施貴寶 (BMY) 2003 Q2 法說會逐字稿

Good day and welcome to today's Bristol-Myers Squibb Company conference call.

Today's conference will be the second quarter sales and earnings, and today's conference will be turning over to the conference Vice President-Investor Relations, Mr. John Elicker.

Please go ahead.

Thanks, Ray.

Thank you for joining us this morning.

I know you're busy with other calls and releases.

This is our call to review the second quarter results.

And with us today, we have Peter Dolan, our Chairman and CEO, Andrew Bonfield, our Chief Financial Officer, and Don Hayden, Executive Vice President and President of Americas.

Let me get rid of -- or put the legal issues behind us real quick.

During this call, 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 under 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 10-K and our periodic reports on 10-Q.

These documents are available from the SEC,BMS Web site or from Bristol-Myers investor relations.

In addition, any forward-looking statements represent our estimates only as of today and should not be relied on as representing or estimating our estimates on any subsequent date.

While we may like to update forward-looking statement at some point in the future, we specifically disclaim any obligation to do so even if our estimates change.

And with that, let me turn it over to our Chairman and Chief Executive Officer, Peter Dolan.

Thanks, John.

Good morning to all.

I want to make a few comments before I turn things over to Andrew and Don Hayden, and then I'll come back and say a few words about our future.

Then we'll go to your questions.

Clearly as the numbers show, we had a good quarter.

Fully diluted earnings per share were 45 cents, which is ahead of First Call consensus.

Global sales increased 22%, with several of our key brands like Pravachol, Plavix, Paraplatin, and Sustiva delivering strong double-digit growth.

Of course we recognize the comparisons off a lower base since Q22002 was impacted by the wholesale inventory work down, but demand growth continues to be robust for our leading RX products.

Also, importantly, we're continuing to deliver on our pipeline.

Abilify, as you know the new treatment for schizophrenia is off to a strong start since it was introduced at the end of last year.

Recorded alliance revenue for Abilify exceeded $100 million for the first six months of the year and it has captured more than 5% of the weekly new RX share in the anti-psychotics class.

We recently filed an SNDA for Abilify for treatment of acute mania in patients with bipolar disease and earlier filed for long-term treatment of schizophrenia.

We are clearly excited about the potential of Abilify.

We also received FDA approval in the quarter for Reyataz, our new protease inhibitor for HIV Aids, which is now coming on the market in the U.S., and we're hopeful about approval in Europe in the near term.

We're also excited by the potential of this new drug, which provides several important benefits for patients, including once a day dosing and no unfavorable impact on lipid levels.

Reyataz is a key addition to our growing virology franchise which also is benefiting from the strong sales of Sustiva, a brand we acquired from DuPont.

Regarding Erbitux, the cancer treatment we're co-developing and co-promoting with ImClone Systems, we remain confident about the resubmission to the FDA of a biologics license application for Eribitux in the second half of the year.

Other important pipeline products have advanced as well, including the Epothilone for cancer, and the (inaudible) for diabetes both of which have now moved into phase three.

Before I turn things over to Andrew, I want to mention our announcement a couple of days ago about the internal review of some of our sales and marketing practices that we have initiated.

As we said in the release, I want to mention our announcement a couple of days ago about the internal review of some of our sales and marketing practices that we have initiated.

As we said in the release, the review will focus on whether these practices comply with provisions of applicable anti-kick back and best price laws.

This review was initiated by senior management and it's too early to say at this point where it will go or what its impact will be, if any.

We won't have anything further to say about this today, but we made the announcement in the interest of transparency.

Now, Andrew will provide more detail on the quarter.

Thank you, Peter.

I'll jump right into a review of the second quarter results.

As you have seen in our press release, fully diluted earnings per share for the second quarter was 45 cents, which includes a 1-cent benefit as a result of non-comparable items.

You also noticed a change in the tax rate, which gave us a 4-cent benefit on a fully diluted basis versus our prior tax rate assumptions.

I will discuss both the non-comparable items and the tax rate in more detail a little later on.

These items plus a strong underlying performance put us ahead of First Call consensus of 38 cents per quarter.

Sales were up 22% to $5.1 billion.

While the year over year comparison was impacted by inventory work down at non-consignment wholesalers during the second quarter of 2002, prescription trends for key products remain strong.

The sales performance resulted from 1% increase due to changes in selling prices, a 4% increase due to foreign exchange fluctuations, and a 17% increase in volume.

Again, reflecting the relatively easy volume comparison to last year.

Global sales of key brands are strong with Pravachol up 56%, 46% if you exclude currency, Plavix up 31%, 29% excluding currency, Paraplatin 44% and Sustiva 44%, 36% excluding currency.

We reported $65 million in alliance revenue for (inaudible) in the quarter as the launch continues to go well.

Dolan will discuss that and other key brands in a little while.

Again from a sales perspective, second quarter was an easier year of the year comparisons for 2002 that the first quarter, but which do expect to report double-digit sales growth for the remaining two quarters of 2003.

Sales in the U.S. pharmaceutical business grew by 34% to $2.6 billion.

The increase is primarily attributable to continued strong prescription demands for key brands, the impact from the work down of non consignment wholesaler inventory in 2002, and then the easier Glucophage comparison as we loss its specificity in the first quarter of last year.

Reported sales in the quarter include $32 million previously recorded as deferred revenue.

We expect to record the remaining deferred revenue excluding that remaining to OTN over the remainder of the year.

The product detail of that deferred revenue recorded a sales in the second quarter is available on Web site.

You can see that several products in both the U.S. primary care and the oncology/virology business were affected.

International pharmaceutical sales grew strongly and were up 19% including a favorable 13% impact from foreign exchange.

Medicine sales in Europe and the Middle East increased by 25% or 4% in the foreign exchange, supported by strong growth in Pravachol up a 11% in net of foreign exchange.

Asia Pacific increased 16% or 7% net of the effects.

The TAXOL growth the highlight here.

And Latin America, Canada, total sales were up 8%, but negatively impacted by foreign exchange.

Although some of the benefit of the weakened dollars is reflected in earnings, its should be noted that our 2003 cash flows were substantially hedged by the end of 2002.

So the recent weakness of the dollar primarily against Euro will only impact 2004 earnings.

In total, sales in our worldwide pharmaceutical business were up 28% to 4 billion dollars.

Moving on to our other businesses, nutritional sales were down 7% on sales of $436 million.

As you will have seen in the release, sales were impacted by $60 million charge related with accrual.

Excluding this, sales would have been up 5%.

Mead Johnson continues to be the market leader in the U.S. infant formula market.

Competent sales increased by 15%, just over $200 million, including a favorable 10% from foreign exchange.

New products, such as (inaudible) continue to have a positive impact.

Medical imaging grew by 10% to $129 million in sales, with continued strong growth in the flagship brand Cardiolite which grew 12% to $86 million.

Now, let me move on to some of the expense lines in the profit and loss account.

Gross margins are flat 64.5% compared to the second quarter of 2002.

Principally as a result of continued high sales growth by lower margin on oncology distribution business, OTN, which had negative impacts of around 1.4%.

The weak accrual WIC accrual adjustment which had a negative impact of 1.5%, which were partially offset by positive 2.7% impact from U.S. pharmaceutical sales mix.

You will recall that during the first quarter call we said the gross margins for the full year will be slightly improved over the first quarter reported margins.

While during the second quarter they have improved we will continue to face a mixed challenge due to exclusivity losses during the second half and therefore any substantial improvement from any levels is unlikely to occur.

Marketing, selling and administrative expenses increased by 13% to over 1.1 billion dollars.

Ply plarly driven by 13% increase in sales force expenses, and an 8% increase in marketing expenses.

Advertising promotional spending increase by 21% to $418 million.

As we have increased the level of support for key inline and growth products, again, we expect ANP to Finnish the mid to high teens amid of 2002 levels.

Both of these items demonstrate our continued investment in support of the launch of Abilify R&D (inaudible) and increased portfolio of our key brands.

R&D expense increased by 1%, primarily driven by spending on new process development, increased resources behind development projects and this is partially offset by the closure of the discovery facility in Wilmington last year.

We continue to expect R&D expense for the year to be roughly the same as 2002.

Total other income and expense in the second quarter was an expense of $143 million compared to $126 million dollars last year.

Other income and expense was an expense of $77 million compared to $34 million.

Driven primarily by an increase in legal defense costs related to our current assessment of our product liability cases.

Net interest expense was $66 millions compared to $84 million last year.

This favorability is due to lower interest rates and the fact that we have swapped 50% of the net debt into floating rates.

Minority interest expense and other taxes was $39 million compared to $36 million last year primarily as a result of the increase in minority income driven by continued offset by higher growth in the U.S. of preference.

Moving on to the tax rate, the effective tax rate from the continuing operations before minority interest in the income taxes and excluding non-comparable items decreased from 20.4% from 28.9% last year.

The decrease in the tax rate was driven primarily by change in the estimate with respect to utilization of foreign tax credit carryovers in future periods following the completion of a reorganization of our international subsidiaries.

The tax rate for the quarter allows for a first half tax rate of 23.7%, before minority interest in income taxes and excluding non-comparable items.

Overall, excluding non-comparable items this means there's a reduction in the full year tax rate from our previous expectations to approximately 24%.

We expect this rate to be sustained into the future.

The net impact of this change for the second quarter was to increase earnings per share by 4 cents and will be approximately 6 to 8 cents for the year.

As you will have seen in the press release, we did record certain non-comparable items during the second quarter.

These include $24 million of pretax income related to adjustments of prior period restructuring reserves, $11 million pretax income as a results of revision of estimates from divestiture liabilities.

These were offset by $25 million of charges related to the rationalization of manufacturing facilities, and $4 million of relocation expenses.

We also recorded $57 million of pretax income from a litigation settlement and the reimbursement of patent defense costs partially off set by $16 million of litigation expenses related to Taxol and BuSpar settlement charges.

The net effects of these items was an increase in earnings before minority interest and income taxes of $47 million or approximately 1 cent per share.

We are confirming our full year guidance of $1.00 to $1.65 per share in non-GAAP earnings per share, which excludes any impact from acquired process as result of external development and any non-comparable charges.

A reconciliation of this to the GAAP numbers can be found in our press release.

While the benefit of the full year tax rate is 6 to 8 cent, you will notice we did have a couple of unexpected operating items in the second quarter.

This includes the WIC accrual and the legal cost accrual related to product liability cases.

This leaves the best of force and impacts before any investments we may choose to make, for example putting additional resources behind stronger end products.

The net effect is we expect to remain within our guidance range.

To summarize, sales and prescription trends for key products are strong.

Our sales force and spending demonstrate our commitments to supporting the successful launch of Abilify as well as continued support of our key growth drivers.

For the second quarter of 2003, we deliver the earnings per share of 40 cents excluding the impacts of the changing tax rate and the non-comparable items I discussed earlier.

We confirm our full year earnings guidance of $1.60 to $1.65 in earnings per share for the year.

Now I hand it over to Don to discuss the business results.

Thank you, Andrew, and good morning, everyone.

As both Peter and Andrew have mentioned we had a good quarter marked by strong growth performance of our key products.

Within our Americas businesses, our priorities for 2003 have been first to continue to drive key brand growth, second to deliver pipeline value, and third, to strengthen our team by recruiting, developing and retaining high-performing individuals.

And during the quarter and really throughout the first half of the year, we made excellent progress in all three of these areas.

Let me turn to some highlights of our prescription medicines business first.

Starting with Plavix.

As Andrew, second quarter sales were up 31%.

We saw an increase of 30% in the U.S. and 39% ex-U.S. with U.S. total prescriptions up 28% for the quarter.

Together with our partners, Sanofi-Synthelabo we've increased promotional support for Plavix while at the same time we have an expensive life cycle management program underway to support future growth through our clinical trials.

The current success of Plavix has been mainly in the treatment of patients in the first few months after an athro thrombotic event.

And we believe clinical benefits support expanding the usage of Plavix after a stroke or an MI, as well as in the treatment of acute coronary syndrome and peripheral arterial disease.

At the same time, we believe the clinical data also support extending the length of Plavix therapy for longer-term risk reduction and we're working on all of these opportunities.

Moving on to Pravachol, we saw solid market share performance and sales growth in both the U.S. and international markets in the quarter.

We further expanded our promotional support of Pravachol and we continue to build upon its proven ability to reduce the risk of cardiovascular events and its unmatched record of safety.

And recently in the U.S., the FDA approved Pravachol pack, our new co-package, plus buffered aspirin which we believe will improve convenience and compliance for patients whose doctors have recommended they take both of these drugs.

Also in our cardio vascular franchise, sales of the hypertension drug Avapro increased 13% in the quarter with U.S. total prescriptions up a like amount.

This solid growth is a result of increased promotional support and very strong performance of our combination anti-hypertension product, Avalide.

In our oncology business, U.S. demand for Paraplatin continued to expand across tumor types and we look for solid growth of Paraplatin throughout the remainder of 2003.

And as Peter mentioned, we expect the BLA for Erbitux to be resubmitted during the second half of the year and thereby really bridge our oncology franchise into the future.

To wrap up the discussion of our RX business, I think our two newest RX products Abilify and Reyataz both serve as excellent examples of our ability to deliver the value of our pipeline.

We in Otsuka are now eight months into the U.S. launch of Abilify, and we're very pleased with the product's performance.

New prescription share is more than 5% and both the percentage of high potential psychiatrist prescribing Abilify and their repeat usage of the product after initial prescription continue to expand.

We also continue to increase our support of Abilify, and the 50% increase in our U.S. neuroscience sales force that we initiated in April is now largely complete.

And as Peter mentioned we are excited about the expanded labeling that the SNDAs for long-term treatment of schizophrenia and treatment of acute mania in patients with bipolar disease may support in the future.

And while it's still early, Reyataz also appears to be off to a very strong start.

Qualitative physician feedback regarding the efficacy, tolerability, and convenience of Reyataz is very positive, and quantitatively weekly new prescription data indicate Reyataz was approaching a 10% share of all protease inhibitor new prescriptions in the U.S. in its second full week of launch.

With the addition of Reyataz to our strong virology portfolio, Bristol-Myers Squibb now has treatments in all three major classes of HIV medications used in highly active antiretroviral therapy, the current standard of treatment for patients living with HIV.

Our promotion of once daily regimens including Videx EC and Sustiva have been a cornerstone of the success of our virology franchise.

And Sustiva turned in another strong performance this quarter, with total prescriptions up 18%.

Finally, we have continued to strengthen our organization in first half of 2003 with annualized turnover across our businesses in the Americas now well below 10%.

And our manufacturing organization also continues to perform well in its broad-based quality and compliance programs.

In summary for our businesses in the Americas, we continue to drive the growth of our current key brands, deliver pipeline value, and strengthen our organization for the future.

And I thank you for your time and attention and now I turn it back over to Peter.

Peter?

Thanks, Don.

Let me wrap up here and then we go to your questions.

As you know, we've spent a lot of time focusing on three major areas.

First, we wanted to put the company on solid footing and put the right team of senior leaders in place.

We have made excellent progress there.

Second, developing and executing against a realistic plan for '03, which we're doing.

Two quarters behind us in '03 as Andrew said we feel good about the year.

And finally, we have been intensively planning for the future of the company, which I know you're focused on as well, so at this time what I'd like to do is give you a brief overview of our thinking about the future.

With today's good news, I want to remind everyone that for the next several years the company has both growth opportunities and continued exclusivity losses.

And striking the right balance between absorbing those losses while investing behind our new drugs and maintaining our financial strengths will be our challenge.

While it's more difficult to quantify opportunity, it's easier to model predictable exclusivity losses around the globe.

We see as we model this approximately $1 billion per year in net sales impact related to exclusivity losses until after the impact of the loss of Pravachol in the U.S.

Then after that, we'll have several years of minimal exclusivity loss impact.

Growth drivers over the next few years include inline products like Plavix and Avapro, Sustiva and others, big new product opportunities launched in the last 6 to 9 months like Abilify and Reyataz, and new late-stage pipeline products that may be introduced in the next 6 to 36 months like Erbitux, CTLA4 and Techavir.

Ultimately we believe the compound in our promising pipeline will drive long-term shareholder value.

External developmental licensing will continue to be an important part of our strategy, but the potential upside to the top line is not yet built into the company's plans.

Our profit challenges ahead are product mix, as many of our products losing exclusivity carry higher margins than our inline growth drivers, adequately investing marketing in sales spend and our immediate and future growth drivers, and supporting our maturing pipeline opportunities with R&D investments.

So at 30,000 feet, our priorities are finding the right balance between delivering earnings, investing in our future and maintaining a strong financial profile to allow us to continue the dividend payout.

I don't want to get ahead of ourselves.

Everyone knows the board approves the dividend quarterly.

But I do want to communicate that we understand the importance of the dividend to our investors and will seek to maintain it while at the same time maintaining our financial strengths and adequately investing in the future of the company.

As a result, during the continued exclusivity loss period, the company is going to need to manage resources in our cost-base aggressively to ensure we are adequately delivering against those priorities I outlined.

And finally let me say that we'll provide specific '04 guidance as we close out the year as has been our practice in the past.

Now, we'll be happy to answer your questions and let me turn it back to Ray.

Thank you.

The question and answer session will be conducted electronically today.

Anyone wishing to ask a question may signal by pressing the star key followed by the digit '1' on your touch-tone phone.

And due to time constraints, we do ask you to please limit yourself to one question.

We'll pause just a moment to allow -- --We'll take our first question from Jami Rubin with Morgan Stanley.

Hi.

Can you hear me, Don?

Yes, Jami.

How are you?

I'll try to speak up.

Very good, thank you.

Plavix is obviously a bright spot in the portfolio, and I was wondering if you could elaborate further on future new labeling opportunities, the development portfolio of the drug.

If you can talk about what percentage of its use currently is for short-term usage, which obviously highlights the opportunity to use this drug over a longer period of time.

And I'm also curious to know what you're seeing in terms of usage from the launch of drug coded stints, and if there's any change at all or if you would expect there to be a change.

Thanks.

Thanks, Jami, for that one question.

Yeah, let me try and take this in pieces and it may not be exactly in the order that you asked the questions.

Right now in terms of the length of therapy, patients taking Plavix really across areas of use tend to be on the product for -- on the average several months.

And the data indicate that at a minimum clinical benefit with the product is -- continues to be there for nine months to a year or longer.

So we believe that there's a substantial opportunity associated with having the length of therapy be extended to what the clinical data supports as the period of benefit.

And we actually are in the clinical program are looking at trials that would allow us to demonstrate the benefit over longer periods of time.

I think in terms of the question about penetration, we believe that we have considerable opportunity for expanded penetration in usage across the -- for the four primary areas of use currently, those being post MI, post stroke, acute coronary syndrome, and peripheral arterial disease.

In terms of the clinical program for Plavix, we're evaluating the clinical benefit of Plavix really in long-term use in established atherosclerotic diseases in patients that are at risk of events.

So the usage now is primarily skewed to patients post event.

We are looking at clinical trials involving clinical trials that really evaluate the benefit in patients at risk.

We're also looking at it for potential use in atrial fibrillation.

And with regard to drug-coded stints which I think the last piece of the question, it is the early days still, but I think one encouraging sign is the inclusion of Plavix in the label for drug-alluding stints is supporting the idea of longer-term usage at least in the stints population.

We are seeing some indications of that and that's something we're obviously monitoring over time.

Thanks, Jami.

Our next question is from David Risinger with Merrill Lynch.

Thanks very much.

With respect to the latter part of 2003, could you just help us understand whether the fourth quarter earnings might be down sequentially from the third quarter due to the increasing impact of patent expirations?

Thank you.

David, we don't give individual profit quarterly forecasts, but the impact of the profit of the expirations will be felt greater in the fourth quarter, but also by that time we should be continuing to see an effect from the growth of Abilify and Reyataz.

So when you're thinking of it, think in terms of those as well-being offset probably to the impact of expirations in the fourth quarter.

We'll take our next question from Tim Anderson, Prudential.

Thank you.

I know it may be early to talk about 2004 at this point, but you know, in very broad terms can you say whether you expect to have positive earnings growth in '04 year-over-year?

You're talking about having growth opportunities ahead of you as well as some challenges.

I don't know where it nets out and I don't know if you're referring to EPS growth or just a certain product franchises?

Right now, consensus has you growing at something like 5% in 2004.

Well, Tim, it's certainly early to talk of 2004 and we will come back at the end of the year and provide guidance as we close out as has been our practice in the past.

What we wanted to communicate today are both the opportunities and the upsides that we see as well as the challenges and give you some perspective of the puts and takes as we're building our plans for 2004 and beyond.

The specifics as to our revenue growth expectations and earnings per share numbers will come later in the year as has been our practice in the past.

Mara Goldstein, CIBC World Markets.

Yes.

Thank you.

Just in terms of maybe getting a better sense of cash flow since you brought up the cash issues that you'll be sort of giving us on a quarterly basis, maybe you can just help us out by going through with this CAPEX expenditures over the course of, let's say the next two years in addition to which where you see cost savings on R&D and SG&A?

Mara, it's Andrew.

Yeah, as far as capital expenditures are concerned, we announced we would expect CAPEX to be broadly around about $1 billion a year.

One other things we all focused on is what is the return on investment in both our sort of SG&A investments, our R&D investments as well as our capital investments.

So we are actually undertaking a review of capital as we speak, just to make sure that we all are getting sufficient high hurdle rate enough on our CAPEX.

Obviously, one of the things you've got to think about is particularly in the current manufacturing and FDA environment around manufacturing we don't want to skimp on maintenance CAPEX.

So a big chunk of that $1 billion is around maintenance, so that should not be a substantial reduction from the $1 billion that I was talking about earlier.

As regards, where do we see opportunities around cost savings?

I think like all pharmaceutical companies, we continue to review our cost base.

There are a number of opportunities around productivity we've got to look at.

We will be looking at those over the next few months as we get into our planning process for 2004.

And we'll give you some update again as we go into the '04 guidance period about where we expect the savings to come from.

Scott Kay, Banc of America Securities.

Great.

Thanks for taking my call.

Just real quick question on exclusivity and challenges for generics of Glucovance, if you're curious or expect that challenge to happen immediately or don't you see any filers or any challenges immediately that mainly could be prolonged?

And just real brief one.

I know you want one question but product question regarding Garenoxacin status (ph) and CTLA 4 and development and market opportunities?

Yes.

Scott, I'll take the first question on Glucovance and then turn it over to Peter for the second and third questions.

With Glucovance, we qualify for the pediatric extension of exclusivity with Glucovance, which will carry exclusivity into the early part of 2004.

And our planning currently calls for us to have competition to Glucovance at that point in time.

We're planning on the basis of an early '04 having direct competition.

And I'll turn it over to Peter for the questions on Garenoxacin and CTLA.

Yes.

On Garenoxacin, we are currently in discussion with Toyama about the stadits (ph) of our arrangements for Garenoxacin and we expect to have a final resolution sometime around mid-September.

On CTLA4, as you know, it's a biologic being explored, initially for the treatment of rheumatoid arthritis.

We have three studies that are currently recruiting for the treatment rheumatoid arthritis and our outlook is for a late 2004 NDA.

We are certainly encouraged as we see this drug progressing in our pipeline, and phase two trials are ongoing for the treatment of multiple sclerosis.

We'll take our next question from Mario Corso, Leerink Swann.

This is in term of the quarterly numbers.

Was there anything in the sales numbers in terms of an inventory build which would lead us to believe that $5 billion isn't appropriate run rate?

I was looking specifically at Pravachol, Paraplatin or Abilify.

And then second, Abilify in Europe, is there any estimated timing in your pris point(ph) in terms of approval?

Thank you.

Yeah, Mario, I'll take the first question on inventory and then turn it over to Peter for the Abilify in Europe.

As we look at the estimates for inventory in total for our key brands, comparing the end of first quarter to the end of the second quarter, there wasn't in those estimates really any meaningful change from the end of the first to the end of the second.

So, as you look at inventory during the quarter at least in terms of aggregate dollar volume, there really wasn't an impact looking from the end of the first to the end of the second.

On Abilify in Europe, we in our partner Otsuka submitted a marketing authorization application for aripiprazole to the European Medicine Evaluation Agency in December of '01.

We continue to be in dialogue with the regulatory authorities in Europe.

We fully expect to launch not only Abilify in Europe, but Reyataz and I don't want to speculate more on a timing right now other than to say what I've said.

We'll take our next question from Barbara Ryan with Deutsche Bank.

Good morning, and thank you for taking my call.

Peter, you had mentioned the various pushes and pulls on your business over the next couple of years.

And I understand obviously the company's position on the Plavix patents, but could you just update us on what the status of that litigation is, in the United States on the patent?

We obviously are continuing to vigorously pursue defense of the 011 patent with our partner Sanofi.

You may have seen that for the 2014 patent we are clearly now focused on the 2011 patent, and we continue to believe we have a strong position for the intellectual property on Plavix.

Christopher Sylvester, UBS.

Hi.

Thanks for taking the call.

Don, just quickly on the Pravachol growth that we're seeing.

Is that merely reflection of an understated number last year?

Prescriptions look like they're growing at 2%.

And really how much of the growth in Prava (inaudible) to the 40 to 80 milligrams and what kind of effort you guys are put behind the Pravigard?

Is there going to be a relaunch?

OK.

Yes, let me try and take the pieces of that question.

Certainly as you look at the year-to-year sales comparisons as Andrew noted at the outset, the second quarter of '02 comparator with influenced by inventory work down during the second quarter of '02 and the non-consignment wholesalers.

I think as we look at the U.S. performance of Pravachol, we are encouraged by the extent to which we have now for an extended period roughly maintained market share.

We've increased promotional support.

We very tightly focused the promotional message around production and clinical events and safety and the response in the market to that has been positive.

As we play out into the future, we're going to continue that approach, strong promotional support in that positioning.

And with Pravigard pack, we don't see it as a relaunch of the brand.

We see it as an important extension of the Pravachol franchise and we are going to address it in the market in that way.

Thanks for the question.

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

Yes, and thank you very much.

The comment addresses -- or is addressed around Peter your comments which I appreciate for the $1 billion in net sales per year that would be lost through exclusivity.

I'm going to make an assumption that was beginning next year.

Was that your assumption as well?

Thanks very much.

Yeah.

Tony, we clearly have exclusivity losses that affect us in the fourth quarter.

We built those into our plan.

The $1 billion that I specifically referred to is a 2004 number that begins in 2004 and what we clearly are intending to do is when we have information that we're pretty confident about, we want to share it, and that exclusivity loss number is certainly easier for us to model and to predict which is why we want to get that information out.

We'll take or next question from Jon Moran with S. G. Cowen.

Thanks for taking the question.

You recently filed an NDA for acute mania for Abilify.

I'm wondering if you're also perusing a bipolar maintenance indication, and if so where that stands?

John, the clinical program that we have on Abilify has a lot of different dimensions to it and quite frankly I don't know the answer to that question, but we can get back to you on it.

Thanks.

We'll take our next question from Ken Kulju with C.S.

First Boston.

Yes, good morning and thanks for taking the question.

First on Abilify. (inaudible)this morning announced its intentions to reprime their counter detailing actions against Abilify.

I was wondering if could provide some perspectives first on that interaction in the marketplace versus IPREX and how much impact is the 50% sales increase that you put into place in April having on our RX trans (ph) for Abilify and are you contemplating additional sales force increases?

Thanks.

Ken, I appreciate the question.

We're eight months into the launch right now and we're pleased with a number of things that we've seen in the results with Abilify to date.

Qualitatively, the feedback around usage of the product and the clinical benefit it provides has been positive.

Quantitatively, as I mentioned in my remarks the percentage of high-prescribing psychiatrists that are using Abilify and their repeat usage of the product both continue to increase and I think when you take all of those points together, it's what takes you to about a 5.5% new prescription market share in the most recent weekly data.

So, you know, we're pleased with where we are eight months in.

The 50% increase in our neuroscience sales organization is just now coming to completion and really hasn't had an impact on the performance of the product thus far.

We would expect to see those sales representatives become fully productive during the second half of the year.

And in the market based on the data that we're able to glean, Abilify prescriptions have come from a variety of different places, not only from IPREX and as it relates to the counter detailing, I think there's active detailing or counter detailing of competitive products depending on how you want to look at it by nearly all of the major brands that are out there.

I think Abilify is an important enough part of the mix now to draw that kind of attention, and we are staying focused on our messages which relate to the benefits Abilify can provide in the treatment of positive and negative symptoms of schizophrenia, favorable power ability and relative ease of use as it relates to the SNDA for acute mania.

That's an opportunity as we see it down the road as is the SNDA for long-term treatment to continue to expand the profile and continue to expand the usage of Abilify in a variety of different settings.

So where we are, we are going to continue to work hard to communicate the benefits of Abilify.

And working on that basis.

Ray, we have time for two more questions.

Thank you.

We'll take our next question from Steve Slaughter with UBS Global Asset Management.

Hi, thank you.

Wondering if you can talk about the Reyataz launch obviously it's early, but it would be interested in much other things whether we're seeing (inaudible) versus Ritonavir-Boosted prescriptions and then as a follow-on, just worrying if you could qualify whether there was any stocking -- or quantify if you could any stocking of Pravigard in the quarter?

Thanks.

I would be happy to answer both questions.

Appreciate both of them.

To your point with Reyataz it's still very early days, but we certainly been encouraged in what we have seen in the launch of the product thus far.

We really brought Reyataz, which was approved late June.

We brought it into the market in the very early part of July.

The qualitative feedback from physicians using the product has been very good.

In terms of, again, efficacy, tolerability, ease of use - helping them address the needs that they really won't able to address previously in the treatment of patients with HIV disease.

Again the data are relatively thin at this point, but they suggested that there is usage both as monoprotease therapy, obviously in combination with other products outside the protease category and also some usage on a boosted basis.

So we are seeing that profile emerge in the marketplace and that's something we'll obviously track as we move forward from here.

But very encouraged by what we have seen in the early days.

And on Pravigard pack, there was no impact there in the second quarter.

Shipments of Pravigard pack will occur in the third quarter, initial shipments.

Thanks.

We'll take our last question from Jennifer Pearlman with Burgundy Asset.

Hi.

Good morning.

I have two quick questions.

The first I guess is a bit of a follow-up on your comments on the Abilify launch.

I just -- although I'm aware of the intrinsic differences in the antipsychotic versus the anti-HIV market, I was wondering if you could comment a little bit on the difference in ramp up in new prescription share between those two products, and whether you guys are effectively getting efficacy message across to prescribing doctors in the antipsychotic market?

And then my second question relates to Pravachol and I was wondering if you could shed some light on the impact of generic erosion in key international markets to date, what your experience has been so far?

OK.

Yeah, let me take the Abilify / Reyataz question first, Jennifer.

I really appreciate getting that.

I think there are some intrinsic differences across the two product categories, and that makes it difficult to look at a new product uptake in one and compare it to the other.

I think we're pleased with where we are in each of those two markets.

And in the case of the HIV category and the protease inhibitors as a subset of that, the dynamics of that market I think lend themselves a bit more to a pool of patients sort of pent-up demand for the product as it comes into market.

That's likely to occur in two stages.

We're really in first stage of that right now with Reyataz, which is patients that may have previously been on other proteases or may have previously not been on protease therapy moving across to Reyataz.

We'll actually pick up a second phase of that in the coming weeks and months as some of or most of the patients that have been a part of our early expanded access program move across to prescription therapy.

That's really not part of the data in the first couple of weeks that we've seen with Reyataz.

We see that begin to be part of the data as we go out over the coming weeks and months.

But very encouraging early results with Reyataz.

We think the message is being well received and acted on, and I think the same thing applies to Abilify.

The efficacy message seems to be getting across as is tolerability and ease of use and we're pleased with where we are, eight months out.

As it relates to the question on Pravachol internationally, I'm going to turn that one over to Andrew.

Jennifer, as we mentioned earlier, I mentioned earlier, Pravachol still has strong growth in Europe and the Middle East.

The sales are up 11% in the quarter.

XFX.

Couple of points around generic impact.

We did see earlier in the year some impacts of the Simvastatin exclusivity it lost on the Pravachol business in Germany, but that seems to have stabilized and has not really had a material impact as we said from the growth rate for the Europe as a whole.

Exclusivity challenges on Pravachol really start in 2004 when we begin to lose exclusivity in a couple of markets in Europe and that progress is from 2004 to 2006.

That does conclude our question and answer session.

I would like to turn the conference back over to you Mr. Elicker, for any closing remarks.

Just as a quick summary.

We had a good quarter.

We're making progress, we're making progress both in advancing our inline products, but also we're making progress and we had a good quarter as it relates to advancing our pipeline.

Challenges ahead of us, but the company is certainly focused on addressing those and on dealing with both the opportunities and the upsides as well as the exclusivity losses we face going forward.

Thanks, Peter.

I would like to thank everybody on the call for taking the time out this morning.

Again, if you have questions or follow-up, please call myself or Susan Waltz, our Senior Director of IR.

Ray, thanks a lot.

Thank you, everyone.

This does conclude our conference today.