默克藥廠 (MRK) 2002 Q1 法說會逐字稿

Good morning.

My name is

, and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the Schering-Plough quick call.

All lines have been placed on mute to prevent any background noise.

Thank you.

Miss Foster, you may begin your conference.

Good morning. This is Geri Foster.

Thank you for joining today's quick call to review Schering-Plough's 2002 first quarter earnings.

The Safe Harbor statement that appears in our earnings press release also covers the information provided in this call.

The press release contains certain forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements.

Please read the disclosure notice at the end of the press release. The format of today's call will follow the same format as all of SGP's previous quick calls.

Today's earnings release is posted on Schering-Plough's Web site at www.sgp.com. Please read the printed release.

This call is also being Webcast.

Before we begin, let me remind you that we are still in negotiations with the FDA for a consent decree.

So we have no further updates to provide to you at this time other than to say what we said in today's release that we remain optimistic about reaching an agreement on a consent decree.

So let's proceed.

As usual I will cover only the highlights of the first quarter. Let's start with the income statement.

Sales, consolidated sales for Q1 were 2.6 billion, up 11 percent, 13 percent

exchange. Worldwide pharmaceutical sales were 2.2 billion, up 13 percent in Q1, 15 percent

exchange.

U.S. pharmaceutical sales were up 15 percent to 1.3 billion. International pharmaceutical sales were up 11 percent to 870 million, 16 percent

exchange.

Research and development, R&D was up five percent to 305 million for Q1. As you know much of research spending is a reflection of the timing of projects moving into the clinic and advancing through clinical trials.

For 2002 we expect low double digit growth in research expenditures and as we have said this previously.

Margins, gross margin was 77.4 percent versus 79.6 percent in Q1 2001 and cost of sales was 22.6 percent versus 20.4 percent in Q1 2001.

The major reason for the decrease in the gross margin ratio and the increase in cost of sales ratio is due to the increase in royalty payments particularly from the Intron franchise. As we have said many times and we are saying again, we believe the gross margin should be lower and cost of sales ratio should be higher for the year 2002 over the year 2001 due to higher royalty payments and increased manufacturing costs.

SG&A -- SG&A is up 10 percent for the quarter with the ratio at 35.9 percent as a percent of sales versus 36.4 percent in Q1 last year. SG&A spending tends to increase to support new product launches.

Right now we are launching Clarinex in Peg-Intron Rebetol in the U.S. and Europe and Intron A with Rebetol in Japan.

Tax rate, we set the tax rate in the first quarter each year and it will be 23 percent this year, the same as last year.

In today's release our CEO Dick Kogan reiterated the 2002 earnings projection he originally gave in a December 21st, 2001 press release. He said for 2002 we expect to achieve a percentage increase in earnings per share in the low double digits.

This estimate compares to 2001 EPS before the 2001 provision for a consent to prepayment. I would urge you to read his quote, and to also read the caveats regarding the earnings projection that are given in the press release.

We also have given you a Claritin trade inventory update in today's release. I am going to read this to you, and I urge you to read it also.

My apologies to those who have also read it. OK.

Claritin trade inventory update:

The company's forecast for 2002 earnings per share to increase in the low double digits on a percentage basis includes the expected negative financial impact on pre-tax profits from the depletion of Claritin trade inventories, as discussed below.

As previously reported in Securities and Exchange Commissions filings, the company has estimated that reductions in trade inventory levels of Claritin could negatively impact 2002 pre-tax profits in the aggregate by as much as 175 million to 250 million depending on the season of the year and the level of trade inventories held at that time.

In March 2002, the company announced it had submitted U.S. applications to market Claritin as an OTC product. Upon approval of Claritin as an OTC product, the company now expects the trade inventory levels of prescription Claritin products held by U.S. wholesalers to be fully depleted rather than merely reduced by year-end 2002.

Elimination of these trade inventory levels is expected to bring the negative impact on pre-tax profits for the remainder of 2002, to the upper end of the projected range, or approximately 250 million.

The negative financial impact from the elimination of trade inventories may be partially mitigated by the establishment of trade inventories for the Clarinex and OTC Claritin products.

This expected negative financial impact is included in the company's forecast for 2002 earnings per share.

All right. Let's turn to product sales.

As we do in the first quarter of every year, we take a look at our sales charts to determine if there are products that will no longer have a separate line, but will be included in the other section of their respective therapeutic categories.

This year, Vancenase, Vanceril, Eulexin and Temodar are now in the other section of their respective therapeutic categories.

So investors need to update their models for this. Also beginning this quarter, we are reporting the derm category with no individual product sales.

I will now discuss sales by major therapeutic category, as found in your press release.

We will do allergy respiratory first.

Clarinex is off to a great start with sales of 85 million worldwide. As you know, Clarinex was launched in the U.S. in January.

U.S. Clarinex sales were 70 million and have captured 14.6 percent of new

as of April 5th. U.S. sales of the Claritin family were down due to the conversion of patients to Clarinex, a decline in market share and a decrease in wholesaler inventory levels.

Also, in Europe CPMP has recommended approval of the Clarinex product for indoor and outdoor allergies.

Nasonex, our inhaled steroid for allergies, was up 50 percent worldwide for Q1.

Nasonex was up 60 percent in the U.S. to 101 million primarily due to the replenishment of inventories from 2001. International sales of Nasonex in Q1 were up 28 percent to 37 million due to market share gains in Europe and Latin America.

We are still awaiting approval in the U.S. for the Asmonex dry powder inhaler, our next generation oral inhaled steroid for asthma. Asmonex has been approved in 19 international countries.

Now let's go to the anti-infective anti-cancer products. Sales of the Intron franchise were up 71 percent worldwide to 556 million.

Sales in the U.S. were up 80 percent to 342 million due to the

were up 82 percent to 342 million due to the October 2001 launch of Peg-Intron and Rebetol combination therapy for

. This has been the most successful launch in Schering-Plough history.

Based on the overwhelming demand for Peg-Intron Rebetol it was a good decision for the company to implement the access assurance program in the U.S. Patients continued to be enrolled through the waiting list of the access assurance program and patients continued to move off the list into treatment.

Just in the

there continues to be increased awareness of hepatitis C. The April 22nd issue of Newsweek has hepatitis C as its cover story.

International sales of the Intron franchise were up 55 percent to 215 million. The increase international growth was due to an expanding Hep C market from the launch of Peg-Intron and Rebetol in Europe last year and an increase in market share.

In addition, Intron A in combination with Rebetol for Hep C was launched in Japan in December. That launch is going well.

Sales of Temodar for brain cancer are progressing nicely with $59 million in worldwide sales for the quarter, up 38 percent. This was due to market share gains in both the U.S. and international markets, which reflects increased utilization.

Remicade sales were $60 million in Q1 versus $27 million last year due to market share gain. As a reminder, we sell Remicade only in the international markets.

Now let's go to cardiovascular.

Integrilin sales were $68 million, up 79 percent worldwide for Q1 due to increased utilization and replenishment of lower trade inventory levels from 2001.

K-Dur was down due to generic competition. This generic competition was first reported to you in Q4 2001.

As you know, on December 27th, 2001, Merck and Schering-Plough pharmaceuticals filed an NDA in the U.S. for Zetia, our cholesterol absorption inhibitor, to be administered alone or with a statin for the reduction of elevated cholesterol levels. It was accepted with a standard review.

Also, the fixed combination, single tablet of Zetia and Zocor is in early phase clinical trials on our product pipeline. Additional information on Zetia will be presented at the World Congress of Cardiology in May in Australia.

Now let's go to derms. Worldwide sales were down 16 percent for the first quarter.

As I keep saying, derms are a category you can only trend-line on an annual basis.

Just as a quick mention regarding other pharmaceuticals of $159 million, down 15 percent worldwide.

This category includes a number of older products. In the U.S., these products continue to be impacted by our manufacturing issues.

Animal health, at $150 million, was down slightly. Foot care was flat.

OTC at $41 million, down 24 percent from last year was affected by manufacturing issues. Sun care was up slightly.

Just an additional comment on our 1.5 billion share repurchase program -- $1.5 billion share repurchase program that was started in April 2000. It is about 36 percent completed, as we have said before.

We have been out of the share repurchase market since our February 15, 2001 press release regarding the manufacturing issues. We are still out of the market, so no shares were repurchased in the first quarter of this year.

Thank you, and that's it for Q1. We are always happy to hear any comments you may have.