施貴寶 (BMY) 2003 Q4 法說會逐字稿

Good day, and welcome to today's Bristol-Myers Squibb Company fourth-quarter sales and earnings conference call.

Today's call is being recorded.

At this time, for opening remarks and introductions, I'd like to turn the call over to the Senior Director of Investor Relations, Mr. John Elicker.

John, please go ahead.

Thanks, Steve, and good morning, everybody, and thanks for joining us.

I know you're busy this morning with a few calls.

Today, we're going to cover our 2003 full-year and fourth-quarter results, as well as our outlook for 2004.

As you've seen, the release has crossed the wire about 8:30 this morning.

It's also posted on our Website, as well as additional financial information.

With us today, we have Peter Dolan, our Chairman and CEO;

Andrew Bonfield, our Chief Financial Officer;

Don Hayden, President of Americas; and James Palmer, our Chief Scientific Officer.

Peter and Andrew will have prepared remarks, and then we'll go to the Q&A.

Let me go through the cautionary language first.

During this call, we will 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 in our periodic reports on Form 10-Q.

These documents are available from the SEC, the BMS Website, or from BMS Investor Relations.

In addition, any forward-looking statements represent our estimates only as a 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.

Now, let me turn it over to Peter Dolan.

Thanks, John, and good morning, everyone.

I want to focus my comments on our overall 2003 results and say a bit about the future, and then I'll turn things over to Andrew for a more in-depth discussion of our business and financial performance in the quarter.

Following that, Andrew and I and, as John said, Don Hayden and James Palmer are here with us as well; we'll be happy to answer your questions.

Clearly, 2003 was a strong year for us.

Net sales were up 14 percent to nearly $21 billion, due mostly to robust gains in global sales of Plavix, Pravachol, Avapro/Avalide, Sustiva and Paraplatin, all of which grew between 20 and 30 percent in the year.

Abilify, our new antipsychotic that has been on the market for about 15 months, achieved total revenue of nearly $300 million in 2003, and has garnered more than a 7 percent weekly new Rx share.

Reyataz, our new protease inhibitor that was introduced in the U.S. in mid 2003, has already captured a 15 percent share of the weekly new Rx's in its class.

Growth was solid across our franchises, businesses and geographies in '03.

In our U.S.

Rx business, total Plavix prescriptions for the year increased nearly 30 percent, with Avapro and Sustiva realizing double-digit prescription gains, as well.

Our European business grew at double-digit rates, driven by robust sales of Pravachol, Plavix and Avapro/Avalide.

In our health-care businesses, our ostomy and wound care lines, as well as Cardiolite, also realized double-digit or high single-digit gains.

This strong performance of our key brands and businesses helped us achieve our upwardly-revised non-GAAP earnings guidance for the year.

2003 was a pivotal year for our Company, when we committed to a number of things, as you will recall.

We said we would successfully launch important new products, grow our key franchises and brands, invest behind our promising pipeline and our businesses, keep the dividend a priority, put the right team of leaders in place, and plan for a future of greater leadership by preparing for the challenges and opportunities ahead of us.

In fact, we delivered on all these commitments, and created significant momentum to build an even stronger future.

Now, let me highlight just a few of these areas.

First, our new products.

Both Abilify and Reyataz are performing ahead of expectations, and we see additional significant opportunities for their growth in the future.

We're hopeful about launching both products in Europe this year, assuming favorable regulatory review.

Abilify gained an additional indication in 2003, maintenance therapy for schizophrenia, and we're hopeful about a decision this year on a bipolar-mania indication in the U.S.

Second, we said we continue investing in our businesses and promising pipeline, and we did just that.

A&P expenditures grew 25 percent in 2003, to support our launches and in-line growth drivers, and R&D investments increased, as well.

In our pipeline, two important compounds transitioned to Phase III in 2003 -- Ixabepilone, our epothilone for cancer, and Muraglitazar, our dual PPAR agonist for diabetes.

We also licensed in a Phase III compound for prevention of vein graft failure from Corgentech.

All together, we concluded three licensing deals in 2003, including two earlier-stage diabetes compounds, as well.

In the next 12 months, we hope to file up to three compounds -- Muraglitazar, CTLA4 for rheumatoid arthritis, and Entecavir for Hepatitis B. To ensure the continued productivity of our promising late-stage pipeline, we're boosting investment in drug development by 12 percent in 2004.

And, of course, we're looking forward to the FDA's decision very soon on Erbitux.

We'll have more to say about our pipeline at an R&D (ph) day for investors that we're planning to hold in the fourth quarter.

You'll recall that we said we'd make the dividend our priority, and last December, we announced an indicated dividend for 2004 of $1.12 per share.

We also said we put the right leadership team in place, and we've done that.

Finally, let me say a few words about our future.

You'll recall that several times in the past year, I mentioned that we were looking carefully at the challenges and opportunities ahead of us, in preparing to make some fundamental changes in our business model to address this situation.

We are now beginning to implement a new strategy that is designed to help us manage through the next few years of exclusivity losses, margin pressures and portfolio adjustments, and emerge in a stronger leadership position for the future.

Briefly, here are some key elements of that strategy.

As our portfolio evolves, we intend to capitalize on our emerging and existing strengths to build broad-based leadership positions in 10 disease areas where we see tremendous opportunities.

Many of these are areas where we already have a strong or growing leadership position, like oncology, virology, diabetes, atherosclerosis, atherothrombosis and psychiatric disorders.

As part of our strategy, we are also evolving our marketing and sales model to focus more on specialists, who are playing greater roles in the disease areas where we are concentrating, and on high-value primary care prescribers.

We're looking carefully at our entire cost structure to ensure that we continue to effectively invest behind our business and growth drivers, as well as behind our very productive pipeline.

Finally, our strategy puts strong emphasis on building an industry-leading biologics business.

Erbitux will likely be our first biologic with promising compounds for rheumatoid arthritis and solid organ transplants progressing through our late-stage pipeline.

As we've said before, 2004 will be a challenging year for us, and this fact is reflected in our guidance.

We've said that our margins would be challenged by exclusivity losses over the year and a new products mix with Abilify, Reyataz and, we hope, Erbitux joining Plavix, Avapro and Pravachol as our key drivers.

We also said we'd continue to invest in our businesses and pipeline in 2004, and in fact, we are planning on increasing A&P behind our growth drivers by approximately 30 percent, and growing total R&D in the 8 to 10 percent range.

We expect to make significant inroads in implementing our strategy in 2004, and that will help us manage through the challenges while, at the same time, continuing the momentum for building for our future.

Now, I want to turn the floor over to Andrew for a more detailed discussion of the quarter.

Andrew?

Thank you, Peter.

As Peter mentioned, this was another strong quarter.

Fully-diluted earnings per share for the fourth quarter were 22 cents, which reflects a 15 cent reduction as a result of specified items.

For the full year 2003, fully-diluted earnings per share were $1.51, which reflects 17 cents of net reductions as a result of specified items.

This performance, $1.68 excluding specified items, puts us within our previously issued full-year non-GAAP guidance range.

As you will have seen in our press release, we did record certain specified items during the fourth quarter.

These include $81 million related to the up-front payments for the two in-licensing agreements with Corgentech and Lexicon, $37 million of charges related to downsizing and streamlining of worldwide operations, $2 million of relocation expense related to the Wilmington facility closure, and these items were offset by $10 million of pre-tax income related to adjustments of prior-year restructuring reserves. $225 million of pre-tax charges for litigation, plus $17 million of pre-tax charges for other litigation settlements.

The net effect of these items was to decrease earnings before minority interest and income taxes by $350 million, or approximately 15 cents a share.

You will have seen from the release that we have recorded a $225 million charge for liabilities in connection with certain pending government investigations and litigation, comprised of $125 million in relation to wholesale inventory issues, and certain other accounting matters, and $100 million in relation to pharmaceutical pricing and sales and marketing practices.

In accordance with GAAP, we have determined that these amounts represent the appropriate charges with respect to these matters.

I would like to reinforce that these are the minimum expected probable losses related to these matters, and the final loss may exceed these reserves.

And the further impact of either one of these matters may be material.

As a result of uncertainty about what part of these items will be deductible, no tax relief has been reflected in the financial statements, impacting the tax rate for the quarter.

One of the questions you may have related to the disclosures about prior-period adjustments -- you may have questions about the disclosures about prior-period accounting changes in the press release.

The items disclosed in the release are corrections of accounting errors.

For example, the Mead Johnson woman and infant child accrual recorded and disclosed in the second quarter.

Another example is the foreign benefit plan change recorded and disclosed in the fourth quarter.

If the cumulative impact of these changes is significant, GAAP requires that these items be restated.

The post-tax adjustment in the fourth quarter was $39 million, and for the year $111 million.

This excludes any errors in the tax line.

As we are still assessing these items, we have made the appropriate disclosures in the release.

If this did result in a restatement, expenses would be reduced in 2003 and increased in prior periods.

I would just like to put this in perspective.

We could enter into a lengthy debate about whether or not items like the $65 million work accrual reported in earlier quarter should be added back to our 2003 operating base.

The answer is it doesn't change our outlook for 2004, because we've already factored this in and we set our plans.

Also, on a pre-tax basis, these items represent approximately 1 percent of the cost base of the Company, well within the margin of forecasting error.

Now, let's move to the operating results for the fourth quarter.

Sales were up 16 percent to $5.6 billion.

Consistent with the previous two quarters, the year-over-year comparison was impacted by U.S. pharmaceutical inventory work done at non-consignment wholesalers in 2002.

The sales performance resulted from a 4 percent increase due to foreign exchange fluctuations, a 12 percent increase in volume and no impact from price increases.

Global sales of key brands were strong, with Pravachol up 22 percent, 15 percent excluding foreign exchange;

Plavix, 44 percent, 41 percent excluding foreign exchanges;

Avapro/Avalide up 33 percent, 27 percent excluding foreign exchange;

Paraplatin up 35 percent, 32 percent excluding foreign exchange; and Taxol up 12 percent, all of which is due to foreign exchange.

U.S. script trends of key products were also strong.

Plavix was up 29 percent, Pravachol 2 percent, Avapro/Avalide up 17 percent and Sustiva up 11 percent.

We also reported $80 million in total revenue for Abilify in the quarter.

This was down from the third quarter, reflecting a destocking as a result of the third-quarter price increase.

Full-year results for Abilify have exceeded our expectations, with script share approximately 7.4 percent for the most recent week.

Total scripts for the fourth quarter were approximately 434,000 or a 25 percent increase over the third quarter.

Sales for Reyataz, our novel protease inhibitor launched in July, were $49 million.

The launch is still in early stages, but we are encouraged by results to date, including almost a 15 percent share of the protease inhibitor market.

Sales in the U.S. pharmaceuticals business grew by 23 percent to $2.2 billion.

This increase is primarily attributed to the continued strong prescription demand for key brands I mentioned earlier and the impact of the work done at non-consignment wholesale inventory in 2002.

During 2003, we have entered into inventory management agreements with our principal wholesalers.

And at the end of the year, inventory levels in the U.S. pharmaceutical business are approximately one month or less.

This means the work-down of inventory is now complete.

Let me give you some of the highlights of our international pharmaceutical and other businesses.

International pharmaceutical sales grew strongly and were up 16 percent, including the 11 percent impact from foreign exchange to $1.8 billion.

Medicine sales in Europe and the Middle East increased by 19 percent, or 5 percent net of foreign exchange, supported by strong growth in Pravachol, up 24 percent or 10 percent net of foreign exchange, and Taxol, up 21 percent or 6 percent net of foreign exchange.

Asia-Pacific sales increased 14 percent or 4 percent net of foreign exchange.

In Latin America and Canada, sales increased 18 percent or 13 percent net of foreign exchange.

In total, sales in our worldwide pharmaceutical business were up 20 percent to $4 billion.

Looking at our other businesses, nutritional sales increased 9 percent to $506 million, with no impact from foreign exchange.

U.S. sales increased by 13 percent, with sales of Enfamil up 12 percent to $201 million.

As you know, we have announced the sale of our adult nutritional business in the quarter, and we expect this to close early in 2004.

ConvaTec sales increased by 10 percent to $226 million, including a favorable 8 percent from foreign exchange.

This sales growth was driven by the strength of the global wound care business, up 16 percent, or 7 percent excluding foreign exchange.

OTN, a specialist distributor of oncology medicines and related products, grew 11 percent to $589 million.

You will have noticed that we have begun breaking out OTN as a business segment, which will give you better visibility of this business.

Before I review the expense lines, let me make a few comments about the reclassified expense items relating to other income and expense and minority interest lines.

Firstly, a table summarizing these changes is available on our Website.

Basically, anything we view to be operational was reclassified out of OI&E to the appropriate line item.

Additionally, we moved minority interest income into equity income lost from affiliates.

These changes should give you better visibility into our financial performance in the future.

For 2002, there was a change in OI&E from an expense of $457 million to income of $251 million, a difference of 206 million as a result of the following -- an increase in cost of goods of approximately $120 million, an increase in SG&A of approximately $50 million, a decrease in equity income of approximately $40 million, and in addition, approximately $125 million of income was reclassified to equity income from minority interest.

For the first nine months of this year, there was a change in OI&E from the expense of $298 million to an expense of $100 million, a change of $198 million, primarily as a result of the following -- an increase in cost of goods sold of approximately $105 million, an increase in selling, general and administrative expenses of approximately $80 million, a decrease in equity income of approximately $30 million and approximately $105 million of income was reclassified to equity income from minority interest.

Gross margins in the fourth quarter were 62.7 percent on a reclassified basis, compared to 61.6 percent in the fourth quarter of last year.

The key drivers are the continued high sales growth of our low-margin oncology distribution business, OTN, which has a negative impact of around 0.8 percent, partially offset by a positive impact from U.S. pharmaceutical sales growth and mix.

Marketing, selling and administrative expenses increased by 15 percent to $1.3 billion, primarily driven by the accounting adjustments of $67 million related to the international benefit plans and the $19 million of vacation expense.

Excluding these items, the increase was 7 percent.

Advertising and promotion increased by 19 percent to $464 million, as we continued to increase the level of support for key in-line and new growth products.

The fourth quarter was the toughest comparison of the year, due to the Abilify launch spending in the comparative period of 2002.

As Peter mentioned, A&P spend is up 25 percent for the year to date.

R&D spend increased by 8 percent to $714 million, primarily driven by spending on increased resources behind development projects, including Phase III spending on Entecavir, CTLA4-Ig, and Muraglitazar, and in-licensing payments, partially offset by the impact of the closure of the discovery facility in Wilmington last year.

Pharmaceutical R&D, as a percentage of pharmaceutical sales, decreased from 18.6 percent in 2002 to 16.8 percent in this quarter, as a result of the increase in our reported sales.

Other income and expense in the fourth quarter was income of $29, million compared to an expense of $166 million last year, primarily driven by the non-comparable items in the comparative period.

You will also notice a new line showing equity income from affiliates of $26 million.

Principally, this is where we are recording the income from the Sanofi joint ventures and our share of the ImClone losses.

Minority interest expense net of taxes was $125 million, compared to $81 million last year, primarily as a result of the growth of Plavix and Avapro in the U.S.

The effective tax rate from continuing operations before minority interest and income taxes, and excluding specified items, decreased to 26.8 percent from 27.2 percent last year.

Overall, if you take into account the tax on the minority interest, the overall tax rate for the year was 23.7 percent, fully (ph) in line with our guidance for the year.

I'd also like to spend a couple of minutes just discussing our financial position.

Our net debt at the end of the year, which includes liquid marketable securities previously included in cash balances but reclassified in the quarter, amounted to some $3.2 billion compared to $3.7 billion last year.

Operating cash flow was strong, despite the impact of deferred revenue on working capital.

This meant that we were able to fund capital expenditures of around $0.8 billion, our litigation settlements, the dividend and still reduce net debt in the year.

This reflects the true strength of the business throughout the year.

Overall, we are very pleased with the momentum of the business in the fourth quarter, particularly as we enter into the challenges of 2004.

As we have indicated in the release, for 2004, we are estimating non-GAAP, fully-diluted earnings per share, excluding specified items and any in-process R&D as a result of external development, to be in the range of $1.50 to $1.55.

We are expecting certain specified items in 2004, including manufacturing rationalizations, licensing milestones, relocation expenses related to the Wilmington closure and, again, on the disposal of the add-on nutritional business.

The nature of these items results in GAAP earnings guidance of $1.50 to $1.55, as well.

Our guidance is based on the expectations of flat pharmaceutical sales and low single-digit growth overall, based on growth in the rest of the businesses.

As we have discussed for the last six months, sales will be impacted by the expected exclusivity losses of between $1.2 and $1.3 billion in 2004, which is a little higher than some may have expected, due to the later entry of generic competitors and the higher base in 2003 for comparison purposes.

In December of 2003, we begin to see generic competition in the U.S. for both Monopril and Glucophage XR.

We expect generic competition for Glucovance in the first quarter and for Paraplatin in October.

In Europe, we expect generic competition for Taxol in the first quarter and for Pravachol in selected markets in the second half of 2004.

Offsetting these exclusivity losses is expected growth in our exclusive products -- Plavix, Avapro, Abilify, Reyataz and, pending FDA approval, Erbitux.

The majority of our revenue growth is expected to be from volume.

Prize is expected to have a very small impact on growth in 2004.

Obviously, if the dollar remains at current levels, foreign exchange will impact the year-on-year reported sales growth.

We have hedged the majority of our exposure for 2004, so the benefit of the weaker dollar is recognized in that guidance range.

If the dollar remains at current levels, there will only be a minimal impact on earnings.

We expect continued strong growth in Plavix in 2004. 2003 script growth was up 29 percent, and 2004 script growth is projected to grow at strong double-digit rates.

Avapro/Avalide, which had script growth of 15 percent in 2003, is expected once again to show low double-digit script growth in 2004.

Newly-launched products Abilify and Reyataz are expected to continue on a growth trajectory, and make significant contributions to the top line.

We are also expecting both compounds to be approved in Europe during the year.

We are also expecting a successful U.S. launch for Erbitux.

Pravachol faces a challenging 2004.

As I mentioned, Pravachol is expected to face generic competition in certain European markets in 2004, and the U.S. market continues to be highly competitive with the recent launch of Prestol (ph).

Moving onto the revenue from our other business segments, OTN is expected to continue to experience strong double-digit revenue growth to over $2.5 billion.

Additionally, we expect our non-Pharma businesses -- Mead Johnson, ConvaTec, Medical Imaging and Consumer Medicines -- to contribute to topline growth in 2004.

Moving onto the profit and loss account, we expect 2004 gross margins to be reduced from 2003 levels by approximately 1 percentage point, based on the combination of the impact of exclusivity losses and the growth of OTN.

As we have discussed, our strategy is focused on the investment behind our current growth drivers and our late-stage pipeline.

Our plans include an approximately 30 percent increase in A&P spends behind our growth drivers like Plavix, Abilify and Reyataz, we decreased our investments behind products facing exclusivity losses, such as the Glucophage franchise and other mature brands.

This will result in roughly flat A&P spend overall for the year.

Marketing, selling and administrative expenses will be relatively flat, as we begin to make resource allocation decisions consistent with our strategy.

Our U.S. sales force has been restructured, and we have reduced focus on primary-care physicians and increased resources on specialists such as the new Abilify sales force.

As we have discussed, we will continue to invest within the late-stage pipeline.

Growth in R&D spend is planned to be around 8 to 10 percent.

We anticipate three filings over the next 12 to 15 months -- Entecavir, CTLA4-Ig and the dual PPAR.

Looking down at the tax line, we expect our tax rate for 2004 to be slightly lower than the level in 2003.

In looking at the variance between the top end of our guidance range and current consensus for the year, there are two additional items that I want to touch upon.

The first of these is pension cost.

We estimate that increased pension expense will negatively impact 2004 earnings by approximately 4 cents a share.

There are two things to note on this.

Firstly, the impact of this is reflected in our guidance range that we have provided.

Secondly, this increased expense is already embedded in the line item estimates I provided earlier.

The second item is the convertible bond offering that we completed in October.

The accounting treatment of this transaction results in earnings-per-share dilution and a negative impact of approximately 2 cents in 2004.

Again, this impact is reflected in the guidance range we have provided.

In terms of cash flow, we would expect 2004 net debt levels to be roughly flat compared to 2003, prior to any litigation settlements that may occur.

In summary of our 2004 outlook, we are expecting the sales impact of exclusivity losses to be between $1.2 and $1.3 billion.

We are expecting to more or less offset these losses with growth driven by exclusive products like Plavix, Avapro, Abilify and Reyataz.

We expect pressure on gross margins from the exclusivity losses and the growth of OTN.

We will continue to invest in R&D behind our late-stage pipeline.

We will significantly increase our A&P investments behind our key growth drivers, and we hope to have three NDAs filed in 2004 or early 2005.

With that, I'd like to hand it back to John.

Thanks, Andrew.

And, Steve, I think we're ready to go to questions.

(OPERATOR INSTRUCTIONS).

Timothy Anderson, Prudential.

I have a question on a couple of things, actually.

The dividend -- I know you said you recognized that the dividend is important to shareholders, but the current payout rate is very high. and it seems like it kind of limits your investment ability in the future.

And we don't, obviously, know what your model for earnings growth is in '05 and beyond.

But if earnings growth is flat or down or maybe only showing minimal growth, as you go through that pan (ph) exposure period through '06, are you saying that you will remain comfortable with a high payout ratio?

And then second question is your approach or attitude to M&A at this point, in terms of the combination of companies.

Some companies, for example, are adamant that they do want to go it alone, that they don't want to be sold and they don't want to buy anything.

What's your position on this?

Okay, Tim.

I'll take the first part, around the dividend.

As we look at the cash flow in 2004, one of the things that we've managed to do is actually reduce our net debt levels by about $0.5 billion, despite the fact that we have funded the dividend at $2.2 billion, CapEx at $0.8 billion, the licensing deals we've announced this year and litigation settlements of $600 million.

On the basis of that, I think you should get comfortable on our ability to continue to fund this from the cash flow from operations.

Second point, on payout ratios -- yes, our payout ratio is high.

However, in 2003, if you take our total payout to shareholders including share buybacks, it is actually at a lower ratio than it has historically been for the past five years.

In prior years, if you include the impact of share buybacks, that ratio increase is significantly higher than the payout ratio on the dividend.

On the second question, relating to industry consolidation and our perspective, our position really hasn't changed.

Clearly, we'll always do what's in the best interests of shareholders.

To date, most consolidations in the industry have occurred as a result of efforts to reduce costs over a two- or three-year period, when exclusivity-loss products and new products didn't line up for one or both companies.

And we believe that we clearly have critical mass in R&D spend in sales force and marketing capabilities, and in the potential promise of the pipeline that we are investing in and developing.

So our position on industry consolidation and how we're thinking about it really hasn't changed.

Tony Butler, Lehman Brothers.

Good morning, and thank you very much.

There were some comments made regarding the change in the way revenues would be recognized.

Andrew, you alluded to that a little bit, but I had had the impression that there had been a change in the past already.

Was I incorrect in that assumption?

And moreover, if I was not, what is the subsequent change?

The change we have reported in the quarter related to certain of our businesses, where revenue was recognized on a shipment rather than actually on receipt of goods by the customer.

That amounted to approximately $100 million revenue in the quarter, as stated in the release.

This was for those businesses where that change had not already been taken.

That change was made in the U.S. business a couple of years ago.

C.J.

Sylvester, UBS.

I've got a couple of questions on the pipeline here.

With regard to the PPAR, have you seen any incidents in terms of cancer?

We've seen that in other PPARs.

What is the background that you are seeing care, especially in some of animal studies?

And then, if you could provide some detail in terms of the Factor 10a -- that was kind of left out of the comments this morning -- where we are with that.

Is that going to enter Phase III anytime soon?

And potential indications that you're looking for with that compound.

Let me take that question.

First of all, for Muraglitazar, as Andrew said and as Peter said, we are in Phase III now, and we hope to file this by the end of this year or early next year.

Secondly, you are obviously aware of some of the issues that have come up with the class, with PPARs in recent months, notably with Merck's withdrawal.

Clearly, we have been concerned about that, and have looked at that very carefully.

Where we are with this is that we have completed our carcinogenicity studies.

They are about 80 percent reported out, and we have seen nothing unexpected in those studies, based on the class.

So we have not seen anything that would concern us at this point, but obviously we continue to keep this under review.

With regard to 10a, we reported the Phase II data on 10a at the ASH meeting.

We were quite excited about the data that we saw there, in terms of its efficacy, in terms of risk-benefit, in terms of preventing venous thromboembolism, and with a very good therapeutic ratio in terms of bleeding.

So we were very encouraged by that.

We will move into Phase III with this in 2004.

So those are the immediate plans for 10a -- or it's actually called Rizaxoban (ph).

Barbara Ryan, Deutsche Bank.

Good morning, and thank you for taking the question.

One of the things that you mentioned on the call, I think, Andrew, was that you are anticipating Paraplatin exclusivity to expire in October, which would imply, I guess, the six-month extension to the April expiration.

And I wasn't aware that that had been issued, and so I'm just wondering, has that been issued and I didn't realize it, or you have filed for it and you are expecting that to be issued?

You are correct in the assumption that it hasn't issued yet.

We are anticipating that it will.

We have built into our plan an additional six months of exclusivity, but it has not occurred yet, as we speak.

David Reisinger, Merrill Lynch.

First of all, could you just review the legal uncertainties that you referred to in your press release?

And second, with respect to the Sanofi partnership, can you speak to whether there are any change of control provisions, and your thoughts on any uncertainties associated with Sanofi engaging in a transaction?

Well, first, David, on the Plavix and Avapro situation, there isn't any change to our agreement based on the structure of the agreements we have.

So we don't view that as having any impact on our rights in the U.S. and worldwide on Plavix and Avapro.

David, as regards the litigation uncertainties, the only part that I think we mentioned uncertainty about was the tax deductibility, or whether part or all of it will be tax-deductible.

Aside from that, I'm not sure that -- obviously, there's always uncertainties in any litigation as to what the final amount of any settlement will be.

As it is at this point in time, we have put in our best estimate at this point in time of what the minimum probable loss will be.

Carl Seiden, J.P. Morgan.

A couple of quick questions, if I could.

Understandably, you guys are optimistic on the outcome on the Plavix patent suit.

And based on the available data, I certainly understand that position.

I'm wondering if you could talk about contingency planning, kind of the what-if's -- if it does go the other way, what it means to the Company strategically and otherwise.

And separately, with all the accounting reclassifications that are going on, definitely appreciate the goal of getting toward greater transparency.

But the process of getting from here to there is anything but that.

Just broadly, Andrew, can you characterize where you think the Company is in this process?

Is this just kind of something investors will have to get through for awhile, or do you feel like this process is kind of over?

On the Plavix patent, Carl, obviously Plavix is an important product to us and to Sanofi.

We continue to think the patent is valid and that it is infringed, and we and Sanofi will continue to vigorously pursue this case.

As you correctly noted, litigation always has some uncertainty.

In the event there was a result leading to generic competition, we think it would be very unlikely to occur before some time in 2005, and we are actively working on developing contingency-specific plans with a group in the unlikely event of that outcome.

Carl, regarding your second point, around accounting issues and transparency, let me say we have spent a huge amount of time within the finance organization improving our financial controls and trying to improve our disclosure.

Obviously, as we go through this transition and we do go through this, there will be items in such as reclassifications that may occur from time to time.

Obviously, that is something that makes life a little bit difficult for you guys.

We do understand that.

We will try to be as transparent as we can, when these things do occur, to try and give you the best information.

But it is part of the process we're going through.

We've made huge strides this year.

We need to continue to make even further improvements as we go through, and that's what our objective is.

Jim Kelly, Goldman Sachs.

A couple of questions, first on the PPAR.

Could you refresh us on the indications being sought?

When do you expect the long-term animal studies to be complete, and has a presentation form been targeted?

And then, just on the comments on hedging, there are certain individual items.

I'm just interested from Andrew, did these get hedged individually, such as the royalty payments going out to Sankyo?

And when I look at the equity income from affiliates now, and the minority interest, both heavily influenced by Sanofi, how do those both work?

Do they already have tax in them?

Do they have currency -- possible adverse impacts on each of those?

Let me take the PPAR question, first of all.

The indications will be pretty standard, and that will be in type II diabetics.

We're looking at a very typical registration program, which is in mono (indiscernible) therapy and combination therapy.

Clearly, what we're looking for with the dual activity, the alpha and gamma activity, is glycemic control and lipid lowering.

We'd like to see lipid lowering in addition to glycemic control.

With regard to the carcinogenicity data, the studies are actually complete, which is -- we are actually -- it's a little unusual, because they were completed fairly early in the development program.

They are being reported out right now.

As I said in response to a previous question, we are about 75 to 80 percent done with the microscopy, which is the histology reading on the COX studies.

And they should be complete in the next few months.

That will be, obviously, part of the package with the clinical data and everything else that goes into the filing, which, as we said, we hope to file before the end of this year or, at the latest, very early next year.

And the data availability -- you know, this is a competitive area and, like everyone else, we play our cards close to our chest, and that was deliberate.

During '04, we will start to release data.

You'll start to see, toward the end of the year, some of the earlier work.

And then we would plan to have full rollout in '05.

Jim, on the second question, on the hedging, we hedged cash flows.

That is what we were allowed to hedge under FAS 133.

As regards the individual lines in the P&L, obviously, those are reported at the book rates for the year, the average rate for the year.

And the hedging gain or loss is reported separately within the profit-and-loss account, I think within other income and expense.

As regards the question about minority interest, are they net of taxes -- yes, the minority interest that's reported is reported net of taxes.

However, the income from affiliates and associates will be reported gross of taxes, because it is within other income and expense.

I hope that answers your question.

Ken Kulju, Credit Suisse First Boston.

My question was about the redeployment of the sales force.

You indicated, obviously, this de-emphasis of activity at the primary-care level.

I was wondering if you could provide a greater level of clarification on that shift, particularly the relative sizing of your various sales forces -- for instance, at the end of '03 -- and what will the sales force deployment look like at the end of '04, primary care versus these specialty groups?

Ken, this is Don.

I appreciate the question.

I think that we've been, really, over the last 18 months, working to bring our sales force size and structure across our various sales forces in line with our strategy and our portfolio as we see it evolving, moving into the future.

And just to give you some sense of the work that we have been engaged in, during 2002 and 2003, we successfully transitioned, in the U.S. alone, nearly 1,000 positions in our U.S. sales force from primary care to our specialty areas, without disrupting either our customer relationships or our business.

And as our portfolio continues to evolve, we're going to continue that type of transition.

In the U.S., we are now working with a primary-care sales organization of about 2,000 representatives, more than 500 in neural science, several hundred each in our oncology and virology areas.

We have increased the size of our cardiovascular specialty sales forces in the U.S., and obviously we are looking at what will be required to successfully launch products like CTLA4-Ig, LEA 29Y, Entecavir and others.

So we have been engaged in a very active program, I think, with a lot of foresight as to what our portfolio is going to be, and evolving our sales forces in a way that puts the right amount of resource in the right places without disrupting either our customer relationships or our business.

Steve Scala, S.G. Cowen.

I have two questions.

First, I'm wondering if you would care to craft expectations for the nature of the regulatory action on Erbitux on the PDUFA date of February 13th.

I guess it runs the gamut from full approval to some sort of contingent approval.

And will manufacturing have an impact on the approval and launch timing?

Secondly, could you speak to the tone of the conversation with FDA regarding the requested label change for diabetes and weight gain on your antipsychotics?

Would you call the FDA sympathetic, or would you call the FDA firm in their view?

Steve, let me take those questions.

First of all, Erbitux, as you have correctly identified -- the PDUFA date is February 13th.

That's at the end point of a priority review.

I just don't think we want to speculate on what the action will look like, when it's going to come, will the manufacturing issue you raised -- we're working very closely with the FDA.

We are in the home straight.

Obviously, we hope that we will be going to approval, but it's always unwise to try and predict these things.

But obviously, all the signals are in the right direction.

But let's just wait -- on or before before February 13th, and we'll see where we go.

Steve, this is Don.

As to bringing Erbitux to market, we do have sufficient product quantities and manufacturing capabilities for launch, and we would expect to be in the market making Erbitux available to colorectal cancer patients in need within one to two weeks after product approval.

And, Steve, the second question, with regard to Abilify and the FDA, both BMS and Otsuka are in discussion with the FDA.

It wouldn't be appropriate to discuss the content of the discussions or the tone, which I think wouldn't be appropriate at this point.

So we are working closely with the FDA, and you will hear as to where those discussions go.

I think with regard to the ADA document, I would say there's been mixed views to that.

But I think we are quite -- we do support the ADA document, and I think it accurately reflects what is the spectrum of activity across what they call the second-generation antipsychotics -- from one end, Clozaril and Diprexor (ph), where there are clear effects on weight gain, diabetes and cholesterol to Abilify Geodon at the other end, with little or no effect.

So we do support the document in terms of the spectrum of activity, and we do support the recommendations of the ADA document.

Richard Evans, Sanford Bernstein.

Most of the accounting revisions that we've seen seemed to relate to legacy Bristol operations.

Have you completed review of the ImClone and DuPont transaction accounting?

And if so, can you rule those out as a source of future revisions?

And then, as a follow-on, can you characterize for us your strategy in dealing with outside investigators as you go through this process?

Are you in communication with them now?

Are they waiting for you?

Is this something that you intend to try to accelerate and resolve and put behind you?

Or were you just going to let things take a more natural course?

Firstly, around the accounting for the ImClone and DuPont transactions, there were some minor provisions for those in the 2003 restatement, and that has been completed.

As regards our approach with people like the SEC, we continue to cooperate and work with them, and obviously we would continue to hope those matters are resolved as speedily as possible.

We're not able to provide you any further details on that, though.

Mara Goldstein, CIBC World Markets.

My question relates to the investigation into the sales and marketing practices.

A few months ago, the Company had taken an internal, I guess, investigation of its own practices.

And I'm wondering if this charge, then, completes the book on your own internal review, or is that still ongoing?

I think you ought to assume that this is an ongoing effort.

And as we have communicated previously, we're sharing the results of the review, and we continue to cooperate and look to bring it to closure as appropriate.

Steve, thank you.

Mara, thanks for the questions, everybody.

At this point, before we wrap up the call, I'd like to turn it back over to Peter for your questions.

As always, if you have follow-ups, please give myself or Sue Walter a call.

And we'll be in our offices.

Thanks, John.

Just to wrap up here, I think 2003 was a very solid, strong year for the Company and a good platform for us, as we enter the 2004 and start to execute against our strategy.

Importantly, we continue to invest in the business, in our growth drivers as well as in R&D growth.

We continue to advance our pipeline, both in terms of potential launches as well as filings that we plan to make.

And we are clearly recognizing the challenges we face on the exclusivity loss side of the equation.

All in all, 2003, I think, was a terrific platform for us as we enter the challenges of the next couple of years.

Thanks for joining us.

Thank all of you for joining us this morning.

This does conclude today's conference.

Thank you for your participation.

You may now disconnect.