施貴寶 (BMY) 2002 Q1 法說會逐字稿

Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Vice-President of Investor Relations, Mr. John Ellicker. Please go ahead, sir.

Thank you. With us today we have Peter Dolan, our Chairman and Chief Executive Officer, Harrison Baines, our Acting Chief Financial officer, Don Hayden, Executive Vice-President and President, North American Medicine, and Dr. Elliott Segal, Senior Vice-President for Global, Clinical and Pharmaceutical Development. This is our quarterly call to review first quarter results After comments from Peter, Harrison and Don, we'll take a few questions.

During this call, we may make various comments about the company's future expectations, plans and prospects that constitute forward looking statements for purposes of the Safe Harbor Provisions out of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors including those discussed in the company's most recent annual report on Form 10K and in our periodic reports on Form 10Q. These documents are available from the SEC at the MS website or from Bristol-Myers Investor Relations. In addition, any forward looking statements represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change. With that, let me turn it over to Peter Dolan.

Before we get to the financial and operating specifics, I want to say a few words up front about our current position and how we're dealing with it. Obviously these are difficult times, but if anything they've demonstrated the need for some fundamental change and we are making those changes. We're doing what I believe has to be done to get this company back on track. That includes things like we're putting the right people in place. We're acknowledging problems and challenges. Importantly we're stabilizing the organization and doing the blocking and tackling it takes to make sure we executive appropriately.

I want to say a few words about those things and then also what we're doing to bring the value of our R&D pipeline to pharmacy shelves and then a little bit about reducing wholesaler inventory levels to what we believe more desirable levels and Mac and Don will elaborate on that as well. First, the leadership changes. You know, as we announced previously on April 3rd, that Don Hayden has been named President, North American Medicine. Many of you know Don, maybe all of you know Don. He has long experience running our pharmaceutical business in different geographies. He's already changed our business forecasting model in the few short weeks he's been in this role -- doing it based on building a demand model truly from the bottom up by brand. He's also working to maximize the impact the sales force can have in executing against our best opportunities. And as he tell you more about, he's created an internal dedicated and focused team to manage the inventory work down plan that we'll give you more specifics about.

As announced previously, our Chief Financial Officer has left the company. Harrison Baines, our VP for Tax and Treasury will be the Acting Chief Financial Officer until we find a new CFO and that search was already underway. Many of you know Mac Baines. He's been with the company for nearly 14 years. He's got a strong background in finance, audit and investor relations. He's had a direct hand in ensuring the strength of our balance sheet and I'm clearly pleased that he's going to play a key role in our financial strategy. Mac's a positive, experienced and stabilizing influence for the company at an important time and he'll provide a clear and transparent financial disclosures as we move forward with our plans.

Let me make a few comments about what we're doing to stabilize the organization. These certainly have been challenging times in the last few months. I have, as have others, and others in the company, spent much of my time over the past several weeks, on average probably two hours a day with employees one on one in small groups in town hall formats. I've told them about the challenges we face from my perspective as well as what I believe to be the opportunities. I've been encouraging our people to deliver what needs to be done to get us back on track, to do the blocking and tackling that simply has to be done. I've encouraged them to be more open and candid, to convey the world the way it is rather than how they want it to be. And I've tried to show them the realities I see about our business based on the facts at hand. In fact we've got strong finances that enabled us to deliver nearly a billion two in earnings this quarter. In fact we have excellent products and we'll tell you more about Pravachol, Plavix and Avapro and (indiscernible) double digit rates and have significant additional (indiscernible). The fact that while the US primary care business is clearly off track, it's an important business to us. It's a profitable business and it's critical to our future to get it righted. The remaining two-thirds of the company is ahead of plan for the first quarter and we need those people to continue to do the good work they're doing to make our plan in 2002. I also tell them that I believe we have the strongest near term pipeline that we've ever had as a company. I told the employees that we need to acknowledge the challenges in front of us, put the corrective measures to deal with the situation and ultimately put these problems behind us and get back to work.

The third priority is to bring the full value of our R&D pipeline to pharmacy shelves as quickly as possible and 2002 will be a significant year for us in terms of filings and we hope approvals. On the potential approval front, we remain hopeful that Aripiprazole will be approved this year. We filed for this drug last October for schizophrenia and believe it potentially could be a best in class compound. The most comprehensive data to date on Aripiprazole will be presented at the American Psychiatric Association meeting in May. We continue to work with the FDA on Vanlev for hypertension. We're working in cooperation with ImClone Systems on moving towards a resubmission of the Erbitux filing. Next month we file in Europe for Adazanavir, a protease inhibitor for HIV AIDS that we think could be best in class and are working toward a US filing later than year. Adazanavir certainly would be an important addition to our growing virology business which has already benefited by the addition of Sustiva from DuPont and the success of Videx EC. And we're aiming to file this in Europe, in the US for Garenoxicin which we think has potential to be a best in class (indiscernible) antibiotic.

In addition, other compounds in full development which we described on November 7th last year are progressing. They include Entecavir for Hepatitis B, CTLA4 and LEA for immunological disorders, Dual PPar for diabetes and lipid disorders and what we call our SuperStat. We also spoke then about earlier compounds that have the potential for transition into full development. Among them are Apopolongfor cancer, the Factor 10A inhibitor for thrombosis, and the new compound for diabetes all of which are progressing toward their next milestones this year. Note that the Factor 10A compound came from our DuPont Pharma acquisition. That acquisition was an important move for the company. It strengthened our virology franchise as well as enriched our pipeline and in particular, our discovery capacity. Integration of DuPont into our business has been proceeding well and we are pleased by the contribution of products like Sustiva, Coumadin and Cardiolite to our top line which is reflected in our results.

Fourth and finally, let me say that we're moving forcefully to reduce wholesaler inventory to more desirable levels. Mac and Don are going to provide more details on this. The points I want to make and emphasize here are we've extensively analyzed the inventory issue, supplying an internal model which we believe provides a thorough assessment of both the absolute levels of inventory and the amount of inventory above desirable levels. And second, we expect to see an earnings per share impact from inventory work down of approximately 40 cents per share beginning in the second quarter and continuing over a steady basis over approximately the next four quarters.

I'll conclude and then hand it over to Mac by giving you some perspective on the quarter. Clearly acknowledge the challenges we're facing and the need for changes and that's why we're making the changes to build demand. But it is also important to note that many of the company's businesses are performing at or above planned. This includes a key part of the prescription drug business, the European Rx business, was up 23% in the quarter as well as the non-exclusivity (indiscernible) products in the US are up as well. And (indiscernible) are performing at or above planned. Worldwide sales of key pharmaceuticals like Prava, Plavix and Avapro also grew in the quarter. And on a demand basis, those products experienced double digit growth in the US as well and Don is going to talk more about that shortly.

What I want to do now is turn this over to Mac Baines who will discuss our financial performance for the quarter. And then after Mac, Don will say a few words about our business performance and plans moving forward and then we'll take your questions.

This morning I'd like to review with you our first quarter of 2002 results. In my remarks I'll discuss earnings, wholesaler inventories, sales performance, non-recurring items, other expense items and some comments on cash, working capital and debt. As you have seen in our press release, the diluted earnings per share for the first quarter was 35 cents. This is on a continuing operations basis and includes the impact from DuPont in 2002. This excludes the effects non-recurring items which I'll discuss in a minute. On our April 3rd conference call, we said that on a demand basis, earnings per share would be down 25 to 30% for the full year of 2002 from the $2.41 we reported on a continuing operations basis in 2001. This is one of the key measures for our business moving forward. We have instituted a rigorous prescription demand forecasting model, and in addition to all the financial information we provide you on a regular basis, we will provide you with demand based results in upcoming quarters. Don Hayden will talk more about this in a minute. During the first quarter of 2002, we estimate that inventory at US pharmaceutical wholesalers reduced pre tax earnings by approximately $160 to $190 million or 6 cents to 7 cents per diluted share. On April 3rd we also said that the impact of the wholesaler inventory reduction process, after the first quarter, would be approximately 35 to 40 cents over the time period of the reduction process. We now believe the EPS impact to be closer to the 40 cents with the work down period estimated to be roughly the next four quarters. All of this is the result of cumulative increases in the wholesaler inventories that have taken place at least over the past two years. We will provide you with regular updates on our progress in the wholesaler inventory process. Excluding A., non-recurring items which I'll discuss in a moment, first quarter sales decreased for the company by 7% to $4.3 billion from $4.7 billion in the first quarter of 2001. The sales decline resulted from a 4% decline in volume, a 2% decrease due to foreign exchange rate fluctuation and a 1% decrease due to changes in selling prices. A significant contributor to the price effect was the price decline on Taxol in the US due to generic competition that more than offset price increases taken on other products. Acquired products of DuPont added 9 percentage points to sales growth with total sales of $411 million.

Now let me turn to the non-recurring charges. There was a $262 million reduction in sales primarily as a result of an adjustment to the company's accrual for Medicaid and other rebates resulting from a revised estimate of the accrual related to increases in wholesale inventories for 2000 and 2001. This translates to 8 cents impact on fully diluted earnings per share. There was a $112 million in process R&D write off, as required by accounting rules, related to payments made to ImClone and does not reflect a write down of our (indiscernible). There was an accrual of $125 million for litigation. We also recorded a gain of $30 million on the sale of Duracetand Moisture (indiscernible). Including these items, sales decreased 13% to $4.1 billion and fully diluted earnings per share was 30 cents for the first quarter of 2002. Now let me turn to the sales results. The sales decline was acute in the US medicines business with a 20% decline to $2.2 billion. The loss of product exclusivity significantly impacted this business. Don Hayden will follow me with additional comments as it relates to the US business. Sales have largely been impacted by the loss exclusivity for Buspar, Taxol and Glucophage IR in the US. In the first quarter of 2001, Buspar had sales of $203 million and in the first quarter of 2002, Bupar sales were $12 million, a decline of $191 million. In the first quarter of 2001, Taxol sales in the US were $179 million. In the first quarter of 2002, they were $18 million, a decrease of $161 million. Taxol sales internationally, where exclusivity has not been as significant an issue, increased 9%, excluding foreign exchange, to $156 million. In the first quarter of 2001, Glucophage IR had sales of $519 million. Glucophage sales in the first quarter of 2002 were $69 million. In total, the sales decline in the first quarter of 2002 attributable to the loss of exclusivity of (indiscernible), Taxol and Glucophage IR was close to $800 million. Sales for the rest of the US medicine business were strong, up 14%. Our key products like Pravachol, Plavix, Avapro performed quite well with US prescription demand increasing as Don will discuss in more detail. International pharmaceutical sales increased 15%, 20% net of foreign exchange. Pharmaceutical sales in Europe increased 23%, 26% net of foreign exchange supported by the strong growth of Pravachol and new products from DuPont. Pharmaceutical sales in Japan increased 16% excluding foreign exchange with Taxol growth the highlight of this picture. In total, including the impact of exclusivity losses, sales in our medicines business decreased 11% or 10% excluding foreign exchange. While Don will talk about the US performance, sales of key brands continued to perform well on a worldwide basis. Pravochol was up 11%, Plavis was up 35%, Avapro was up 26%, Videx was up 22%. Worldwide healthcare group sales of $841 million were up 9% excluding foreign exchange. Worldwide healthcare, as I think you know, includes our Mead Johnson business, Convatec, consumer medicine and medical imaging which we acquired from DuPont and which contributed $105 million in revenues to the worldwide healthcare group. Sales for this group are on plan.

Let me move to some of the line items in the P&L that I know all of you are focused on as well. Gross margins, excluding non-recurring items declined to 68% as compared to 72.6% from the first quarter of 2001, principally as a result of lower sales in our high margin products, Buspar, Taxol and Glucophage IR. And also as a result of high sales growth of our lower margins oncology distribution business, oncology therapeutic network. As we move through 2002, the downward pressure on gross margins due to the negative effects of the loss of exclusivity, I think we'll be moderated.

Marketing, selling and administrative expenses declined 1% as compared to the first quarter last year, to $896 million as administrative expenses were reduced 5%. Advertising and promotions declined $89 million dollars to $288 million from $377 million due in part to a reduction in CDC spending. Research and development as a percentage of sales increased 2% to 13% as research and development expenses were at almost the same level, $512 million versus $508 million from the first quarter of '01. Pharmaceutical R&D increased to 15% as a percentage of sales from the first quarter of 2002, from 13% in the first quarter of 2001. The increase in net interest expense had a negative impact of $93 million dollars due to the borrowing associated with new product ImClone which we instituted last year. The tax rate in the first quarter of 2002 of 26.2%, approximated the rate in the first quarter of last year. It was 23%. Let me move briefly to the balance sheet and our cash flows. Our cash position at the end of the first quarter was approximately $3.4 billion. The change from the end of 2001, which was 5.5 billion, is primarily due to the tax payment made in the first quarter which was for the gain on the sale of (indiscernible) which occurred, as you know, toward the end of last year. Working capital decreased to $3.1 billion from $3.5 billion in December, primarily from a decline in accounts receivable which was about $337 million. Debt levels at the end of the first quarter are basically the same as the end of the year. Our current debt include the borrowing that I mentioned which are associated with the DuPont ImClone transaction.

Before I turn it over to Don, let me summarize a few key points. First, we are confirming our 2002 guidance with fully diluted earnings per share will be down 25 to 30% as compared to the $2.41 reported in 2001. This excludes the impact of non-recurring items and any impact from the wholesaler inventory work down plan which I mentioned. For the first quarter of 2002, we delivered earnings per share of 51 to 52 cents on a demand basis. This excludes the impact of the inventory reduction in the first quarter and the non-recurring items which I took you through. When we account for the impact of the reduction in wholesaler inventories in the first quarter, we delivered 45 cents of earnings per share. When we account for the impact of the wholesaler inventory reduction and the non-recurring items, we reported 30 cents of earnings per share on a fully diluted basis.

In conclusion, as Peter discussed, we are very focused on resolving the wholesaler inventory issue. At the same time, with the exception of the US primary care business, the rest of our businesses are performing at or above plan. Now I'd like to turn it over to Don.

First of all, I relish having this opportunity this morning to provide you with an update on the work that we're doing in our North American medicines business. And just as a bit of context, our North American medicines business includes a number of very important individual businesses. US primary care, US oncology/virology, medical imaging, consumer medicine and it also includes our technical operations function as well as Canada, Mexico and Puerto Rico. Each of these business areas, to underscore what Peter had said earlier, with the exception of our US primary care business, is generally on track with our 2002 plan. And as a result, what I'm going to do this morning, the way I'm going to spend the time that we have together is focusing on the status of the largest business that we have, our US primary care business and the work that we're doing to stabilize, to focus and to energize that organization on restoring strong demand based growth in the business.

What I'd like to do is briefly touch on three topics. Talk a bit about the demand basis for the business in the first quarter and as we see it progressing throughout the rest of 2002. Talk about wholesaler inventory and the work that we're doing around that. And to talk about the strong team that I have the benefit of working with in the US as we work to restore that strong demand based growth. First let me talk about the demand basis of the business. And at the outset I'd like to make the point that the single focus of our US (indiscernible) is to drive future demand growth. And as a bit of background to elaborate on some of the points that Peter made earlier about the work that we're doing around demand analysis, basic business planning in almost any business would include and element of demand planning. But over the last several weeks in our US business, we performed an exhaustive analysis of every product in the US business on a demand basis using multiple approaches and multiple sources of data. Really drilling down to understand, at a very basic level, what the demand history and the demand prospect for every product looks like.

And I think importantly for those of you who are looking at our business from the outside in and trying to evaluate demand performance, it's important to note that we're using total prescription as a key part of our analysis, not the only part but a key part. And we'd also encourage you to look at total Rxs to understand the demand growth in our medicines business during both the first quarter and as we progress through the rest of the year. When one looks at the first quarter on a total prescription basis, we see continuing solid demand growth in our largest and most important brand. And just a few highlights of that. If you look at Plavix in the first quarter, total Rxs were up 39%. That's a result of the inclusion of a new indication in acute coronary syndrome and really beginning to see the benefit of that indication and a revised APCAHA guideline around that indication in the use of Plavix. That's something we plan to continue to build on as we go through the rest of the year.

Pravachol total prescriptions were up 10% as a result of the introduction of the 80 milligram tablet and a renewed emphasis within our business on generating Pravachol demand growth. Avapro and Avalide up 10%. We saw strong total prescription growth year on year, but I think more importantly with Avapro and Avalide, if one looks at the first quarter of this year compared to the fourth quarter of last year, we saw quarter on quarter growth of Avapro and Avalide of approximately 21%. That's something, again, we plan to build on as we go through the remainder of the year. Glucovance, year on year prescription demand more than doubled. And with Glucophage FR, year on year prescription demand more than quadrupled. And these are two products that we believe we have continuing strong growth opportunities with. To underscore that, if one looks at Glucophage FR in the first quarter of this year compared to the fourth quarter of last, total prescription volume in the first quarter was up more than 12% quarter on quarter in the face of what has been intense generic competition around generic (indiscernible).

Moving across to our virology business, we saw strong growth with Sustiva up 7% on a prescription basis. Sustiva is an increasingly important part of our strong virology franchise -- something we'll look to build upon as we go through the remainder of this year. And Videx EC prescription demand was up 10% as it becomes an important part of preferred regimen in the treatment of HIV disease. We did have a couple of concerns in the quarter. indiscernible) prescription demand was flat and that's something we look to improve upon as we go through the remainder of the year. And (discernible) prescriptions were down about 10% as we're working through a recently labeling change and looking to rebuild demand growth in the business. But overall, if one takes that rather broad portfolio of key brands, we saw a strong demand performance for those brands on a prescription basis. That offers us a platform for growth as we go through the rest of the year. And to tie into some of Mac's comments, if one looks at this prescription demand performance and relates it to what occurred on the sales line, we see the impact of the demand basis of the business. In the US we reported total pharmaceutical sales of approximately $2.2 billion in the first quarter of this year compared to $2.8 billion in the first quarter of 2001. However due to generic competition as Mac mentioned, sales of Glucophage IR, Taxol and Buspar declined nearly $800 million year on year. Sales for the remainder of our US pharmaceutical business actually increased 14% from $1.9 to $2.1 billion. And as the impact of exclusivity losses fade over the course of the year as move quarter to quarter, the real demand propelling our business in the US will become even more evident and what we're focused on is driving that demand.

Now an outlook for the remainder of 2002 and the work we're doing around generating stronger demand growth, we will be refocusing all of our efforts of both our selling and marketing organizations behind these core brands. You'll also see us increasing resources against these core brands as we move quarter to quarter and you'll begin to see that impact in the second quarter -- renewed focus, renewed energy and increased resources. We expect Plavix, Pravachol, Avapro, Avalide, Glucovance, Glucophage XR, Sustiva and Videx to continue to contribute solid demand based growth throughout 2002. And we'll be working to improve trends with our other exclusive brands such as (indiscernible). Finally on this point we have the metrics in place to continuously access our business on a demand basis and adjust accordingly to ensure that we maximize overall demand growth as we go through the year.

Now one corollary piece of work that the team is doing to ensure we're maximizing future demand growth is that we're focused on the pre-marketing and launch efforts designed to deliver maximum value from our strong near term pipeline. Peter mentioned the five products that we're gearing up to launch within the next 12 to 24 months and our pre-marketing efforts for these near term pipeline products are a second very important piece of work that our US team is doing to drive future demand.

Now let me turn to wholesaler inventory. Over the past several weeks, as Mac mentioned, we've carried out an expensive analysis of inventory levels and we've had initial discussions with key wholesalers and with our product partners. There are a number of methods that could be used to assess wholesaler inventory levels and we've looked at multiple sources. We have developed, and we are now applying, an internal model which we believe provides a very thorough assessment in an area where estimates are inherently difficult. And just to be clear, these are all estimates. But it's important to note that we have chosen a model that provides estimates higher than the IMS method and those are the numbers that we're working to. These analyses put us at the high end of our previously communicated estimated range of 35 to 40 cents a share as the magnitude of inventory above desirable levels. Beginning in the second quarter and going forward for approximately the next four quarters, we will be pursing a wholesaler inventory work down plan to return inventory to more desirable levels. And as Mac stated, we expect to see an ETS impact from inventory work down of approximately 40 cents per share beginning in the second quarter and continuing on a more or less steady basis over approximately the next four quarters. A dedicated team reporting directly to me will oversee this process until it is complete. And rest assured it is a high priority for me to ensure that we successfully complete this process over the period that we've described.

The last item I'd like to touch on very briefly before turning it back over to Peter is our US organization. As one might expect, I've been living in the US organization almost literally over the last three weeks. And here's what I've seen. I've seen great products, highly capable people, resilient people working with a high level of energy and a commitment to restore our US business to strong growth. I also have the benefit of a very strong leadership team that has the combined benefit of new perspective -- some individuals coming from outside the organization -- and other who've been a part of this organization for an extended period of time. But in the aggregate, a very strong team. The combination of that leadership team and the strength that I see in the organization leaves me with great confidence about our ability to restore strong demand based growth. The organization is already responding well to this new team -- more focused, more energized and committed to building future demand growth. And with that I'll turn it back over to Peter.

We're ready to take a few questions.

Could you talk about the distribution of the 40 cents over the next four quarters? Is this something we should look at as like 10 cents a quarter -- 30 cents this year, 10 cents next year? So that would be helpful. And then Bristol is one of the few companies that has really not suffered severe scrutiny by the FDA on manufacturing and I think everyone is always a little bit nervous about this issue. Could you talk about the status of the manufacturing facilities of Bristol and are there any concerns that we need to worry about?

I'll start that and let Don continue with the second part of your question. Essentially we've said roughly over the next four quarters we expect that this will be relatively steady. But these are estimates and we may not be perfectly able to lay out what you're asking for, but we hope to have a steady progress through the fourth quarter period of time with these estimates.

On the manufacturing question, I think your assessment is absolutely right that the level of scrutiny and rigor around the work that the FDA is doing is certainly increased and there have been some companies that have experienced difficulties as a result of that. I know that Peter and I have both emphasized to the leadership of our manufacturing organization, and they've responded very well to the fact that we need to ensure that we're recognizing that increased level of scrutiny on the part of the FDA and making sure that we plan for that in the work that we're doing. And based upon recent discussions with our technical operations organization, we don't see any difficulties in that regard.

It certainly is a demanding environment and we've got to remain ever vigilant. We've gone through a process where we looked at issues and challenges that some other companies in the industry have faced in an attempt to learn from those, apply any of those warnings to our own situation. And as Don said, we are ever vigilant about it, but are not aware of any issues that exist right now on the manufacturing.

I have a question and it relates to the inventory issue and the Medicaid rebate. Can you separate or quantify what exactly the Medicaid really did encompass? And going back to the inventory issue for a second, I'm just curious as to how it can be accounted for as an extraordinary item when it's a function of demand for the business on an ongoing basis.

Basically I like to separate the ongoing inventory work down issue from the accrual issues. To let me talk to the accrual issues first which is the $262 million. Basically we've had an accrual system for rebates for some period of time which was basically a part of our regular accounting practices. When we sell a product, we set up an accrual rebate that are paid several months later to Medicaid and to others when the products are actually prescribed. The buildup of inventory that has taken place, as I said, over the past two years approximately, we did not change the methodology for this accrual. I've been in this position for about a week and a half now and with Don's team which he talked about. And we looked at this and we wanted do the most conservative accounting possible. And I believe we have done that in adding to this accrual, the $262 million which has been relatively conservatively determined. So I hope that helps.

On the same theme, Mac could you please explain a little further on a forward looking basis, will there be additional accruals for rebates that may not be accounted for on an operating basis.

Rebate accrual will continue as our sales continue using a more conservative methodology that we have determined for this. It will continue in a normal way going forward.

A couple of questions on the inventory issue. Don I know you describe your current estimate of the 40 cents work off over the next four quarters as being at the high end of your estimates. But as I interpret what you said in the past, it sounds like you've actually gone above the high end. When I look at the comments that you guys made on April 23rd, I think the specific characterization was that the estimate of 35 to 40 cents per share was over the full period of the reduction process. And here in the first quarter you've started that and you've reduced it by 6 to 7 cents and now you're saying we'll have an additional 40 cents. So it sounds to me like it's more like 46, 47 and obviously that estimate we heard on the 23rd was a meaningful increase from what was in the 10K just days before. So to a certain extent I still have a little bit of anxiety over it. It seems like the more you study this the bigger the problem gets and I'm just trying to get a sense for where you are right now. And on that issue, when you quantify the effect in the first quarter of being 6 or 7 cents or 160 to 190 pre-tax, to give us great comfort can you just tell us how that breaks into revenues and what products you think add up to that?

First of all, I want to (indiscernible) what we had said which is that the 35 to 40 cent range that we gave on April 3rd applies to inventory actions in a work down plan that we had going forward in the second quarter, in the third quarter and beyond that. We knew there would be some impact on inventory in the first quarter. We didn't know exactly what it would be and we now estimate that to have been 6 or 7 cents in the first quarter. And the 35 to 40 cents was related to actions going forward in terms of inventory take down. As Mac said, as we did more work on that, and as Don said, looked at different approaches to inventory, we've concluded at the high end of the range and are now saying it's approximately 40 cents. I think what's significant in all of this is we are clearly moving this in the right direction and in the first quarter we are experiencing a work down of some of the inventory. But the 40 cents really applies Carl, to going forward and it is at the high end of the range of what we said on April 3rd.

And I think too the other pieces of the question Carl, let me start with the last part which is are we in a circumstance where the longer we look at it the higher the number gets. I've been working this with the dedicated team over the last three weeks. And as I mentioned in my remarks, we have looked at a variety of approaches and analyses to understand what the full scope of inventory above desirable levels is. We decided to work with the approach that we believe provides the most thorough complete assessment of those various approaches. And in fact this approach provide estimates that are higher than the IMS method would take one to. I'm as confident as I can be at this point in time that this approach is thorough and it accounts for the inventory above desirable levels -- that the estimate of approximately 40 cents on a going forward basis is reflective of the best available information that there is in this area at this point in time. So that's with regard to the methodology. On the description of the impact on a pre-tax earnings and earnings per share basis as opposed to on a sales basis, we've elected to focus on the earnings and earnings per share impact because it's the most straightforward description of the impact on the business. We have a wide variety of products that are a part of this process, varying margins and a whole set of other factors when one looks at it on a sales basis. The most straightforward description of impact is to look at earnings and earnings per share. And as it relates to where in the first quarter did the impact occur, one of the things that we will be continuing to highlight as we go through descriptions of quarterly performance is talking about what occurred on a reported sales basis and talking about total prescriptions as a means of understanding demand.

Can you talk about just how you do pursue aggressively the wholesaler work downs. I guess the concern that I have is that since most of the wholesalers are concentrated with net formanIR, what is the risk that you have to write down inventory from wholesalers that can't get rid of regular Glucophage.

We've been in initial discussions with our wholesaler partners and in fact we are working with them and plan to work very closely with them in this process over the next four quarters or so. If one looks at the full range of inventory above desirable levels, it crosses the product line much more broadly than just to focus on Glucophage IR. There is a substantial amount of Glucophage IR inventory above desirable levels that we have to address. And we're working with our wholesaler partners in that regard. But we don't see returns being a significant part of the work down plan. We're engaged in discussions with our wholesaler partners and we'll be working with them over the next four quarters to implement a plan.

Does decrease in DTC stem from insufficient benefit of that medium or is it a cross-savings effort? Secondly, a number of your competitors have adopted provisions for vendor discounts in their consumer businesses as of January 1. Have you adopted this provision yet? And then lastly, DuPont sales had a big quarter over quarter jump. Is this seasonal issue, a selling synergy benefit or some other dynamic?

On that DTC question, the DTC (indiscernible) last year in the first quarter was for conversions on Glucovance and Glucophage XR and DTC advertising for another brand that we are not investing behind this year. That in part explains the A&T expenditure. We would anticipate that A&T expenditures for the remainder of the year would be higher as we seek to provide full support behind the brands.

And let me take your third question which was on DuPont. As I said, in the US only, Sustiva total prescriptions which are a large part of those sales in the first quarter, were up 7% year on year. We're very encouraged by what we see on a demand basis with Sustiva in the US. My understanding is that outside the US we're seeing encouraging (indiscernible) and we're obviously looking to build performance of the other DuPont brands. But most specifically I'm encouraged by what I see in Sustiva.

The European business which is up 23% for the quarter, half of that growth is from our in-line portfolio and half is from the addition of the DuPont products.

We're aware of the accounting change on vendor discounts. That's not particularly significant to our business. We are looking at it and if there is something more there we will do something about it.

This is an opportunity to extend a point that Peter made more generally. As the North American medicines team, the new leadership team in the US particularly has looked hard at the opportunities we have to build demand based growth in the business, we feel that there is clearly a compelling case to be made for increasing investment against E brandsas we go through the second through fourth quarters. That work is already underway and you will see that as we work our way through the remainder of the year as compared to what we did in the first quarter.

You are now using some form of a demand based model that you've mentioned throughout the call. What were you using previously and can you just give of give us more tangible details on what's new and different here? And then separately on your share repurchase program, what's the status of that as well as the outlook for the dividends (indiscernible) going forward?

On the first question, demand based -- the prior projections were built off of sales run rates which included inventory billed over quarters and led us to different conclusions about what the relative size of these franchises are. What we've done is used multiple approaches to generate demand basis -- what's the size of each business? We've looked at it from multiple data points, market research, forecasting, etc., and built it from the bottom up.

Just to extend that a little bit, what we've done is taken a look at demand on an historical basis, used that as a starting point, built a variety of models around the future looking at alternative scenarios, various levels of investment and done that for essentially every product in the business. And historically that deeper dive may have been done on selected brands. But we've done it on every product in the business to build a true bottom's up demand model for the entire US portfolio.

As relates to the other two questions, you saw in our release that we had purchased 1.5 million shares of common stock at a cost of about $67 million in the first quarter. This program is considerably less than it was last year and in previous years. It's relating to overcoming the dilution from options exercises as you might imagine. The stock price as it is today -- we're not having a lot of option exercises, but that is our basic work this year with the share repurchase program. Not much in addition to that at least in the immediate future. As far as the dividend question is concerned, the dividend is secure.

I'll just come back to one question that we asked earlier. I think Tony Butler asked a question about the accruing for rebates. I just want to clarify, make sure everybody is clear on it. Accruing for rebates is certainly a normal part of our accounting process. The one time charge we've taken for under-accrual in this account, for Medicaid rebates and others, a one-time action and we clearly do not expect any additional one-time charges in this area.

Could you please go through the price increases that you implemented in the quarter on key products if any? And then secondly, as you try to work down inventories with the concomitant expectation perhaps of prices being raised, do you think you'll be able to exert greater control over the wholesalers in pre-buying so that we don't run into this inventory problem lasting longer?

Let me give you the price increases first. April 1st, (indiscernible) 8%, (indiscernible) 8%, Videx 5%, Zerit 5% and in March, Glucovance was up 6%.

On the second part of the question, as we return to an environment with inventory at more desirable levels, we feel that there is in fact an opportunity to gain greater benefit from the pass through back to us of the impact of price increases. And it is a controllable opportunity in terms of buy in and I think we plan to return to an environment where we're exerting greater control.

A more pipeline oriented question, in the psychiatry market do you believe your exposure there is as strong as it once was and I guess how do you think you're viewed in that market? And is there a potential for a co-promote with Aripiprazole or is that not even a -- you aren't even thinking about that? How will Aripiprazole be positioned within the current sales force?

I'll take the opportunity to broaden the answer a little bit to give you my take on the pipeline opportunities as a brief update since we spoke to you last on November 7th and Don Hayden will answer the second part of your question. We're very excited about Aripiprazole. We're on track with this novel potentially best in class compound for schizophrenia that you know is a devastating disease affecting 1% of the world's population. We've completed our phase three trials and we've reported similar efficacy to existing treatments without weight gain, without (indiscernible) prolongation and without other side effects of concern to patients and physicians. The robust efficacy of this medicine along with this differentiated feature of a favorable side effect profile offers the promise of improved patient compliance and hence potentially best in class solution to a major unmet medical need. Now we're in regulatory review in the US and in Europe and we're preparing for a potential launch in the fourth quarter. You're going to see more data on this exciting compound at the American Psychiatric Association next month. And we're also, I'd like to say, on track to file Adazanivir, our protease inhibitor for HIV AIDS. Because this compound is once daily and because it has a superior lipidprofile, the goal is a best in class treatment option. We expect to file in Europe next month and in the US in the fourth quarter. We're also on track to file (indiscernible) broad spectrum antibiotic that differentiates, because of its spectrum, potency and improved safety profile. And we expect about seven publications this year and a fourth quarter filing. And we also talked November 7th about full development compounds. We're on track with all the ones that we discussed in full development and particular excited about Entecavir and Hepatitis B, CTLA4 and immunologic diseases, our Superstatin and our Epothilone and cancer. You've heard our updates on Vanlev and Erbitux. We've submitted our NDA for hypertension in December of 2001. This application was accepted by the FDA earlier this year. In addition, there were also two important Vanlev studies Octavefor hypertension and Overturefor heart failure -- were presented in March at the annual meeting of American College of Cardiology. We're in active discussions with the FDA about Vanlev and hypertension and we're continuing to analyze the data from Overture with regard to potential use of Vanlev in treating heart failure. Getting back to Aripiprazole, I want Don to answer the question that you had as your second part.

On Aripiprazole we're obviously excited about the opportunity on Aripiprazole with the US as the lead market. We have already created a very strong marketing team that is focused on the pre-launch and the launch work around Aripiprazole. We have set aside in our financial planning, for the remainder of this year, funding to support pre-launch and launch efforts. We're in the process of building a strong neuroscience sales organization in the United States.

Neil Swick, (indiscernible) Partners If we just equally divide the 40 cents from the inventory situation over each of the quarters, then you would just simply subtract 10 cents in the first quarter of next year from whatever the earnings expectations are. That might appear simplistic, but if that turns out to be the case, would it not reduce, diminish the earnings recovery that you are expecting and/or reduce the chances for any type of double digit operating earnings growth next year on a basic situation? Maybe you could offer us some guidance on that thought process?

We are looking to put the inventory issue behind us as quickly as it's feasible and practical based on the fact that we have partners who have products with us. And based on the fact that we (indiscernible) the inventory and we need to work with wholesalers to develop a plan to work it out. We believe the most practical timeframe that we can do it is over a four quarter period beginning in the second quarter. And we're not providing guidance about 2003 at this time. We'll do it much later in the year as we have a better sense of actually what's transpiring against our plan to reduce inventory by quarter. We'll know where we stand at the end of the second, the end of the third and the end of the fourth and how that has an impact into 2003.

One addition to that, the engine of future growth that we're focused on day to day in the business is demand based earnings. And what we're doing is work to ensure that we achieve the demand based estimate that we have for this year of 169 to 181 in earnings per share and then use that as a means of building the momentum necessary to go into next year strongly. So that's really the focus of the business. We have a dedicated team of a small group managing, guiding, driving the inventory work down plan. But 99.9% of the people in the organization are focused on building that demand growth.

As and we said, it may not be as perfectly steady as your comment suggest through these four quarters. Also we will continue as Don has stated, to talk to you all about demand based results as well as non-recurring items.

I'm focused on putting the right people in the right positions, in key leadership positions who are dealing with the realities and focused on building demand. We need the organization to really be focused on what they can do in terms of blocking and tackling and executing against their specific priorities. Obviously we need an active program to work down wholesale inventory levels as we've discussed. And finally, we need to prove that we can bring our near term pipeline to pharmacy shelves. That's our single biggest challenge and one we clearly have to deliver. Thank you all for participating in the conference call.