you can imagine.

Q - Danny Frank

Okay, but then, and then specific programs that you are doing, is there, it’s just starts taking that big chunk of generic scripts and moving them over to branded products, what’s going on with that dynamic?

A - James O’Shea

Well, the dynamic there is really putting out and putting forward, I think the proven on the back of proven and recorded data in terms of the use of the drugs such as LUNESTA long-term, the efficacy, the lack of hard tolerance, the lack of that reflexes, which is not recorded at all with the generics as you can imagine. And I think, what we were looking at is doctors really being now educated in inverted commas in terms of the reality of the lack of data on the generics. And actually, now the pressure of data generally with LUNESTA on the efficacy and safety around these new branded products. So you are going to see an expansion of the market not necessary I think at the expense of the generic, I think all costs will rise there, but eventually, I think, you are going to see the transitions from the generics, the older generics over to the new branded agents and LUNESTA hopefully will be the bang out product then.

Q - Danny Frank

Okay, and Mark or Jim, could you just give me the depression, what will be the key points if and when the data is published. What you would believe would be the key focus on what that data suggests as to the performance of LUNESTA with the depression therapy?

A - Timothy Barberich

Sure, well I think it is important to put into contest which is that such as for the use of insomnia agents in depressed patients was really questionable about whether that was correct to do because of the increased sedation worsening the depression. In fact depressed patients have come over insomnia and the primary endpoint was to see whether we are treating insomnia successfully. We did that, a surprise for us and I think the one thing that the field has reacted to quite excitedly is the significant improvement in fact in the return to wellness among the depressed patients, that is the residual depressive symptoms steering up much more effectively on patients who had Prozac plus Unesta (Ph) versus those patients who have just Prozac alone.

Q - Danny Frank

Thanks all, thank you very much, good quarter.

A - Timothy Barberich

Thanks Danny. Well, we can take one more question and then end this session on Q&A.

Operator

Thank you, your last question is from Ian Sanderson of SG Cowen

Q - Ian Sanderson

Great, thanks for taking the question. First, on XOPENEX can you talk any reimbursement changes you saw, you have seen from CMS so far in ’06? Secondly, on LUNESTA, we have been hearing some chatter from specialists raising the dose beyond the 3 milligram and do you have studies ongoing at higher doses? And then finally, entering 2005, I think you’ve said it something like 1.5 million details is being viewed as kind of saturation point for the insomnia market, do you have any figuring on what that optimal detail endpoint might be for 2006?

A - Timothy Barberich

I’ll take two of those, I think.

Q - Ian Sanderson

Okay

A - Timothy Barberich

First, in terms of Medicare CMS, we have seen no changes if you know as you know XOPENEX now has (indiscernible) really that’s gave us the full access into that market and we have seen them, we have not observed any changes at the moment at CMS. So, obviously we are enthusiastic about that marketplace. In terms of maybe you have to repeat some of that stuff.

Q - Ian Sanderson

Okay, yeah the second one was are you doing any LUNESTA studies at higher than three milligram doses?

A - Timothy Barberich

In fact, now let Mark take that, but in fact we are actually seeing psychiatrist, they are escalating the dose of LUNESTA, which is both I think normal and actually it did develop their view of how, of the safety profile of LUNESTA. At the moment I don’t think Mark we have any trials of looking at higher doses of LUNESTA.

A - Mark Corrigan

We explored those doses obvious for the dose ranging study…

A - Timothy Barberich

Right.

A - Mark Corrigan

But that was in primary insomniac patients and so we really do not have data on doses above three milligrams in patient that have psychiatrist disorders. This class of drugs can be used safely at higher doses and I am sure that physicians are attempting to use it based on the safety profile.

A - Timothy Barberich

Right, and your final question?

Q - Ian Sanderson

Was a year ago you talked about, I think the number was 1.5 million…

A - Timothy Barberich

Right.

Q - Ian Sanderson

…details as being optimal where would that stand now?

A - Mark Corrigan

It looks to be pretty open-ended at the moment. On the back of our analysis reanalysis in terms of sales force size and so on. When we do it in terms of looking at the value of a detail in terms of capture of market share. I think what we are seeing is the market really exploding as it is growing between 25% to 30%, and that has been reflected in terms of the value and the elasticity of being able to put details in that. So, we are now able as you know to actually deliver so many order of almost 2 million details on LUNESTA, we think that would be a profitable thing to do.

Q - Ian Sanderson

Okay, thank you.

Operator

Thank you, I would like to turn the floor back over to Timothy Barberich for any additional or closing remarks.

Timothy Barberich, CEO

Great, thank you very much. Today, Sepracor is one of the only companies outside of big pharma with a critical mass presence in primary care with a capability of discovering our own products, developing them through the commercialization and creating major new brands supported by broad television and print campaigns. We have two significant product franchises in the early part of their lifecycle. We continue to receive royalties on the anti-histamine franchises that we’d partnered. We have one NDA under review, we have a number of development programs in clinical phase and on IND-track in the CMS area and importantly we are rapidly advancing towards significant profits for the full year ’06. We thank you for joining us this morning and we will look forward to reporting on our progress at the next earnings webcast.

Operator

Thank you. This does conclude today’s teleconference. An audio replay of today’s call will be available for one week starting today at 10.30 AM Eastern Time. The dial-in number is 973-341-3080 and the pin number 690-9572. Please disconnect your lines at this time and have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of 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.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!