施貴寶 (BMY) 2002 Q3 法說會逐字稿

It's time for opening remarks and introduction, I would like to turn the call over to the vice president of Investor Relations, Mr. John Elliker.

Thanks, Joseph.

Good morning, everyone.

Thanks for joining us.

I understand there were technical problems with the carry on the phone line.

On our end here today, we have Peter Dolan, our chairman and Chief Executive Officer, Andrew Bondfield, our new chief financial officer and Don Hayden, executive vice president.

As you know this is our quarterly call to review third quarter, and after our comments, we'll take a few questions.

During this quality, we may make various remarks about the company's future expectations, plans and prospects that constitute forward-looking statements for purposes of the safe harbor provisions with the reform act of 1995.

Actual results may differ materially from these indicated by the forward-looking statements as a result of various important factors, including the results of the planned financial statement, restatement process and the audit of such restated financial statements.

The impact and result of any litigation or governmental investigations related to the financial statement, financial statement restatement process and other factors discussed in the company's press release issued today.

Most recent annual report on form 10-k and in our periodic reports on form 10-q.

These documents are available from the SEC, bms website or bms Investor Relations.

In addition, any forward-looking statements represent our estimates 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 in the future, we disclaim any obligation to do so even if our estimates change.

Lets (ph) turn it over to our chairman, Peter Dolan.

Thanks, John.

Good morning, everyone.

Before I say a few words about the quarter, I want to briefly mention our announcement that we intend to restate our sales and earnings.

Specifically, we expect to restate sales and earnings upward for 2002 and downward for the prior period that were affected by our previously wholesaler inventory build-up situation, primarily in 2000-2001.

Here are the key points I want to make about our decision to restate.

First, we're doing it based on further review and consideration of the company's accounting for its previously disclosed wholesale inventory situation and on recent advice from our auditors, price water house Coopers based on their ongoing assessment of our company's sales practices in the U.S. pharmaceutical business and related accounting.

And second, the restatement is expected to reflect primarily adjustments in the timing of revenue recognition of the company's U.S. pharmaceutical sales to certain of our WHOLESALERS.

Beyond that, I would refer you to our press release that lays out some of the principle components of the restatement given the relatively recent nature of the decision, we can't say more about it at this time.

Now, let me give you some brief top-line comments about the quarter, and then turn things over to our new chief financial officer, Andrew Bondfield, for a discussion of our financial situation, and then over to Don Hayden to talk about the demand performance of some of our key brands in the U.S., in the U.S Rx wholesaler inventory workdown.

Regarding Andrew, we're delighted he's onboard.

Many of you know him from his time as CFO Smith Kline Beacham, right before the merger with GlaxoWellcome.

Also, you undoubtedly heard that we named a new head of R&D, Dr. James palmer who comes to us from the R&D organization at Glaxo Smith Kline (ph).

He was Glaxo Smith Kline.

He was responsible for regulatory affairs.

Dr. palmer was instrumental in the launch of several important medicines for Glaxo Smith Kline, and we look forward to having him with us before the end of the year.

I want to make a few brief points about the U.S.

Rx inventory situation.

Don will have a little bit more to say about it in a few minutes, but what's important is our workdown plan continues on an aggressive timetable, and we've made substantial progress so far.

As of September 30th, we've worked out approximately 75% of the estimated value of the total inventory to be worked down.

Our estimate of that total amount is approximately 61 cents.

We expect to achieve more than 90% of the workdown by year-end, which would leave only approximately 4 cents to be worked down in 2003.

As always, we'll keep you informed about our progress in this area.

We anticipate that after the fourth quarter close, the impact will be insignificant enough that the commercial impact will be behind us.

Before I leave the subject of inventory, I want to say that we're continuing to cooperate with the government authorities looking into this matter, and I don't have any new news to report in this area that's different from our prior disclosures.

Finally, I will update you that we are hopeful that final approval for this novel treatment for schizophrenia will come sometime in the fourth quarter following approval.

Our sales force is getting ready to move out with some compelling messages about the product's efficacy and superior side effect profile.

We're looking to abilify to be an important catalyst for growth in 2003 and beyond.

Herbotxy (ph) is moving ahead, a new study of the efficacy of herbitox (ph) with met that fractal (ph) Colin cancer recently began enrollment.

We are working with the FDA and working with our partners to initiate combination studies to help advance herbatox (ph).

We did take a writedown in this quarter in this investment, as we suggested we would do in earlier disclosures.

Let me make this point very clear.

We continue to believe in the drug and are investing to get it to patients as soon as possible.

Looking ahead, we're focusing our priorities and rebalancing our drug discovery and development capabilities.

We'll continue to do drug discovery in our core therapeutic areas and we'll invest more in developing our compounds, and James palmer's appointment is consistent with our R&D focus.

We plan to invest strongly in advertising and promotion beyond the abillafy (ph) and our other growth opportunities as well as aggressively search for promising in-license opportunities.

In summary, we'll put more resources behind our launches in late-stage pipe line.

And now I'd like to turn things over to Andrew for a review of our financial performance in the third quarter.

Andrew?

Thank you, Peter.

I'm pleased to be here and I look forward to meeting many of you over the next few months.

Moving on to our third quarter of 2002 performance, because of the pending restatement, we are not in a position to release GAAP financial results for the third quarter.

We have released -- we will be releasing GAAP financial statements when we file our third quarter 10-Q.

We will announce our anticipated timing for that filing at a later date.

Even though we do not have GAAP results released, we want to give you as much information as we can about our third quarter performance at this time.

All the financial information I will be discussing today is prior to getting a fix to the restatement and we'll -- will be revised in the 10-q to reflect such statement.

I will not say prior to restatement each time I mention the number.

So please understand that these numbers are not GAAP and will be revised to reflect the restatement.

As you have seen in our press release, earnings per share for the third quarter were 13 cents.

Excluding non-recurring charges, which I'll discuss in a moment, diluted earnings per share were 26 cents.

Based on the information currently available, we estimate that the impact from the reduction of wholesaler inventories was 18 cents in the quarter.

Sales during the third quarter decreased by 12%, 14% excluding foreign exchange to 4.2 billion dollars and $4.7 billion in the third quarter of 2001.

The decline resulted from a 14% decline in volumes and 2% increase due to foreign exchange rate fluctuations.

There was no impact due to changes in selling prices.

Dupont products added approximately $394 million in sales in the quarter.

The decline in sales could have come in U.S. pharmaceutical business with 32% decline from $2.8 billion to 1.9 billion.

This is due to two factors, the loss of exclusivety for (inaudible) and the impact of the planned reduction in wholesaler inventory.

Key products, like prestivo.

Cot and prestivo perform quite well, with U.S. demand increasing strongly for each.

Don will discuss these in more detail in a moment.

International pharmaceutical sales grew strongly and were up 16%.

Of this increase, foreign exchange contributed a net 5% gain and the Dupont products, 8%.

Pharmaceutical sales in Europe increased by 23%, or 12% net of foreign exchange.

Supported by strong growth in protocol (ph)l, up 25%, and a contribution of products from Dupont.

By market, France, Italy, the UK, and Spain all reported double-digit growth, excluding the impacts of foreign exchange.

Pharmaceutical sales in Japan increased by 19%, with tax growth I will highlight here.

In Latin America, sales were impacted by foreign exchange and government actions in Brazil.

In total, including the impact of exclusivety losses and a reduction of wholesaler inventories, sales in our worldwide pharmaceuticals business decreased by 19%, or 20% excluding foreign exchange fluctuation.

In our other businesses, nutritional sales were flat with sales of $456 million, and a newly-launched -- little is performing well. (inaudible) sales increased to $88 million, of which -- plus 2% excluding foreign exchange.

Wound care products increased by 14%, driven by new products like Waseva.

Medical imaging contributed $118 million in sales with contributed strong growth in the flagship brand Cardiolite.

Let me move on to some of the expense lines in the profit and loss account.

Gross margins declined to 62.9%, prior to the effects of restatement, as compared to 71.9% in the third quarter of 2001.

This occurred previously as a result of lower sales of high margin products, Taxol and Lucathage, which reduced the margin by 1.8% in the quarter, continued high sales growth of our low margin oncology distribution business, oncology therapeutic network, which had a negative impact of also around 1.8%, and impairment charge for brand level inventory for approximately .8% based on the recommendations that advisory committee and the discussions with the FDA, and the continued impact with the wholesale inventory workdown, which was around 2.8%.

Administrative expenses increased by 6% to $968 million.

Primarily driven by 14% increase in sales business as we continue to increase the sales force to support the launch of abilify and provide key support.

Advertising and promotion increased by 8% to $326 million, and we have increased the level of support for key growth products.

Research and development is a percentage of sales increased by 2 percentage points to 13%, and research and development expenses in pharmaceuticals business increased by 19% to $542 million.

Other income and expense in the third quarter was $112 million expense compared to an expense of $29 million in the comparative period.

This was driven in part by an increase in interest expense related to the acquisition of Dupont.

The tax rate for the third quarter was 26.2%, slightly below the rate of last year at 26.53%.

Now, let's touch on some of the non-recurring charges recorded in the quarter.

An impairment charge of $367 billion was made to write down the investment of inclone to the market value of September.

The remaining value of the inclone investment on our balance sheet is $98 million.

The restructuring charge of $148 million was made related to work force reductions and facility closures.

This was partially offset by an adjustment to prior restructuring reserves of $106 million due to lower than expected separation in exit payments and the cancellation of some facility closures.

In conclusion, to summarize, first, as of today, we are not able to quantify the effects, if any, of the restatement.

For the third quarter of 2002, prior to the effects of restatement, we delivered earnings per share of 26 cents prior to the impact of non-recurring charges.

This includes the impact of inventory reduction.

We estimate the value of the wholesaler inventory workdown in the quarter to be approximately 18 cents.

With that, let me now hand over to Don.

Thank you, Andrew, and good morning, everyone.

As Andrew mentioned, we continue to build strong demand growth across our North American medicines business during the third quarter.

We once again, saw solid performance from our medical imaging and consumer medicines businesses, as well as our businesses in Canada, Mexico, and Puerto Rico.

Within our U.S.

Rx businesses, specifically primary care and oncology/verology, our priorities are to, first, rapidly rebuild the strength and capability of our organization.

Second, to aggressively return inventory to more desirable levels, and third, to drive demand-based growth for our portfolio of key brands, and during the quarter, we made excellent progress in all three areas.

Let me turn, first, to the highlights of our demand base prescription growth.

Once again, we saw strong total prescription volume increases for seven of our nine key Rx brands in the third quarter.

In fact, total Rxs for the nine key products taken as a group were up 18% for the quarter.

For Plavics, third quarter total Rxs were up 34% which is a continuation of the strong growth we and our partners, Santa Fe (inaudible) bow are.

We are building on acute syndrome resulting from the cure study and the revised ACC AHA guidelines that advocates adding plavic to therapy including aspirin in acute coronary syndrome.

We will build on the acs indication, while at the same time working to expand plavic's use post-mi, post-stroke and in arterial disease.

We see continued strong growth for plavic.

Andrew explained the growth of pravocal.

Which was impressive.

In the U.S., in the quarter, it was up 2% versus the third quarter of last year.

Due to the one-time surge in prescriptions associated with the bacol withdrawal in the third quarter of 2001, this percentage change really underestimates or understates the renewed strength of Pravacol.

I think a more meaningful measure of Pravacol is market share, which continued to strengthen as the quarter progressed and has been maintained for a five-month period.

We're building upon the proven ability of Pravacol to reduce the risk of cardiovascular events.

The potency of the formulation and its excellent record of safety, and we look forward to the FDA's decision on pravaguard, our medicine and aspirin co-package, which we think will prove compliance for those patients whose doctors recommended that they take both drugs.

And we saw strength in abalo and abilide to 15% in the third quarter.

This solid growth 1 the result of increased support and sharper promotional focus byboth Bristol Meyers Squibbs and sinthel le bow which will continue.

Glucaman prescription grew a strong 35% in the quarter, and glucage grew 36% versus prior year despite the generic availability of glucathage IR.

We will continue our opportunities with glucathage and expand the Diabetes franchise with the fourth quarter launch of metaglip, our newly of met glimmen and gliticide.

Increases were 13%, which is the strongest growth for estiva in several years.

This accelerating growth is driven in part by our promotion of once-daily regimens, including estiva and vitax ec.

It was up 7% with the strong growth in that brand.

Their prescription demand was down 16%, but Rx stabilized as the quarter progressed, and looking ahead, our projected fourth quarter filing of our novel inhibitor atazanafer gives you the potential for the strongest portfolio of HIV products in the market in the near term.

Turning to our oncology business, demand sales for paraplatin continue to grow, and we look for paraplatten continue to grow moving ahead.

During the fourth quarter, our selling and marketing organizations will continue to drive demand growth of these core brands, and at the same time, as Peter noted and we're all very excited about, our dedicated neuroscience team expects to launch abillify in partnership with ocicla pharmaceuticals with its efficacy, tolerance and convenience, it means an advance in the treatment of schizophrenia, and we are prepared to fully capitalize on this opportunity.

Let me turn briefly now to wholesaler inventory.

As Peter described, we've made rapid progress in reducing U.S. wholesaler inventory, working cooperatively with wholesalers and our product partners.

We estimate that approximately 75% of the value of the inventory to be worked down was achieved in the first three quarters of the year and that more than 90% will be achieved by year-end 2002.

Finally, we continue to make excellent progress during the quarter strengthening our organization and focusing our sales, marketing and support teams on your many opportunity for growth.

By the end of the third quarter, we had reduced the rate of voluntary annually turnover in the primary care sales organization to less than 10%, which is in line with or perhaps even below industry averages.

This is an important indicator of stability in the organization.

This is a dramatic reduction compared to annualized turnover rates seen during the first quarter of the year.

We've also filled more than 500 sales territories during the past two quarters, bringing our sales organization in the U.S. back to normal capacity.

Similar comprehensive recruitment, retention, and communication efforts has stabilized and strengthened our other sales organizations and our headquarters team, as well.

And during the third quarter, we coupled this increase strength with increased product support.

We increased advertisement and promotion for our U.S.

Rx business by $25 million, or 21% versus prior year, and we increased sales force support, as well.

We plan to sustain this increase support during the fourth quarter of 2002, as we continue to drive key brand growth and launch both abillify and metaglip.

In summary, for North America, we drive key growth for current key brands to prepare for the launch of new products such as abillify and metaglip and work down wholesaler inventories to more desirable levels and strengthen our organization for the future.

I thank you for your attention, and now I will turn it back over to John.

John?

Jon Thanks, Don.

Okay, Joseph.

I think we're ready to go to Q&A.

Thank you.

If you would like to ask a question at this time, please press the star key followed by the digit one on your touch tone phone.

That is star one to ask a question.

You if you are using a speaker phone, make sure the mute function is off and allow your phone to signal.

We will start with Myra Goldstien (ph) with CIBC World Markets.

Yes, I just had two quick questions.

The first is on abillify and your expectation of having comparative data in the label, and the second has to do with the restatement or the potential restatement and a comment that was in the press release stating that the company is evaluating the effect, if any, of the restatement on its previously disclosed demand-based earnings guidance.

My question to you is how would the restatement affect the earnings guidance if the earnings guidance is based on demand?

I will be happy to take the abillify question.

This is Don.

: Thanks, Don.

I'm happy to do it.

We are conducting comparative clinical trials with many of the leading antipsychotic agents.

The NDA filing is obviously based upon comparisons with primarily the typical antipsychotics, although, there are some comparisons with the atypicals included in that.

Typically, the agency is reluctant to include much in the way of comparative data in the label, but we've completed a number of clinical trials.

We have a comprehensive ongoing clinical program designed to provide comparative data with currently available antipsychotics.

This is Andrew Bondfield.

With regards to the reason why we have not been out to give or quantify or confirm guidance for 2002, the issue here is around how we will account for some of the gross to nets on discounts provided to the WHOLESALERS and that may have an impact on the 2002 numbers as we stated.

This is Peter Dolan.

This is -- the decision to do this is a relatively recent decision, and what we're doing right now is evaluating the effect, if there is any, on the demand-based model that we have in place.

I want to understand all the component pieces before we give any updates.

Thanks.

Joseph, can we go to the next question please.

Let's go next to David Brasinger (ph) from Merrill lynch.

: Thank you very much.

Could you comment on your cash flow in the nine months and your outlook for '02, and then the outlook for '03, and if you could, once again, discuss the dividend given its importance to the stock price.

Thank you.

Yes, Andrew, again.

We have not disclosed any balance sheet information and given the issues around restatement, although, there will not be balance sheet items, I don't think we are at Liberty to discuss anything until the 10-q is filed.

As in regard to the dividend, the restatement will have no impact on cash flow.

We are aware of the importance to shareholders of the dividend issues.

We will be following our normal process, which is a 2003 dividend will be reviewed by the board later this year, and then an announcement made at that point in time. : Unidentified: Thanks, David.

Joseph, next question.

Let's go next to Carl Spyden (ph) from J.P. Morgan.

: Thank you very much.

A couple of questions trying to understand as best as we can the impact of working off the inventory.

I think you said in this release that the estimate is that 18 cents worth of the estimated 61 cents was worked off in the third quarter.

But I believe you're saying that 4 cents of that is actually a provision for either out of stock inventory or inventory that you never expect to be able to sell through.

So when we think about reallocating the 61 cents to get to some concept of normalized earnings, aren't we now down to 57 cents that has to be reallocated?

More importantly, of the remaining 14 cents, do you expect any of that to be similarly provisioned, like this 4 cents or was that 4 cents your best estimate of all of the workoff that you'll never recoup?

Separately, I understand why you can't comment on why how the restated earnings might compare to your demand base, or what you have called normalized earnings, but conceptually, should the restated earnings, basically, be the same that you were trying to convey with that concept that normalized earnings this year would be $1.69 to $1.81?

Lastly, will we be getting any product sales detail this quarter?

Thanks.

Thanks for the five questions, Carl (ph).

: Three, I think.

All right.

Carl, I will try to answer as best as we can about the returns issue.

The 4 cents was in the 61 cents.

It is based on an updated assessment of the dating of the stock, but it was always within the 61 cents and the 61 cents still holds as regards to returns.

I think Don may have a couple of comments of why this is related, but it was always in the workdown.

I it was not change the 61 cents at all.

Carl, I think the best way to think about that piece of it is that we very recently did an updated analysis, in effect looking through the end of workdown process which was expected to be second half of next year, and in a conservative way assess what the potential for returns might be in the very latter stages of the workdown process, and set up a provision for those returns now, so in effect, polling the impact of the value of the workdown out of the -- out of next year, the tail end of the workdown process into the third quarter of this year.

And I think in terms of how that impacts timing, obviously, we further accelerated the impact in terms of the value of the workdown into 2002 and potentially lessen the impact of 2003.

Carl, just a reminder and everybody on the call, it's approximately 61 cents.

These are estimates that we're working with.

We're using models to estimate demand, workdown, et cetera.

Andrew's point that the 4 cents of --for returns is part of the overall approximately 61 cents is correct.

But these clearly are estimates and we are working with the fact that it's approximately 61 cents that we need to work down from the cumulative build-up.

As regard to the point -

As in regard to the point about why are we not able to give any impact on the guidance for this year, the point being is we are still evaluating because this is recent of ours, the full effect of this on our 2002 earnings as they will be restated.

We will update you as soon as we can on that.

Caller: Thanks, Carl.

Joseph, let's go to the next question.

Jamie Rubin of Morgan Stanley.

: My question is directed to Don.

We're hearing there's evidence of price competition in the oncology oncology category specifically with branded oncology drugs.

Are you seeing that with Paraplatten or the other oncology products and where that pricing pressure is coming from?

Jamie, I appreciate the question.

With Paraplatten specifically, we really haven't seen much in the way of pricing competition.

Very little change in the trend line, and I really can't speak to what might be occurring with other branded products in the market.

Paraplatten has really been our point of focus and we're seeing solid performance with Paraplatten this year and really have not seen any meaningful change in the pressure around the brand.

Thanks, Jamie.

Next question.

Let's go next to Steve Scala (ph).

S.G. Cowen.

Thank you.

After reasonably successfully dealing with the inventory overhang for three quarters, what was the nature of the further review which prompted you to decide to restate it this time?

You suggested that the workdown is actually ahead of schedule and that you had only one significant quarter to go. that being Q4.

In fact, the target for the earnings hit in Q1 of next year actually went down.

You're now saying it's 4 cents previously, 8.

What was the nature of this further review when you seem to be, you know, successfully dealing with this issue?

Secondly, we realize that there's a lot of moving parts in 2002, but assuming that the restatement is out of the way in 2002, you can give us a reasonable demand-based earnings range in 2003?

Consensus is 1.64.

Do you think earnings may be dramatically different than that?

Steve, it's Andrew again.

First of all, we are making very good progress on the commercial workdown of the inventory.

We will reiterate that again now.

In regard to what has come up in the further review, we are not at liberty to say anything else other than is in the press release at this point of time.

Again, further findings will be made in 10-q, and there may be explanation at that point in time.

At this point in time, there is nothing that we can add beyond what's in the release.

Conceptually, there shouldn't be any significant impact on demand-based earnings estimates that we have based on the decision to restate.

We're refining all of that, but from a macro standpoint, that's certainly the case, and as it relates to 2003, as we get further into the year and as we understand what the base will be in 2002, as we said previously, we will be out before the end of the year to provide 2003 guidance.

: Thanks, Steve.

Can we go to the next question.

Tim Anderson (ph) of Prudential securities.

Caller: Hi, a couple of non-accounting questions.

How active are you now in pursuing licensing opportunities or things like code promotion deals for big products?

Are there any of these deals in the works, and if there are deals that require a fair amount of cash to be spent, you know, would you be willing to do that at this point?

Then, can you just reaffirm what your plans are for things like the nutritional business, convatek and consumer?

We're very much in the game of external development.

We have built under Tamar Haassen's leadership who joined us a year ago to lead the external development function and with a number of people who were in that group as part of our company and a number of people that she brought in to join it, we are building a significant capability in external development and licensing.

It continues to be very important to us.

We're in the midst of evaluating numerous different opportunities, and we're very interested in making that part of our revenue growth going forward.

Let's go next to Leonard Jaffey (ph) , Bank of America.

: Thank you.

A couple of questions.

One is can you give us what the price increases were for the crept quarter through the crept time?

Secondly, just to reiterate questions that were previously asked and got lost a little bit.

Will we be getting revenue numbers for the key drugs for the current quarter after you restate and when can we expect that?

I'll handle the -- I will give you the price increases, Len (ph).

Lucafage Rx was 7%.

Luca fans was 8%.

Monopro was 8%, and pravacol at 20 milligrams was 4%.

Andrew?

When we do file 10-q, we will have restated the product numbers and there will be restated numbers in there.

Again, as we mentioned, this is recent.

We have not yet worked through the issues about the restatement, so this will -- we are asking you to be a little bit patient, and we will let you know when that information will be available.

Len (ph),, Don, and I guess I will add one further thought because we've gotten several questions along these lines.

The performance that we had in our pharmaceutical business outside of the U.S. in the quarter was quite strong, if you look at Europe, gentleman Japan, international business generally.

Solid performance in our non-rx businesses and if you look inside the U.S. business, given the rates of growth in total prescriptions that we saw for the products that I highlighted earlier on a prescription demand basis, that performance was very much in line with what we might have hoped to see for the quarter.

So, you know, there are other ways of looking at the business to describe its strength of prescription performance in the U.S., I think, for the quarter was quite strong.

Somewhere in this mix someone asked about convatek and other parts of the portfolio.

Let me comment on it.

We are a pharmaceutical company with related health care businesses.

Beyond pharmaceuticals, we have knee (ph) Johnson, convatek, the OTC business and radio pharmaceuticals.

Those businesses are, by in large, performing quite well this year.

They are delivering against their expectations in aggregate.

They continue to be important parts of our portfolio, and based on their growth prospects, businesses to site one like convatek had a strong quarter in the third quarter.

Can we go to the next question, Joseph.

Next to Ken Coyu (ph) from credit Suisse first Boston.

: Good morning.

Just a question on desclenalone.

I understand there was a delay in the filing.

I was wondering if you could discuss what's happening with that filing and an update on when you would expect that filing if it is going to occur in perhaps '03?

Appreciate the question on derinopsis.

A quick update.

The phase three clinical data for garinopsis are not all in.

We need to complete the compilation of that data base, the review of that data base and developing that into an NDA filing and given the time line as it lays out between now and the end of the year and the early part of next year, that filing could very well be in 2003.

We need to complete the review of the data base and preparation of an NDA filing, and as we look at it right now, that filing could very well be in 2003.

: Thanks.

Next question.

Next is Tony Butler (ph), Lehman Brothers.

: Good morning, and thank you.

Andrew, do you have a prospect of dates for which you may be able to file the Q?

Peter, you alluded to rebalance of R&D, if I heard you correctly.

Would you mind just expanding on that point a bit?

Tony, ask your second part of your question again.

: You alluded to rebalancing of R&D.

Go ahead.

As to filing the Q, again this is a recent change, and advise that we've been given and the company has made that decision based on that.

We think we will work through the issues as quickly as we can, and we'll let you know as soon as we can when we expect to actually file, but, again, we will have to ask your patience.

It may be a week or two before we can get out to you and tell you when we expect to file.

The rebalancing of R&D expenditure of -- relates to the maturity of our pipe line and how it's moving closer to market.

In essence, we will continue to spend in discovery in core therapeutic areas.

We will increase investment in development as our projects move along into phase three, and will, obviously, put more a & p from a total company standpoint behind those products that we're expecting to launch like abillify.

The rebalances is basically a shift of some expenditures in discovery to development and launching our products.

It's consistent with the announcements we already made and disclosed as it relay to discovery operations.

Thanks.

Joseph, next question, please.

Next to Jim Kelly (ph), Goldmann Sachs.

: Can you hear me?

Yes.

: Wonderful.

I want to delve deeper, and I think this part of Tony's question.

This rebalancing, does it incorporate all of the 148 million charge taken to PRI, or are we seeing anything else strategically about strategic shift with the sales and marketing budget going up by 14% sales force expenditures gone up by 14%, but seemingly a rebalance here on PRI, and then just one other question.

It seemed like you had a reasonable number of price increases and yet the price contribution and the overall revenue line was zero.

Was the U.S. number for price a positive one?

And if not, what were the other offsets in the U.S. in order to balance that back down?

Thanks.

The R&D charge is related to decisions we announced as it pertains to discovery operations that we already put in place.

From an a & p standpoint, I think you out to be assuming that we intend to fully invest behind our growth opportunity and make advertising and promotion an appropriately important part of the spending mix.

As we have products like abillify that requires significant, upfront expenditure, we want to invest in those launches and we simultaneously want to support our other inline growth prospects.

Jim, just to dial that back, we have strengthened our sales organization in the U.S.

We created a dedicated unit to directly support abillify, and the products in the business, if you look at prescription demand performance are responding, so that's something that we would expect to continue to drive that level of support behind the launches and core products in the business.

As regards to price, Jim, the issue in the U.S. was overall negative price impact, and that's primarily due to price impacts of loss of exclusivity, as well, offsetting the price increases that John mentioned earlier.

Thanks, Jim.

Joseph, next question, please.

Next to CJ Sylvester (ph), UBS Warburg.

: Quickly on clarimic, the impact of having the expanding sent population, do you see an increasing penetration for platux within that market and do you see therapy taking up and on metaglip is the shift to shift people from glucan, and can you give me the patent on metaglip.

sure this is Don.

I will try to take both of those questions.

On plavic with the usage post-stint.

The penetration with plavic post-stint was very high.

That is used in overwhelming majority of patients post-stint.

The opportunity is really one of duration of therapy.

The use of post-stint is not as long as it might be.

There's ongoing clinical trials designed to provide support for the use of plavix for longer period of time post-stint, which we see is a real opportunity and those data should become available in the near term.

This is more than the metaglip.

We have (inaudible) growing strongly for those patients.

One of the eurias which is half of the use, metaglip gives us direct access of the euria business with glipicide, and what our research has shown, many physicians favor one or the other, and metaglip opens up a group of patients that metaglip doesn't allow us.

We intend to grow glucofage and then grow the franchise.

That last point of exclusivity, we have three years of exclusivity on the product from hatch, waxen and perspective and that's our expectation as we come into the market in the fourth quarter.

We have time for just a couple more questions, Joseph.

Next to Neil Wyeth (ph), from Fulcom (ph) partners.

: Good morning, everyone.

Two questions relating to the R&D side.

I did not see the schedule as being repeated again for year-end filings for azadesphere HIV.

Second, when will we learn what your plans are for zanlev.

You have the approval letter and it continues to hit there, and those are the two questions in that direction.

Thank you.

First, on van lab, as you noted and as we communicated previously, we have an approveable letter from the FDA on zanlev given the significant investment we already made in zanlev and given the potential target population, we are evaluating right now the appropriateness of doing an additional clinical study for vanlev to potentially ready it for the target population.

We'll be making that decision over the course of the next month or so.

As we evaluate the cost and the timing and the implications on our overall development priorities.

Neil this is Don, as it relates to atazanaver, we filed it in Europe in may of this year.

The clinical program is proceeding on schedule.

We're currently on track to file in the U.S. in the fourth quarter of this year.

And the profile as it's been presented in a number of meetings during the course of 2002, once daily convenience favorable resistance profile, favorable lipid profile, you know, we continue to like what we see in the profile of the product, and combined with the strength of our existing byrology portfolio, we believe it gives us a strong position in the market as we look out to the near future.

Thanks.

Joseph, let's go to our last question. ))Operator: It's from Mya Krushar (ph)..

: Two questions.

One on the abillify.

Is there expectation approval and launch this year?

And then, in terms of the earnings, is it possible to rule out at this point or to comment on if sales and earnings are moving from 2000-2001 conceptually into 2002, is it possible given current demand of such products as such products of glucafage and another plug figure, which may be related to rebates and discounts, could that create a situation where this new higher 2002 earnings number might not lead to 2003 earnings growth?

Could we see a number that's flatter down, and I'm speaking conceptually.

The trend, not the exact number.

Very quickly on the abillify, the open expectation is its approval and launch in the fourth quarter of 2002.

As regard to the 2003 earnings guidance as Peter mentioned earlier, we will give that later this year.

At this point in time, again, we will not conceptualize about where we are on that at this point in time.

Okay.

Thanks, everybody, for your questions and your time.

Right now, I'd like to turn it over to our chairman, Peter Dolan, for final comments.

Thanks for calling in this morning.

I want to focus on the fact that we clearly announced that we're going to restate sales and earnings.

That will have an impact upward in 2002 and downward for the prior periods that were affected and we will give you more information as that becomes available.

Very significantly, the inventory issue is on track from our plan to put it behind us as we said previously.

More than 75% completed to date.

More than 90% by year end.

Moving ahead from a commercial standpoint to put that issue fully behind us.

Second point I make is, we are building the right leadership team for the future.

A group of people who will want to run the company for the next 5 to 10 years.

We brought new people in the company of late.

They joined very talented people who are within the company, but we've been successful in putting the right team in place to run the company.

Third, we clearly are focusing on businesses that we have and the international Rx business performed exceptionally well.

Some of the other non-Rx business did real well.

On the demand business, U.S.

Rx did well.

That's on the basis of strong growth for products like pravacol and plavix.

We're gearing up and hope and expect to have a major new product to launch with abillify.

Overall, we're keeping our eye on the ball.

We remain focused and confident as we build the core strength of our business for the future.

Thanks for calling in.

Appreciate the time.

This concludes today's conference.

Thank you for your participation, and you may disconnect at this time.