Endo International PLC (ENDP) 2004 Q1 法說會逐字稿

Good morning, my name is Christie and I will be your conference facilitator today. At this time I would like to welcome everyone to the Endo Pharmaceuticals’ report of first quarter 2004 results. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question and answer period. (Caller Instructions). Thank you. Ms Ammon, you may begin your conference.

Thank you. Good morning. Earlier today we reported our financial results for the first quarter of 2004. We thank you for dialing in and giving us the opportunity to discuss those results with you as well as other developments. On the call with me this morning Jeff Black our Chief Financial Officer.

Before we discuss the financial results of the quarter in detail I would like to take a few moment to review some of the developments in 2004 that I believe will continue to enhance our prospects for growth.

On March 24 we announced that the FDA had granted final approval to the 10, 20 and 40 mg strengths of our generic Oxycodone Extended Release tablets. This followed a favorable lower court decision on January 5 [set down] Purdue’s patents were unenforceable. At this time we have not made a decision as to whether we will launch this product at risk or await the outcome of Purdue’s appeal, which they filed on January 12.

During the first quarter we met with the FDA regarding the status of our new drug applications for Oxymorphone Extended Release and Immediate Release tablets. The FDA concurred with our approach on all other issues with regard to extended release. The status of the FDA’s request for additional clinical trials for this product was not resolved. The agency requested more time to adequately review our additional analysis of certain data from the Oxymorphone Extended Release clinical trials, and agreed to respond to us as soon as possible, which we believe will be during the second quarter of 2004. In regard to Oxymorphone Immediate Release the FDA indicated that more safety and efficacy information from patients receiving repeated doses of the drug would be required. As a result we will conduct a short-term repeat-dose study with Oxymorphone Immediate Release to resolve this question, which will be initiated following agreement on the study design with the agency.

On February 26 we announced an agreement with Noven Pharmaceuticals under which Noven will license the US and Canadian rights to its developmental Transdermal Fentanyl Patch to Endo. Noven’s Fentanyl Patch is a transdermal delivery system for the management of chronic pain and is intended to be the generic equivalent of Johnson & Johnson’s Duragesic, which had US sales of approximately $1.3b in 2003. An abbreviated new drug application for Noven’s patch is pending at the FDA.

We also announced an agreement with a small discovery company, MakScientific for the rights to jointly develop and commercialize MakScientific’s entire existing and future pre-clinical library of compounds with selective CB2 cannabinoid receptor agonist activity in the fields of pain and selected central nervous system disorders.

Now let me briefly summarize our financial results.

I am pleased to report that we had another strong quarter. Despite generic competition for Percocet and our generic Morphine Sulphate Extended Release product, total net sales for the first quarter of 2004 were $153.5m compared with $152.3m in the same period a year ago. Continued strong growth of Lidoderm, our topical analgesic patch for the treatment of postherpetic neuralgia, offset somewhat by generic competition for Percocet that began in the fourth quarter of 2003, were the primary factors behind the sales performance.

Gross profit was $120.6m compared with $124.7m in the year-ago first quarter. Net income for the first quarter of 2004 was $41.2m versus $16.4m in the same period of 2003. Adjusted net income for the 2004 first quarter was $43.5m compared with $46.3m in the first quarter of 2003.

Diluted EPS for the three months ended March 31 2004 was 31 cents compared with 12 cents in the same period of 2003. On an adjusted basis diluted EPS were 33 cents for the first quarter of 2004 versus 35 cents in the comparable year-ago period. A detailed summary of adjusted net income and adjusted EPS for the quarter is provided in today’s press release.

As a result of the strong results through the first quarter of 2004, combined with the anticipated continued stance of Lidoderm, we are revising our guidance upwards for 2004. We believe that we are currently well positioned to achieve 2004 net sales of approximately $580m to $590m, which does not include the launch of any new products in 2004. We expect Lidoderm net sales to be approximately $300m in 2004. In addition, we anticipate GAAP diluted EPS for the year ended December 31, 2004 to be approximately 85 cents to 90 cents per share, and adjusted diluted earnings per share of approximately 90 cents to 95 cents. Of course there can be no assurance of Endo achieving these results.

Now I would like to turn the call over to Jeff Black who will address numbers for the financial results in detail. Jeff?

That’s, Carol. As Carol mentioned, Endo’s net sales for the first quarter of 2004 were $153.5m, up slightly from the $152.3m in the first quarter of 2003.

Net sales of Lidoderm, now our largest selling product, rose to $65.4m, up 58% from $41.5m in the same period a year ago. Lidoderm has orphan drug status until March 2006 and patent protection through 2015. The success of Lidoderm reflects growing market awareness and acceptance for the product as more physicians and patients recognize its benefits. Prescription growth for Lidoderm was up 75% and dispensed unit growth was up 83% in the first quarter of 2004 versus the comparable 2003 period. Based on IMS data the run rate of Lidoderm is now approximately $255m.

Net sales of Percocet were $30,7m for the three months ended March 31, 2004 versus $55.5m in the same period in 2003. The growth experience during most of 2003 was adversely affected in the first quarter of 2004 due to the introduction of generic versions of Percocet 7.5/325 and 10/325 during the fourth quarter of 2003.

Led by growth in Endocet sales from our generic products rose to $53m in the first three months of 2004 compared with $47.9m in 2003. During the first quarter we experienced a decrease in net sales of our Morphine Sulphate Extended Release tablets due to generic competition introduced in the third quarter of 2003. However, this was offset by our launch in the fourth quarter of 2003 of two new strengths of Endocet.

Gross profit for the first quarter of 2004 declined to $120.6m from $124.7m in the same period of 2003. Gross profit margin was 79% compared to 82% for the year-ago first quarter. The decrease can be attributed to the shift in revenues from higher margin Percocet to generic Endocet, combined with the impact of pricing pressure on our generic Morphine Sulphate product. With the introduction of child resistant packaging for Lidoderm during the second quarter of 2004 we expect gross profit margins to continue to decrease in 2004.

SG&A expenses of $38.7m for the first quarter of 2004 were up 7% from the year-ago first quarter. This increase primarily reflects our promotional efforts and support for Lidoderm, as well as support provided to our new product pipeline in anticipation of product launches.

R&D expenses were $9.8m for the 2004 first quarter, down about 19% from the same period a year ago. The comparison reflects a higher level of clinical trial activity in 2003. During the second quarter of 2004 we gave a payment to SkyePharma upon the advancement of Propofol IDD-D into Phase III clinical trial development.

During the first quarter Endo terminated its development agreement for certain undisclosed products with its development partner Lavipharm (ph). We made a termination payment to Lavipharm of $3m during the first quarter, and also wrote off the unamortized portion of the intangible assets related to the license of the products of $0.8m.

Diluted EPS for the first quarter of 2004 were 31 cents versus 12 cents in the comparable 2003 period. As detailed in the supplemental financial information in today’s press release, adjusted diluted EPS for the first quarter of 2004 were 33 cents per share, adjusted to exclude the impact of the termination of the agreement with Lavipharm, compared with 35 cents for the first quarter of 2003, which was adjusted to exclude the non-cash compensation charge related to the vesting of non-diluted stock options.

We generated cash flow from operating activity of $67m for the 2004 first quarter. Our cash and cash equivalents were $284m as of March 31, 2004. We feel our solid financial position with good cash flow and no debt provides us an opportunity to pursue acquisitions and other strategic alliances which would, we believe, accelerate our growth as a premier specialty pharmaceutical company.

I would now like to turn the call back to Carol for some additional comments.

Thanks, Jeff. Before we take your questions I’d like to just take a moment and review some of the upcoming key milestones and significant events for Endo.

We expect to have further clarity some time during the second quarter regarding the status of our NDA for Oxymorphone Extended Release tablets once the FDA responds to our re-analysis of the Phase III clinical trial data. We look forward to continued growth of Lidoderm and expect to achieve net sales of approximately $300m in 2004. We look forward to an action letter from the FDA for DepoMorphine, which has a 12-month PDUFA date of July 18, 2004. We expect Propofol IDD-D to commence Phase III clinical trials around mid year.

Finally, we will remain active in pursuing further in-licensing and acquisition activities in pain management and complementary therapeutic areas. Although we have not made a determination at this time as to whether we will launch our generic Oxycodone Extended Release at risk, or whether we will wait until the [appellant] decision, we continue to consider the many factors involved. If and when we have made a decision we will announce our intent. Under either scenario Endo will have 180 days of marketing exclusivity with respect to the 10, 20 and 40 mg strength of this product. Importantly these three strengths account for 63% of a $1.9b market.

Finally, we remain excited about our future due to the strength of our near-term product pipeline, including our extended release and immediate release Oxymorphone, DepoMorphine, our generic extended release Oxycodone and our generic Transdermal Fentanyl Patch.

Now before we take your questions I will turn the call back to the operator.

Before we turn the call over to questions I would like to remind you that during the course of this call, Carol or Jeff may have made forward-looking statements concerning such topics as future results, product performance, anticipated timing of FDA approval of certain of the Company's drugs, and possible timing of the commercial launch of certain of the Company's products, as well as other non-historical facts that reflect Endo's current perspective on existing trends and information. As you would expect, these statements were made with appropriate qualifying language such as - we believe, expect, plan, anticipate, predict, or similar expressions. By their nature, these forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results to be materially different from any future results expressed or implied by these forward-looking statements. Listeners should not rely on any forward-looking statement. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. Important factors that may affect Endo's future results include, but are not limited to, those factors discussed under the heading ‘forward-looking statements’ in Endo's SEC filings and under the heading ‘risk factors’ in Endo's registration statement on form S-3 filed with the SEC on July 1, 2003. We urge you to review these factors.

In addition, during the course of this call, Carol or Jeff may have referred to non-GAAP financial measures, such as consolidated EBITDA, adjusted net income, and adjusted diluted earnings per share. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles in the United States, and may be different from non-GAAP financial measures used by other Companies. Investors are encouraged to review Endo's earnings press release issued this morning for Endo's reasons for including these non-GAAP financial measures in their earnings announcements and to see the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

Thank you. We’d now like to go ahead and open up the call for questions.

(Caller Instructions). Our first question comes from the line of Dave Windley of Jeffries & Co.

Good morning all, congratulations on a nice quarter. A few question. First of all, Jeff, would you mind or could you quantify the impact to gross margin from the change in packaging on Lidoderm?

We didn’t experience any of that change in the first quarter, to partly answer your question. The change in the first quarter in gross margin was due substantially to more of the business going from our Percocet higher margin brand product to Endocet lower margin, as well as competition on price [indiscernible] products. We began shipping in April the child resistant packaging of the product and we have, as we have done in the past, we do expect a decline in Lidoderm margin as well as overall margin as it is now our biggest product, but we haven’t quantified specifically what that is.

Okay. The SG&A line was a little lower than I was looking for, and it could be my error. But are there any timing events that I should be aware of as to that number potentially increasing in the second quarter or subsequent quarters that was not evident in the first quarter?

There’s probably nothing unusual necessarily in the fist quarter that occurred. We did guide for the full year that we expected SG&A to be slightly up from where it was in 2003 and that remains consistent today, but there is nothing unusual in the first quarter.

Okay, and then was there any inventory change in the channel during the quarter?

Lidoderm stayed fairly consistent during the quarter at normal levels of where it should be. Percocet of course with generic competition, that did increase some from where it had been historically, but not any sort of levels of concern on our part. And the other products are pretty consistent as well.

And the Percocet increase would have been more because of the decline in withdrawals rather than the increase in sales into the channel?

Yes, just because of generic erosion [indiscernible] on the products.

The denominator of the calculation in other words?

Right.

Right, okay thanks, I will jump out.

Your next question comes from the line of David Buck of Buckingham Research.

Yes, good morning, just a couple of questions. First on Lidoderm; Carol can you give an update on what near-term programs you may have on R&D? You’ve mentioned back pain in the past, is there anything that would be presented at the American Pain Society Meeting? And then for Jeff, just on the gross margin mix assumption. Anything bit of quantification that you might want to share in terms of where that may go with the new packaging for Lidoderm?

Let me take the Lidoderm question first. We continue to be excited about this product and we have continued to study this product, done a number of Phase IV. Possibility of looking at it for utility in a variety of neuropathic pain conditions such as osteoarthritis and chronic low back and a variety of neuropathies. And based upon those we did embark upon a Phase II program for Lidoderm in chronic low back, so we’re currently in a Phase II program. Nothing to report at this time on that, but with a product that’s patent protected out through 2015 it really is very worthwhile for us to continue to study the application of the product. And as we get more data on this we will certainly be reporting that at the appropriate time.

As far as gross margin, without speaking to the specific gross margin of Lidoderm, we did somewhat address the issue and the known fact that we would in fact have a lower margin, higher cost of goods on this product by raising price in March of this year on Lidoderm 9% to somewhat offset the cost of good sold increase that we’re experiencing. We do expect though some continued decline, probably not too dramatic in gross margin through the course of the year though as Lidoderm’s margin suffers as our biggest product.

You said 9% price increase was when?

March.

In March, okay. If I could ask one final -- this is more for Carol In the evaluation of OxyContin and the decision to launch at risk, can you give us some sense on perhaps number of legal opinions you’ve so far had? What the correct number you think is right to make a decision? And what do you think the right number is for damages if you were to lose on appeal? Is it the gross margin loss, is there some sales force allocation? What’s your view on that?

Let me just address the legal question for a second. Naturally this is a big decision for us. We’ve been involved in this litigation for some period of time and have had the appropriate amount of legal counselors on through the process of the court case and then subsequently the court decision. I think really the answer to that question is that you just need to get the appropriate amount of advice to make sure certain you’ve explored all the issues in the case. We have being doing that, and now it’s come down to a business decision as to weighing the risks and rewards of either launching this product today or waiting until the appeal. The fact that we do have the ability to retain our exclusivity in either situation is something certainly that we have to consider as well. So we’ve taken the prudent course of getting the appropriate advice and we’re weighing all of the business factors now as we come to some type of decision.

I guess I would just add we use two firms at the district Court, outside law firms, to represent us during that period, and we may take other advice as well as we move through this process, not only the decision but the appeal process as well [indiscernible] case.

As far as lost profit, if we were to launch at risk and for some reason it overturned, either upon a retrial or at the Circuit Court, the definition of lost profit is not clearly defined in the law and there’s not a case study that is able to demonstrate what lost profit means. In that unfortunate situation I’m sure we will argue our case, Purdue will argue their case and some combination at the court level will decide what that lost profit is. But there’s not a clear definition as it is today.

Okay, great. Thank you.

Your next question comes from the line of Robert Uhl of Wells Fargo.

Thank you. With DepoMorphine now coming down the home stretch of the review, can you give us a flavor for any of the questions coming out of FDA? Does it seem like they’ve finished off the clinical review? Have labeling discussions started? Have they asked for prototype packing? Is there anything you can tell us about the status of that?

Yes, the interaction with the FDA is substantially done by our partner, SkyePharma on this as it’s their responsibility under the agreement to interact with the agency. Obviously they keep us involved over time. There hasn’t been a lot of substantive discussions to date. It’s not unusual though in this division or dealing with this division of the FDA, so we wouldn’t probably expect to have had a lot of communication with them at this point. So we are coming down the home stretch. There may be intensified communication coming here in the future, or they may just wait until we receive the action letter from them to do their communication.

And this is the same group as Oxymorphone?

Yes, this is the same division, yes.

Okay. Thank you.

Your next question comes from the line of Rich Watson of William Blair & Co.

Good morning, just a couple of questions. First on Percocet and I guess Morphine Sulphate based on what you’re seeing at this point in time. Any reason to expect any near-term incremental competition beyond what you’re seeing right now?

Based on what we are seeing or hearing we’re not aware of anybody else coming. We would expect in both those markets, and have actually expected in the past that more competition would come. The opiate controlled narcotic space is usually somewhat limited in the number of competitors that come, but they’re obviously now [indiscernible] on the Morphine Sulphate Plus and on the Percocet, so one or both of those could come in the other one, as well as some other sort of usual suspects that do play in this space. Both those products are substantial. We’ve been able to retain on the tender for that business in just one generic [indiscernible] about 60% of the generic market on that one, versus [Lawson’s] about 40%. On the Morphine Sulphate we’re at about 82% of the versus Mallinckrodt 18% of the generic. So we could also see not only more competition but a shift in how those market share percentages occur over time.

Okay, great thanks, that’s helpful. Just if I could ask one quick question on Lidoderm just to clarify. Orphan drug exclusivity means essentially that no other company can launch a topical lidocaine patch for post headache neuralgia, but could potentially launch in an indication outside of this, assuming no patent infringement. Is that a correct way to think about the orphan drug exclusivity?

Well yes. Essentially the FDA is not able to approve any other lidocaine containing patch for an indication of [PHN] until the conclusion of that exclusivity period. However, somebody would be free, yes, to put in application to study it in another indication which would be an NDA application.

Okay great. Thanks, that’s helpful.

Great. Thank you.

Your next question comes from the line of Corey Davis of JP Morgan.

Thanks. I want to come back to OxyContin for a second. It sounds like all of the weighing of the legal risks are done, and you mentioned now it’s just boiling down to a business decision. So my question is, are there factors that are independent of OxyContin that weigh into that decision? For example what happens with Oxymorphone. And then in addition to that part of the question, if you decided to launch say tomorrow do you have enough supplies on hand to support that kind of launch, or would it take more time to build up the manufacturing?

I would say that on the OxyContin we believe that this is an independent decision and it’s a decision around OxyContin independent of other products and the activity around those products. As you may be aware we did at the end of 2003 build some inventory in preparation for a potential decision on this, and so we do have inventory ready and we have to utilize that.

Yes, and I was just add that this decision has always been one of business judgment. Our legal team is very confident that we’re going to win upon appeal, but even if that confidence level is very high it still does not mean that we are willing to launch and may use our judgment not to launch. On the other hand we may upon our business judgment decide to launch, so we just have not made that decision at this time.

I guess I’ve been on the edge of my seat for a couple of weeks now. How would you describe the timing of the decision, imminent or due course?

We believe it certainly is a nearer-term decision as opposed to a longer-term decision, but I think due course would be an appropriate answer. As a company we have to weigh all these risks and come up with what we think is the best business judgment for the business. And we are going to be prudent in making that decision.

Your next question comes from the line of Michael Tong of Wachovia Securities.

Hi, thanks. If I can just follow up on Corey’s question. In the $67m in inventory on the balance sheet as of March of ’04, is there any generic OxyContin in there or is the $33m all you’ve got?

The inventory balance for OxyContin is fully reserved, so it would not be reflected in the $67m.

Okay. And if I can just follow up. If annualize the Q1 result of both top and bottom line and compare that to your full-year guidance, it looks to me that the full-year guidance will be just slightly below the annualized Q1 number. But there’s a significant gap in the bottom line. Can Jeff perhaps speak to that? Even if I take into consideration gross compression there seems to be some significant ramp in expenses in the remaining three quarters. Can you address that?

I guess some of the factors that are impacting our decision as far as guidance and our expectation for guidance is we expect obviously Lidoderm to continue its tremendous growth it’s experienced historically and continues to experience here to the first quarter. We also are not fully genericised yet on Percocet. We are retaining about 23% of the tablets as of today, so to speak, as of the latest weekly data, so there’s still some room to go there. Morphine Sulphate, as I mentioned earlier, we are retaining about 82% of that generic business versus Mallinckrodt’s 18%. And we don’t have an expectation that we will be able to maintain that all year as well. There may be further competition on Morphine Sulphate or Endocet as the year goes on.

From a margin standpoint some of the same dynamics that we just talked about from the gross margin standpoint, including the child resistant packaging that will be starting to be reflected during the second quarter of this year. As far as the other expense areas, what we did guide to for the full year is that SG&A would be slightly ahead of where were in 2003 and R&D would be slightly below where we were in 2003. So if that [indiscernible] into a ramp of expenses during the course of the year, a lot of that has to do probably with the fact that we do anticipate here that our near-term pipeline will be coming to fruition sometime soon, between Oxymorphone Extended Release and Immediate Release, DepoMorphine, the Duragesic generic patches as well as the OxyContin product. So there’s a lot coming in the pipeline. So from and SG&A standpoint as well as from an R&D standpoint we will continue to invest in the business to grow that business.

Great, thanks, that’s helpful.

Your next question comes from the line of Angela Larson of Unterberg Towbin.

Good morning, just a couple of quick question. On Lidoderm last year the sales pattern was affected I think by price changes and inventory. Jeff, can you remind us a little bit what was affecting the sales pattern last year, and what kind of sales pattern you expect this year?

Sure. The inventory levels of customers does fluctuate so much when price increases occur and/or when they’re anticipating price increases to occur. One of the dynamics in the first quarter last year was that at the end of 2002 the Lidoderm inventory from our customer standpoint was very low, about half a month versus about a month in normal course. So during the first quarter of 2003 we did have a catch up so to speak to get that customers did realize that inventory levels were sort of dangerously low at the end of ’02 and caught up by the end of March ’03 back to sort of normalized inventory patterns. So the GAAP sales numbers that we recorded don’t necessarily reflect what is happening actually in the prescription area.

Last year we took a price increase some time early in the year and as I mentioned, we did take a 9% price increase in March of this year, which that inventory will shift during the second quarter of this year.

So you do expect that there will be a bit of buy in before the price increase, but reflected in the second quarter numbers?

Well we took a price increase already in the first quarter, so there’s not going to be an incentive for people to speculate and buy anymore. Probably there were orders that did occur during the first quarter that were probably somewhat speculative, but we try to watch that very closely and not let them get ahead of where inventory levels should be out there. So the first quarter didn’t really reflect any significant speculative buy in, and the second quarter shouldn’t either because we took the price increase already. We will permit and do permit customers to buy an additional two weeks of Lidoderm at the old price when we take a price increase, and then that will be shifted in the second quarter, but we would expect that to sort of normalize again by the end of the second quarter.

Okay. Thinking about Oxymorphone Immediate Release and the repeated dosing studies, how quickly can you meet with the FDA and what is the duration that you think you will take to get those studies completed?

We will be in the process of working with the agency to define the final points around that study, and we won’t know the timeline definitively until we do have that meeting. But these are short-term repeat dose studies and now it’s a matter of working it out with the agency. We will attempt to gain further clarity around this program during the second quarter of this year.

The study itself we believe is a matter of days not weeks, so a couple of few days to repeat that study, for the study itself. But both from our own standpoint and the agency standpoint there’s not a lot of clarity on what type of study exactly needs to be done here and what are we trying to demonstrate. Some of those conversations have already occurred and will continue to occur. And as soon as we know something we will certainly communicate an expected timing of that.

Okay. And one more timing question. Could you tell us a little bit more about the appeals process now that it’s filed, what are the next steps and what timing do you expect associated with it?

From an appeals standpoint it’s a process of each side preparing and submitting briefs. We’ve been in the process of doing that now. We would anticipate that we will be before a three-judge panel sometime before the end of the year. Then once we have oral arguments with those judges it will be turned over to them really to take whatever time they need to be able to render the decision. Typically these appeals run in the area of 12-18 months from the lower court decision, which in this case was January 5, so we are on a timeline for hopefully being able to appear before this three-judge panel by the end of the year.

Just to add on to that, Purdue filed their brief a couple of weeks ago and so we are scheduled to file our brief over the course of the next few weeks.

Great. Thank you.

(Caller Instructions) Your next question comes from the line of Steve Balocet (ph) of Barbridge Partners (ph)

Hi, thanks. I guess while there’s been no decision yet on the OxyContin launch, I’m just wondering if a “soft launch” or risk adjusted launch is one of the considerations? In other words is it an all or nothing decision or is there some middle ground on what you may choose to sell into the marketplace? Thanks.

There’s certainly a lot of different possibilities and scenarios that we’ve played out in our minds and on paper in terms of different types of launches that occur, both a full launch or a launch of a strengths or two strengths or limited launch, things like that. So I guess since we haven’t actually made a decision we don’t have anything around that, but there are scenarios I guess that have played in our minds in terms of launching maybe just a strength or two strengths or try to do some limited launch. It’s probably difficult in reality to do somewhat limited launches when you have the availability of launching a lower priced alternative to the marketplace. To try to limit the amount of demand that occurs out there is difficult from our standpoint. So it’s not necessarily an all or nothing launch decision, but that may be the way we go.

Okay. Thanks.

Your next question comes from the line of Corey Davis of JP Morgan.

Thanks, two quick ones. Are you working on a pediatric extension for Lidoderm?

We have thought about that. Postherpetic neuralgia, the approved indication substantially occurs in the elderly, so it could be extremely difficult to find a pediatric population on the indication of postherpetic neuralgia to [indiscernible] that, but that is something we exploring, yes.

Okay. And is it fair to say it would be difficult for a generic to get approved because of the topical nature of the patch?

Well from the standpoint that at this time there are still no guidelines from Drug Administration how one does demonstrate bioequivalence in a topical patch. It would involve clinical studies, so it is not your typical path towards an ANDA application. But I think it’s safe to say that the more successful this product becomes the more enthused somebody might be to working with the agency to try to demonstrate how you would go about bioequivalence in a topical patch. But as it stands today there are no guidelines.

Okay. On Duragesic, if J&J is somehow successful in delaying [Miland] from its plan to launch in late July and they end up launching in January, is it your opinion that they would still six months of exclusivity even if you were to gain approval, you wouldn’t be able to launch until mid year, or is that not the case?

Well to be honest we are somewhat confused by what’s going on there as well. [indiscernible] it’s our understand at least that if Miland is kept off the market until January of ’05 that that would not impact our ability to get onto the market in January of ’05. But again honestly a lot of people are confused about the situation; including people here as to how this is all going to play out.

And would you say it’s unlike that you get a tentative approval from the FDA ahead of that January date, just to give us some sense that the ANDA itself is in good shape. Or is the FDA likely just going to wait until that to get the final approval all at once?

Well the process should be that if the application meets the various criteria that we should be able to receive a tentative approval that would become a final approval at the expiration of the pediatric exclusivity. That is what we believe today.

Okay. Thanks.

Your next question comes from the line of Rich Watson from William Blair & Co.

Hi, just a quick follow up. Given the Oxymorphone Extended Release and Immediate Release are separate NDAs and potential disparities emerging in defining of approval each, would you consider launching the Immediate Release alone before the Extended Release or vice versa?

I think we have to evaluate to the extent that we were looking at some type of delay or gap between the approval of both. We’d have to look at how long that gap is and make a determination at that point in time. The immediate release was formulated to really complement the extended release so the patients that had breakthrough pain could be treated with the same molecule as the extended release. But again I think depending upon what length the gap would be, if there was to be one, would be a time that we would reconsider that. And certainly the extended release product we would certainly think about launching as an independent product. But vice versa we’d need to look at the time gap between the Immediate Release and the Extended Release.

Okay. Thanks.

Ms Ammon, are there any closing remarks?

I’d just really like to thank everybody for participating in the call today. We really appreciated the opportunity to update you on the milestones that we have and to discuss our first quarter 2004 earnings with you. So thank you very much.

Thank you. This concludes your conference, you may now disconnect.