施貴寶 (BMY) 2003 Q3 法說會逐字稿

Good day and welcome to today's Bristol-Myers Squibb Company Third 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 over to the Vice President of Investor Relations, Mr. John Elicker.

Mr. Elicker, please go ahead sir.

Thanks, David.

Good morning everyone.

Thanks for joining us this morning.

I know you had an extremely busy day yesterday.

Hopefully, by now you had a chance to review our release and associated financial information.

It is posted on our website.

We are going to review our third quarter results this morning.

With us we have Peter Dolan, our Chairman and Chief Executive Officer;

Andrew Bonfield, our Senior Vice President and Chief Financial Officer; and Lamberto Andreotti, our Senior Vice President and President of International Businesses.

During this call, first let me take care of some of the legal requirements.

During the call, we may make various remarks about the company's future expectations, plans and prospects 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 in our periodic reports on Form 10-Q.

These documents are available from the SEC, the BMS website or from Bristol-Myers Squibb Investor Relations.

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

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

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

Thanks John and good morning everyone.

I want to make a few points, before I turn things over to Andrew who is going to take you through the specifics of the third quarter.

First point I would make is we are clearly pleased with our performance in the quarter.

Earlier this year, I said, we felt good about our plans for 2003 and how our business was performing versus our expectations and obviously, this is still the case.

We are continuing to deliver against our goals for 2003, which as I said before, include maximizing the value of our inline products, successfully launching our new products and, of course, accelerating our promising late-stage pipeline.

This quarter, we made good progress in another area as well.

That being supplementing our pipeline with licenses.

We continue to build momentum with the key inline products including Pravachol, Plavix and Avapro, which all grew at double digits in the quarter.

I am also pleased that our strong product performance was broadly distributed across the portfolio as well as across geographies.

Lamberto Andreotti, our Senior Vice President, President of International will have more to say about that, following Andrew's comments.

Our new products Abilify for schizophrenia and Reyataz for HIV Aids continued to build share.

In less than a year in the market Abilify has achieved about 6.7% weekly new RX share of the U.S anti psychotics market.

We and our partner Otsuka are hopeful about our FMDA for Abilify for bipolar disorder, which we filed last July and we continue to see great potential for this drug going forward.

Reyataz which was launched just last July is also gaining share quickly.

It's now captured more than 14% share of the weekly new RXs in the protease inhibitor class in the U.S.

Our late stage pipeline is moving forward.

We are hopeful about Erbitux, the novel cancer treatment that we are co-developing with ImClone Systems.

The application for Erbitux was accepted for review by the FDA earlier this month and we are expecting response from the agency sometime between now and mid February.

We've consistently believed in this drug and in its potential for patients.

If approved, it will be our third major new drug launch since Abilify in November of last year, with Reyataz in July.

Other late stage compounds continue to advance as well, including epothilone for cancer, the dual PPAR for Diabetics, both of which transitioned to Phase III this year, as well as Entecavir for hepatitis B, and CTLA4 for rheumatoid arthritis which are in Phase III as well.

As a result we expect to make up to three new drug filings in 2004.

Now as I mentioned earlier, important progress in other areas as well, we signed three licensing deals in the quarter, with Corgentech for Phase III compound to prevent vein graft failure following bypass graft surgery, with Flamel Technologies for a controlled release insulin product now entering Phase II and with QDose, through an inhaled insulin product now in Phase I.

Finally let me say a few words about our guidance for 03, and about our prospects further down the road.

As you can see, as a result of a stronger than expected third quarter, we are raising our full year 2003 non-GAAP earnings per share guidance to between $1.68 and $1.73 from the earlier $1.60 to $1.65.

Still I want to caution you about several things.

First, as you will note when you do the math, we don't expect the fourth quarter to be as strong as the third.

That's due largely to the expected impact of an even more significant lift in Q4 research and development spending than seen year-to-date, as well as the impact of exclusivity losses from Monopril, Serzone, Glucophage XR in the US, and Taxol in Europe.

The timing of generic launches as a result of these exclusivity losses will have a direct impact on our fourth quarter earnings and will largely determine whether we end up at the high-end or the low-end of our new guidance.

We are investing now and will continue to invest behind our business, we will continue to make the critical investments in advertising and promotions to support our inline products, including new product launches as well as in R&D.

The pipeline as we see it is the key driver of long-term shareholder value, and we will make the necessary investments to insure that our pipeline significant potential is realized.

Longer-term as I said previously, our company is facing a period of growth opportunities, as well as continued exclusivity challenges.

To the latter point, over the next several years, we will experience exclusivity losses amounting to approximately $1b per year in net sales.

We expect those loses to be more or less offset by growth in revenues from strong inline products including Plavix, Avapro and Sustiva, from our recently launched exclusive products Abilify and Reyataz and from the introduction of late stage pipeline products, that maybe approved in the next 6 to 36 months such as Erbitux, CTLA4, Entecavir and the dual PPAR.

Still we expect the resulting new product mix will pressure company margins since the products loosing exclusivity typically carry higher margins than the products we are counting on to grow sales.

We are moving forward to implement a strategy that is intended to successfully bring us through this period of challenge and opportunity by achieving even greater focus on areas where we have proven strength and competitive advantage.

We will continue to focus on costs to allow us to fund our priority investments.

And before I turn things over to Andrew let me make a final comment about the dividend.

As I said last quarter, we understand the importance of a dividend to our investors and will seek to maintain it, while at the same time maintaining our financial strength and adequately investing in our future.

Andrew.

Thank you, Peter.

As Peter mentioned this was another strong quarter.

Fully diluted earnings per share for the third quarter was $0.45 which includes $0.02 net reduction as the result of non-comparable items.

I will discuss those items in more detail a little later.

This strong performance put us well ahead of the first full consensus of $0.41 per quarter.

Sales were up 18% to $5.3 b, while the year-over-year comparison was impacted by US pharmaceutical inventory work down at non-consignment wholesalers in the third quarter of last year.

The impact was not as significant as the second quarter comparison.

The sales performance resulted from a 1% increase due to changes in selling prices, 4% due to foreign exchange rate fluctuations and a 13% increase in volumes again reflecting the comparison to last year.

Global sales of key brands were strong, with Pravachol Pravigard up 16%, 10% affected the impacts of foreign exchanges excluded.

Plavix up 57%, 54% excluding foreign exchange, Avapro availed up 48%, 40% excluding foreign exchange and Taxol up 22%, 10% excluding foreign exchange.

Scrip trends for key products remain strong, so Plavix up 28%, Pravachol up 4%, Avapro availed up 14% and Sustiva up 18%.

We reported a $101m in alliance revenue for Abilify, as the launch continues to go well.

New script shares well over 6% in recent IMS data.

Additionally total scripts for the third quarter were approximately $350,000 or a 33% increase over the second quarter.

Sales for Reyataz a novel protease inhibitor launched in July was $39m.

The launch is in very early stages but we are encouraged by the results to date including an almost 15% share of the PI market.

Total sales in the US pharmaceutical business grew by 20% to $2.8b.

The increase is primarily attributable to continued strong prescription demand for key brands and the impacts from the work down of non- consignment wholesale inventories last year.

Reported sales for the quarter included a $25m previously recorded as deferred revenue.

We expect to record the remaining deferred revenue excluding that related to the OTM business in the fourth quarter.

This amounts to approximately $24m.

Let me give you the topline highlights of our international pharmaceutical and other businesses, which Lamberto will discuss in more detail in a moment.

International pharmaceutical sales grew strongly and were up 17% including 11% favorability from foreign exchange to $1.6b.

Medicine sales in Europe and Middle East increased by 21% or 5% net of foreign exchange, supported by strong growth in Pravachol which is up 33% or 16% net of effects.

Asia-Pacific sales increased 9% or 5% excluding currency.

In Latin America, Canada sales increased 15% or 14% net of currency effects.

Although the benefit of the weakening dollar is fully reflected in our sales line I would again like to point out that our 2003 cash flow was substantially hedged by the end of 2002.

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

In total, sales in our worldwide pharmaceutical business were up 19% to $4.4b.

Moving to other businesses, nutritional sales increased 16% to $514m with no impact from foreign exchange.

This was helped by an easier comparison in the US where sales grew by 21%.

Convatec sales increased 18% to $221m including the favorable 8% from foreign exchange.

With new products such as AQUACEL-AG having a positive impact.

Medical Imaging sales grew by 10% to $130m with continued strong growth in the flagship brand Cardiolite which grew 11% to $83m.

Moving on to some of the expense lines in the profit and loss account, gross margin was 64.2% compared to 63.5% in the third quarter last year.

The major drivers of the gross margin variance remain the continued high sales growth of our lower margin oncology distribution business ODN which had negative impact of around 1.1% in the quarter offset by a positive impact from US pharmaceutical sales growth and mix.

Marketing, selling, and administrative expenses increased by 15% to just above $1.1b primarily driven by 10% increase in sales force expenses and a 20% increase in marketing.

Advertising and promotion increased by 24% to $375m as we continued to increase the level of support for our key in-line and new growth products.

Cumulatively, A&P spend is up 28% for the year.

Both of these expense items demonstrate our continued investment and support of the launch of Abilify, Reyataz and increased support of our key in-line brands.

R&D expense increased by 6% to $568m primarily driven by spending on increased resources behind development projects including Phase III spending on [Inaudible] CTLA FORIG (ph) and [Inaudible] and the write-off milestones on external development.

This was partially offset by the impact of the closure of discoveries facility in Wilmington (ph).

Pharmaceutical R&D as a percentage of sales excluding ODN decreased some 16% to 14% as a result of the increase in reported sales.

Total other income and expense in the third quarter was an expense of $67m compared to $16m last of year.

Minority interest expense net of taxes was $91m compared to $28m in the prior period primarily as a result of the increased minority interest expense driven by the growth of [Inaudible] in the US offset by minority interest income relating to those brands in Europe.

Net interest expense was $33m when compared to $65m last year.

The favorability is due to lower interest rates, the mix changed to 50-50 fixed versus floating rates and capitalized interest.

As you will have noticed, we have done quite a bit of work on our financing of the last few months to take advantage of the lower interest rates and maintain our flexibility.

In August, we issued $1b of five and ten-year notes at extremely favorable rates.

And in October, we have issued $1.2b of convertible bonds.

The money raised has principally been used to extend the term of our debt and reduce commercial paper borrowings.

The effective tax rate from continuing operations before minority interest and income taxes and excluding non-comparable items in the third quarter last year decreased to 24.6% from 32.2%.

As you would have seen in our release, we did record certain non-comparable items in the quarter.

These include $21m relating to the upfront payments for two in licensing agreements with Flamel and QDose. $31m of charges related to rationalization of manufacturing facilities and $7m of relocation expenses offset by $3m of pre-tax income related to adjustments of prior year restructuring reserves. $4m of pre-tax income from litigation settlement and $1m in pre-tax income from the sale of our development project in prior years.

Overall, the net effect of these is a decrease in earnings before minority interest and income taxes of $51m or approximately $0.02 per share.

Given the stronger than expected third quarter, we now expect full-year 2003 results to exceed our previous guidance.

This is due to the strong script trends for our key inline products.

The success of our recently launched brands Abilify and Reyataz and the lower projected tax rate for the year.

These factors have been partially offset in 2003 by additional investments in AMP and R&D.

However, we do not expect the fourth quarter to be as strong as the third quarter primarily due to the expected impact of exclusivity losses from Monopril, Glucophage, Taxol in Europe and higher spending on R&D.

The timing of generic entry will have a direct result in our fourth quarter earnings and that is why we have given a range estimate of $1.68 to $1.73 on a non-GAAP basis for full-year 2003.

Looking forward, we do not expect that increase in 2003 earnings guidance to be sustained in 2004.

Some of the favorability will enable us to fund more AMP and R&D investment spending in 2004, as our priority is to deliver long-term shareholder value.

Also as a reminder, we continue to expect to have exclusivity losses over the next few years of approximately $1b per year.

Although this loss of revenue will be more less offset by growth in our exclusive products.

You should note that our OTM business will continue to contribute to overall revenue growth.

The loss of exclusivity is likely to have a negative impact on the company's mid margins.

It is important to remember the margin impact of products going off patent is exacerbated by the lack of direct promotional support.

In addition, the growth of our GA will continue to pressure gross margins.

Given our priority of continuing to invest behind our inline products in late stage pipeline, we are reviewing our cost based opportunities for savings.

To summarize, sales and prescription trends to keep products strong, as sales force and AMP spending demonstrate our commitments to supporting the successful launch of Abilify and Reyataz, as well as continued support of our key growth drivers.

For the fourth quarter of 2003, we delivered non-GAAP earnings per share of $0.47 excluding the impact of non-comparable items I discussed earlier.

We do not expect the fourth quarter to be as strong as the third and we are changing our full-year earnings guidance on a non-GAAP basis to $1.68 to $1.73 per share excluding non-comparable items.

Now let me turn over to Lamberto.

Thank you Andrew and good morning.

As you heard from Peter and Andrew, we had a strong third quarter marked by double-digit sales growth.

All of our business continues to focus on both maximizing growth in our inline products and delivering on the value of our pipeline.

In particular, I would like to share some of the highlights of the businesses that report to me at Bristol-Myers Squibb, International Medicines, ConvaTec and Mead Johnson Nutrition.

In the first quarter, International Pharmaceutical sales increased 17% to $1.6b including a 11% favorable exchange influx.

This good performance was driven by continued sales growth of all our key products and again defied significant challenges to the pharmaceutical market from government and other public payers in certain countries.

Our number one product throughout the world remains Pravachol.

International sales of Pravachol increased 29% or 13% net of foreign exchange and this achievement was, reflects both growth in the statin market and our continued communication of a strong Pravachol message.

Pravachol has 21% market share in the 60 countries of Europe and is the number one statin in some important markets, such as France where the product holds more than 38% of the statin market.

We are continuing to support Pravachol.

We have adequate promotion and clinical investment.

We will lose Pravachol exclusivity in some international market in late 2004, while we continue to retain exclusivity until late 2006 in other key markets including France, our number one market and Italy.

In addition to Pravachol, our cardiovascular business recorded strong growth in the third quarter.

The increased AMP investment behind Plavix was reflected in a 73% increase in international sales or 50% net of foreign exchange in the countries where we directly book sales for the product.

In the other countries where we co promote the products with our partner Sanofi-Synthelabo, sales of Plavix also grew by 78% or 50% net of foreign exchange.

Plavix sales growth is been driven by the addition of the cure indication for the Plavix label and increases in lampho therapy (ph) across all indication.

In connection of sales of Avapro and Avalide, our ace II inhibitor continued to be promising.

We have increased our support behind the product and international sales grew 33% or 16% net of FX.

This is in those countries where we directly book sales for the product, while in the other countries where we co promoted with Sanofi-Synthelabo the product also recorded sales growth of 42% or 20% net of FX.

In Europe, where Avapro Avalide holds market share of nearly 23% in the sick treatment market, we are focusing on highlighting its benefits and reducing the risks so that B6 may profit in patients with type 2 diabetes and humidity.

International sales of Taxol, our great anti-cancer agent increased 22% to $229m in third quarter.

The performance of Taxol is particularly important in Japan, where sales increased 21% in the third quarter and we are still developing new indications on the full exclusivity.

In Europe, as Andrew said, we lost data protection for Taxol during the quarter and generic competition for Taxol maybe introduced before the end of the year.

We are continuing to work with doctors, pharmacists and patients in Europe to maximize the value of TAXOL.

But we do expect that the launch of Generic will have a negative impact on its sales.

I focused on the details of international portion of our DNS medicines business as its falls under my area of responsibility.

However I also want acknowledge this strong performance of the medicines business in the US in the third quarter as you have heard.

The US pharmaceutical sales increased 20% to $2.8b.

Among other things this performance reflects the successful US update over Abilify/Reyataz it was discussed by both Peter and Andrew this morning.

This US result make us confident of the potential of Abilify/Reyataz for strong performance in Europe and other markets.

We are working towards securing approvals in all other markets around the world.

I will turn now to the related SGF businesses that report to me and start with ConvaTec.

ConvaTec continues to demonstrate a solid growth, both in the US and Europe.

Sales increased to $221m, 15% less to the prior year or 8% including an 8% FX impact.

The business recorded sales increases in both lines the Wound Care line and Ostomy Line.

In addition to growing their established products they competed or they are competing the global launch of new Wound Care products such as AQUACEL Ag and Ostomy products such as Esteem.

Moving now to our nutritional business it also recorded double-digit growth in the third quarter total sales of Mead Johnson Nutritional increased 16% with no foreign exchange impact.

As I said before US sales increased by 21% over a relatively low base in 2002, while international sales increased 10%.

Sales of ENFAMIL, the company's largest-infant formula, went up 7% to $209m and in particular the Lipil product line which is the first to include fatty acid for brain development in infants is now been launched in the US and all the worldwide markets and continues to record strong growth and sales.

So to summarize our pharmaceutical and related businesses continue to perform well and demonstrate its strong growth in the third quarter.

Importantly we are continuing to meet our objective of maximizing growth of our A line products and delivering on the value of our pipeline.

Thank you very much and I will now turn the call over to John Elicker.

Thanks Lamberto.

And David I think we are ready to go to Q&A.

Thank you.

Today's question and answer will be conducted electronically and if you would like to signal to ask a question please press the star key followed by the digit one on your touch-tone telephone.

If you are using a speakerphone please make sure your mute function is turned off to allow your signal to reach our equipment.

Once again that is star one to signal for a question and we will pause just a moment to give everyone a chance to signal.

And we will take our first question from David Rizinger (ph).

Please go ahead.

Excuse me thanks very much.

I have a couple of questions first of all in terms of the forth coming generic could you explain what is currently preventing Monopril and Taxol in the EU from experiencing generic competition and then talk about your timing expectations for Monopril, Taxol in the EU and Glucophage XR and second if you could discuss your assumptions for the indirect impact over oncology drug re-imbursement cuts that are potentially forth coming on your US on oncology product franchise and also on the OTN business.

Thank you.

Thanks David.

And again to your first question.

There's nothing really preventing generic competition, the exclusivity for some of our

key products has expired.

So, we anticipate that we will see competition on Monopril and on Glucophage XR.

As we have already seen on Serzone, we just haven't seen it yet in the marketplace and we anticipate that it is coming.

I'll let Lamberto talk just briefly about Taxol in Europe and then I'll come back and answer your question about our oncology products as it relates to reimbursement.

There is nothing we are doing, or can do to prevent to the entrance of generic competitors to Taxol in Europe.

The exclusivity expired on September 21, 2003 and we are monitoring the market, we've not seen the entrance of any generic competitors yet.

Keith, to your question on reimbursement changes for oncology products obviously we're following the issue with great interest, our belief is that oncologists use the products as appropriate in the best interest of patient care and we don't think the outcome will have an impact on patient care.

Thanks David, and David can we go to the next question.

Certainly, we'll take our next question from Jami Rubin from Morgan Stanley.

Please go ahead.

Thank you, a couple of questions if I might.

Andrew I'm wondering if you could put in to perspective your increased focus on return on investment with your cautionary statements related to net margin erosion over the next couple of years?

And secondly, question on your dual PPAR gamma, I was wondering if you could describe the clinical development program, what indications you're pursuing, what the regulatory pathway to approval might look like given the high risk nature of these drugs and how your drug compares to some of the other PPARs that have moved into Phase III?

Thanks.

Jami, on the first part about why do we think we are going to be investing more particularly around R&D in the future, the reason is obviously with the stage of pipeline that it is, we believe that there will be significant barrier and on ROI basis, return on investment basis, we see as a lot of value being generated for share holders from that, in that area particularly.

As regards, other areas we will continue to review those and may tell what do we believe to return is we do get in other investments, for example AMP, regarding new products and current products, sales force mix, etc. that is part of our review of the cost base which we continue to go through, and as we get through that process we'll update you on what our projections are for the 2004.

I'll hand back to Peter on the dual PPAR.

Jami, we certainly are pleased, as we had previously announced that we were able to move the dual PPAR into Phase III earlier this year.

It will be competing in an extremely competitive category and environment, and so we'll look for the optimal time to discuss the data, but for competitive reasons we are particularly concerned about communication, other than that we are in Phase III at this point.

Thanks Jami, David could we go to the next question please.

Certainly, the next question will come from Carl Seiden from JP Morgan.

Please go ahead.

Thanks.

Thanks very much.

A question, I guess for Peter or Andrew.

Really part of it is very close to Jami's question.

I am not sure if you are in a position to be able to add more, but I just, it really questions on the cost base and there is just being, you know, on some hand, in some ways you are talking about areas where you have to reinvest and in others, you know, your press release talks about additional restructurings possible and you know, people look at the past for Bristol and I think, kind of late-90s all the way up through '92.

There is lots of evidence of pretty aggressive cost control, and I am just wondering, broadly speaking when you look at your cost base, do you fell like there is low hanging fruit where you can still cut more or is that part of what got the company into some of the problems and is there simply really but to get the topline going on this cost base and separately, but specifically to cost of goods sold.

I am wondering, if you could take it all about your strategy for protein manufacturing capabilities.

You've got Erbitux although I assume Imclones doing most of that manufacturing, but also CTLA, LEA and now the deal for the insulin products, protein manufacturing is very expensive and different companies have had different level of success, kind of with doing the at-risk manufacturing bill and anything you could tell us about your plans on that would be great.

Thank you.

Carl, regarding the cost base, my comment to you is, yes.

Bristol may be leaner than many of the other companies in the industry, but the fact is, the reality is we are still a pharmaceutical company and there are also opportunities to look at the cost base to ensure we adequately put the results behind the activities we need to and actually make sure we are focused in driving long-term value at the same time as reducing costs.

For example, I mean we have all talked about this in the industry, the whole issue around sales force and sales force productivity and R&D and R&D productivity.

There are things we can do better and we will continue to focus on those to ensure that we actually maximize our returns over that period of time.

So, there is opportunity for looking, continue to look at the cost base as we go on.

On the manufacturing question as it relates to Biologics.

Really, entering Biologics is a new business for us beyond Erbitux, which you mentioned.

We also had CGLA 4 and LEA 29Y for solid organ transplant.

Corgentech license is also a Biologic.

We are working with a mix of third-party manufacturers, we have a plan for how to accommodate our product needs for each of those compounds over the next several years and we will evaluate our options as we have a better understanding of what the total size of the business is to determine what we want to own long-term, but versus what we want use through third-party contractors.

Thanks Carl.

David, can we go to the next question.

Certainly.

We will take our next question from Tim Anderson from Prudential.

Please go ahead.

Thanks.

A Couple of questions.

The first one.

You know, I will give it a try, you may not answer, but if the generics show up on the schedule that you expect, can you at least just give us very rough '04 direction here.

Are '04 earnings likely to be above or below where they are in '03 if the generic show up you expect.

The second question on Pravachol.

Do you have any life cycle management plans for this product that goes out I guess in the U.S. in 2006, beyond the Asprin combination product that you have right now?

As you probably believe when you asked the question, what we are continuing to look at what and when and where we will see generic competition in terms of 2004, we have provided some input pertaining to some of the opportunities and challenges we face.

We talked about the exclusitivity losses and what we anticipate is the size of those potentially and we intend to give '04 guidance by the time of our fourth quarter earnings communication.

On Pravachol the combination of Prava and Aspirin is for both a combined product opportunity as well as a dose pack is the major life cycle program that we have in place.

Thanks Tim, Can we go to the next question please, David.

We'll take our next question from Mara Goldstein from CIBC World Markets.

Please go ahead.

Yes, I have two questions, first is, and I apologize if I just don't seem to find it, but did you enter into an arrangement with Par Pharmaceuticals for distribution for a generic Glucophage XR.

And then secondarily can you update us on the status of the internal review that I think you began just about three months ago?

With respect, I think was Medicaid rebate.

Well, we are doing an internal review and we're certainly cooperating with the US attorney in Boston on sales and marketing practices, we don't have anything further to update on that and we haven't made any announcements about any arrangements with the generic manufacturer.

Thanks Mara.

Can we go to the next question David.

Certainly we take our next question from Steve Scala from SG Cowen.

Please go ahead.

Thank you, Andrew you cited higher R&D as one reason why Q4 would not be as strong as Q3, but on the Q2 conference call, you said R&D in 2003 would be comparable to that of 2002 and that would imply that R&D is down in Q4, can you add any clarity to this issue and secondly can you tell us about any price increases in the quarter and unusual stocking in the quarter?

As regards the R&D spin Steve, we have seen the performance of the business be stronger than we originally anticipated at the beginning of the year, that means there is an opportunity for us to look to accelerate some of our investment within research and we're doing that, also don't forget in the 6% for this quarter there was some mass down payments relating to, $21m relating to Flamel and that was part of what drove the increase, but we will see - you will see an increase in the fourth quarter and we will be spending more than we originally anticipated at the beginning of the year, as I indicated in my comments, we're also spending more in AMP, we're reinvesting some of the strengths of the business back into our future.

As regards the stocking and destocking in the quarter overall there were no significant movements from an overall prospective, we did see some destockings Steve, there was a price increase in May, Abilify did see some stocking up but there was a price increase on the first of October.

Yes Steve and some of the price increase in July, Glucovance was up 9%, Metaglip was up 9%, Serzone was up 5% and as Andrew mentioned Abilify was up just under 4% on October 1.

Dave, can we go to the next question?

Certainly, we'll take our next question from James Kelly from Goldman Sachs.

Please go ahead.

Thanks for taking my question, to follow-up on Steve's question, Just help us whether I'm looking at the sales levels versus prescription demand of Pravachol on a nine month basis, sales up 23 while prescriptions up two TRX.

The two Glucophage line extensions also similar mismatches if even I try to adjust them for the stocking, could you talk a little bit about when that trend is expected to reverse, is it expected to reverse and also seem other pharma if you back it out of all the other lines, there was a $120m increase approximately.

Is there anything special happening there that we should think about on a going forward basis?

Thanks.

James, can I just say let's iterate that we did see no increase in stocking levels in the third quarter.

In fact our inventory levels are now what we will consider to be at or below normal levels going forward, effectively the days of excess inventory are behind us.

So that has been what you are seeing on the comments around the Glucophage franchise and Pravachol is actually the impact in 2002, not the impact in 2003 and as we move forward effectively the - what you are seeing is probably closer to approximating of demand by sales after the current year.

I have been lost here which does have the impacts of consignment sales and non-consignment sales.

So that is really what is causing those fluctuations from product to product.

But effectively we have on an overall basis there has been no increase in inventory in effect in the third quarter over the second quarter.

Thanks Jim can we go the next question David.

Certainly and our next question comes from C.J.

Sylvester from UBS Securities, please go ahead.

Hi, thanks for taking the question.

On Abilify can you talk about how you will handle the FDA's proposed label change for all the atypicals.

And along those lines can you tell us if you had a chance to look at asenapine the organon drug that Pfizer just brought in before you went with Abilify and I am sorry if my missed it, the timing on Abilify in EU?

Well on the first question.

Our partner Otsuka received our letter from the US FDA requesting a labeling change for Abilify.

We and Otsuka are reviewing all the options and are working quickly to respond to the FDA on their request.

The VA studies that are public indicate their dosing to be a link between some atypicals and increased risk of diabetics, while there is no retrospective analysis available on Abilify we are confident in the data that we have and we will review it with the FDA.

We requested a meeting with the agency where we discussed the pre-clinical, clinical, post marketing experiences and the overall trial results.

We will also review our data on known risk factors for diabetics such as weight gain and some of that clinical data are new and have not yet been seen by the agency.

We think that it is important that all of this is reviewed since we have a strong case to differentiate Abilify from other anti- psychotics, however can't speculate on the final outcome of our discussions with the FDA.

And I don't really have a comment on Pfizer's licensing deals.

Great.

Thanks C.J. can we go to the next question, David.

Yes, we will take our next question from David Moskowitz from Friedman, Billings and Ramsey, please go ahead.

Yes, thank you.

Good morning.

Couple of quick questions, number one could you let us know what the sales of Pravigard were in the initial quarter of stocking also the percentage of ex- US Taxol sales that come from Japan would be good.

And I just want to talk about the cost base a little bit more, from a different perspective looking at the different segments.

Can you talk about the mix of the sales force and AMT spent on the opportunity for leveraging what you have?

I mean you have products coming out of diabetics, oncology, cardiology and neurology.

Going into new products in oncology diabetics, infectious disease which I think you have resources in and Neurology.

So can you talk about you know how you can leverage that and again whether or not you can keep spend on the sales and marketing side relatively flat.

And just a last one can you update us on the lead indication for CTLA -4 IG, is that going to be a combination product or second line in patients who have failed other therapies?

Thanks.

Before I put Andrew, let me bear to on you other questions David.

On Pravigard, I'll get back to you with the first quarter sales and that I don't have it right here.

Okay John.

As regards leveraging the mix, as we said in the outlook section of the release.

We are focusing more on areas of more specialized nature as our portfolio changes and therefore you know it is that part of the focus.

That means we can leverage the existing resources and the existing relationships we have, and we see that as a competitive advantage for us as we go forward.

Again you know there are many opportunities to review the cost base, we will continue to look at those and that will include all our businesses, both relationships of how they are structured Internationally across the portfolio and so forth.

So, and we do have synergies between the different businesses for example some of the pediatrics sales force indications are detailed by Mead Johnson reps.

So again there are always opportunities and we will continue to look at those opportunities of leveraging across the businesses.

As far as the place of TAXOL in Japan, and we do not generally disclose the sales of individual products and individual count.

Out of the total international sales of TAXOL, Europe is still the majority of those sales, but as I said before Japan is significant growing a little more than 20% with new indications of the proved gastric cancer, and new indications than those at regiments coming.

The exclusivity feature in Japan is also different than the one in the rest of the world.

I think you had a fourth question which was about CTLA-4, and primary and initial indication for rheumatoid arthritis.

We are presenting two posters this weekend which discuss Phase II on better analysis with patients treated with CPLA-4 in combination, we have three phase, three stages that are currently recruiting for treatment for rheumatoid arthritis, and that's what gives us an outlook for late 2004, NDA.

Thanks David, we will go to the next question please.

Certainly we will take our next question from Mario Corso, from Leerink Swann, please go ahead.

Thank you a couple of questions.

If I heard correctly is the dual PPAR and epothilone, are those slated for potential 04 filings?

And in Europe, can you update any timing on the approvals for Abilify and Reyataz, and then finally any plans for an R&D day to showcase some of the things in the pipeline?

Thanks.

The three potential filings in 04, are Entecavir, CTLA-4 and potentially the dual PPAR.

To your second question, which is about an R&D day, we are planning to have an R&D day in 2004.

Sometime around the summer, either right before the summer or right after the summer.

We are looking in that period of time to schedule an R&D day for investors.

As far as the Reyataz and Abilify in Europe, we filed both products there as you know we have done all the necessary follow up for we are doing all the necessary follow up with the CPMP and EMAR.

As you are aware the process in Europe is becoming a bit more complicated than it is in the US and less predictable, but we are doing all the right things that is possible filing.

Thanks Mario, can we go to the next question David.

Certainly, we will take our final question today from Bert Haslet (ph) from SunTrust, please go ahead.

Thanks, my question is on Erbitux.

On November 12th I believe FDA is holding a workshop on clinical trial end points in colorectal cancer, will you participate in this meeting?

And what are your expectations for the outcomes of the meeting which I believe will have an impact on FDA guidance going forward for colorectal cancer indications?

Thanks.

I don't know the ancillary question are we participating in the meeting?

And I don't know what the expected outcomes are I will use the opportunity to say that we submitted the filing on August 14th.

We are, the FDA has filed Erbitux as I said earlier and we are looking for response by mid February the latest in terms of an expectation of their point of view.

There is an advisory committee meeting for oncology products scheduled in December, and we will see as we go through how that weighs into the timeline.

Great thanks David.

I think that's about all the time we have for questions, and I want to turn it over back to Peter for some final summary comments.

And just very quickly, I think the company certainly feels good about the third quarter performance against our major objectives of growing our inline products, advancing our new products that we have launched.

Advancing our pipeline, making a number of licenses to supplement what we have in terms of our internal R&D efforts.

We have made a lot of progress in the third quarter.

We will closely watch what happens with generic competition for some of our key products coming up, we clearly expect to see generic competition and we will update all of you as we pursue the fourth quarter conference call in terms of what our expectations are for 2004.

Great.

Thanks Peter and thanks everybody for joining us.

As always, if you have any follow-up questions please give myself or Sue Walter a call on the 212-546-3775 and Sue is at 212-546-4631.

Thank you.

And ladies and gentlemen, this does conclude our conference today.

We do thank you for your participation.

You may disconnect at this time.