施貴寶 (BMY) 2002 Q2 法說會逐字稿

Good day, everyone.

Welcome to the Bristol-Myers Squibb Company second quarter sales and earnings conference call.

Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the conference to the Vice President, Mr. John Eleker.

Please go ahead, Sir.

Thank you, Andy.

Good morning everyone.

With us here, we have Peter Dolan, our Chairman and Chief Executive Officer, Harrison Bains, the acting CFO, Don Hayden, Executive Vice President and Dr. Elliot Segal, Clinical Pharmaceutical Development.

As you know, this is our quarterly call to review second quarter sales and earnings.

And for purposes of the Safe Harbor provisions under the Private Securities Litigation Reforms Act of 1995.

Actual results may differ materially, and 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, the BMS website or from BMS Investor Relations.

In addition, any forward-looking statements represents 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.

And now, I'll turn it over to Peter Dolan, our Chairman and Chief Executive Officer.

Thanks, John and good morning everyone.

Before we hear from Mack and Don on some detailed financial and operating specifics of the quarter, I want to give you a total Company perspective and provide you with some specific updates.

First and foremost, we have to get the new team in place, and we are clearly doing that.

Just last month, we announced the selection of a new CFO, Andrew Bonfield, who will join us in September.

Andrew will bring some fresh perspectives and a wealth of valuable pharmaceutical industry experience to our Company.

You may know of him from his time as CFO at SmithKline Beecham.

We're also announcing a change in our R&D operation.

Peter Ringrose, our Chief Scientific Officer and President of our Pharmaceutical research Institute, is fulfilling long term plans to return to his home and family in the U.K.

We're pleased that he will continue to lead the PRI until a successor has been named, and after that, to serve in an advisory capacity for the Company into 2003 Peter's been a progressive leader who has enhanced productivity and innovation all across the R&D organization.

He leaves a considerably stronger group that's well positioned for the next phase of research leadership.

A second important task is putting the inventory issue behind us as quickly and as aggressively as we can.

As you've seen by the press release, we are increasing our estimate of the entire work-down process amount.

More importantly, we're estimating that we're nearly 50% completed with the work-down as we sit today, and we estimate that by December 31st, we'll have nearly 90% of the inventory problem behind us.

Don Hayden has been leading a team to deal with issue and I'll let Don take you through the numbers, the methods used, and answer any questions you may have.

Let me reconfirm here, our 2002 earnings per share guidance which is $1.69 to $1.81 on a demand or recurring basis.

Don will also give you some details on our prescription growth in North America, and some of the products we'll continue to invest behind in the coming months.

Outside of our U.S.

RX business, I'm please to report that the rest of the Company is continuing to perform well, growing 12% year over year.

Pharmaceutical sales in Europe are growing at double digit rates, driven in part by strong growth for Pravachol from our Du Pont acquisition.

Taxol growth has invigorated our Japanese RX business which is growing at 11%.

Our nutritional business is on track, growing 11% in the quarter, and we expect (Convatex) sales going forward should benefit from new product introductions in the second half of the year.

Among the fast-growing RX products are Plavix, up 25% in worldwide sales, and Avapro, up 43%.

Avapro is benefiting from a recommendation by European regulatory authorities that it be used for the treatment of diabetic renal disease for patients with hypertension.

Finally, I will make a few observations about the pipeline and Elliot can speak about that and answer questions during the call.

Last week we received disappointing news from the FDA cardiovascular and renal drug advisory committee about our Vanlev new drug application.

We are currently reviewing the committee discussion, following up with the FDA to better understand their point of view in evaluating all relevant options.

We did receive some good news last week from the same advisory body.

It recommended in favor of a Pravachol plus aspirin combination that, assuming ultimate agency approval, will expand usage in enhanced compliance.

I'm pleased to announce that Aripirazole, our novel anti-psychotic has just been approved in Mexico as a treatment for schizophrenia.

We're hopeful that the FDA will act on the application in the next few months, and assuming approval, we aim to launch the product here by the end of the year.

Last quarter, we filed Atazanavir, our once daily protease inhibitor with the European union and expect to file a submission in the U.S. before year end.

You may have read about the promising data about Atazanavir, particularly its superior lipid profile presented earlier this month at the AIDS conference in Barcelona.

As for Erbitux, we are working with the FDA, with ImClone and E Merck to prepare a new submission and we are initiating new clinical trials.

And I would emphasize that our belief in Erbitux and it's future potential remains strong.

Overall, oncology remains a top player with the oncology portfolio about $1 billion and a committed and uniquely qualified sales force.

Finally, as a matter of practice, we review every acquisition after completion and it has been about one year since we announced the Du Pont acquisition.

Our current analysis indicates that the acquisition will be accretive to earnings per share in '02 rather than dilutive.

Overall, our revenue projections for products from Du Pont are ahead of where we thought they would be at this time last year and our aggressive cost synergies are on plan.

We have become a top player with a strong and comprehensive portfolio in virology, and look forward to growing that business around the world, with (Sestiva), Vitex EC and soon Atazanavir.

While we won't know the full value of the Du Pont pipeline for some time to come, we are hopeful about gaining additional value from promising products like Factor 10 A inhibitor for deep pain thrombosis.

I now want to turn the call over to Mack Bains, our acting CFO to go through the numbers.

He'll be followed by Don Hayden, head of our North American medicines business who'll discuss highlights of some of our product performance.

And, as John said, Elliot Segal is here to answer any pipeline or R&D questions you may have.

Let me turn it over to Mack.

Thank you, Peter.

In reviewing our second quarter 2002 results, I will be discussing our reported sales and earnings and certain expense items.

I will also summarize our estimates of demand-based sales and earnings, and their effects on our estimates of the impact from wholesaler inventory work-down.

I will close with some comments on cash, working capital and debt.

Don Hayden will then be describing in more detail, the performance of the North American prescription business and comments on our methods for determining our estimates of demand-based performance, and more on wholesaler inventory reduction.

As you have seen in the press release, diluted earnings per share for the second quarter were 23 cents.

This is on a continuing operations basis and includes the impact from Du Pont in 2002.

Reported sales for the second quarter for the Company decreased by 13% percent excluding foreign exchange to $4.1 billion from $4.7 billion in the second quarter of 2001.

The sales decline resulted from a 13% decline in volume, a 1% decrease due to foreign exchange rate fluctuations and there was no impact due to changes in selling prices.

Acquired Du Pont products added approximately $390 million of sales in the quarter.

The decline in reported sales was significant in the U.S. pharmaceuticals business with a 33% decline to $1.8 billion due to two factors.

The loss of exclusivity for Buspar, Taxol and Glucophage IR in the U.S. and the impact of the planned reduction in wholesaler inventory.

In the second quarter of 2001, Buspar had U.S. sales of $82 million.

In the second quarter of 2002, Buspar sales were $3 million, a decrease of almost $80 million.

In the second quarter 2001, Taxol sales were $160 million and in the second quarter of 2002, sales of Taxol were $38 million. 2001 Glucophage IR sales in the United States were $511 million while sales in the second quarter of 2002 were $11 million.

In total, a reported sales declined in the second quarter of 2002, attributable to the loss of exclusivity in the United States for Buspar, Taxol and Glucophage IR was approximately $700 million.

Key products, I'd like to say, like Pravachol, Plavix and Avapro performed quite well with U.S. prescription demand increasing strongly for each.

Reported international pharmaceutical sales increased 8% or 10% net of foreign exchange.

Pharmaceutical sales in Europe were especially strong, increasing 14% both with and without foreign exchange supported by strong growth in Pravachol, now the fastest growing statin in Europe and the contribution of products from Du Pont.

Pharmaceutical sales in Japan increased 11%, excluding foreign exchange, with Taxol growth a highlight here.

In total, including the impact of exclusivity losses and a reduction in wholesaler inventories, reported sales in our worldwide pharmaceutical business decreased 21%, or 20% excluding foreign exchange.

More specifically however, as was mentioned by Peter, sales for key brands continued to perform well on a worldwide basis.

Pravachol was up 6%, Plavix was up 25% and Avapro up 43%.

Now moving on to our other businesses.

Nutritional sales of $489 million were up 11% as our newly launched infant formula Lipil is performing extremely well. (Combedex) sales of $180 million were flat though up 1% excluding foreign exchange.

The launch of new products here should begin to have a positive impact in the second half of this year.

And our medical imaging business contributed $118 million in sales with continued strong growth in the flagship brand, CardioLight.

I'd now like to discuss the line items in the P&L where I know many of you are focused.

Gross margins declined to 65.5% as compared to 71.4% in the second quarter of 2001.

Gross margin in the first quarter of 2002 was 68% excluding nonrecurring items.

The mix of products impacted by the reduction in wholesaler inventories also had a negative impact on reported gross margins.

As I indicated to you in the first quarter, as we move through 2002, the downward pressure on gross margins, due to negative effects of exclusivity losses should be reduced.

Marketing, selling and administrative expenses were $941 million in the quarter down 3% as general and administrative expenses were also reduced by 3%.

Advertising and promotion declined 8% to $390 million due in part to a reduction in direct to consumer spending.

However, A&P spending increased by over $100 million from the first quarter of 2002 and spending levels as we are increasing our level of support for key in line growth products.

Research and development as a percentage of sales increased over 2 percentage points to 13% of sales as research and development expenses increased 8% to $536 million.

The increase in net interest expense had a negative effect of $93 million due to the borrowing taken late last year which was associated with the Du Pont and ImClone transactions.

The tax rate in the second quarter of 26.3% was essentially the same as in the first quarter of 2002, and slightly below the rate in the second quarter 2001 which was 26.6%.

I'll now move to a discussion of the impact from the reduction of wholesaler inventories.

Let me start with the first quarter of 2002.

During our first quarter conference call, we estimated that reductions in wholesaler inventories reduced earnings per share by 6-7 cents.

We also estimated the amount of work-down beginning in the second quarter was to be approximately 40 cents for an overall total estimate of approximately 47 cents.

Based on the information now available, we estimate that the impact from the reduction of wholesaler inventories in the first quarter of 2002 was 11 cents as a result of higher than expected demand sales in the quarter.

Don will have more to say about this.

We are updating the estimate of the entire work-down process to 61 cents.

Eleven cents in the first quarter, approximately 18 cents in the second quarter, 24 cents in the second half of 2002 and 8 cents remaining for 2003.

Approximately two thirds of the 8 cent impact in 2003 is expected to be related to three nonexclusive products, Glucophage IR, Buspar, and Megace On June 20 we provided guidance that we estimated the impact from the reduction in wholesaler inventories in the second quarter to be between 14 and 17 cents earnings per share.

Based on the information currently available, we now estimate that the impact was as I said 18 cents.

Given our new estimates, we estimate that nearly half of the EPS impact of the work-down of wholesaler inventories was achieved in the first half of 2002.

We also estimate that nearly 90% of the total work-down impact will be achieved by this year end with average inventory for exclusive products by year end, at or near desirable levels.

Don will discuss the reduction and estimating processes we are using in more detail.

I'll move briefly to the balance sheet and cash flows.

Our cash and portfolio positions at the end of the second quarter was approximately $3.6 billion.

The change from the end of 2001 where it was $5.7 billion is primarily due to the tax payment made in the first quarter based on the gain from the sale of Clairol.

Working capitol levels slightly increased to $3.2 billion from $3.1 billion at the end of the first quarter of 2002.

Debt levels at the end of the second quarter increased by about $500 million from year end 2001.

Therefore to summarize, first we are confirming our 2002 guidance for fully diluted EPS to be $1.69 to $1.81.

This guidance is on an estimated demand basis, excluding the impact of nonrecurring items and any impact from the wholesaler inventory work-down plan.

For the second quarter of 2002, we delivered earnings per share of 41 cents on a demand basis.

This excludes the impact of inventory reduction.

When we account for that impact, we delivered 23 cents earnings per share.

Let me turn it over to Don.

Thank you, Mack.

I appreciate this opportunity to provide you with an update on North American medicine.

Our North American medicine business includes U.S. primary care and oncology virology .

Which all of you are very familiar with but it also includes a number of other key businesses.

For the first half of this year, these other businesses are performing very well.

Medical imaging, consumer medicine and our businesses in Canada, Mexico and Puerto Rico are delivering against plan, and our technical operations, very importantly continues to drive quality, regulatory compliance and efficiency throughout the supply chain.

The remainder of my remarks.

As I outlined in our last quarterly call, our priorities for North America are to rapidly rebuild the strength and capability of our U.S. organization to drive strong demand-based growth for our ray of key brands and aggressively return inventory to desirable levels.

During the second quarter, we made good progress in all three areas.

First, demand-based growth.

During the second quarter we saw double digit total prescription volume increases for seven of our nine key RX brands.Overall, total RX's for the nine key products as a group were up 28% for the quarter.

Starting with Plavix.

In the second quarter, total RX's were up 36%.

A continuation of the strong growth we saw in the first quarter of this year.

Plavix demand sales were strong in the first quarter and even stronger in the second quarter.

We are building on the new indication and acute coronary syndrome, coming from the cure study.

And the revised ACC-AHA guidelines that advocate adding Plavix to standard therapy, including aspirin in acute coronary syndrome.

We'll continue to build on the ACS indication and other opportunities to build Plavix growth as we go through the rest of the year.

Pravachol total prescriptions were up 10% versus the second quarter of last year and actually strengthened as the quarter progressed.

We are building upon the proven ability of Pravachol to reduce the risk of cardiovascular events.

The potency of the new 80 milligram formulation and Pravachol's excellent record of safety.

We also look forward to the FDA's final decision on our new Pravachol plus aspirin product, which we believe will improve convenience and compliance for patients who could benefit from the combinant use of these two drugs.

Total prescription growth for the hypertension drugs Avapro and Avali also strengthened in the second quarter.

Up 14% in the quarter versus a 10% gain in Q1.

This growth acceleration is a result of increased support and sharper promotional focus which will continue throughout the year.

Turning to our metaphorman franchise, Glucophage prescription demand grew 57% and Glucophage XR prescription demand doubled versus the prior year despite aggressive generic competition for Glucophage IR.

And for the rest of the year, we have plans in place to maximize our continuing growth opportunities for Glucovance and Glucophage SR.

In our virology business, we saw strong growth with (Sisteva) up 10% on a prescription basis.

That growth is driven in part by the introduction of a new one tablet, once daily formulation approved by the FDA earlier this year. (Sisteva) came to us through the Du Pont pharmaceutical acquisition and it's proving to be a valuable contributor on an individual product level, and in terms of the additional strength it lends to our virology portfolio.

Also, in our virology portfolio, Videx prescription demand was up 11%, continuing the strong demand trend we saw in Q1.

Veret prescription demand on the other hand was down 13%.

Largely attributable to label changes earlier this year.

But RX trends stabilized as the quarter progressed.

In our oncology business, demand sales for Paraplatin continued to grow, as the positive data in lung cancer presented at (HASCO) expanded usage.

We also look for Paraplatin to show solid growth in the second half.

So for the remainder of 2002, we'll continue to focus the efforts of both our selling and marketing organizations on increasing the demand growth in these core brands.

And we'll also put resources behind the premarketing and launch efforts for Aripiprazole, Atazanvir, and (Geranoposin).

Our premarketing efforts for these near term pipeline products are another critical priority for our U.S. team as we worked to lay the ground work for future demand growth.

Let me turn to wholesaler inventory.

As Mack noted, we made rapid progress in reducing inventory, working with wholesalers and the product partners.

We estimate half of the impact of inventory reduction was achieved in the first half of the year and 90% of the work-down impact will be achieved by year end 2002.

With average inventory levels for the Company's exclusive products approximately at or near desirable levels by year end.

At the same time though, our estimates and I have to emphasize the fact that these are numbers that are very difficult to estimate, of the total size of the problem as it existed at the year end 2001 have increased.

As a result, our estimates of the total impact of inventory reduction beginning in Q1 of this year through completion next year have also increased.

We currently estimate that in total, domestic wholesaler inventory reduction will reduce diluted earnings per share by a total of approximately 61 cents versus the previously announced estimates of approximately 46-47 cents per diluted share.

Before moving into the discussion of work-down estimates by quarter, it might be helpful to provide you with an overview of the process by which we are evaluating both the demand basis for our business and inventory work-down.

The core of the efforts is demand analysis.

Where we're using third party data, and it is all third party data, on retail and mail order total RXs, average selling prices, dose per day, average therapy day, price increases, mixed shift, hospital , HMO, government, and other sales data and information on discounts and rebates from a variety of sources to regularly update our demand estimates.

While most of these data are available within 30 days of the close of any given quarter, some information such as government sales and rebate data can lag the close of the quarter by 45 days or more and become the basis for later updates in demand estimates.

We estimate the impact of wholesaler inventory work-down by calculating the difference between estimated U.S. demand-based sales and the Company's U.S. factory sales.

We then compare this calculation with inventory information received from selected wholesalers on a quarterly basis.

We've done a lot of work during the second quarter.

And our ongoing work now indicates that inventory reductions in the first quarter of 2002 impacted diluted earnings per share by approximately 11 cents, rather than the previously announced 6-7 cents.

This change is largely the result of stronger demand sales through government channels in the first quarter, supporting greater inventory work-down during the quarter.

Similarly we estimate that wholesaler inventory work-down reduced our second quarter EPS by approximately 18 cents versus our previously announced estimate of approximately 14-17 cents due largely to changes in product mix in June sales.

Going forward as Mack noted, we estimate that inventory work-down will reduce the EPS by 24 cents in the second half of 2002 and approximately 8 cents in 2003.

Two [INAUDIBLE] of the impact in 2003 is expected to be related to three nonexclusive products.

Glucophage IR, Buspar and [INAUDIBLE] oral suspension.

And again, as Mack noted, we are looking for average inventory levels for the Company's exclusive products to be approximately at or near desirable levels by year end 2002.

The third priority for our U.S. business, and this may be the most important to our longer term growth, is to strengthen our organization and squarely focus our sales marketing and support teams on our opportunities for growth.

We made substantial progress during the quarter.

During the second quarter, we reduced the rate of voluntary annualized turn over by nearly 50% in our U.S. primary care sales organization.

Strengthening that organization.

We also filled more than 250 sales territories during the quarter, increasing our percentage from 88% to 92%.

Similar comprehensive recruitment retention and communication efforts strengthened our other sales organizations and our Headquarters team as well.

During the second quarter we coupled this increase strength with increased product support.

We increased advertise and promotion for the U.S.

RX business by more than $60 million or 66% versus Q1 and increased sales force support as well.

We plan to sustain this increased support during the second half of 2002 as we continue to drive key brand growth.

In summary for North America, we're revising the estimate for the approximate total impact of our inventory issue.

But our work-down efforts have been and will continue to be aggressive.

We estimate that we will have put nearly half of this issue behind us in the first two quarters of this year and that nearly 90% of the total work-down impact will be achieved by year end 2002.

Again, with average inventory levels for the Company's exclusive products approximately at or near desirable levels at that time.

The second quarter also saw a 28% total RX growth for our top nine promoted products, an excellent progress in focusing and strengthening our U.S. team.

We look to build upon these trends in the second half.

We've made good progress, we have a lot work to do.

We are squarely focused on building the future demand growth of our business.

Now let me return the discussion to John.

Thank you, Don.

Andy, I think we're ready to go to questions from the callers.

If you would please in the interest of taking as many questions as possible, limit your questions to one per person.

Thank you.

If you'd like to ask a question at this time, please press the star key followed by the number one on your touchtone telephone.

Once again, to ask a question at this time, press the star key, followed by the digit one on your touchtone telephone.

We will pause to give everyone a chance to signal.

We will take the first question from Jamie Rubin with Morgan Stanley.

Thank you.

This is a question for Peter.

Peter, in the last six months or so, we've seen a large number of senior management team leave the Company back in I guess was November-December, now recently Peter Ringrose.

You can tell us or name for us other senior level individuals who have joined the Company recently?

Sure, Jamie.

Thanks for the question.

Let me point out a few people that joined the Company in the last 6-9 months in senior positions.

First, Wendy Dixon who is our Chief Marketing Officer joined the Company back in the fall from Merck.

Dean Mitchell who is heading our U.S.

Primary Care business working for Don Hayden joined the Company from Glaxo.

Tamar Howsen, is our Corporate Head of External Development.

She joined the Company after having worked at SmithKline and then as an independent consultant.

We have new head of Human Resources, Steve Behr who joined the Company in December.

We are announcing as we have that we have a new Chief Financial Officer who will be joining the Company in September.

We are now embarking on the process of finding the appropriate successor or the best person available in the industry for our Company to secede Peter Ringrose.

In aggregate, there were some executives who left the Company in the December-January period.

If you look at this on balance, we have added a number of very senior and talented executives in the sump in the last 6-9 months.

Thank you.

Next question please, Andy.

I have a question about the numbers.

You mentioned that the total inventory hit 61 cents.

Eight cents of which comes in 2003.

That leaves 53 cents for 2002.

That's versus something between 40 and 47 cents for 2002 previously.

Based on the guidance of $1.69 to $1.81, doesn't that imply guidance of $1.16 to $1.28 with the inventory penalty versus a consensus estimate of $1.35?

Is that the correct way to look at it?

This is Mack Bains.

Remember that the guidance that $1.69 to $1.81 is on a demand basis.

We haven't changed that guidance even though we have increased the inventory work-down.

Okay.

Can we go to the next question.

Next we'll go to Steve Tigh, Merrill Lynch.

I was wondering if you can confirm the security of your dividends since it's clearly one of the factors that's holding your stock price up.

Can we assume that the dividend will be secure as we move into next year?

Thank you.

Mack Bains again.

The dividend of $1.12 in 2002 is secure.

The dividend as far as 2003 is concerned will be discussed with the Board as we go toward the end of the year.

I can't confirm that either way.

This is Don Hayden.

I wanted to loop back around to Steve's question.

Add a little bit of information there.

Steve, the way you described the math on this is an appropriate way to look at it. $1.69 to $1.81 on a demand basis and our current estimates of the EPS impact of inventory reduction this year would total 53 cents which in fact is something that would be reduced from the demand-based EPS and 8 cents would be the work-down target that we would have for next year.

Okay.

Thank you.

Next question please.

We will go to James Kelly, Goldman Sachs.

Along the same lines of what Steve was asking there about the earnings progression.

If the work-down has gotten larger in the first part of this year, and the continuing operations number stayed the same, that kind of implies that you've had a higher demand base run rate in the first half of this year than you had anticipated, and if you keep the full year constant, therefore that demand based run rate is somewhat lower in the second half.

I would like you to comment on that, please.

Jim, the reality is the fact that our demand was stronger in the first quarter gives us more confidence in our ability to deliver in the $1.69 to $1.81 range and confidence that we won't be at the lowest end of that range.

As it relates to the second half of the year, we think the first half will actually show more earnings and we will be in a position in the second half of the year where the second quarter directionally will be an approximate measure for what Q3 and Q4 would look like.

Thanks.

Can we go to the next question?

We'll go next to Tim Anderson, Prudential Securities.

On the SEC investigation, you can talk about anything more than you have previously.

I'm wondering what exactly they are looking at with respect to what seems to be an industry-wide practice of how to deal with sales through the wholesaler channels.

And I'm wondering if this Medicaid rebate accrual charge that you took in the first quarter could be part of this and following on that, because your inventory reduction now looks to be a larger amount, will that rebate accrual account need to grow as well?

There were some reports in the press about an SEC inquiry related to the inventory issues, which as you pointed out is somewhat a practice of the industry.

As we've said, this SEC inquiry is not new.

We have been in communication with the agency since our announcement in April about U.S. wholesaler inventories.

The Company continues to believe that its accounting treatment of the domestic wholesaler buildup has been completely appropriate and we had a conversation with the SEC Chief Accountant as it related to our accrual charge in the first quarter.

Finally, we don't think that the accrual will need to be addressed as a result of an incremental inventory from 47 cents to 61 cents.

I would echo what Peter just said.

In effect, we somewhat changed the methodology for doing the accrual after we took the special accrual addition in the first quarter.

We just reviewed with Pricewaterhouse our accruals as they stand with the knowledge of the higher inventory work-down.

They are fine with that.

Can we go to the next question.

We'll go next to Tony Butler, Lehman Brothers.

Thank you and good morning.

Peter, you made some good comments with respect to Europe and how well Europe appears to be growing.

Would you care to comment about perhaps some guidance for 2003, given at least where you believe your position with respect to inventory, Aripiprazole and theory are coming to fruition and continued demand with Plavix, Avapro and Pravachol?

Thanks.

Thanks for the question, Tony.

We are not going to update the expectations for 2003 at this time.

We clearly are focused on the growth opportunities we have as you mentioned with Plavix and Avapro and with some of the new products that we're launching.

We will be updating and providing additional guidance likely as we get closer to the end of the year.

Thanks, Andy can we go to the next question please?

We'll go next to Ken Colu with CS First Boston.

Thank you and good morning.

I was wondering if you could discuss.

What is the current inventory modeling system you have in place or will new investments in systems like SAP go into place later this year or will this new third party-based, demand based monitoring system be the system that we will live with going forward from here?

Ken it's Don Hayden.

We have SAP in place for our North American operations, and have had for quite sometime.

We're working to continuously improve the breadth and quality of the data we get on both demand and on inventory.

In all instances it's third party data.

I think we've improved the work that we do in analysis and in forecasting around that.

The same thing applies to inventory where we're now getting inventory data on a quarterly basis, from selected wholesalers, but not from the universe of wholesalers.

We're still working with estimates and there is variability around the estimates that we're working with on both a demand basis and an inventory basis.

What we will continue to work to improve the model and update the information as we proceed, but as we look at the data today, 61 cents from the beginning of this year through the end of the work-down process represents our best estimate of the impact of inventory reduction.

On a demand basis, we're updating the models quarterly and will continue to talk to you about not only demand-based EPS, but this quarter we're also providing demand sales for our key brands, looking at the second quarter in the first half of the year which we hope will be helpful for you as you look at modeling our business going forward.

Andy, can we go to the next question please.

We'll go next to C.J.

Sylvester, UBS Warburg.

Good morning.

If you could just walk through the patent situation on some of your product outside the U.S. and when we expect some of the key products like Taxol, Monopril, et cetera to come off ex-U.S.

Taxol in Europe, we will loose exclusivity in the fourth quarter of '03.

That is for the European business that would be the most significant patent that they would need to deal with in '03.

And for Monopril, Monopril is a product that is key to us only in selected markets outside the U.S. one of those is Canada.

It's unknown what might happen in Canada.

Don't anticipate in the aggregate for North America for that to be a significant factor for our business.

Andy, can we go to the next question please?

We'll go next to James Terelly, Capital Research.

First a comment.

I would strongly reiterate Steve Tigh's point that Peter, you should not underestimate the importance of the dividends even though the temptation might be great that when you look out at '03 in terms of investment needs for the Company.

The question related to what's happening to the auditing process internally in light of what ended up being under accruals for Medicaid, how that process has changed from the standpoint of IT, sales and marketing and the people that monitor best price practices and estimate your rebates.

Just to the extent can you comment on that.

And then secondly, are the returns that are driving the -- are the 8 cents of earning exposure in '03 from the inventory actually product returns that wholesalers will be allowed to make because of buying prior to patent expiration.

Let me take the first part of that.

Mack Baines.

First, we have worked both with the internal audit group and with our external auditors in looking at the audit practices that they have around this issue particularly.

To put it in a nut shell, both have been significantly beefed up.

We have also just completed an audit of the U.S. business which was jointly done both by the external auditors and the internal auditors and that was discussed in depth with our audit committee and the Board.

We have beefed this up considerably.

I think, James, this is Don.

On the issue of product returns, we have not and still don't expect returns or write offs to be a part of our inventory reduction plan.

As we look at the demand sales estimates for those three product that is account for the the majority of the eight cents next year.

We believe they support inventory work down on a normal basis as we go through next year, not requiring returns to be a meaningful part of that process.

Thanks, Andy, can we go to the next question, please?

We'll go next to Leonard Gassey with Bank of America.

Thank you.

Could you please let us know if there were any price increases on key products in the second quarter, or so far to date in July?

And could you give us the revenues that you got and finally if you can comment.

Has Bristol-Myers ever cut its dividends in its history to your knowledge?

I'll take the price increases and Len, I can get back to you with the [INAUDIBLE] number.

Avapro 6% in May. (Sefsil) 8% April 1st.

Cumadin 5% May 15th. (Pequin) 5% in April.

Paraplatin 10% in June.

Videx 5.3% in April. (Zerek) 5.3% in April.

As it relates to the history of the dividend, I will let Mack take that.

There is a simple answer.

No.

Thanks, Andy, can we take the next question please?

We'll go next to Mara Goldstein with CIBC World Markets.

Thank you.

Just two quick questions.

What is the CAPEX forecast for this year and then secondarily, you spoke of the cost savings from the Du Pont merger.

Can you quantify them for us?

First, repeat the question?

The capital expenditure budget for this year is just a little over $1 billion and we're on track with that.

Cost savings from Du Pont.

Cost savings from Du Pont, Mara, this is Don Hayden.

We are estimating that the cost savings from the integration of Du Pont are approximately $600 million for the year.

It's important to note the acquisition closed on October 1.

The integration plan was set to be completed over 90 days.

We actually completed the integration ahead of schedule.

Thus far cost reductions are running ahead of planned.

I think we have time for more question.

We will take the final question from Richard Lawrence, Parker Hunter.

Thank you for taking my call.

Wondering again back on cash flow.

I would imagine that working capital will be a source of cash in the next couple of quarters and it appears that from an operations basis, you are about neutral on cash flow from operations and I'm curious to know if there any other items that could absorb cash other than from operating these.

No, you are essentially correct in that review.

We're getting benefits from obviously lower receivables relatively.

I already said what the capital expenditures were.

We do have some increase in debt, but also increase in cash going on because cash is building internationally.

Debt is lightly building in the United States.

Your analysis is correct.

At this point I would like to turn it back over to Peter Dolan for some closing remarks.

Thanks for calling in.

I want to make a couple of observations that we clearly have been focused on putting the Company in a better place for 2003.

Putting the right and best team we can find in place and confirming growth and demand we have across our Company including the U.S.

RX business.

I would reiterate that the rest of our Company is performing well.

We estimate that about 90% of the inventory build up is behind us by December 31.

We are putting in place processes to prevent it from happening again.

On the growth side, we are gearing up for the launch of Aripiprazole and others that are behind it.

We will be back to you in September with an update on where things stand.

In the meantime, thank you for calling in and for your questions and input.

That's it for the quarterly call.

Thanks, everybody, for calling in.