施貴寶 (BMY) 2004 Q3 法說會逐字稿

Good day, everyone 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 call over to the Vice of Investor Relations, Mr. John Elicker.

Please go ahead, sir.

Thank Vicki.

And good morning, everyone and thanks for joining us this morning to review our Q3 results.

As you have seen the release crossed at about 8'o clock this morning and our results and some additional financial information is available on our website.

With us this morning, we have Andrew Bonfield, Lamberto Andreotti, Don Hayden and Peter Dolan is on the line with us from North Carolina, where he along with some other members of senior management will be attending a memorial service for Dr. James Palmer.

Peter will have some opening comments, but will not be available for Q&A.

Andrew Bonfield and Lamberto will also have prepared remarks and Don will be here for Q&A.

First, let me cover some legal matters.

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 in our periodic reports on Form 10-Q.

These documents are available from the SEC, the Bristol-Myers' website or from Bristol-Myers' 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 Peter.

Thanks, John and good morning.

Before I talk about the quarter this morning, I would like to take a moment to acknowledge the loss of our Chief Scientific Officer and Head of Research and Development, James Palmer, earlier this week.

We are all deeply saddened as he was a beloved colleague, an outstanding leader and a trusted counselor.

Our thoughts and prayers are with his family and thanks to those of you on the call who sent condolences to us.

James had many, many friends and admirers.

James reenergized and refocused our pharmaceutical R&D efforts.

Under his leadership, R&D experienced one of its more productive periods.

In a business where discovering and developing drugs is a 10-year process from beginning to end, James' contribution was felt almost immediately and I expect we will see benefits of his contributions over the coming years as well.

Yesterday, we announced that Dr. Elliott Sigal would succeed James as Chief Scientific Officer of the company and President of our Pharmaceutical Research Institute.

Many of you already know Elliott.

He developed a close partnership with James and led the global, clinical and pharmaceutical development of R&D for the last several years.

He has also been a member of our executive committee since 2001.

Elliott and our R&D leadership, some of whom joined the company recently and others who have many more years with Bristol-Myers Squibb intend to build James' legacy, delivering on the promise of new medicines for serious life-threatening unmet medical needs.

You will have the opportunity to meet Elliott and his team at our R&D Day on November 17 in Manhattan.

Now, let me provide some perspective on our performance this quarter and update you on the progress we are making executing against our strategy.

Following my remarks, Andrew will go into more detail about the quarter and Lamberto Andreotti will provide a brief update of our international business performance year to date.

And then they will take your questions and at some point during the call I need to leave for the memorial service.

First, we reported fully diluted earnings per share on a non-GAAP basis of 44 cents.

Global net sales increased by 1% to $5.4 billion with strong contributions from our newer products, Abilify, Reyataz and Erbitux.

Our international business also continues to perform and for the year is significantly ahead of plan.

Lamberto will have more to say about this part of the business in just a few minutes.

Sales of PLAVIX and Avapro/Avalide, our two cardiovascular products that we co-market and co-promote with Sanofi-Aventis, grew about 30% in the quarter.

Our new launches continue to build strength.

Recorded total revenue for the quarter for Abilify, our schizophrenia treatment was up 63% to 165 million.

In September, the FDA approved an important new indication for Abilify to treat acute mania in patients with bipolar disorder.

Sales of Reyataz, our novel protease inhibitor for HIV AIDS, which was launched in the US in Q3 last year and in Europe earlier this year were 106 million.

And Erbitux, which was approved by the FDA in February, recorded $84 million in sales during the quarter.

Along with the new indication for Abilify, during the quarter, we also added new prescribing information for medicines in our growing virology franchise.

In July, the FDA approved new labeling for Reyataz indicating that combination HIV treatments containing Reyataz and ritonavir showed similar efficacy to Kaletra, the protease inhibitors class leader.

In August long-term efficacy data were added to Sustiva's label.

In September, we submitted a new drug application to the FDA for entecavir, our investigational treatment for chronic Hepatitis B. We also submitted a marketing authorization application for entecavir to the European Medicines Evaluation Agency.

Two weeks ago, at the annual meeting of the American College of Rheumatology, data from two Phase III studies showed that abatacept demonstrated significant clinical activity in patients with rheumatoid arthritis who have not adequately responded to other available therapies.

We will have more to say about abatacept as well as muraglitazar and the rest of our pipeline, when we hold our R&D Day in New York on November 17.

I hope that all of you will take the opportunity to join us for this R&D Day.

We'll be able to provide a comprehensive overview of the depth and breadth of our pipeline.

In the quarter, we also continued to put important resources behind that pipeline.

R&D spending increased a targeted 9% to $615 million, primarily driven by our continuing investments in Entecavir, Abatacept and Muraglitazar.

We also continue to deliver on our strategy to make us a more focused company and a leader in disease areas of significant unmet medical needs.

Our pipeline continues to match up well to the strategy.

The regulatory submissions of Entecavir were an important step as hepatitis is one of the 10 disease areas we're focusing on.

We've also begun to restructure and reshape our sales force and other functions to better align with those 10 disease areas.

Recently, we completed the transition of our former US primary care sales force to a more focused cardiovascular metabolic sales team.

The R&D and sales infrastructure the company is building today will now be better suited to handle our current portfolio and help introduce the new portfolio of medicines we expect to launch in the next couple of years.

This type of workforce realignment will continue to consent rate resources behind our disease areas of focus and help the company fully execute against the strategy.

Finally, let me say a few words about guidance for this year and reconfirm statements I've previously made with the quarter's performance.

We are obviously comfortable with the company's full year '04 guidance of 160 to 165 per share on an adjusted non-GAAP basis.

Andrew will have more to say about this shortly.

Lastly, many of the characteristics of this quarter are consistent with what we expect as our portfolio transitions and continues to transition during the next couple of years.

We will indeed experience exclusivity losses on several of our key products, but the losses will be more or less offset by sales of our inline growth drivers.

Additionally, our margins in the period will be pressured reflecting a new mix of productions in our portfolio, some with lower margins compared to products that will soon face generic competition.

We will also continue to manage other operational expenses, while making necessary R&D investments in our pipeline to maximize all of our opportunities and shape the company's future.

Let me now turn the meeting over to Andrew.

Thank you, Peter.

I would like to discuss the third quarter results and provide an update on our full year expectations for 2004.

As you have seen from the release, fully diluted earnings per share for the quarter were 38 cents, negatively impacted by 6 cents of specified items, primarily the $105 million related to accelerated depreciation and termination benefits for certain operations in the US and Europe.

The full reconciliation of GAAP to non-GAAP earnings per share is posted on our website.

Excluding specified items, fully diluted earnings per share on the non-GAAP basis were 44 cents, well ahead of first quarter census.

Sales were up 1% to $5.4 billion.

The sales performance resulted from a 1% increase due to foreign exchange rate fluctuations and a 2% from price increases offset by a negative 2% impact from volumes.

Worldwide pharmaceutical sales were flat at $3.8 billion, which included a favorable 2% impact due to foreign exchange.

US pharmaceutical sales decreased 2% to $2.1 billion.

Sales were negatively impacted by increased competition for Pravachol and Parplatin as well as exclusivity losses for the net -- franchise.

Our key growth drivers, PLAVIX, Avapro, Erbitux, Reyataz and Abilify had another quarter, with US sales of $1.2 billion versus $.8 billion last year.

These key growth drivers now make up 58% of sales for the quarter compared to 38% last year.

Wholesaler buying patterns had some impact on growth rates in the quarter specifically for Pravachol, Avapro, Sustiva and Abilify.

Overall inventory levels at the end of the quarter are down slightly from the end of the second quarter to just under three weeks.

For the first time, we've included wholesaler inventory levels for our key US brands on our website.

International pharmaceutical sales grew 2% to $1.7 billion including a 4% benefit from foreign exchange.

While sales for Taxol in Europe remain ahead of our original expectations; we did begin to see more generic competition.

Additionally, Pravachol lost exclusivity in the UK and Germany.

Now, let me move to a few of our key products.

Worldwide PLAVIX sales increased 30% to $902 million, this is on the strength of a 23% increase in US scrip volume and a favorable price comparison.

Worldwide Pravachol sales of $598 million were down 24% and US scripts were down 13% for the quarter.

US sales are also negatively impacted by reduction in wholesaler inventory levels and an increased level of managed care and other rebates in 2004.

International sales were down 20% excluding foreign exchange due to the exclusivity losses in Europe, I mentioned a moment ago.

We reported $165 million in total revenue for Abilify, including $13 million internationally.

This translates to approximately $250 million in sales for the compound in the third quarter as we report only 65% of the revenue in the US.

Success in the US continues with a new scrip share of approximately 9.8% for the most recent week and total scripts for the quarter were 640,000, a 14% increase over the second quarter of the year.

Sales for Reyataz our novel protease inhibitor were $106 million.

Reyataz now has approximately 26% share of new scripts in the USPI market excluding ritonavir.

Additionally Reyataz sales included $31 million in international revenues.

We continue to be pleased with the launch of Erbitux, performance is in line with our expectations in terms of usage and penetration within this indication and repeat usage among treating physicians is very high.

Sales for the quarter were $84 million and we continue to see a positive reimbursement environment.

I would remind you that reported sales totally track demand as we distribute Erbitux for OTN and therefore sales were reported on a consignment basis.

Mead Johnson sales decreased 7%.

Excluding the add-on nutritionals business, sales grew by 5%.

Strong international sales growth continued up 18% excluding foreign exchange driven mostly by volume growth in Asia.

ConvaTec and Medical Imaging also both reported strong sales growth for the quarter.

ConvaTec was up 3% excluding foreign exchange as Wound Care up 13% ex-FX continues to be a growth driver for that business.

Medical imaging sales were up 12% and Cardiolite had a strong quarter up 22%.

Now let me move on to a few of the expense lines.

The gross margin in the third quarter was 61.3% compared to 64.1% last year.

Specified items reduced the gross margin by .5% quarter-over-quarter.

Excluding these, the decline in margins was approximately 2% with OTN contributing 0.9% of that reduction with the balance mainly due to product mix.

The gross margin excluding specified items for the worldwide medicines business fell by 3.6% from the third quarter of last year to 71.7%.

The decline is principally due to the loss of higher margin products such as Parplatin, Monopril and the Metformin franchise and the impact of the launch of Erbitux.

We continue to expect gross margins to decline about 1% for the full year, excluding specified items.

Marketing, selling and administration were up 5% due to the expansion of the Abilify sales force relative to 2003, the unfavorable impact of foreign exchange, higher pension expenses.

We still expect SG&A expenses to increase in the mid-to high single digit range for the full year.

Advertising and promotion spend was roughly flat, with increased spending behind Abilify, Reyataz and (indiscernible), offset by lower spending on more mature brands.

We expect A&P spending to be up in the low-to-mid-single digit range for the year, as we'll make additional investments behind our key brands such as PLAVIX and Abilify in the fourth quarter.

Research and development expense increased by 9% to $615 million.

Excluding specified items including a $10 million milestone payment to Zola (ph), R&D increased 13%.

This increase was primarily driven by spending on increased resources behind development projects including Phase III spending on Entecavir, Abatacept and Muraglitazar.

We expect full year R&D spending to be up 12 to 14% excluding specified items.

Pharmaceutical R&D spending, as a percentage of pharmaceutical trials increased from 13.4% to 14.8%, as a result of the increased spend.

Equity income from the affiliates increased $16 million as a result of favorability in our share of Imclone and an increase in minority interest income received from the sale of Sanofi, JV products outside the US.

Minority interest expense, net of taxes increased $42 million to $152 million primarily, as a result of the strong growth of products in the US.

The effective tax rate from continuing operations before minority interest and income taxes and excluding specified items in the third quarter, decreased to 21.5% from 25.3%, last year.

The rate for the quarter benefited from higher foreign tax credits.

The third quarter nine-month rate excludes the benefit due to the extension of the R&D tax credit beyond the 30th of June this year.

We are also close to a US -- closing a US tax orders, so we'll be reviewing the rate again in the fourth quarter.

Operating cash flow remains strong and net debt at the end of the quarter was $2.9 billion compared to $3.2 billion at the end of the year, last year.

This is a slight increase in the second quarter, due to litigation payments.

From a financial perspective, the big news has been the passage of the Jobs Act.

We expect final regulations to be issued in the fourth quarter, which will determine the amount of unremitted earnings that we will be able to repatriate back to the US and potential uses of that cash.

At the 31st of December 2002 we had around $9 billion of unremitted earnings in our foreign subsidiaries.

We are in the process of analyzing our potential cash tax cost, where we expect it to be significantly less than the booked charge, as we will be out to utilize excess foreign tax credits to offset the book loss cost.

It is likely that any book tax charge will be a specified item in the fourth quarter.

I hope to be able to provide you an update on this in the fourth quarter call.

Our full year 2004 guidance remains at $1.60 to $1.65 at an adjusted non-GAAP basis.

Our expectation is that we will be at the top end of this range.

Again the full reconciliation to get earnings per share is posted on our website.

As is our normal practice, we will likely provide 2005 guidance on the fourth quarter call.

I would like to remind you that the company does face challenges in the near term.

Loss sales, as a result of exclusivity losses are likely to be more or less offset by increased revenue from our growth drivers and newly launched products.

The resulting mix effect will put pressure on gross margins.

We will work to manage operating expenses, while we continue to invest in R&D and new product launches.

In summary, our third quarter performance was strong and newly launched products continued to perform well.

We are investing for our future.

Now, let me turn it over to Lamberto.

Thank you Andrew and good morning everybody.

I am very pleased to have this opportunity to update you on our International pharmaceutical business.

I will also briefly comment on the performance of Mead Johnson Nutritional.

As Andrew has already given you some of the highlights from the quarter and as I do not update you at each earnings release, I would like to speak more about the past nine months and the quarter and also provide perspective on our future expectations.

The first nine months of the year have been quite successful, and we are very excited to have launched Reyataz and Abilify in a number of markets in Europe and the rest of the world.

However, in this period we have also experienced initial generic competition for Pravachol from European countries and we are now starting to see, an increase in the generic competition for Taxol throughout Europe.

Let me give you some additional perspective.

In the first nine months of 2004, International pharmaceutical sales increased 10% from last year, including 9% favorable foreign exchange impact to $5.2 billion.

In looking at this performance, I remind you that our reported sales, do not include the sales of PLAVIX and Avapro in the international markets, where Sanofi-Aventis is a lead co-promotion partner.

In these countries, we co-promote the Sanofi-Aventis book to sales.

Internationally, PLAVIX and Avapro experienced growth of over 22% and over 17% respectively, excluding foreign exchange with a significant contribution to the profitability of our Bristol-Myers Squibb international operation.

International sales of Taxol were $711 million in the first nine months, which is flat to last year excluding foreign exchange.

The sales composition had two main components.

In Japan, Taxol still has patent exclusivity and protection and we continue to have double-digit sales growth.

In Europe, while we lost exclusivity for Taxol at the end of 2003, the generic competition has been much slower than expected.

This has generated significantly better results, than we had forecast.

Now the generic competition has become more widespread and we anticipate it will impact our future sales in Europe.

As of the first quarter, as Andrew said we're also facing multiple generic competitors for Pravachol in Germany, the UK and other European markets.

This competition has in fact led to a 20% decrease in Pravachol sales in the quarter and a 7% decrease in the nine months, net of foreign exchange.

On a positive note, we continue to have exclusivity for Pravachol in France and Italy until, 2006 and 2008, respectively.

And these are two of our largest markets in the world.

The total market share for Pravachol, which in France, which is the second largest (inaudible) market in the European Union is over 35%.

As for the new products Reyataz and Abilify are off to a firm start.

Reyataz was launched in March in France, Germany and the UK.

In less than six months, Reyataz has already met or exceeded a 20% share of the protease inhibitor class sales in the initial EU launch market.

Simulative international sales of Reyataz are $60 million so far, but we expect to further grow it in initial markets and launch it in additional countries worldwide, later this year.

Reyataz will truly become an important pillar of our HIV franchise.

Market research indicates the growth of Reyataz is not happening at the expense of Sustiva, which has continued to grow in the first nine months of the year to $188 million in our international market.

As mentioned before, while it is still early, the trend for the launch of Abilify are favorable in Germany, the UK and Australia and a number of other European countries.

We are in the process of negotiating prices on reimbursement for Abilify in many additional markets and we also plan to complete the global launch by mid-2005.

In the countries, where we have launched, (inaudible) seems to be even more favorable.

Then, we launched the product in the United States and at best in class levels versus its competitors.

Switching for a moment from International medicines to Mead Johnson Nutritionals, I'm glad to report that our sales grew 9% to $1.5 billion in the first nine months, excluding the Adult Nutritional business, which we sold to Novartis.

Sales were particularly strong in the International markets at 14%, excluding the effect of foreign exchange and Adult Nutritionals.

In the US, Mead Johnson has maintained its strong leadership position in the infant formula market with Enfamil Lipil and has recently launched a new brand, Expectro Lipil (ph), into the nutritional supplement market.

In summary, our International medicine business continues to perform consistently, even with substantial generic challenges the performance while the key inline pharmaceuticals, including PLAVIX and Avapro and our new product launches should successfully position Bristol-Myers Squibb for the future.

Mead Johnson continues to be a profitable and successful unit and contributes to the growth of the company.

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

Thanks, Lamberto.

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

I would remind everybody that we'll try to limit your questions to one, if possible.

Secondly, as we are having our R&D review on November 17th, we would like to defer most of the pipeline questions until then.

So Vicki, whenever you're ready.

Thank you.

The question and answer session will be conducted electronically today and anyone wishing to ask a question may signal by pressing the "star" key followed by the digit "one" on your touchtone telephone.

And once again that is "star" "one" to ask a question and we'll go to Timothy Anderson with Prudential, first.

Please go ahead.

Thanks.

A line of questions on PLAVIX litigation.

Last quarter in your press release you said that the worst case scenario generics would not likely launch before second quarter '05.

In the current press release you take out the commentary on second quarter and generalize it a bit more, and I'm just wondering why the change in the language?

And then if you can give us specifics on the litigation and ex-US on PLAVIX in terms of countries or timelines for seeing some action?

Are they pursuing the same strategy in terms of challenging the same 265 and 328 patents et cetera?

Tim, it's Andrew.

There is no significance in the removal of the words, second quarter.

We still don't expect a decision before the end of the first half of next year as we previously indicated.

As regards international litigation, there is no significant litigation in the overseas market at this point in time.

Thanks Tim, Vicki can we go to the next question.

Yes our next question is from Mara Goldstein with CIBC World Market.

Yes, thank you very much.

Can you just talk a little bit about Erbitux and the economics of that and when you anticipate getting to the point where it is distributed at EPS?

Mara, it's Andrew.

Obviously as you know for any newly launched product it is normally going to take a couple of years before it becomes profitable and starts making a contribution to earnings per share.

Obviously with Erbetux (ph), the focus is now is on actually expanding the brand and expanding the number of indications it is available for, and that really is going to be the focus for the next year or so.

Don, do you want to add?

Yes Mara, I think in terms of what we saw in the way of performance in the second quarter, we were encouraged by what we saw in the way of continued growth.

We are now seeing about better than 90% of the usage in the indicated areas of use in second line and third line metastatic colorectal cancer.

We are I believe at about a 10 or 11% penetration rate in second line, about 28% or so in third line and we are seeing good repeat usage among those oncologists that have used the product in treatment.

So we are still in the launch phase obviously, but encouraged by what we are seeing.

Thanks Mara.

Vicki can we go to the next question?

Our next question comes from David Risinger with Merrill Lynch.

Yes hi, Andrew could you talk about repatriation in terms of the flexibility you will have to use repatriated funds for a variety of different purposes at Bristol-Myers, how much flexibility you do have and what the timing is for likely action?

Thank you.

Yes, thanks, David.

As I mentioned in my remarks we are actually waiting for the detailed regulations to be issued by the Department Of Treasury.

We expect those them to come through in the fourth quarter.

Obviously the purpose of the act is the Jobs Creation Act and we'll comply with the purposes of the act and the regulations around what the cash can be utilized for.

But obviously our intention is to maximize the amount we repatriate in compliance with that.

At this point in time we can't say more than that because the actual detailed uses have not been defined.

We will work on planning for it in the fourth quarter and I expect to be able to provide you an update at the fourth quarter conference call in January.

Thanks, David.

Vicki can we go to the next question?

Yes we'll now go to Tony Butler with Lehman Brothers.

Yes, good morning and thank you.

Don, we have heard from Sanofi Aventis that perhaps because of some alignment changes in the sales force that you all have made, that they have been interested in trying to move more into the US and perhaps provide some greater support and thus have been trying to negotiate with respect to their current US royalty rates.

First of all is this true and I guess more importantly can you maybe provide any greater color around how this realignment has actually affected both PLAVIX and Avapro sales efforts?

Thank you.

Sure Tony.

I appreciate the question.

I think as Peter related in his comments in our US pharmaceuticals business, we recently completed the transition of our broad-based primary care sales force to a more focused cardiovascular metabolic sales team.

This cardiovascular metabolic sales force will focus intensively on the specialists and the primary care physicians who drive prescribing in this area including those who drive prescribing for Avapro and PLAVIX.

And this is entirely consistent with the approach actually that we've used for Avapro and PLAVIX for the past few years and we believe we have adequate capacity available to support Avapro and PLAVIX as we move forward.

We and Sanofi jointly and in close cooperation and collaboration review resourcing requirements annually.

And we make decisions on the basis of the business case, not ability or relative resources available from either partner.

We are going to continue to work on that basis in close collaboration and I'm confident that we will reach agreements for 2005 in terms of resourcing as we have in previous years.

And we do not anticipate any significant changes to the underlying financials for Avapro or PLAVIX in 2005 as we finalize our support for the brands and our plans for next year.

Thanks, Tony.

Vicki can we go to the next question?

Yes, we will go to Carl Seiden with UBS.

Thanks very much.

Probably a similar question, Don, because I'm assuming this relates to restructuring of the primary care selling effort.

The audited details for Pravachol are showing year-over-year decline of something on the order of 30%.

And I mean based on everything in terms of how you have been describing your strategy, that makes all the sense in the world, but I just wanted to know broadly that figure seems accurate and if we are now at a new level that will stay steady for Pravachol, or can we expect to continue to see trends like this?

And if could possibly ask just one different follow-up question, can you guys characterize how Abilify usage actually breaks down in terms of schizophrenia, bipolar disorder and other uses regardless of the fact that it may not match how it's labeled?

Thanks.

Yes Carl, I appreciate the question and I would be happy to provide as much perspective as I can around Pravachol.

I don't know that I will able to be of much help in the break down of Abilify usage.

With Pravachol the numbers that you've noted I think are broadly correct in terms of the year-on-year level of personal selling support for Pravachol.

We have as I mentioned completed our transition to a focused cardiovascular metabolic sales organization.

Pravachol, PLAVIX and Avapro are the three products that are the focus of that selling organization going forward.

And we intend to continue to support Pravachol for the remainder of this year and through next year at a level that we believe is consistent with the size of the target physician population and the opportunity that we have with the brand.

I don't expect substantial changes in the level of promotional support as we go through the remainder of this year and into the front end of next.

Abilify, I don't believe we have provided any breakdown in terms of usage.

The majority of the use is obviously in the indicated area in schizophrenia as is the case with all psychiatric products, we see varying degrees of use in other areas, including in bipolar disorder and we would obviously expect that the usage in bipolar disorder would now increase somewhat as we launched the recently-received indication for acute mania in bipolar.

And we were out in the field with that the first week in October.

Thanks, Carl.

Can we go to the next question?

Yes our next question is from Jami Rubin with Morgan Stanley.

Thank you, first of all again I want to offer my condolences to James Palmer and I'm very sorry about your loss.

My question relates to Abilify again.

If you can you talk about the dynamics in the European market.

Would you anticipate the launch of Abilify as you obtain reimbursement in Europe to look similar to the US and if you can draw comparisons to the rate of atypical penetration, the sensitivity to the diabetes issues and how you see the competitive dynamics playing out there?

Thanks.

What we have seen so far in Europe, as we said before, is an update of the product at a faster rate than what we experienced in the US.

And we do not have any reasons to believe that when we start -- we continue to launch the product in other countries, we will not see a similar situation.

As far as the movement of the structure of the market, the market in Europe is different from the market in the US as you know.

The split between atypicals and typicals is different.

There is less atypicals in Europe than in the US, 33 to 67 in Europe, 84, 85 to 16, 15 in the US.

However, schizophrenia, where most of our prescriptions are, is slightly different and now in fact in a number of countries.

You have up to 90% of prescriptions are atypical.

We do not have any reasons to believe that the different approach to selection of therapies in Europe will slow down the update growth we see.

So, we see, and we are very happy to see the market and market that's confirming that the update is there.

Doctors prescribe, there is a high percentage of doctors that prescribe up to million of other products, ip to 85%.

OK.

Jami, thanks for the question, and can we go to the next question, Vicki?

Yes.

Our next question is from David Moskowitz with Friedman Billings.

Please go ahead.

Yes.

Thanks and good morning.

A little bit of a strategic question.

What trends do you guys see in the market place when the government converts from the AWP to ASP reimbursement system under Medicare Part B?

Specifically, how will physicians handle the decrease in income?

Will the patients actually move from an outpatient setting to the hospital?

And overall, what happens to the demand?

Thanks.

David, I think, I appreciate the question, and it's a very good one.

We are obviously following this issue with great interest.

And it's our belief that decisions regarding treatment should continue to be based on the best interest of the patient, not on reimbursement considerations, and we're working with all parties to keep Patient Care at the center of the reimbursement discussion.

That having been said, I think, if we make the transition from AWP to ASP base pricing, certainly there have been discussions with clinicians and others that would suggest that some of the anomalies in the reimbursement structure might cause the movement of treatment from the office base setting to the hospital base setting, and I think were that to occur from a patient perspective, that is a negative.

And we are working to keep the reimbursement discussion focused on what's in the best interest of Patient Care.

Thanks, David.

Vicki, can we go to the next question, please?

Yes.

And we now go to John Morris with Harris Nesbitt.

Hi, guys.

Good morning.

Thanks for taking my question.

Just a question for Don Hayden on PLAVIX.

In 2003, the average duration of treatment for PLAVIX is approximately three months on average contingent on the indication that you look at where it's more than double that or close to eight months in some markets in Europe.

Can you just take me through what kind of inroads you've made in '04 in terms of expanding the length of therapy for PLAVIX in the US?

Thanks.

Yes.

I am happy to answer that question.

We've actually made good progress as we have gone through this year across areas of use in increasing the length of therapy, really driven by clinical out comes and by the scientific guidelines.

And that's been one of the major drivers of growth that we have seen this year, in behind that increase in total prescriptions of 23% that we saw in the third quarter and increases in the first two quarters that were at a rate slightly higher than that.

So, we have been encouraged by what we have seen in the length of therapy.

There is -- as we see it, continuing opportunity to extend the length of therapy with PLAVIX because the clinical data certainly support that in terms of improved patient outcome and that will be a focus for the work we are doing as we move forward.

Thanks, John.

Vicki, can we go to the next question?

Yes.

We will now go to Steve Scala with SG Cowen.

Thank you.

Last quarter you spoke qualitatively about your thoughts on 2005 and ‘06 relative to consensus.

I didn't see similar language in today's release.

Perhaps I missed it.

But does that -- the fact that you did not repeat this language today imply comfort with consensus in 2005 and ‘06?

And secondly, can I just ask a clarification?

The tax rate in the quarter was it 25.5 ex the one-time item?

Steve, yes.

As regard to the tax rate, yes you're right; it was 21.5 excluding specified items.

As regards to 2005 guidance, as I indicated during the call, we will provide 2005 guidance probably on the 4th quarter call in January of next year.

At this point in time we have nothing to update on 2005.

Thanks, Steve.

Can we go to the next question, Vicki?

Yes.

We will go to Chris Shibutani with JP Morgan Chase.

Thanks very much.

You provided some additional inventory information this quarter.

Could you comment a little bit about any particular noteworthy trends which would be useful for us in terms of thinking about our projections in the next quarter and going forward?

The point to note is that wholesale inventory levels are around on average somewhere around about the three weeks level.

We have seen “reductions” in some products.

It fluctuates by product by product.

The purpose of giving you the information is to help you actually see when there are script trends and versus actual sales trends together look at those and understand what's happening in the actual marketplace.

As regard to the end of the year, we will expect inventory to have comparable cost and expect inventory levels to remain about the current level that they are.

Obviously, that is dependent on what wholesaler orders are in the fourth quarter.

OK.

Thanks.

Vicki, can we go to the next question, please.

We'll now go to Craig Baskin with Loomis Sayles & Company.

Hi, thanks for taking my question.

I was just curious for a little more discussion of the atypical antipsychotic market in Europe and how fast it's growing.

Is there a differential growth amongst the various competitors of your product Respitol, ZYPREXA, CERACOL and a little more – a little fuller discussion on issues with respect to diabetes, weight gain, et cetera?

Thank you.

I think, I can repeat what I said before for you.

Give some more details.

The -- first of all we are at a few months after launch; we cannot reach a strong conclusion.

What we see as I said before that the update curve of our product in the countries where we have launched is better than what we saw in the US and better than what our competitors experienced in the past when they launched.

We do not see many differences in the perception of the product by prescribers, and as I said before, we see up to 85% of prescriptions by doctors who are exposed to the product.

So, this is the fact -- this means that the message on the efficacy and the ability of the product is well received and well accepted by the medical community, additional information, and encouraging information.

Thanks, Craig.

Vicki, can we go to the next question, please?

The next question is from John LeCroy with Natexis.

Please go ahead.

Thanks for taking my question.

It sounds as if you guys are suggesting that the topline may not grow through 2006 when you say that expiring sales will be more or less replaced by other products.

Can you address this possibility?

Thanks.

Yes.

As I think we made clear, John, of the -- since July of last year, we don't expect significant sales growth over this period of time.

We expect the impact of exclusivity losses to be more or less offset by growth of existing products and risk adjusted sales of newly launched compounds.

Thanks, John.

Vicki, I think we have time for two more questions.

We'll now go to Steve Slaughter with UBS.

Hi, thanks.

Just wondering if you could give us some color on the status of PLAVIX in Japan?

It appears the drug-eluting stents have now launched and so we are getting some good uptick.

I just am unaware as to where that product stands in Japan and whether you have an economic interest in the product in Japan?

We do not have any rights on PLAVIX in Japan.

It is kind of -- we had an agreement with another company as far as I know.

So, we are not involved in any activity development of the commercial activity for that product there.

Thanks Steve.

Can we go to the last question, please?

Yes.

The last question will come from Barbara Ryan with Deutsch Bank.

Good morning and thank you for taking my question.

I guess it's really for Andrew to Steve's question about the tax rate.

If we reconcile based on the data that you gave us for the 44 cents, if we exclude the milestone payments to get to 44, you have to have a higher tax rate than that, or if you use 20.5, then you add back the 31 million in milestone payments.

So, I'm just wondering, just from a reporting perspective and so we've got the base right and consistent with the way you are doing it, A) is that math right, and B) which way should we be looking at the 44 cents?

Yes.

Barbara, if I understand, the tax effect of the individual payments and the individual items we classify as specified items in the quarter is actually worked at the actual effective tax rate on those activities.

The reconciliation on the website should help you to get that math correct.

If you do have any other queries we will follow-up with you after the call and make sure that that does work.

But effectively, the specified items do have a specific tax rate in which they are tax relieved or tax effected for purposes of calculating EPS including and excluding specified items.

Thank you very much, everybody for listening in today.

And thank you for your questions.

We obviously now look forward to welcoming you to the R&D Day that will be held in New York on the 17th of November.

And thank you again and we look forward to seeing you, welcoming you then.

Thanks, bye.

Thank you very much, John.

And that does conclude our conference for today.

CONFERENCE CALL CONCLUDED