默克藥廠 (MRK) 2007 Q4 法說會逐字稿

Good morning.

My name is Ashley and I will be your conference operator today.

At this time I'd like to welcome everyone to the Schering-Plough fourth quarter earnings conference call.

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

After the speakers' remarks, there will be a question and answer session.

(OPERATOR INSTRUCTIONS) Thank you.

Mr.

Alex Kelly, Group Vice President, Global Communications and Investor Relations, you may begin your conference.

Thanks, Ashley, and good morning, everyone, and welcome to the Schering-Plough 2007 fourth quarter conference call.

We're going to wrap up our call by 9:00 a.m.

today, but before we begin I'd like to cover a few items.

First, some of the statements that we make today on our call may be considered forward-looking statements.

The Company's SEC filings, including our 8-K filed this morning, identify certain factors that could cause the Company's actual results to differ materially from those projected in any forward looking statements we make this morning.

The Company's SEC filings as well as our earnings release from today and our tables are available at schering-plough.com.

I would also note that during the call we may refer to non-GAAP measures including adjusted net sales or adjusted top line sales, which is a non-GAAP measure that we define as our GAAP net sales plus an assumed 50% contribution from our cholesterol joint venture.

We'll also refer to as reconciled amounts or amounts on a reconciled basis.

As reconciled amounts excludes purchase accounting adjustments, acquisition related items and other specified items.

Please refer to the non-U.S.

GAAP reconciliation tables in the financial highlight section of our Investor Relations website for a reconciliation of these adjusted figures to our reported GAAP results.

Also there are tables in the back of our earnings release.

This morning I'm joined by Fred Hassan, our Chairman and Chief Executive Officer; Bob Bertolini, our Chief Financial Officer; and Carrie Cox, the Head of our Global Pharmaceutical Business.

Now I'd like to introduce Fred Hassan.

Thank you, Alex.

Good morning, everyone.

I will open with some remarks.

I'll be followed by Bob and Carrie before we open up for our Q&A.

You will have seen our press release.

We're pleased with the strong quarter and the strong year.

'07 was the fourth full year of our Action Agenda to transform this Company.

It's been a remarkable transformation.

We have achieved this transformation through a relentless focus on a basic growth building strategy.

We've been focused on our strategy of leading growth from the top line.

We've been reinforcing the growth with cost control, and we've been reinvesting in R&D and other growth driving priorities, and we've been driving bottom line earnings growth.

And through this basic formula for driving long term high performance, we've built a Company with strength and diversity on many fronts.

In fact, we've been the sales growth leader in our peer group over the past four years.

We've grown our cholesterol franchise and we've grown other very important products, such as REMICADE, NASONEX and TEMODAR, and many others.

In '03, we had no products with sales over $1 billion.

Today, we have four products with sales of more than $1 billion.

We've built geographic strength and diversity.

In '03, we were not in many important markets and we were weak in others.

Today, we're strong in many of the key markets, and we're also building strength in markets of the future, such as China, Brazil, and Russia.

In '03, we were burning cash.

Today, we have strong cash flow from operations.

In '03, we had a late stage pipeline gap.

Today, we are one of the strongest late stage pipelines in our peer group.

Over the last four years we have created a high performance culture, a high integrity culture and a culture that is owned by our people around the the world.

Our people are aligned, they're passionate and they're engaged.

So that's why we continue to feel confident about our future.

And that's why we feel confident that we can weather the controversy that's been created around the mischaracterizations of the release of the top line results from the Merck/Schering-Plough joint venture ENHANCE trial.

We believe it's very important that the science process be respected.

It's a small study in a rare population using a novel ultrasound scanning technology.

It's important that the full results of this study be assessed by the scientific community in an appropriate, open, medical forum.

Meantime, it's important to recognize that this study did further validate the safety and tolerability profile of ZETIA and VYTORIN.

This study also further validated the superiority of VYTORIN in lowering LDL cholesterol versus simvastatin alone.

So we stand behind our products and we stand behind our science.

We have great confidence in the more than two decades of advancing scientific knowledge that's proven the correlation between lower LDL cholesterol and the improved cholesterol health and cardiovascular health.

The Merck/Schering-Plough joint venture is working hard to get the science out and to regain momentum, especially with the physicians whose patients have been exposed to such confusing and misleading interpretations of the medical science.

Over time, I have confidence that good science and common sense will prevail.

What will be more important are the results of the IMPROVE-IT outcomes trial that is currently underway by the Merck/Schering-Plough joint venture.

Meantime, all of us engaged in the discussion of cardiovascular health need to be concerned for the patients.

We must respect their relationship between the physician and the individual patient in doing what is right for him or her.

That is our focus at Schering-Plough.

Regarding the impact on our business going forward, basically it's too early to tell.

Bob Bertolini will share some observations on this in a moment.

We'll be monitoring this closely.

We will make appropriate decisions as we see this matter unfold to do what is right for the long term performance of the Company.

We stand ready to take tough actions if tough actions are needed.

Now, let me turn to the rest of our Company story and our progress in the combination with OBS.

Regarding our combined pipeline, our R&D pipeline is now the strongest that we've ever had in our Company's history.

We have sugammadex under priority review in the U.S.

This compound which has the potential to transform anesthesiology comes out of our highly productive Newhouse labs from Organon.

Sugammadex has been filed in the major markets, the U.S, Europe, and Japan.

We look forward to bringing this highly innovative product to market and we're also advancing our other late stage compounds.

Our Phase III clinical trials for TRA are continuing.

Vicriviroc, our innovative compound for HIV/AIDS, is also in Phase III.

We saw good data from our latest Phase II trial that was discussed at a medical forum recently.

We continue to see great promise in our compound boceprevir, our innovative molecule for Hep C.

There is an enormous unmet medical need here.

And we continue to see great promise in asenapine.

So we're realizing the promise of our combined pipeline and we are also realizing the broader promise of our combination.

When we announced the closing of the acquisition, we said that we would keep our intense focus on maintaining our customer relationships, on driving top line, and on advancing our key R&D projects.

We've been steadily advancing our key projects and we're also proud that our combined teams have been maintaining and strengthening our customer relationships.

Our people have also been relentless in their focus on driving the top line.

I personally met with our front line human RX sales managers in Europe, in the U.S.

and by video in Latin America.

I've also met with managers in the Animal Health business.

I can report our combined teams are engaged, they're energized.

In the human prescription business we've already made appointments in key management roles including country managers worldwide.

In Animal Health last week we announced the top management team of the combined business.

And we're preparing to make other key appointments.

Most importantly of all, our people are coming together as one team.

Creating alignment around a common culture takes time, but we're making steady progress.

From experience leading many many successful mergers and acquisitions, I know that the motivation and morale of the people is the single most important leading indicator of success.

The motivation and morale of our people is strong.

That's why I feel very confident about how we will make this combination succeed.

And now let me turn over to Bob Bertolini.

Bob?

Thanks, Fred.

Good morning, everyone.

As Fred mentioned, we ended 2007 with another quarter of top and bottom line growth.

Due to our acquisition of Organon BioSciences, the financial statements are a bit complex this quarter.

This is due to the purchase accounting and certain items related to the acquisition.

As a result, we provided additional tables this quarter to help you navigate from our GAAP to our reconciled results.

On this reconciled basis, we generated $0.27 per share in the fourth quarter and we're pleased with this performance.

As you know, there are new challenges ahead in 2008, including the integration of OBS.

We will take them on as we have in the past.

In particular, you know that there's been a market reaction to the ENHANCE trial results.

Despite the fact that ENHANCE was an imaging trial that pertained only to a very small patient population, we've seen a decline in the weekly prescription volume in the U.S.

It's still very early, and there are limitations to weekly prescription data so it's hard to make estimates based on it.

However, over the past two weeks, there appears to be stabilization of weekly total prescription volumes, although it's too early to call it a trend.

I would also note, based on what we're hearing outside the U.S., we have not seen a significant effect in our business at this point.

But remember, it's still early.

We're watching the prescription data closely, as you are.

While it's too early to determine the long term impact of this on our business, first quarter sales of VYTORIN and ZETIA in the U.S.

will likely be impacted.

We believe in VYTORIN and ZETIA.

They're very strong brands with good safety, efficacy, and tolerability profile.

We will keep you informed as we learn more about this situation.

For transparency to all investors, over the next few months we'll provide a monthly update on the total prescription volume for the franchise.

This data will be posted in FAQs on our website when the data is available.

In the meantime, you can expect us to maintain broad support for VYTORIN and ZETIA.

Now I'd like to cover our fourth quarter financial results.

First our sales.

Second our earnings.

And finally I'll discuss some information pertaining to our operations.

First, our sales performance for the fourth quarter.

Now remember, our results in the fourth quarter reflect about six weeks of operations as a combined Company.

Our GAAP sales increased to $3.7 billion.

This includes about $600 million in sales from OBS.

So absent OBS, our total sales for Schering-Plough on a standalone basis would have been $3.1 billion, up 17% year-over-year.

Currency also worked in our favor this quarter, contributing about 7% to our sales growth.

Adjusted net sales were $4.4 billion this quarter.

Remember, adjusted net sales includes an assumed 50% contribution from the cholesterol joint venture.

Cholesterol franchise sales grew 34% to nearly $1.5 billion in the quarter due to the increased volume in U.S.

and international markets.

In the U.S., there was a modest build in the trade inventory buying patterns for ZETIA and VYTORIN relative to the third quarter.

In the fourth quarter results, you can also see that the Organon BioSciences acquisition adds to our diversification strategy.

We saw good growth across each of our customer segments including prescription pharma, Animal Health, and Consumer Healthcare.

Our prescription pharma sales were driven by about $400 million in sales from Organon.

We also saw growth of REMICADE, PEG-INTRON and TEMODAR.

Our Animal Health business also grew.

This was driven by about $200 million from the acquisition of Intervet and continued strong performance of the underlying Schering-Plough Animal Health business.

Consumer Health grew 24% this quarter and 13% for the full year due to increased growth of OTC Claritin and MiraLAX.

Moving on to earnings, on a GAAP basis we recorded a loss in the fourth quarter due to the purchase accounting adjustments and acquisition related items.

As I said, when you exclude these and an upfront R&D payment of $21 million, we earned $0.27 per share.

Let me explain the three factors that lead to the earnings adjustments.

First, we had purchase accounting adjustments, including a $3.8 billion charge for in process R&D, as well as inventory, and fixed asset step-ups and amortization of intangibles.

Second, we had items related to the OBS acquisition, and that includes currency related gains of about $250 million, as well as integration costs.

And third, we had an upfront R&D expense of $21 million for the new auto injector agreement with Centocor.

Let me touch briefly on our operations.

On a reconciled basis our gross margin was lower sequentially and on a year-over-year basis.

In both cases, the primary driver of the decline was product mix, including slower sales growth of Avelox through a weak antibiotic season in the fourth quarter and continued growth in REMICADE.

Moving on to SG&A, excluding OBS expenses of $227 million, SG&A expenses grew 13% this quarter, mostly due to promotional spending and foreign exchange.

On R&D, we continued to invest heavily in R&D this quarter.

R&D expenses of $855 million included $111 million from OBS and $21 million for an upfront payment to Centocor.

Excluding these items, Schering-Plough's R&D expense would have grown about 17% year-over-year.

Let me close with a few comments starting with Organon BioSciences.

As you know, we plan to achieve $500 million in annual synergies by year three.

Savings in the short-term will come primarily from procurement, our hiring freeze, headcount reductions, and cost avoidance.

Keep in mind that since we closed the transaction in November of last year, our synergies will build throughout 2008.

Accordingly, the earnings contribution from OBS will be weighted towards the back end of '08.

Apart from the OBS acquisition, we're also keeping a close eye on cost in the rest of our business.

In summary, we've accomplished a lot in 2007, including the acquisition of Organon BioSciences.

As you know, there are new challenges ahead in 2008, and we'll take them on as we have in the past, but also from the starting point of a more diversified Company with a strong R&D engine.

Now, let me turn the call over to Carrie.

Thank you, Bob, and good morning.

The growth story continued for our Global Pharmaceutical business.

Our strategy to drive the top line has been successful, and we remained one of the fastest growing companies among our peers in 2007.

We have built depth and breadth across our core geographies and brands.

Even excluding our cholesterol franchise, 7 of our top 10 products grew in double digits last year.

Turning to our product portfolio, Q4 sales from our global cholesterol franchise increased 34% to nearly $1.5 billion.

For the full year, franchise sales reached $5.2 billion, and we are particularly pleased that international cholesterol sales topped the $1 billion milestone.

You'll recall that our franchise includes sales from the joint venture and Schering-Plough territories including Japan, where ZETIA continues to progress well following its launch this past June.

Since statin therapies were introduced, a large body of clinical evidence has reinforced LDL as the cornerstone of lipid lowering therapy.

And despite the reaction to the release of the top line results from ENHANCE, the facts remain the same.

Only VYTORIN provides more than a 50% LDL reduction at the usual starting dose and gets more patients to goal across the dosing range, more than Lipitor, more than Crestor, and more than simvastatin.

In managed care, our competitive second tier access has remained strong and stable.

With ZETIA, physicians have the flexibility to prescribe as monotherapy for patients who might be statin intolerant or in combination with statins when titration alone is not enough.

We stand behind the innovative science of VYTORIN and ZETIA and we're proud of the important role they each play in lowering LDL.

REMICADE continues to build on its strong performance with Q4 sales increasing 35%.

We have seen solid growth across all indications despite increasing competition as use of biologics continues to grow.

For the full year, we're delighted that REMICADE surpassed $1.6 billion, a testament to its demonstrated efficacy, the broad range of indications, and its well established safety profile.

During the quarter, we revised our agreement with Centocor.

This revision will allow us to keep both REMICADE and Golimumab for an additional 15 years after the launch of Golimumab in the Schering-Plough territory.

As you recall, Golimumab is a Next Generation human anti-TNF therapy in Phase III development in both subcutaneous and IV formulations.

In allergy and respiratory, global NASONEX sales increased 7% during the quarter with continued strong performance across our international markets.

For the full year, NASONEX sales surpassed $1 billion.

To put this performance in perspective, NASONEX sales have more than doubled since 2003.

NASONEX has held firm against generic fluticasone and new branded competition in the U.S.

With more indications to treat a broad range of patients, NASONEX has maintained its strong managed care access and remains the number one prescribed brand among allergists, pediatricians, ENTs with a market share of 45%.

In the U.S., ASMANEX sales grew 61% during 2007, and we are pleased that ASMANEX is now the first and only ICS inhaler approved for once-daily dosing in children aged four and older.

Turning to hepatitis, global PEG-INTRON sales increased 15% in Q4, driven by the continued strong performance in our emerging markets.

In Japan, PEG-INTRON remains the market leader by nearly a 3 to 1 margin over Pegasys.

Though as expected, sales continue to reflect declines in new patient enrollment.

But the big news for PEG-INTRON was the release of the top line results for the landmark IDEAL study, a head-to-head trial comparing PEG-INTRON and Pegasys combination therapies.

SVR rates and safety profiles were found to be similar, though IDEAL did suggest important differences between the two therapies.

Relapse and non-response are a significant problem in Hepatitis C therapy, with more than half of patients ultimately requiring retreatment.

Thus, we were very pleased to see that fewer patients treated with PEG-INTRON relapsed compared to Pegasys.

We believe this may be an important consideration for physicians and patients when making treatment decisions.

Finally, some brief comments on the Organon portfolio.

Organon has long been a leader in women's healthcare and we are excited about the opportunity to unlock the potential of the current and future portfolio, including NUVARING, FOLLISTIM, and IMPLANON.

In CNS, we believe sugammadex may change the practice of anesthesia.

By rapidly and safely reversing the effects of shallow and profound muscle relaxation, sugammadex may shift the treatment paradigm in this largely underdeveloped market.

Sugammadex received priority status review from the FDA last month and has been filed in the European Union and Japan.

We've also filed a new drug application for asenapine for the treatment of schizophrenia and bipolar disorder.

This is a dynamic market with a significant amount of switching and use of multiple therapy.

Asenapine may provide a needed treatment option for patients and physicians.

Finally, we would like to thank all of our Schering-Plough colleagues for another milestone year.

We have grown stronger as an organization over the past four years and look forward to continuing our work in building a high performance Company for the long term.

Thank you, and let me turn the call back to Alex.

Thanks, Carrie.

Now we would like to open up the call to answer your questions.

In order to help us get through as many questions as possible, please limit yourself to one or two questions and we will not take any follow-up questions.

But if you do have additional questions you're welcome to rejoin the queue.

Ashley, we're now ready for the Q&A.

(OPERATOR INSTRUCTIONS) Your first question comes from Tim Anderson with Sanford Bernstein.

A couple questions.

On ENHANCE, can you just talk about one data point that was in the January press release, which noted what the baseline IMT levels were which was around 0.68 to 0.69?

From what I can tell those baseline levels are almost at normal levels which may have made it difficult for either product to show a benefit and I guess it's kind of surprising that you would see that low level of IMT at baseline given that these were FH patients.

So I'm wondering if I'm somehow misinterpreting the data here?

And then second question, quick on on Sugammadex, do you believe that's likely to go before an FDA advisory committee?

Yes, so Dr.

Anderson, those are both very good questions.

Tim, in general, I think when you're dealing with long term trials that go for many many years, there's often this confounding observation that the practice changes along the way, and that might have happened here although we don't know the full size yet but Dr.

Koestler is here to answer your more specific question here, so Tom?

If you can react to both these?

Sure, Tim.

You're right.

The baseline values for the intimal media thickness were actually quite thin.

You mentioned 0.68 and typically in these studies you see carotid intima media thickness in the 0.8 to 0.9, [(sic)0.08 to 0.09] range, so in that regard, you're right, and this population while it was heterozygous FH patients which as you know is a genetic predisposition for very high levels of cholesterol which were indeed the case in this study, many of these patients, the vast majority of these patients, 80% of them were on very well controlled statin therapy at the time they entered into the trial.

With respect to your second question on Sugammadex, yes, we have an FDA advisory committee scheduled for March 11.

Thank you, and next question, please?

Your next question comes from Roopesh Patel, with UBS.

Thank you.

Just a couple of questions on VYTORIN and ZETIA.

Firstly, can you briefly discuss the design and more importantly the rationale for the SEAS trial?

And then separately, based on your market checks, what are the key reasons why VYTORIN and ZETIA sales are being impacted in the context of the ENHANCE trial, and what steps is the Company taking to address these issues?

Thank you.

Okay, Roopesh, both are very good questions and I will ask Dr.

Koestler to answer the first one, I'll answer the second one.

Basically, we were very quick on the ground.

I was with the district managers the following weekend and also we were with our people overseas as well.

This was more a U.S.

situation and that was pretty obvious and I was very encouraged when I met the district managers and I met dozens of them and we were well mobilized along with our partner Merck and the joint venture salesforces in correcting the mischaracterizations.

The doctors generally knew that this was one of those media driven situations, but we were there very quickly on the ground and we did a very good job on the ground.

I will ask Tom to respond to the first question.

Yes, Roopesh, SEAS is one of the trials that the joint venture has designed and is executing against.

This is the first ever clinical outcome trial in patients with aortic stenosis which incidentally is an indication that it's not, it's not part of our indication that we have for VYTORIN, and for ZETIA.

We expect that the results of this trial will be available some time later this year.

Next question, please?

Your next question comes from Chris Schott with Banc of America Securities.

Great, thank you.

Just two quick questions.

Maybe just first if there's any color you could provide, I know it's early but as we start looking out to the 2008 profile, just any more color on the gross margin trend we should expect as Organon kind of gets integrated here as well as R&D growth in '08 maybe if you could just comment on what the underlying Schering dynamics we'd expect?

And second in terms of R&D update on boceprevir, just update on timing of a move to Phase III potentially for that program and then the duration of size of studies you have to run there and just any comments you might have on helping us understand the market opportunity for these Protease Inhibitors in terms of any patient bolus that might be around, patients who might kind of reconsider treatment if these were available?

Thanks.

Both very good questions, Chris, so Bob?

On the gross margin, and Tom on the boceprevir.

Thanks, Chris.

As you can see this quarter, product mix is driving a lot of our movements in the gross margin.

If you look at the full year this year, we did roughly 67.9 up from 66.5 last year, and a lot of that was due to the cost saving actions that we've taken to date.

I will say a lot of the cost savings within Schering-Plough have been largely achieved.

We're still looking at OBS but those will take longer as we go through the integration process.

As you know, Chris, it could take three to five years to rationalize manufacturing.

So going forward I would follow mix as the primary driver of our gross margin going forward.

Okay, and of course, if we get new products down the road like Sugammadex, that will of course upgrade our gross profit margin.

It's very much a function of existing products as well as new products and that's hopefully where the upgrade will occur.

Tom, on the second question?

Sure, Chris.

As you know, our Phase II naive program is ongoing.

We are very encouraging about bocepravir and because we have fast track status with FDA, we have a good open dialogue with that reviewing division, and as we gear up, we'll be letting you know in the near term when we're prepared to start our Phase III trials, but right now, we remain very encouraged by what we see with bocepravir.

Thank you very much and next question, please?

Your next question comes from James Kelly with Goldman Sachs.

Good morning.

I was wondering if there were any important seasonal effects, I know you mentioned the effects through the quarters of rationalization and being able to realize some of the synergies but are there any other important seasonal effects that we should be thinking about as we are taking a look at the quarterly flow through 2008 with OBS?

Thank you.

Thank you very much, Jim and we still have seasonality in our business primarily because we have -- we have a number of respiratory products, and Avelox has become a larger part of our mix so this is going to be a factor, along with, of course, the regular businesses like our cholesterol business, and we did have a weak respiratory season in Q4.

It's too early to tell how Q1 is evolving.

Carrie, maybe you may want to comment on the Q1 season?

To date the season is substantially behind last year, it's been a very mild winter around the country and certainly in many parts of the world, so what the we see is a much weaker respiratory season and in fact, while Avelox in the U.S.

has reached new market share highs, without a dynamic respiratory season there, the sales are not as strong as we would hope at this point.

And on the subject of Avelox, I really want to compliment our team.

When we inherited this protect from Bayer in '04, it was around 9 share and we're now in the high teens, so.

We just passed 20.

We just went past 20.

This just shows you how much value can be added by this team that we have here.

And also, remember that we are now going to have the new products coming in from Organon.

These are the products that are going to be joining our portfolio, and they tend to be non-seasonal so we will reduce that seasonality factor going forward and next question, please?

Your next question comes from Catherine Arnold with Credit Suisse.

Good morning.

Two questions.

First of all, on the expenses, you gave us detail on the split between Organon and Schering for some costs buckets, but I don't think you gave us the detail for COGS, other income, and I was wondering if you could comment on that?

And then also talk about the currency effect on Organon versus Schering cost base because I would think Organon would be much more heavily laden with currency negative impact?

And then secondly I was wondering if Tom or Carrie could possibly update us on your expectations for Asenapine and Sugammadex?

I think that obviously you went into the deal and had certain expectations but you commented in the past that as you sort of knew more and they became your own and you have the data intimately at hand, you would update us as to your view on those products.

Thanks.

Thank you very much, Catherine.

Both are very good questions.

I will ask Bob to respond to the COGS question.

It's very true that when we did our OBS deal last March, we did see some properties that may not be, that may not have been very visible to the chemical analysts that were following Akzo Nobel, and one of the best properties that we saw think was Sugammadex, so we're pleased that that's come along and Asenapine is coming along and we'll ask Tom and Carrie to comment on the future opportunities here but Bob first on the COGS.

Well, first, thanks, Catherine for the question.

It's about $206 million for the six week period in the cost of goods sold line.

I would say for the gross margin in Q4, the impact of OBS on our overall gross margin was not very significant.

I believe it was 0.1% at that point in time, Catherine, so to give you some sense of the cost of sales side.

With respect to the Organon business, it is primarily outside the U.S.

business, but also keep in mind some of the debt that we did was also euro denominated so there's balancing aspects that go on there.

And Tom?

Yes, Catherine, my comment on both of these would be starting with Asenapine, is it's under standard review in the U.S.

I think it's fair to say we remain very encouraged about the product but it's also in a very difficult challenging review division with the Division of Psychiatry at FDA.

So we don't have anything tangible back yet from the reviewing division, but we remain steadfast in pursuing this file.

In terms of Sugammadex, well, as we've already stated we're pretty pleased with the fact we've got priority review and we've got an advisory committee scheduled for the 11th of March.

So we're gearing up and getting prepared for that and we're very optimistic.

Carrie?

Sugammadex is a true innovation in a category that hasn't seen anything substantially like this in many, many years so we're delighted to have a chance to really begin to look at a treatment paradigm shift in an underserved market.

The opportunity to use the hospital channel that we built fairly well over the last few years is also an exciting opportunity for us and we think this could be a very, very great launch for us when we get the chance to bring it to market.

If you look at Asenapine, you know that that actually could compete potentially in two different aspects of the market both in schizophrenia and in bipolar disorder.

Bipolar has been a very fast growing and rapidly developing market over the last few years, but one where there is still major unmet need and a great deal of treatment option required to find the right, either individual or multiple therapies, for individual patients and as you know, that can change over time for any given patient as well.

In schizophrenia, this has remained a chronically underserved market, despite the introduction of more options over the last decade, there still are not enough good options for patients who need them, and again, another market that is characterized by single therapy or multiple therapies, and the fact that there continues to be a lot of switching, a lot of side effect management issues and therefore a lot of opportunities for physicians and patients to look for a better fit for individualized medicine, all of that creates a great deal of interest and opportunity for Asenapine down the road.

Thank you and next question, please?

Your next question comes from David Risinger with Merrill Lynch.

Yes, hi, thanks very much for taking the questions.

First of all, with respect to FX, could you just walk through the positive benefit to EPS in the quarter?

And then second, with respect to REMICADE and Golimumab, you mentioned a change in the agreement.

Could you tell us whether or not the existing agreement, whereby if there's a change of control, REMICADE and Golimumab rights revert to J&J with no compensation to Schering-Plough, whether that remains in place or not?

Thank you.

Okay.

And to the last question, yes.

That agreement remains in place and I will ask Bob to explain the foreign exchange question.

Yes, on the top line it was 7% David as we mentioned, on the bottom line we would estimate it to be in the $0.03 range.

David, did you have a question on REMICADE and Golimumab beyond the change of control?

Okay so next question, please?

Your next question comes from Tony Butler with Lehman Brothers.

Thanks very much.

In the context of the integration of Organon, how do you think about ramping or do you need to ramp some additional salesforce in the hospital channel, Carrie, for Sugammadex and then how do you think about the sales effort for Asenapine, given that would also be new?

And I might also ask on Sugammadex, is your primary person with whom you're marketing to the anesthesiologist, or the surgeon, or is it both?

Thank you.

Very good questions, Carrie?

Yes, once you understand as you've pointed out that the actual opportunity for this in the physician audiences are both in anesthesia and surgery, that starts to answer another question which is how we would allocate salesforce and while I don't want to go into too much detail here, as you're aware, we have built a substantial hospital channel in the U.S.

over the last few years, both because of our success with Avelox, but certainly also for the introduction of Noxafil, so we now have a well developed sales group there and we've made great progress with our customer relationship.

So we do expect to be taking Sugammadex to a broader audience.

Around the world that is also very similar because while the product mix may be a little different, we now have over the last few years created a very nice portfolio of hospital and specialty hospital focused products that give us good relationships and good established account management in hospitals.

When you think about Asenapine for the sales efforts while we're still discussing exactly how that would evolve, Organon had spent quite some time working on options for that so we're continuing to discuss some of the options that they had brought forward in their planning scenario.

Yes, and Tony, I can just tell you personally, from the launch of, based on my own experience and also I know Carrie's experience and Tom's experience, the launch for many of the CNS drugs, generally they're done in a very careful, sequential manner.

I remember with my Effexor experience at Wyeth, we went primarily to the psychiatrists in every country and then later on went to the generalists, that is usually the right approach and we will draw upon that experience as we look at Asenapine.

Also one of the good things about the future planning here is that almost all of the products that you're hearing about have very long patent lives, so we can actually plan for the long term which is a little different from the planning that's going on at some of our peers where there are all kinds of patent expirations.

And next question, please?

Your next question comes from John Boris with Bear Stearns.

Good morning, thanks for taking the questions.

A top line question and then a ZETIA/VYTORIN question.

On top line, if you look at the U.S.

pharmaceutical business ex-Organon, looks like it was down in the quarter.

Can you just address what's going on in the U.S.

business and then on ZETIA/VYTORIN, on the publication of the ENHANCE results, there's obviously a manuscript that has to be published and then presentation of full results.

Are you anticipating there to be two media events or one media event?

And then Carrie, have you done a usage and awareness primary market research with your two primary customers cardiologists and primary care doctors and what kind of feedback are you getting related to ENHANCE from those two key customers?

Thanks.

Good questions, John.

So first we'll ask Carrie to answer the U.S.

business question, Tom to comment on the science question, and then Carrie to answer the market research question.

Thanks.

When you look at the U.S.

business, you again are aware how much of our business is driven around the respiratory season, both for the obvious products like in Avelox but also for Nasonex and Asmanex, even the Proventil line, when there's a mild winter and a weak respiratory season that affects the entire business line.

I will just answer the second part now, in terms of feedback that we're getting from physicians, is as you would expect frankly, they understand that the furor around ENHANCE is largely a media driven event.

They are comfortable with the science around VYTORIN and ZETIA and the impact in superiority on LDL lowering, and for practicing physicians, the mainstay of therapy is lowering LDL and they understand that's the goal that they're working towards.

So while we've seen the early signs of stabilization, obviously we need to continue to monitor this over time because as we said, it's still too soon to say.

And Tom?

Yes, John in terms of the publication the principal investigator, Dr.

Casteline, it's his intent to publish this study, so in due course we'll let you know when that will occur and obviously we've also submitted an abstract to the ACC, and we're still awaiting confirmation and details regarding that event.

Thank you, and next question, please?

Your next question comes from Jami Rubin with Morgan Stanley.

Thank you.

This is both to Fred and Bob.

I think in the past, you had talked about your ability to reduce the Organon related debt over a period of about three years.

Can you comment on that just in the context of near term uncertainty related to VYTORIN and ZETIA, what we should be thinking about in terms of our model?

And secondly, Bob, I don't recall if you had answered this question and if you did, apologies, I didn't hear, it but if you could give us any flavor at all on R&D spending in 2008?

Thanks.

Jami, those are very good questions and by nature, we are conservative.

We like to get that debt down as soon as possible.

Bob, you may want to comment on the plan going forward.

Well obviously, we're evaluating everything, but right now our cash on hand we have more than $2 billion of cash on hand.

There is no maturities of debt coming until 2010, and that would be the first traunch, Jami, which is the 500 million euro traunch that we did over the Summer so that will be the first traunch that will be coming forward.

I would say that our cash flows are very strong.

You'll see them in our 10-K over $1 billion of cash flows and we had a very very solid and stable balance sheet.

And we do have a lot of cash flow coming from our broad product lines from many many countries.

It's a very broad Company.

On R&D spending, we'll give you more color in Q1 as we go forward but clearly, TRA is in the ramp phase, and as you seen in the fourth quarter, Jami, our R&D spend was up 17%.

And as I said, Jami, if tough actions are needed, we will take those tough actions, but right now it's too early to tell as far as the cholesterol news are concerned.

And next question, please?

Your next question comes from Steve Scala with Cowen.

Thank you.

I would imagine Schering is aware of the full data on ENHANCE including that not yet revealed publicly.

I appreciate that none of the end points achieved statistical significance, but even the underlying trend is important relative to perception.

So to what degree is the data that's not yet revealed publicly, the underpinning of your confidence in the franchise and Fred, your view that the data needs to be fully presented at the scientific forum before making a full assessment?

I would add that I think a positive underlying trend in one or more of the end points other than the common combined end point would be extremely important.

And secondly, on boceprevir, was the EVR data on boceprevir quoted in the October 2007 release on an intent to treat basis or was this based on patients who completed therapy?

Thank you.

Very good questions, Steve.

I can can just say to you that I personally have not seen the full data and all I can tell you is that this trial was never intended to be very large and a big trial.

So this is a small trial that was basically trying to test the hypothesis and I will ask Tom to share with you what he knows about the other aspects of this trial.

Yes, Steve, I think as you correctly point out, we have submitted the abstract to the ACC and I think we need to wait for that scientific debate to take place to get into a discussion around all of the elements around ENHANCE.

In terms of your other question, Steve, around the EVR data for boceprevir that we published, which was 79%, yes, indeed that was an intent to treat value.

And I think Tom, it's fair to say that since the original trial was so narrow in scope, nothing has really changed in terms of the lower LDL is better proposition.

The underlying proposition is the same.

I would agree with that, Fred.

Good diet, health, exercise, and LDL cholesterol is really the goal.

It's reinforced by the NCEP guidelines, it's reinforced by the community, it was reinforced by the FDA in their press conference a little over a week ago.

Thank you, next question, please?

Your next question comes from Seamus Fernandez from Leerink Swann.

Thanks very much.

Just a couple of quick questions.

One on the SEAS study.

Can you, maybe, Tom Koestler can just characterize the importance of SEAS relative to the franchise, historically the management team had characterized ENHANCE as a challenging study, but one that you didn't think was critically important.

Just wanted to know if you could put SEAS into a similar context for us as we think about it, particularly since this study is testing VYTORIN versus placebo?

And then separately , the Asenapine filing was a bit unconventional, I guess, in the fact that, it includes both bipolar and schizophrenia and I was just hoping that Tom and Carrie maybe could discuss the risks and opportunities in that type of a

So, Seamus, very good questions.

I think the real study to be waiting for is the IMPROVE-IT trial.

Tom you may want to comment on the SEAS.

Yes, as I mentioned previously, SEAS is the first ever clinical outcome trial and the population is for aortic stenosis so it's outside our indication, it's not really central to the primary indication related to cholesterol, interesting study but as Fred just mentioned, the real, I think the real study that we will be aiming for will be IMPROVE-IT and as you know that's a very large outcome trial measuring hard endpoints of MI death and severe cardiovascular outcomes.

So I think that's the study that I would put the context on.

And Carrie?

We are delighted that the as Asenapine filing has gone in with such a broad indication incorporating both schizophrenia and bipolar so one of the fun things is that we can prepare for both of those.

As you know, it's the same prescriber audience that treats both of those indications, so while the patient groups are different, the prescribers are the same.

So from a support point of view, clearly that helps us continue our planning focused on psychiatry and obviously, we'll be planning the product support to be focused on each of those areas, but they are not dependent on each other.

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

Next question, please?

Your next question comes from Harlan Sonderling with Columbia Management.

Hi, good morning, my comment -- question was on the tax rate, please.

It's 14% for the quarter.

Well below what it was in 2007 and '06.

Can you comment on its direction this year, please?

And forward?

Okay, Tom?

I'm sorry, Bob.

You're right, Harlan, we came in at about 14% in the quarter, pretty consistent with the guidance of mid-teens.

I think going forward, we'll have to look at product and country mix going forward so really can't comment much further at this point in time on that, Harlan.

Thank you.

Next question, please?

Your next question comes from Mike Krensavage with Raymond James.

Good morning.

What are the most significant concerns the FDA panel might address on Sugammadex on March 11?

Very good question.

Tom?

You'll have to speculate, but--?

Yes, And all I would be doing is speculating.

We don't want to do that, but to be honest with you, we haven't gotten any real challenging, real challenges coming back from the review process.

It's still ongoing and we have to be mindful of that, but right now, we have, we think we've got a pretty comprehensive package for Sugammadex, and it's very novel.

This is an extraordinarily novel therapy and I think that has a lot to say about why the FDA granted priority review and we think the community is pretty enthused about this product so I think just stay tuned and we'll see how we do when we get closer to the advisory committee.

And Tom it's fair to say that it's a cyclodextrin?

Yes, it's a Gamma cyclodextrin which from a molecular point of view is novel but it's not unusual and the agency does have some experience with this compounds.

So the whole concept is very novel.

I think that is the real excitement around Sugammadex.

It's basically thinking outside the box and in fact, to do a fast anesthesia reversal.

It's very rapid in the reversal, which makes it highly attractive as Carrie had mentioned earlier as well, for patients for the surgeon and the anesthesiologists to be able to get these patients into a very deep anesthesia when it's desired versus those that are shallow.

You can quickly reverse these neuromuscular blockades very easily and very quickly so it's a very novel interesting product.

So, I'll wrap up by saying that we built great strength and diversity in Schering-Plough over the past four years and this gives us confidence about our future and also the confidence about our ability to weather the current challenge we face and meantime, we're making very strong progress in our integration of OBS and this will further strengthen our Company for the long term.

So we thank you for being a part of our call this morning and we do look forward to talking to you again.

Thank you.

This concludes today's conference.

Thank you for your participation.

You may now disconnect.