默克藥廠 (MRK) 2003 Q1 法說會逐字稿

Good morning.

My name is Stacy and I'll be your conference facilitator today.

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

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.

If you would like to ask a question during this time, please press star and then the number 1 on your telephone key pad.

If you would like to withdraw your question, press the pound key.

Thank you.

Miss Foster, you may begin your conference.

Thank you.

Good morning.

This is Geri Foster from Schering-Plough's IR department.

Lisa Debaradine and Janet Barth from Investor Relations are with me today on this conference call.

Thank you for joining today's conference call to review Schering-Plough's 2003 first quarter earnings.

The disclosure notice in your press release also covers this call.

It reads as follows: The information in this press release contains certain forward-looking statements relating to the Company's business prospects.

The market viability of the Company's marketed and pipeline products are subject to substantial risks and uncertainties.

The Company's financial performance is dependant on the market viability of the Company's marketed and pipeline products, possible changes in business strategies and the ability to successfully implement those business strategies and other factors, all of which are subject to substantial risks and uncertainties.

The listener of this call should also understand that the forward-looking statements may also be adversely affected by general market and economic factors, competitive product development, market acceptance of new products, product availability, current and future branded, generic or OTC competition, federal and state regulations and legislation, the regulatory process for new products and indications, existing and new manufacturing issues that may arise, trade buying patterns, patent positions, litigation and investigations and instability or destruction in a geographic area important to us due to reasons such as war or SARS.

For further details and a discussion of these and other risks and uncertainties see the Company's Securities and Exchange Commission filings including the Company's 10-Q for the 2003 first quarter and its Form 8-K's.

The format of today's calls will be a review of Q1 financials and then we will open the call for a Q&A session with Schering-Plough's IR staff.

Before we begin, I want to cover just a few items with you.

As you know, Fred Hassan joined the company on April 21st as the Chairman and CEO of Schering-Plough.

I would urge you to read his comments that are on the first page of today's earnings press release and also to read the two additional press releases that have been issued this morning.

The first one announces Carrie Cox as Executive Vice President and President Global Pharmaceutical business.

And the second announces Fred Hassan's initial action steps in a Schering-Plough's turn around program.

All these releases have been filed as an 8-K which also includes a message from the CEO to all Schering-Plough employees and an attachment entitled "Strategy, Structure and Processes" along with FAQs.

We will only be discussing the Q1 earnings release on the call today, so please be sure to go to the Schering-Plough IR website for the other announcements.

As we have said in previous announcements, Fred Hassan will lead the conference call for Schering-Plough's second quarter earnings which will be released on July 23rd at which time he will update you on the early action steps that were announced today to revitalize the company and build for long-term success.

Schering-Plough will also host a meeting for investors in New York City on November 19th this year.

So please mark your calendar.

November 19th in New York City for a Schering-Plough investors meeting featuring our new CEO, Fred Hassan.

You will receive information regarding this meeting at a later date.

Fred Hassan will then have completed his first full quarter at Schering-Plough and will be in a position to discuss Schering-Plough's progress.

As he said in today's press release, "I believe that despite the major challenges that Schering-Plough faces today we will succeed in delivering the turn around and getting on a track of solid, long-term growth".

Between now and November, we plan to provide you with various updates on the news occurring at Schering-Plough.

You already received the first updates today.

So once again, you will hear from Fred Hassan on July 23rd on the earnings conference call and then on November 19th at a meeting in New York City.

Obviously we will webcast both the conference call and the investors meeting.

At the present time, we are not scheduling any other meetings for Fred Hassan or other members of senior management in order to give Fred Hassan an opportunity to begin to implement his five point plan that he reported on at Schering-Plough's recent annual meeting.

His action agenda incorporates five phases: stabilize, repair, turn around, build the base and break out.

You can find the transcript of his speech on our website.

We all appreciate your patience and confidence in Fred's ability to get Schering-Plough back on the right track.

Now let's proceed with this call.

Today's earnings release and financial tables pertaining to Q1 are posted on IR's new website at IR.Schering-Plough.com.

If you've not visited the website yet, please do so.

It was launched on April 4th and offers investors a comprehensive resource of easy to find information to help you stay abreast of SGP's developments.

You will find financial information, press releases, and the product pipeline.

You can also sign up to receive an E-mail alert when new information on Schering-Plough has been posted on the IR site.

Back to today's release.

At the beginning of each year, we review the information we provide to investors and we also review how we provide it to you.

We attempt to make any changes that will help to provide you with information in an easy and accessible way.

We already mentioned the new IR website and we have instituted a Q&A conference call for earnings.

The first quarter press release also marks a time we make any changes to the financial format or that we add or delete products on the financial table.

So this year we have added Caelyx in the anti-infective anticancer category of the product sales tables.

In allergy respiratory, we have condensed the Claritin and Claritin D sales line into one sales line called the Claritin RX franchise.

Also sales of K-Dur and Nitro-Dur in cardiovasculars are now included in the other cardiovascular sales line.

So once again, please read the entire printed release including both the text and the financials.

Also, the 10-Q was filed with the SEC this morning and is now available on our IR website.

Now let's get started with the first quarter results.

As you know, on March 5th we announced in a press release that first quarter diluted earnings per share would be approximately 10 cents.

Today in our earnings release we reported diluted earnings per share of 12 cents for Q1 2003 versus 41 cents last year, a decline of 71%.

The decline in earnings is due predominately to the loss of U.S. sales and profits of prescription Claritin.

Excluding foreign exchange rate fluctuations, the decline in EPS was 76%.

Schering-Plough advises that the trend in EPS should be viewed with and without the impact of foreign exchange.

We also stated on March 5th that the company expected to report full year 2003 diluted earnings per share in the range of 75 to 85 cents.

In today's release, Fred Hassan said," 2003 is clearly a transition year.

Having just arrived I am assessing the situation and believe it is right not to be constrained by the business assumptions that supported the previous stated earnings guidance.

Accordingly, Schering-Plough is withdrawing its prior guidance that full year 2003 diluted earnings per share would be in the range of 75 to 85 cents".

Now let's proceed with a review of the income statement for Q1.

Sales.

Consolidated sales for Q1 were $2.1 billion down 19% versus $2.6 billion in Q1 last year.

Worldwide pharmaceutical sales were $1.6 billion down 26% in Q1.

Pharmaceutical sales were down 52% to $648 million, primarily due to the rapid decline of U.S. sales of prescription Claritin, resulting from its patent expiration and conversion from prescription to OTC status in December 2002.

Management has said in previous financial filings and again in today's 10-Q, that it believes that the Company's December 2002 introduction of OTC Claritin as well as the introduction of a competing OTC Loratadine product in December, 2002 and additional entrance of generic OTC Loratadine products in the market, will likely have a rapid, sharp and material adverse effect on the Company's results of operations for an indeterminate period of time.

For the first quarter of 2003, U.S. sales of prescription Claritin were down 97% or $549 million.

I'll talk more about Claritin and the allergy franchise later in the conference call.

International pharmaceutical sales were up 13% to $980 million.

Excluding exchange, international pharmaceutical sales were unchanged.

The international pharmaceutical business benefited primarily from favorable exchange and from growth in sales in anti-infective, anticancer products and allergy respiratory products.

Sales in both therapeutic categories were up ex exchange.

Margin.

The gross margin ratio was 68.3% in Q1 2003 versus 77.4% in Q1 2002.

And the cost of sales ratio was 37.1% versus -- I'm sorry.

The cost of sales ratio was 31.7% versus 22.6%.

The increase in cost of sales was primarily due to the loss of U.S. sales of prescription Claritin which resulted in a change of product sales mix coupled with higher manufacturing cost for the Company's increased CGMP compliance efforts.

SG&A.

SG&A decreased 8% to $843 million in the first quarter of 2003 versus $919 million in 2002.

The decrease was mostly due to lower spending and comparisons to prior year expenses in the U.S. associated with the launches of Clarinex and Peg-Introl Rebetol combination therapy, tempered by higher international field force spending to support new product launches.

The SG&A ratio of 40.6% in Q1 in year is higher than the 35.9% in Q1 last year primarily due to lower overall sales reported in Q1 this year and the promotional and sales support efforts for Clarinex, the Intron franchise and Zetia.

Research and development.

R&D was up 13% to $344 million for Q1.

Research expenditures primarily reflected higher spending in the area of drug development including clinical trial.

Tax rate.

The tax rate was 20% for the first quarter down from 23% last year.

The lower tax rate was primarily due to the loss of prescription Claritin sales in the U.S. resulting in the shift of earnings to certain jurisdictions with lower tax rate.

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

Since the anti-infective anticancer product category is now our largest, I will discuss the products in it first.

Worldwide sales of the Intron franchise were $516 million in Q1, down 7% from $556 million in Q1 last year.

Sales in the U.S. were down 18% to $279 million in Q1 due to reductions in existing trade inventory levels tempered by expansion in the overall prescription Hepatitis B market.

As you know, in the first quarter, a new competitor entered the Hepatitis B market.

The overall market share of the Intron franchise has been declining, reflecting this new market competition.

Also, before you ask why were U.S. sales of the Intron franchise -- I'm sorry.

Why were U.S. sales of the Intron franchise lower in the first quarter of 2003 compared to the fourth quarter of 2002?

Let me just answer that question.

U.S. sales of the Intron franchise were $279 million in the first quarter of 2003 versus $544 million in the fourth quarter of 2002.

First, let me explain the fourth quarter.

Sales in the fourth quarter of 2002 were up due to strong demand for the Peg-Intron Rebetol combination therapy for Hepatitis B, initial stock-in of inventory in the trade due to the elimination of the Peg-Intron access assurance weight lift in the fourth quarter 2002, and price increase related wholesaler buying.

I have already given you the reason for the first quarter sales.

International sales of the Intron franchise were $237 million up 10% from $215 million in 2002.

Excluding foreign exchange, sales of the franchise were down due to increasing competition in various European markets and lower sales in Japan.

One more item on the Intron A franchise.

There are almost 40 abstracts that will be presented on products that make up this franchise at Digestive Disease Week in Orlando, Florida and that begins on May 18th.

Remicade sales increased 89% to $114 million in Q1 versus $60 million last year.

Excluding foreign exchange, sales of Remicade rose significantly due to increased patient utilization.

As a reminder, we sell Remicade only in international markets.

So let me give you an update of the status of new indications for Remicade internationally.

In February, the European Unions that's EU, Committee for Proprietary Medicinal Products, that's the CPMP, recommended approval of Remicade for the treatment of [ANKELOZING SPONDOLITIS] as a chronic and debilitating inflammatory disease of the spine.

And for an expanding labeling for maintenance dosing for Crohn's disease.

The CPMP recommendations serve as a basis for European Commission approval which is typically issued in approximately three to four months.

Commission approval will result in marketing authorization with unified labeling that will be valid in all 15 EU member states as well as in Iceland and Norway.

Also, there will be more than 50 abstracts on Remicade at Digestive Disease week beginning May 18th in Orlando, Florida.

Sales of Temodar for brain cancer were essentially flat at $59 million for the first quarter.

U.S. sales decreased 24% to $26 million due to reductions in trade inventory levels tempered by market share gains and market growth.

International sales increased 34% to $34 million resulting from increased market penetration.

International sales of Caelyx are included as a separate line item beginning with this quarter.

Caelyx is a long circulating pagalated lipo [INAUDIBLE] formulation of [DOXIRUBICIN] hydrochloride.

Sales grew 56% to $22 million dollars in Q1 versus $14 million dollars in Q1 2002, benefiting from increased utilization coupled the launch of a newly improved indication for metastatic breast cancer in patients who are at increased cardiac risk.

Caelyx is also approved for ovarian cancer and AIDS related Kyphosis Sarcoma.

As a reminder, Schering-Plough has international marketing rights to Caelyx except in Japan and Israel.

Now let's go to allergy respiratory.

Worldwide sales of prescription Claritin were $109 million in the first quarter versus sales of $659 million in Q1 2002.

U.S. sales for prescription Claritin recognized in Q1 2003 were $16 million versus sales of prescription Claritin in Q1 2002 of $565 million.

As you know, Claritin lost its patent protection in December 2002 and was also launched as an OTC product in December.

The switch of Claritin to OTC status and the introduction of competing OTC Loratadine has resulted in a rapid, sharp and material decline in Claritin sales in the U.S. on the company's results of operations.

The first quarter had a decline of 97% or $549 million.

A rapid, sharp and material decline.

How did the company arrive at $16 million dollars in U.S.

Claritin sales for Q1?

The estimate for patient demand was based on information provided directly to the company from its customers.

That's U.S. wholesalers, chain and retail pharmacies, about levels of trade inventories as of March 31st, 2003.

Therefore, the sales of $16 million were the difference between trade inventory at year-end 2002, and trade inventory at the end of the first quarter 2003.

That reflects estimated patient demand.

The value of the demand was derived using actual wholesale prices and estimates of rebates and allowances.

Schering-Plough selected this methodology because it provides a reliable, up-to-date estimate of the payments that may be due to its customers if the product is returned.

We also just want to remind you that the Company previously disclosed that it had fully reserved for U.S. prescription Claritin trade inventory at year-end 2002 and it continues to be fully reserved.

International sales of prescription Claritin declined 1% to $93 million in Q1 due to the continued conversion of patients from Claritin to Clarinex, tempered by sales growth in Japan, reflecting the September 2002 launch of the product in Japan.

Clarinex sales were $173 million worldwide up from $85 million in Q1 2002.

U.S.

Clarinex sales were $133 million up 89% reflecting the continued conversion of patients from prescription Claritin to Clarinex.

As you know, the spring allergy season in the U.S. had a late start and we know the allergy season isn't over until it's over.

Therefore, it is too early to determine the length or the severity of the spring allergy season in the U.S..

We can tell you that Clarinex is experiencing intense competition in the U.S. allergy market.

And we are beginning to implement new marketing efforts to address market share performance.

Internationally, sales of Clarinex were $41 million in Q1 benefiting from new market launches.

Nasonex.

Our nasal inhaled steroid for allergies was down 43% worldwide to $79 million for Q1 versus $138 million last year.

Nasonex was down 66% in the U.S. to $34 million due to reductions and trade inventory levels coupled with market share decline.

Nasonex is also experiencing intense competition in the U.S. and the company is beginning to implement new marketing efforts to address market share performance.

International sales of Nasonex in Q1 were up 21% to $44 million due to market share gains.

Asmonex.

As you know, Asmonex is under regulatory review in the U.S..

Internationally, it has been launched in the UK, Germany, Sweden and Ireland.

Launches in other EU countries are anticipated over the coming months.

International sales of Asmonex are included in the other international allergy respiratory product sales line.

Now let's go to cardiovasculars.

Integrilin sales were $89 million up 31% worldwide.

Sales in the U.S. were $84 million due to increased utilization.

Integrilin continues to be the U.S. market leader.

As I said earlier in this call, K-Dur and Nitro-Dur sales are now included in the other cardiovascular sales line.

Zetia.

In the fourth quarter 2002, Merck Schering-Plough pharmaceuticals launched Zetia a novel cholesterol absorption inhibitor in the United States and several international markets.

Worldwide sales of Zetia as reported to Schering-Plough by the Merck Schering-Plough partnership were $46 million in the first quarter 2003, with U.S. sales up $41 million.

In the U.S. 500,000 total prescriptions have been written for Zetia through March.

Weekly new RX share of Zetia for the week ended May 2nd was 4.2%.

Zetia is also approved in several countries internationally.

The mutual recognition procedure was recently completed in the EU as well as Norway and Ireland.

As previously disclosed, Schering-Plough is reporting its share of profits as alliance revenue.

Alliance revenue for Q1 was insignificant due to launch-related marketing expenses associated with Zetia.

A Zetia Zocor fixed dose combination single tablet is in Phase III studies and is on track for an NDA to be filed with the FDA in late 2003.

Also as you know, there is strong ongoing clinical support for Zetia Zocor combination therapy, including three outcome studies.

Let me just name them with a brief description of each one.

First study, [C's].

That's Zetia/Zocor 40 milligram versus placebo in aortic stenosis.

Another study is called Enhanced.

Zetia plus Zocor 80 milligrams versus Zocor 80 milligrams to assess athrosporadic regression.

And another study called Sharp.

That's Zetia plus Zocor at 20 milligrams versus placebo in chronic kidney disease.

Now let's go to derms.

Worldwide sales od dermatologicals were down lightly in Q1 to $118 million from $120 million.

Animal health.

Animal health at $143 million worldwide was down 5% due to current manufacturing supply issues.

Foot care, sun care and OTC sales are available on the table in your press release.

Let me just take a minute to mention OTC Claritin which is now reported in the OTC category on our financial tables.

Prescription strength Claritin was approved in the U.S. in November for OTC sales.

The product was launched in December 2002 and sales for Q1 2003 were $125 million.

We were very pleased with the OTC launch of Claritin in December and demand for the product has continued to be very strong during the current spring allergy season.

That's it for the first quarter.

Again, we urge you to read the entire press release including the financial tables.

Now let's turn to the question and answer portion of the call.

As I said earlier, Lisa Debaradine and Janet Barth are here with me today and we will attempt to answer your questions regarding the first quarter earnings release.

Thank you very much.

Operator you may open the lines for questions.

At this time I would like to remind everyone, in order to ask a question, please press star and then the number 1 on your telephone key pad.

We'll pause for just a moment to compile the Q& A roster.

Your first question comes from Mara Goldstein.

Yes, thank you very much.

Geri,, I'm wondering if you could make a general comment on trade inventories, there has been so much movement broadly speaking within the trade inventory levels and last year in the company.

Can you speak to what the goal is and where you are at with major products?

You know, in the -- actually as I was reading through the comments on the press release, for each product that is mentioned when there was trade inventory we actually talked about it in the press release.

So I guess I would urge you to go back and take a look at that.

One of the things that I can say is we have, you know, taken a look at our inventory situation, inventories have gone down in the first quarter.

And -- actually, the company believes that, you know, exclusive of prescription Claritin overall inventory in the channel distribution channel has declined in the first quarter.

And for prescription Claritin the quantity of inventory in the distribution channel has also declined due to returns in patient demand.

So, and as I mentioned on prescription Claritin, we are -- we were fully reserved for that in the fourth quarter and we continue to be fully reserved.

Okay.

So there is not an inventory reduction work-down program in progress then?

Or do you believe you are largely complete with that?

I'm sorry.

In relation to?

In relation to the broad portfolio of products you sell, not necessarily just Claritin.

Yeah, you know, I mean I guess -- I mean, what I would say is that we have reviewed our overall inventory in the distribution channel and as I said, that really has declined.

We believe it has declined in the first quarter, you know.

Okay.

Thanks, Geri.

Your next question comes from Mario Corso.

Mario Corso, CFA: In terms of the Intron franchise, is there any quantification available of the inventory effects in the first quarter and was it mainly from the ribavirin side or the Peg-Intron side or was it pretty evenly split?

And then also, can you speak to the debt levels which looked like they were a little out of line with what we saw in the fourth quarter?

Thanks.

In relation to the Intron franchise, you know, Mario, we have one line for the Intron franchise which includes in Intron, Peg-Intron and ribavirin.

So we would really speak to all of that together.

And, you know, as I said, first quarter sales of -- were really due to reductions in the trade inventory levels, you know, tempered by expansion in the overall prescription Hepatitis C market.

Mario, this is Lisa.

I might want to add that also in the fourth quarter we did have higher sales in that franchise due to stronger demand and also the initial stock-in from the elimination of the access assurance weight lift that we ended in the fourth quarter of last year.

That's also price increased related buying.

I'm sorry.

You had a question, Mario, about the debt level?

Mario Corso, CFA: It looked like interest income interest expense were on different trends than they were in the fourth quarter.

Was there something going on?

Interest income and interest expense, you know, just hang on for one second there.

Go ahead, Janet.

If you look at the other net line which is on the last page of our product sales data, you know the break down the interest income, interest expense, foreign exchange gains and loss and the other line, so basically we had lower investment income, higher expenses and in terms of the overall other, we add a nonrecurrence of a gain of a sales of securities that occurred in the first quarter of 2002.

So that basically explains the swing quarter-over-quarter.

Thank you.

The next question?

Your next question comes from Scott Kay.

Hi, thanks.

Can you talk a little about the Nasonex franchise?

I know there was some comments on stocking, but clearly the trends and prescriptions are down, and I guess two things that were noted, you are going to be doing something to kind of lift -- potentially lift some sales.

Any thoughts on the [INAUDIBLE] for Glaxo to have Flonase patent expiration?

What happens, kind of, at that point as well?

Thanks.

You know, first of all in relation to Flonase and Glaxo, I think you have to go to them to get that question answered.

In relation to Nasonex, you are correct about the prescription trends and obviously we are well aware of that.

And we said that we are experiencing intense competition in the U.S. market.

And we've also said that we are beginning to implement new marketing efforts to address that market share performance.

So we're quite cognizant of what's going with Nasonex and something we're clearly attempting to address.

Next question?

Your next question comes from Tim Anderson.

Hi, a couple questions.

Just to go back to the inventory, are you saying the inventories across the board are now at normal levels today?

Or could we still see some work-down in subsequent quarters?

And then in the cost of goods line, was there any one time charges in that line?

You said it was due to mix and manufacturing, if not, then I guess the safe presumption would be that it should continue forward at those levels?.

Thank you, Tim.

First of all, let me go to the cost of goods line.

And we are not giving any financial projections, really, going forward.

But let me talk about it for the first quarter.

You know, as we indicated, there was certainly a large decline in Claritin sales in the first quarter which affected that cost of goods line which really changed the product mix of the Company.

So that, you know, that clearly was very important to the cost of goods line in the first quarter.

And, you know, I'll let you draw your own conclusions from what I have said in relation to that.

And also, as we have said in the past, there have been the manufacturing has clearly affected the cost of goods line and of course that continued in the first quarter.

And I'm sorry, you're other question was, you know, on the inventories and, you know, Tim, I'm not sure what else to say in relation to that.

You know, there have been some lost rate reports written out there in relation to inventories.

We are cognizant of them.

We have taken a look at the inventory situation.

I have addressed it again in the comments on each one of the products and, you know, I believe that's really all there is to say on the subject.

Okay.

Thank you.

Next question?

Your next question comes from David Moskowitz.

Yes, from Friedman, Billings, Ramsey.

Thank you very much.

A couple questions.

Number one, can you quantify the selective head count reductions that you guys are talking about today, what areas of the company are you looking to gauge in those reductions?

In addition, can you also reiterate what you are thinking on generic Rebetol coming to the marketplace?

And thirdly, with respect to the gross margin, I'm looking at cost of sales year-over-year and they have actually increased by $79 million, with a sharp reduction in sales.

Can you break out what the incremental cost of sales were that relate to the manufacturing compliance issues please or at least speak to why you have seen the increase in cost of sales year-over-year despite the declining revenues?

Thanks.

Okay, let's go -- let me take the cost of sales one.

You know, manufacturing compliance, we have talked about that previously and the cost of sales line.

Obviously, that has had an impact in the past, continues to have an impact.

And that and the reduction in the Claritin sales are really the major components of the change in the cost of sales line.

In relation to generic Rebetol, we said in the past that we expected generic Rebetol to happen sometime this year.

We have not quantified when this year, but we did say that in our previous releases and financial filings.

And going back to your first question on the head count reductions, you know, what I'm doing here -- what we're doing here today is talking about the first quarter earnings release.

And in relation to the other releases that have been put out today, you know, there really is nothing to say in relation to them.

Fred Hassan is going to address you on the second quarter conference call, and as he said in the release, believes he will be in a position going forward to discuss these things with you.

So what I would urge all of you to do, these are all filed with the releases, letter to employees.

Today they were all filed in an 8-K.

You go to the Schering-Plough website and I urge you to read everything that is really filed in that 8-K on the website.

There are some attachments to the letter to employees.

There's you know, Q&A in relation to it.

Please go to that website and read everything there and then, you know, in the future, Fred Hassan will be prepared to discuss this with you.

And as I said, he will be on the second quarter earnings conference call.

Okay.

Thank you very much.

I'm heading to the website right now.

Okay.

Your next question comes from C.J. Sylvester.

Hi, good morning and thanks for taking the question.

I guess I'm just trying to quantify the disconnect in terms of -- I don't know if you guys can do it, the dollar value, there were buy downs it looks like on Nasonex and the Hep C franchise and Clarinex looks like there is still some inventory issues.

The question is, what is left out there in terms of the inventory situation?

I know a bunch of people have asked this question already, but have you to realize this is a huge issue for a lot of people here and trying to quantify where inventories are for the company right now.

Thank you, C.J.

Again, you know we have addressed the question on various products in the earnings release.

I think we have answered the question from the previous people who have asked the question and really, there is really nothing more to say on it.

Can you just talk to the tax rate, assuming is no rebound in Claritin RX sales the tax rate should hold for the year?

On the tax rate is down to 20% and I wanted to mention one thing in particular in relation to the tax -- the tax rate went from 23 to 20%.

What I want to mention on first quarter earnings, that amounted to about $6 million.

That was less than 1 half of 1 cent per share.

So I just wanted to mention that in relation to the tax rate and, again, we are not making projections going forward but the tax rate is what it is.

We are not -- I don't believe we are looking at anything, you know, unusual in relation to that, but 20% is where we are now.

And if mix stays relatively the same, that should hold for the year?

You know, we are not really making financial projections on anything.

What we have basically said is, what Fred Hassan has taken the opportunity to review frankly everything about Schering-Plough.

And so we are just not making any financial projections giving him the opportunity to go through the review process.

And one last thing, on 10-Q, can you guys comment on what was mentioned in 10-Q or was that not part of the quarter?

The 10-Q has been filed.

It is on the website also and again I would urge you to go and take a look at the 10-Q and read that also.

But if we have a question on that, can we ask that on this call?

Yes, certainly.

The blurb or the new disclaimer about cash flows from operations in the U.S. not being able to sufficiently fund working cap, CAPEX, dividends, what should we read into that?

You know, what you should read into that is that you should read the entire section which is called "Liquidity and Cash Flow Projections' and, you know, I would urge everyone to go and read that section.

It is probably about, you know, five or six paragraphs long and you really need to read the entire thing to get the gist for what we have said in the Q. And I think to be honest with you, it speaks for itself and I can't really give an interpretation to it.

Thank you.

Your next question comes from Jami Rubin.

Thank you.

Geri, maybe you can answer this question again on the Intron franchise, if you can talk about the change in market share both at the institutional market as well as the retail market rather that the change in market share loss in both the institutional and retail market, the change in market share growth in both sectors, as well as your sense of where the growth and market share -- rather, where the market growth is coming from for Pegasus in terms of new patients starts, versus failures.

Thanks.

I'm going let Lisa take that question and do you want to explain how the scripts are calculated?

Well, there are several things in your question, Jami.

Clearly we have lost market share recently due to a new competitor coming into the market.

The reported prescription that you all see publicly are based on the retail sales.

There is another large piece of this market that is serviced by the home healthcare companies which is about half of the market.

So when you're looking at prescription trends, you need to always be aware that you are looking at only about half of the market.

Having said that, the new prescription trends are due out tomorrow so to talk about monthlies right now is a little difficult.

Although we do know on a weekly basis that we have lost market share due to the new competitor.

There are a couple things going on in that market.

That market is expanding as a result of having a new competitor in that marketplace, and it is really too early at this point to determine where the sales are coming from.

There is a number of things that go on in this market.

The key thing is whether the new competitor is actually getting new patient starts or whether what they are really getting is patients who have relapsed or nonresponders to Peg-Intron Rebetol.

In that case you are going to get an expansion of the market.

It is not really taking patient starts from Peg-Intron or ribavirin.

There are a number of trials that have been done that would be converting over to patients into the marketplace.

And, as I said, it's really just too soon to tell how those patients starts break out in this marketplace.

Can you break down sales of ribavirin during the quarter?

The sales of ribavirin in the U.S. were $136 million in the first quarter.

And that compares to what?

A year ago?

Yeah, we didn't break that out in the first quarter of last year.

Okay.

Thanks.

Is there a next question?

Your next question comes from Carl Seiden.

Thanks very much.

Two questions if I could.

Geri, once again on the cost of goods sold or gross margin issue.

I understand the negative mixed phenomena of losing Claritin, but at the end of the day, your total revenues were down 19%, yet your total cost to goods sold were up 14% and no kind of change in mix can explain that.

So it just leaves me assuming that the absolute increase in your fixed cost in cost to goods sold is the majority of what's going on here.

And I'm just wondering if you could confirm that and if you can quantify in any way how much incremental dollars have been spent on GNP issue for manufacturing this quarter.

And secondly, on the prescription Claritin sales that you reported for the U.S. which I think were $16 million.

I guess the best data that we have available is prescription Claritin prescriptions and IMS reported 1.5 million prescriptions written over the course of the first quarter and that would imply a value of over $100 million rather than the $16 million.

Although I don't think it is as robust, IMS inventory data and the changes in that inventory also imply prescription Claritin volume of about hundred million and I am wondering if you can help us reconcile that versus the 16 that you've reported.

Thanks.

Sure, Carl, let me talk about the -- actually the last part of your question first.

You know, I know you all look at script trends.

You know, we basically can't look at it that way.

We went to the wholesalers as I said in the call at the end of the year and we used the same methodology at the end of the quarter and the difference between those two came up to the $16 million.

And we -- you know, we actually do a survey which is basically what we have to do and then also the value of the demand was derived using actual wholesale prices and then estimates of rebates and allowances.

We use this methodology, first of all, we used it at year-end, we used it at the end of the first quarter, and it is the methodology that provides a reliable up-to-date estimate of any payments that might be due to customers if product is returned.

Having said about if product is returned, I will remind you that we were fully reserved at the end of the fourth quarter and fully reserved at the end of the first -- continue to be fully reserved.

So I know you people look at scripts, but we have to go out and talk to the wholesalers and estimate demand.

That's really the best way to get that number and we can't just look at script trends to estimate what the sales were of the product.

And I'm sorry the other thing -- oh cost of sales.

Yes.

In cost of sales take a look at Claritin.

I mean, we lost $549 million of Claritin in the first quarter.

I mean, that's a lot of Claritin sales.

And then we have continually had the manufacturing expenditures.

So you take those two together and that is what accounts primarily for that increase in cost of sales.

Okay.

Maybe just two follow-ups if I could, I mean your absolute cost of sales went up a lot and losing all of Claritin doesn't explain an increase.

So I'm just trying to get some help with when you talk about these two pieces, can you quantify what the increased spending was for GNP issues?

And on the Claritin issue, can you tell us what reserve was that you took in the fourth quarter for Claritin?

First of all, on the reserve we have never indicated what the reserve was, so I cannot tell you that.

And we also have not indicated what the manufacturing cost or the cost of the GNP have been on the manufacturing issues.

Again, I'll just go back and say, you know, the increase was really primarily due to those two factors.

Okay.

Thanks.

Your next question comes from Barbara Ryan.

Barbara, are you there?

Miss Ryan has deferred her question.

Your next question comes from Steve Scala.

This is actually Steve Scala.

I have three questions and I apologize if theses are addressed in the release.

First, you withdrew the guidance today.

Does the company have a plan for reinstating the guidance in 2003?

Will that be a second quarter call event?

Will that be an analyst meeting event?

Or are you saying you don't know when you will be reinstating the guidance?

Secondly, have you said what Claritin sales in Japan were?

And thirdly, the SG&A number looked a bit anemic.

We realize that that excludes the Zetia spending, so what would that have been had you included the Zetia spending?

Okay, First of all in relation to guidance.

Guidance was withdrawn.

We are not making any financial projections at this time, because it goes back to the basic thing that Fred Hassan, we're giving him an opportunity, or he's taking the opportunity to review anything and everything in relation to Schering-Plough.

And we are not making any projections or indicating, you know, when we're going to have any financial projections.

That really is going to be Fred Hassan's call.

And you know, Steve, he's been here just 17 days so, you know, we're delighted that he is here.

I think all employees are really saying that we're very happy that Fred is here.

And he's undertaking a tremendous review of the company.

He has does a phenomenal amount of work in the time he has been here.

He has talked to a lot of the senior employees, he's had a town meeting with employees, he addresses his five point plan at our annual meeting.

I can go on and on.

He has done a tremendous amount of work and a tremendous amount of review in 17 days, but it is only 17 days.

So, again, I would really encourage you to go and take a look at everything that is up on the website.

The press releases today, of course Carrie Cox is joining the company.

I know you all know her.

And then he's going to be on the July conference call and again the big analyst meeting in New York City on November 19th.

And we'll be sending out information on that at, you know, at a later date as we get closer to the meeting.

But please mark that on your calendars.

You know, we have not -- the second part of your question, Claritin sales in Japan, we have not actually given Claritin sales in Japan.

We really don't give sales on a country basis.

Claritin sales actually -- the increase in Claritin sales in Japan actually offset some of the decline in Claritin sales elsewhere.

You know, it is actually doing fine in Japan.

And I'm sorry I totally lost track of your question on SG&A.

It looked a little bit light.

And we realized that excludes the Zetia spend, so what would it have been had it included the Zetia spend?

You know, we don't in relation to the SG&A, we don't, we don't break it out for, you know, various spends on various products whether it is to say with or without Zetia.

I mean, the number is the number.

Now, in the SG&A area, have you to remember that our sales force, even for the selling of Zetia, our sales force is accounted in the SG&A area.

You know, we've also -- I made two comments on the call and in the press release that we are -- we have taken a look at Clarinex and Nasonex and we're beginning the implementation of new plans in relation to the marketing of those two products, in order to gain back some market shares.

So, I think that might help to answer some of the SG&A questions.

Thank you.

Also, Steve, it is Janet, in comparison to the first quarter of '02, we had higher spending in SG&A in the first quarter of '02 related to launch expenses for Clarinex and the Peg-Intron Rebetol combination.

It is a tough comparison quarter-over-quarter as well.

Thank you.

Your next question comes from Barbara Ryan.

I'll try again.

Can you hear me, Geri?

Yes, I can hear you.

Great.

I'll just go at this maybe a little differently.

You made a comment that you have done extensive analysis of your inventories, you obviously took a reserve for Claritin so that wouldn't bite you in 2003 and the fourth quarter of 2002.

So would it be appropriate for us to assume that since you have taken down inventories, theoretically for the Peg franchise which based on the numbers that you just gave us for ribavirin, what theoretically being mostly ribavirin, that you have taken those down for Temodar as well, that those are the products that you believe there is, there was excess inventory and specifically on Clarinex that the fact that you did not specifically address that as you did with Intron, Temodar and Nasonex, that they're in your view it is not excess inventory?

There are a lot of questions contained in that one question.

I think I have to go back to, you know, what I said about overall inventories before.

And again on a product-by-product basis we have addressed it in the press release and you mentioned Temodar and that was affected by inventories.

As I -- again I said, you know, this is one thing that the company is very, very aware of overall industry and inventory in the distribution channel.

We are cognizant of that and we're very aware of that.

And I'm going to let Lisa add something on that.

I want to comment, Barbara, you had said about us having excess inventories and we have never said that our inventories were in excess.

All we said was that sales were down on those various products that we mentioned due to reductions in trade inventories.

Right.

So putting your comments together with Geri's and the others previously, it seems a though you agree that you felt that the inventory levels were out of line with demand, that those theoretically have been addressed.

And if there wasn't a similar impact in Clarinex, that that in your assessment was not in the same situation as Nasonex or Temodar or the Peg franchise?

You know, Barbara, we just have to let you make your own assumptions in relation to that.

I can't really say anything more than what both Lisa and I have said.

Okay.

Thank you.

And we have -- we said the conference call would be an hour so we have time for one more question.

If there is one?

Your next question comes from Ken Kulju.

Thanks for taking my call.

Were there price increases in the quarter?

And I also had a question about the globalization of pharmaceutical management under Carrie Cox.

There is reference in that press release to eventual globalization of both the R&D and the manufacturing structures, and has there been any previous guidance on when you expect some of these key manufacturing issues to be resolved and could you update us on really the status of the manufacturing consent to create?

Thanks.

First of all, you mentioned Carrie Cox and her role at Schering-Plough and again that is -- that announcement was just put out today and she actually doesn't even arrive until May 15th.

But I think when you get -- these are all things that Fred Hassen will address going out and when he's on the -- he will be on the second quarter conference call.

So I, -- the releases speak for themselves and I said Carrie is not even here yet.

She will arrive on May 15th.

And you asked about price increases in the first quarter.

You know, if you look at overall price impact in the first quarter it was 4%.

I don't have specifics on individual price increases.

You know they are all reported in the red book.

But pricing had a 4% favorable impact on sales in the first quarter.

And I'm sorry I lost track of, I think you had a third question?

Has there been any previous guidance on when you expect key manufacturing issues essentially to be resolved?

And just an update on the status of where we are with the consent to create?

I think in relation to the consent degree in manufacturing, again, we've reported on that in today's 10-Q.

There is a whole section on that.

I would refer you to that to really take a look at that.

Other than that, I really don't have any kind of updates on it.

You know, obviously that issue is certainly a focus of Fred Hassan.

Again I'll go back -- I'm sorry to repeat myself, but he is reviewing everything and that clearly is one thing that he is looking at and spending time on and reviewing.

And with that I hope you will all tune in for the second quarter conference call with Fred Hassan and mark November 19th on your calendars and we're a little over an hour now so we're going to end the call.

Thank you very much for joining us today.

We're all -- your suggestions are always welcome.

Thank you very much.

This concludes today's conference call.

You may now disconnect.