輝瑞 (PFE) 2001 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Pharmacia Corporation first quarter earnings conference call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Mr. Hakan Astrom, Senior Vice President of Strategy and Corporate Affairs. Sir, you may begin.

Thank you, Holly. Hello, and welcome to our first quarter conference call and thank you for joining us today. I would like to remind all participants that we are Webcasting this call and all of our quarterly sales and earnings conference calls. These calls can be accessed at our Website www.pharmacia.com. Before proceeding, counsel have asked me to refer you to the final page of the release for information regarding any forward-looking statements made during this call. Also, as has been our practice, earning results discussed during this call will be on an adjusted basis excluding items such as restructuring, merger-related costs, accounting changes, and certain one-time large transactions previously made public. Joining me this morning for the call here in our Peapack headquarters are Fred Hassan, Chairman and CEO; Christopher J. Coughlin, our Chief Financial Officer; and Carrie Cox, President of our Global Prescription Business. I will now turn the call over to Fred Hassan for opening remarks.

Thank you, Hakan, and good morning everyone. It's a pleasure to report to you today that once again we're delivering on the growth story that we promised when we announced the plans for creating this new company. You will recall that we said we would deliver 20% earnings per share growth on a compounded annual basis from 1999 till 2002. Last year we achieved a 31% increase, the top of the league in big pharma, and for this quarter, we are right on track with our plans. As you will see from

our release, we're reporting 19% growth in EPS for our first quarter, and this growth was driven by a 19% growth in prescription pharmaceutical sales excluding the impact of foreign exchange. We have not heard of any peer company with a faster revenue growth rate in their human health business. And as we anticipated in our last quarterly call, we're now seeing our efforts to build a performance picture in Europe also pay off. We registered a 22% growth in our European Rx sales for the quarter excluding the impact of exchange. Our ag business is also making progress. Monsanto earnings growth of 1% for the quarter over the prior year, while not as large as we would like it to be, still keeps our ag business a global leader and a growth leader among its peers. We are very pleased that we're succeeding in unlocking the value of our ag business just as we promised when we announced our merger at the end of 1999. Through the limited IPO we carried out in October, and also by refocusing the business and through determined cost reduction, we have transformed the Monsanto ag business. At the end of 1999, the perceived value of the ag business within Monsanto was close to zero. Today, the market capitalization of the Monsanto/ag business is around $9 billion. As you may have noticed, it's just over one year since we closed our merger. And during this time, we feel pleased that we have delivered high performance even as we carried out a complex global integration. You can also see that we continue to exercise cost discipline in

both pharma and ag and we are on track to deliver our merger synergies. We are also pleased to have created a company that's very well positioned for the future. Our first quarter further reinforces that point. All of our key growth drivers delivered and they continue to grow well. With the Celebrex we're pleased that we're seeing continued good prescription growth in the US, and now we're seeing very good growth for Celebrex coming from Europe as well. This high performance of Celebrex outside the US demonstrates the strength we have gained as a combined company at Pharmacia. And while Celebrex is, of course, our main growth driver, we benefit from the strength and balance we gain from our other major products. As you will hear from Carrie in a few moments, Xalatan, Camptosar, and Detrol are all growing strongly. As you know, we launched once-daily Detrol LA in the US and we're very pleased with its performance. I would also draw your attention to some other developments that are contributing to a strong and stable growth position for Pharmacia. During the quarter, we submitted our NDA to the FDA for valdecoxib, our treatment for acute pain and for other indications. This is now our third major product from the COX-2 platform following our NDA for parecoxib, the injectable treatment that we told you about in our last call. This array deepens our strength in the pain and inflammation area, and we have further strengthened this position with our agreement with our agreement with Celltech for a very promising compound for treating rheumatoid arthritis. I am also very pleased with the continuing rapid and solid progress on our

integration. As you know, mergers are really a multiyear process. We are now focused on the second wave of change and we're seeing good signs of deep collaboration and teamwork. We're seeing that in our field forces and we're seeing it in the actions such as our string of COX-2 filings. Recently, I have been visiting some of our labs and over the past month our teams have carried out a rigorous review and prioritization of the pipeline. As a result, we feel very confident that we're allocating our resources wisely. We're focusing on the breakthrough opportunities and we are being very tough very early in killing the projects that don't meet the criteria. We're also feeling very good about sustaining and building the leadership situation of some of our key products. With Celebrex we will continue our discussion with the FDA on the label. What is most important is the positive experience of physicians and patients over the past two years with Celebrex. We're also very confident about the data that shows Celebrex's safety versus the older NSAIDs. And also we're feeling very confident about the data demonstrating the cardiovascular safety of Celebrex. This data should give confidence to our doctors and their patients. Let me also comment briefly on our Monsanto ag unit. We continue to make progress on ag biotech acceptance and on regulatory issues. US government and other figures are showing that farmers expect to be planting more biotech acres over last year. However, Europe and also Brazil remain a challenge. As you will know, next quarter is the most important one for the ag business and accounts for a vast majority of its sales and

earnings. So far we're seeing good signs that, unlike last year with the dry winter and low moisture in the green belt, this year there are good growing conditions. So, we are optimistic but we also remember that we do not control the weather. In summary, we remain committed to our pre-merger goal of 20% annual compounded growth in EPS from 1999 to 2002. We'll provide more specific guidance for 2002 in our November investor meeting. Details of this meeting will be announced soon. I feel very good about what we have achieved in the new Pharmacia just one year after our merger. We have created a top tier company that we promised. And along with the product and pipeline strength I've described, we really can take pride in the alignment and dynamism of the organization. And now, I'll turn the call over to Chris Coughlin.

Thank you, Fred. Our performance in the first quarter was right in line with the guidance we provided during our last call. Our earnings per share growth of 19% was driven by strong after tax earnings growth in our pharmaceutical business of 27% while our after tax earnings in our Monsanto agricultural subsidiary increased by 1%. Consolidating sales, excluding the impact of foreign exchange, grew by 12%. This strong sales growth was led by our pharmaceutical sector that recorded sales growth of 17% when excluding the impact of foreign exchange. On a US dollar basis, consolidated sales grew 8%, with Monsanto down by 1% and pharmaceutical sector sales increasing by 13%. As we specifically discussed in our fourth quarter 2000 conference call, trade buying of Celebrex in that quarter in the United States would result in US Celebrex sales in the first

quarter of this year being below true consumer demand. This is evident in our first quarter sales results of Celebrex, which Carrie will discuss in a moment. I will also note here that our first quarter sales of Ambien reflect heavy trade purchases in anticipation of our recent price increase. As with Celebrex in the first quarter, we would expect second quarter Ambien sales to reflect a workdown of that trade inventory. Looking at our profit picture, our consolidated earnings before interest and taxes, EBITDA, grew by 12%. Pharmaceutical EBITDA grew 15%, while our Monsanto business saw a modest EBITDA growth of 2%. I would highlight that our EBITDA comparisons with the first quarter of 2000 are somewhat distorted by income from partnership payments in the first quarter of 2000. Excluding the impact of those payments, pharmaceutical EBITDA grew by 33% and our consolidated EBITDA grew by 25%. Gross margin for the total company improved 180 basis points to 68.1%. This improvement reflects a growth of our higher margin pharmaceutical business. SG&A grew 15% to 38.2% of sales. This increase reflects the partnership payment impact mentioned previously, increased profit sharing payments on Celebrex, as well as heavy launch costs of Celebrex in Europe. These increases were partially offset by our aggressive cost reduction initiatives resulting from our merger. Research and development expenses total $630 million, a 9% decline from a year ago. This decline resulted from lower spending due to the completion of COX-2 projects, merger synergies, timing of development spending, and the favorable impact of foreign exchange on our non-US based research. You will note that all other net went from income of $59

million in the first quarter last year to an expense of $17 million this quarter. This change was primarily the result of a gain on the sale of our Chinese nutrition business reported last year, and an increase in the Sanofi-Synthelabo portion of profits generated from Ambien. As we have discussed previously, the Pharmacia portion of Ambien was reduced to 53% this year from 60% a year ago. Our net interest expense declined by nearly $26 million from the first quarter of last year as a result of the significantly reduced debt levels. Our combined tax rate of 28.2% reflects the Monsanto rate of 38% and a pharmaceutical rate of 26%. Restructuring and merger-related expenses total $145 million for the quarter and we remain on track with all our merger integration activities. So in summary, we are extremely pleased with our results. For the full year, our double-digit pharmaceutical sales growth should continue. Synergies and cost reduction should more than offset the loss of certain partnership income reported last year. As previously communicated, we remained comfortable with our estimate of EPS growth of approximately 20% for the full year. Looking at the second quarter, we expect EPS growth of 15 to 17%. EPS growth in the second half of 2001 will be higher than the first half due to the substantially larger contribution Monsanto makes to our total first-half income, particularly in the second quarter due to the seasonal nature of that business. And lastly, during our previous conference call I mentioned that we were going to be aggressive in acquiring and in licensing product opportunities. As you have heard from Fred, with our recently announced transaction with Celltech, we are aggressively

pursuing this strategy. During the first quarter we announced two significant transactions. In addition to Celltech, we completed the acquisition of Sensus and its product, Somavert, for a growth hormone disorder. This product will fit very well with our genotropin business. This drug has been filed and is expected to be approved later this year. As discussed earlier in the quarter, the upfront licensing fee and the in-process research and development writeoff related to these transactions resulted in a special charge of 5 cents per share in the quarter. And now let me turn the discussion over the Carrie Cox for further details about our pharmaceutical business.

Thanks, Chris, and good morning. Our global prescription sales for the first quarter of 2001 continued to show growth rate in the top of our peer group with total sales of 2.7 billion for the period, up 15% versus last year. And if we exclude the impact of foreign exchange, sales growth would be 19%. As you just heard from Chris, total company EBITDA growth was driven by strong profit growth in our prescription pharmaceutical business. The global sales of our top ten products totaled 1.7 billion for the quarter, up 28% over the same period last year. Sales of these products accounted for 64% of our total prescription business compared to 57% during the same period last year. Sales of our core growth drivers, Celebrex, Xalatan, Detrol, Camptosar, and Zyvox, amounted to 1.1 billion for the quarter, a 32% increase over last year. These five brands comprise 42% of the Q1 prescription pharmaceutical sales compared to only 36% last year, and as Chris has noted, this results in an improvement in our overall mix and gross margin. Sales of Celebrex globally

totaled 649 million, up 24%. Celebrex is the world' s best selling arthritis drug, leading in key markets around the world, most notably the US and Europe. Demand remains strong in the US with underlying prescription growth for Celebrex up 21%. Celebrex continues to lead the market with a 56% value share. I'd like to comment briefly on some of the market dynamics in the US. We started to see a separation in the prescribing patterns of Celebrex and its competitors that I think is very appropriate to the profiles of these two products. Celebrex is being used more in the chronic treatment of osteo and rheumatoid arthritis, and Vioxx is being used more in the short-term treatment of sprains and strains. This is also reinforced by looking at the recent length of therapy data. The number of patients that remain on therapy one year after initiation is nearly 30% higher for Celebrex than Vioxx. The economics of that dynamic will always favor Celebrex, given the much greater value of chronic long-term therapy. Celebrex represents a major advance in the treatment of arthritis. It can be used without unnecessary concern in older patients and can be used appropriately in the more than 40% of arthritis sufferers who also have hypertension. In April we received an approvable letter from FDA related to the inclusion of the long-term outcome study results in the Celebrex label. We're confident that this study and all previous studies comparing Celebrex to traditional NSAIDs in approximately 20,000 subjects have demonstrated that Celebrex is effective, well tolerated, and offers an excellent GI safety profile. As we told you last quarter, our goal is to add the long-term outcome status to the Celebrex label, but we have no

expectation that either of the coxibs will remove the NSAID GI warnings from the labels. There has been a lot of media attention paid to these upcoming label changes. We think that there is not likely to be a significant marketplace impact of added GI language, as physicians are well aware of the GI benefits of the coxibs. The two years of physician and patient experience that have now been gained in the marketplace have formed the prescribing habits that already exist for these products. The news to watch, we think, concerns the negative cardiovascular findings of the vigor trials. Based on the results of class, vigor, and other studies comparing Celebrex and the other coxibs, Celebrex has a clear competitive advantage in its cardiovascular profile. Turning to Europe, we're delighted with the excellent progress and momentum of Celebrex in Europe, now achieving sales of over 100 million in the quarter. Despite a major head start for the competition in many markets, our recent launches in Italy, Spain, and most notably France, have propelled Celebrex to be the number one coxib in Europe with a 21% value market share of the total NSAID market for the month of February. We're particularly pleased with our performance in France, where Celebrex is on track to be the most successful product ever launched in that country. We're very optimistic about the long-term potential for Celebrex in Europe as we turn towards penetration into the NSAID market. The most important growth opportunity for both Europe and the US is to convert the older NSAIDs while holding or gaining share of the coxibs. Important new data from our success trial will be presented at the Digestive Disease Week meeting, the DDW meeting, in Chicago next

month. The success trial was conducted in 13,000 osteoarthritis patients across 39 countries for a treatment period of three months. It compared Celebrex to diclofenac and naproxen and measured efficacy, tolerability, and safety, and we believe that these results will provide further confirmation of the benefits of Celebrex. Also we have recently announced an amended licensing agreement with Yamanuchi regarding the marketing of celecoxib in Japan. Under the amended agreement, Yamanuchi and Pharmacia will co-promote celecoxib in Japan with a single brand name. This amended agreement recognizes Pharmacia's growing strength in Japan post merger, and we're pleased to be combining forces with Yamanuchi, a company with a track record of excellent performance in Japan. We continue to expand our industry leading coxib platform. Parecoxib, the first injectable coxib, was filed with the FDA in October 2000 with an expected approval in the fourth quarter of this year. Parecoxib, as you may know, is a prodrug that rapidly converts in the body to the active form, valdexcoxib. Parecoxib has an onset of action as fast as seven minutes, and in studies it is as effective as low-dose morphine yet with a coxib safety profile. Results from a phase three placebo-controlled study presented this past weekend at the American Pain Society showed that administration of parecoxib significantly reduced the amount of morphine consumed by patients following total hip replacement surgery by about 40% while improving overall pain relief. In a separate study, a single dose of parecoxib was shown to provide superior analgesia to a single dose of morphine in the control of pain following total knee replacement surgery. As

Fred mentioned, we have filed the US NDA for valdecoxib in the treatment of acute pain, dysmenorrhea, osteoarthritis, and rheumatoid arthritis, and we expect a standard review. This positions us to offer the first coxib in both an oral and injectable formulation. Another of our growth products, Xalatan, continued to perform extremely well during the first quarter as the world's leading treatment for glaucoma. The worldwide sales of Xalatan for the quarter totaled 200 million, an increase of 24%. Global sales are now balanced across markets with the US comprising about 49% of total sales, Europe 28%, and Asia Pacific Latin America accounting for 21% of sales. US sales of Xalatan reached 98 million, a 14% increase over the same period last year. Xalatan continues its strong lead in the US, gaining another two market share points during the quarter to reach 37% value market share in the US, now outselling all forms of timolol and exceeding Alphagan sales by nearly a two to one margin. Much of the growth of Xalatan for the quarters came from outside the US with a 39% local currency growth in Europe and a 68% local currency growth in Japan. First quarter sales in Japan were about $30 million where Xalatan has now surpassed all other brands to become the number one glaucoma product with a 27% value market share. Two new products with the same prostaglandin chemistry as Xalatan for glaucoma treatment were recently approved in the US market and we believe that both of these compounds infringe existing Pharmacia patents. We are now in litigation with Alcon and Allergan, as we have been with CIBA Vision, and intend to vigorously defend our intellectual property. In the CIBA Vision case, we have requested a preliminary

injunction and a hearing has been held. We are confident that we have presented a strong case, but preliminary injunctive relief is rarely granted in pharmaceutical cases. It will likely be several years before there is a final resolution in each of these proceedings. In addition, none of the new compounds offered clinical advantages over Xalatan and neither received any labeling advantage over Xalatan. The two newer compounds also appear to have particularly troublesome side effect profiles per patients with potentially high rate of red, itchy eyes and excessive inappropriate eyelash growth. Nonetheless, we take any new competitor seriously and have increased our investment in Xalatan and will work to protect our leadership position. Xalatan is still the most proven, powerful, and convenient medicine for intraocular pressure control over a full 24 hours. Xalcom, our new combination product for glaucoma patients who require more aggressive therapy for this generative disease, was approved in Sweden in December and mutual recognition review is under way in Europe. Major European launches are anticipated by year end. We're pleased to note that in the US our response to the FDA approvable letter for Xalcom was submitted to the agency at the end of the quarter. Ambien, the number one prescribed sleep agent in the US, continued with strong field performance during the first quarter. US sales total of 214 million for the quarter, up 114% over the same period a year ago. And as Chris mentioned, these strong sales are due to a combination of strong prescription growth as well as pipeline fluctuations due to the timing of a price increase in Q1. As of March, Ambien held a 58% share of total prescriptions in

its category and an 85% share in total dollar value. Our goal over the next 12 months is to maximize profitability as we prepare to return the product to Sanofi-Synthelabo in April 2002. Global sales for Detrol and Detrol LA for the first quarter totaled 135 million, up 35% over the same period last year. Detrol remains the top selling brand for the treatment of overactive bladder worldwide. In the US, sales totaled 105 million for the quarter, an increase of 38% over the same period last year, while Q1 sales in Europe totaled 26 million, an increase of 19% over the same period last year. Excluding foreign exchange, sales growth would be 29%. Detrol LA was launched in the US in mid January and has done extremely well, already capturing 21% market share in weekly new prescriptions through mid April. Weekly new prescription share for the Detrol family is 53%, up six points since December. Detrol LA has already become the number one most prescribed brand with urologists, and the Detrol family has gained seven share points with urologists since December. The overall OAD market is growing well, up 21% in total prescriptions for Q1, and the Detrol family has grown 29% in the same time frame. Within eight weeks of launch, Detrol LA is available to 67% of managed care patients, and greater than 70% are able to obtain it as a first-line treatment. Detrol LA is also available on 47 state Medicaid programs. Turning to Camptosar, the new gold standard for the treatment of metastatic colorectal cancer, Q1 sales were $137 million, representing a 72% increase over the same period last year. Colorectal cancer remains the second leading cause of cancer death with an estimated 143,000 new cases diagnosed each year in US alone.

Camptosar has a rapidly growing share of first-line patients, already now at 54% since its indication was approved in April last year. Camptosar also has a 58% market share in the treatment of second-line advanced colorectal cancer. The slow decline in second-line use is as expected because use in first-line treatment replaces second-line therapy. Importantly, data are being presented at the upcoming ASCO meeting that demonstrate positive results with the use of Camptosar in combination with an investigational new product, C225 in patients who progress after Camptosar use. If this regimen is approved by the FDA, this combination will extend the use of Camptosar and help maintain its share in second-line treatment. Camptosar is also being studied in the adjuvant setting as a treatment for earlier stage colorectal cancer immediately following surgery, and Camptosar shows promise as a treatment for other types of cancer and we're currently working with top oncologists to investigate Camptosar activity in various tumor types. Currently, approximately 10% of Camptosar use is in patients who are being treating for small cell lung cancer or pancreatic cancer. At the end of this month, Zyvox, our powerful antibiotic for serious gram-positive infections, completes its first full year in the market. Zyvox was recently awarded the Frost & Sullivan Engineering Product Innovation Award for the development and launch of a new drug. Physicians have rapidly adopted the use of Zyvox in the appropriate patient populations, and in the US Q1 sales totaled a 21 million, which is in line with our expectations for a hospital product. To date, over 50,000 patients have been treated with Zyvox, the majority in

hospitals and nursing homes. In total, Zyvox is currently on formulary in more than 1500 hospitals. Its usage is broad and it is most frequently prescribed for the treatment of surgical wound infections, complicated cellulitis, septicemia, bacteremia, and nosocomial pneumonia. There are about 4 million patients treated in hospitals for these conditions annually. A key feature of Zyvox is its availability in both IV and oral formulation, and in hospitals, use remains about 70% IV and 30% oral. Physicians have found the oral formulation particularly useful for post hospital continuation therapy, allowing for earlier hospital discharge resulting in significant savings to the insurer and a faster return home for the patient. In addition to the US, seven more countries approved Zyvox during the fourth quarter 2000 including the UK, Singapore, Brazil, Chile, and Argentina. Launches are expected in other EU countries by year end. In early April, the Japanese Ministry of Health approved Zyvox very rapidly but for a very limited use in the treatment of VRE infection. Further development for other uses in Japan will continue. Zyvox achieved a significant regulatory milestone when it was granted approval in all four major global regions in less than one year. On the regulatory front, I would like to remind you that we are expecting an FDA action during the second quarter on our NDA for Axert. As you are aware, Axert is our new triptan product that we will market in the US for treatment of migraines. In summary, as Fred mentioned, the fundamentals of our business remain very strong with a 15% increase in our global prescription business and 19% EPS growth. Our global growth drivers delivered double-digit increases,

and we are a company that is very well positioned for the future on all fronts with financial strength, marketing capabilities, and strong pipeline.

Thank you, Carrie. We will now begin our questions and answers. So, operator, Holly, we are ready for questions. Thank you. The floor is now open for questions. If you do have a question or a comment, please press the numbers one followed by four on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We do ask that while you pose your questions that you please pick up your handset to provide optimum sound quality. Once again, ladies and gentlemen, that it is one followed by four. Please hold while we poll for questions. Thank you. Our first question is coming from Jim Kelly of Goldman Sachs. Please state your question or comment.

Good morning. Could you help update us a little bit on the Celebrex? You mentioned the Celebrex launch in France is going very well. Is there something unique about the pricing scheme or the way that you have negotiated with the French government for pricing there, and if you could help explain that to us, that would be great.

Carrie.

We have obtained reimbursement for Celebrex in France, and at this point Vioxx is not reimbursed, so while Vioxx is available on the market, Celebrex is the only product reimbursed. There is nothing particularly unusual about the approach or the outcome, but it's wonderful when you have a situation of being the only one of the two coxibs reimbursed.

Jim, we'll have to reduce the price by about 18% after 44 months. But if you look at the French practice, it's customary for the government to come at manufacturers who do very well with individual products. So this, in fact, protects us from a price decrease for 44 months. So we

believe this was a very creative scheme that we developed with the French government and it has given us a special edge in France.

Great. Thank you.

Operator, next question. Thank you. Our next question is coming from Ken ??? of DLJ. Please state your question or comment. Yes. Actually, that's CSFE. But actually I have two questions. First, could you quantify the pricing action on Ambien, and also, second question, just an update on Vestra in the depression market?

Carrie, will you take the pricing?

We had a price increase for Ambien, as Chris mentioned, that was in the quarter, it was effective in March, and in terms of Vestra we are responding to FDA continued questions on the approvable letter from last year, so that's an ongoing set of discussions, and we'll update you if there's any further action. Thank you.

Next question, please. Thank you. Our next question is coming from Leonard Yaffe of Bank of America. Please state your question or comment.

Yes, two questions. Could you go through price increases that you had in Q1 for drugs, including Ambien, what the amount for the price increases were? And then secondly, regarding Ambien, are you able to discuss with us at all how you'll be accounting for the final payment for Ambien, whether it will be just in 2002, just in Q2, how we should start to look towards modeling '02 and '03 earnings? Thank you.

Chris, will you take those questions?

Yes. Leonard, let me comment first on pricing. We have a very broad range of products offered in many markets around the world, so I don't think it would be appropriate here to go through all our pricing actions on

all products. Related to Ambien, as you know and we have discussed previously, our agreement with Sanofi ends in mid April of next year. There will be a one-time payment, it will be recorded in the second quarter of next year. So we will report operating earnings as we do now through the first quarter of next year, and then we will have one final payment that is made in the second quarter.

And could you tell us what the price increase was then just on Ambien, please?

I think it was something below 5%.

Great. Thank you very much.

Thank you. Next question, please. Thank you. Our question is coming from Mara Goldstein of CIBC World Markets. Please state your question or comment.

Thanks. Can you just maybe comment on what is the precedent for getting a morphine-sparing indication on the label as it relates to parecoxib and valdecoxib? And I guess this is for Chris, could you maybe just quantify your exposure to the exchange rate fluctuations in Japan and where you think that goes for the rest of this year?

Carrie.

It's difficult to predict in terms of FDA actions, as you know, what would actually be in a label, but the product has been studied in combination with morphine in more than one study to demonstrate that you cannot only get reduced use of opioids but also get a concomitantly greater impact on pain relief. So it is our expectation that we will be able to use that data and hopefully it will be included in the label.

Thanks, Carrie. I think Chris will take the currency question.

Yes, Mara. I think when it comes to Japan, obviously we have a significant business in Japan, so our reported sales will

continue to be in dollar terms less, the growth rate will be reduced because of that. We do source a substantial amount of our products from outside Japan and particularly from Europe. In certain cases, Genotropin for example, a major product for us in Japan, from Sweden, so there is some natural hedge there as the Krona has weakened against the dollar. So we think we have the impacts factored in for the year in our guidance, in our hedging activities, so we would not, unless there were very significant changes from where we are now, we are comfortable with where we are.

Thanks, Chris. Next question, please. Thank you. Our next question is coming from Mark Striker of Solomon Smith Barney. Please state your question or comment.

Thank you. I have two quick questions. One, could you comment just briefly on profile of CDP870 in the time line and how that might..., some of the advantages versus Enbrel. And, the second question was on Xalcom. I heard you said you have refiled or answered FDA's questions and I'm just kind of wondering what's the time line on that? And in terms of new studies, I understand you've started, I think the FDA question was they wanted to see the efficacy of the combination product, you know, in one drop compared to the two drops taken separately, and have you started trials to show that as well, just in case of the FDA needs to see that? Thank you.

Carrie will take those questions.

On Xalcom, in fact, there were no new studies that were required. There were simply some questions on data so we provided reanalysis, and again that's just been resubmitted to FDA at the end of the quarter. So it's difficult at this point to predict what the timing would be for further discussion. In terms of CDP870, it's again very early, as you know, but our hope is that this is a product that

could be developed to particularly have some dosing advantages against the other compounds that will be in the marketplace. The dosing currently for patients to undergo this therapy with available treatments is quite cumbersome, so we are hopeful that we'll be able to develop the product to have significant advantage that way.

on Xalcom, is FDA under a time line now to make another decision since you submitted new data or is it another six months clock, is that how it works?

This was a resubmission so there is ongoing discussion. There is not a specific clock.

thank you.

Thanks. We can take the next question, please. Thank you. Our next question is coming from Jamie Rubin of Morgan Stanley Dean Witter. Please state your question or comment.

you. Can you hear me okay? HARKAN We can hear you fine.

Okay, great. Thank you. This is a question for Carrie. Carrie, I was interested in your comment you made about Celebrex and the fact that you think that when you eventually do get a label change, as well as Merck's label change, that you don't expect market trends to change that much, so I have a two-part question. And with respect to Celebrex, while year-over-year trends are up 21%, the sequential trends have slowed pretty sharply, so I'm wondering what is going to cause the trends for the rest of the year, the penetration of the NSAID class to pick up from the current sluggish pace? And the second question is, you said that the key thing to look forward is the vigor trial and the cardio risks, etc., etc., then my question is, why then since the February 8th panel meeting, there seems to be some short of a shift in favor of Vioxx whereby Celebrex has lost a point of new Rx share and Vioxx has gained a point, and the vigor trial has been out there for long time so I'm just curious to know what your thoughts are about that?

In terms of both of the products, I think that's a significant point, that the trials have

been out there for a while and that's in fact why I'm making the comment that I don't expect to see a big change in market dynamics. There isn't really any new news in terms of the GI profile and in fact that's the major innovation that Celebrex particularly, but also Vioxx, brought to the market upon their introductions. What could be new and could create a shift in the marketplace potentially, but even that I think is a question that remains to be seen, is the fact that there might be news in terms of physician's understanding of the potential cardiovascular risks with Vioxx, particularly in those patients who have concomitant arthritis and hypertension. And that may not be as well understood in the marketplace as the overall picture of GI benefits. So I would agree with you that there is probably not a lot of impact expected on GI overall. The marketplace in general is starting to slow down. It's typical of the kind of curve you see for all of the NSAIDS. Unfortunately, I think the coxibs have shown that they're following a similar pattern and that's why you continue to hear me quarter after quarter talking about that the major focus in this market should be to continue with creating the conversion of the older NSAIDs to Celebrex. I think we believe very strongly that patients should not be receiving substandard therapy, and in most cases where there's going to be chronic treatment or longer-term treatment, particularly for patients with arthritis and hypertension, our belief is that Celebrex is the appropriate product. So we're continuing to work hard to try to break through into managed care, particularly when I think a number of plans have been waiting to see if there was going to be a label change before they finalize their decision. So I think now the hard work is up to us to simply complete that transition in the face of the fact that there probably won't be a major label change.

just if I can follow up. If there is a label change, what impact do you think that

should have on reimbursement, if any?

My expectation would be, if there is a significant change for Vioxx having to adopt the cardiovascular language, depending how strong it could be, there may be some impact with managed care as they decide how to preferentially make these products available.

Thank you. Next question, please. Thank you. Our next question is coming from Steve Scala of SG Cowen. Please state your question or comment.

I have two questions. First relative to guidance, I think you provided the three-year EPS growth rate guidance of 20%. Last year's earnings were up 30% plus, I believe, this year is expected to be up 20% or so. Importantly, that implies that next year could be well below 20%, yet consensus suggests earnings up 21%. So I'm wondering if you could speak to that aspect. Secondly, an issue of great importance to the Xalatan/Lumigan patent battle apparently is whether Lumigan acts in its amide form or whether it must be converted to a free acid in order to impart its activity. Now that Lumigan is available on the market, I'm wondering if you have done the experiment to determine that point.

Okay, Chris will take the first question.

Yes, Steve. Related to the guidance. As you know, we did say at the time of the merger that we expected a 20% compounded growth rate through next year. We did show an earnings growth rate in EPS of 31% last year and expect to be in the 20% range this year. As Fred indicated, we think it's too early to talk specifically about 2002 as we're just early in 2001, so we're going to comment later in the year, as Fred indicated, and go through this in some detail at our November analyst meeting, and I would say consensus is spotty

right now for 2002 as not everyone has posted.

I can't give you any further comment on the litigation situation, but I would like to reinforce that we remain very confident in the position we have with our intellectual property, and again, we believe that in the case of Lumigan that it's infringing on probably two different preexisting Pharmacia patents. So while there is no negative impact on the selling and marketing of Xalatan, this is an issue that will probably take some time to be resolved, but one that we are very confident we have a strong position in.

Thank you. We take three more questions. Thank you. Our next question is coming from Steve ??? of Merrill Lynch. Please state your question or comment. Hi. Good morning. Just two questions. In terms of the hypertension data for Celebrex, I mean it really wasn't available until March 22nd, so is it fair to say that in peer review form that this is very new to market so any hype created by the press with related to the panel meeting from February, prescription trends may now be reversing with the application of that data to the marketplace. So, that would be question number one. And then two, in looking forward to next year and the entry of valdecoxib, I was wondering if you could run through how you see the dynamics between Celebrex and valdecoxib playing out. You know, I'm getting a lot of questions and concerns about whether this is going to be a cannibalization process or whether it can be managed to be very incremental. Thanks.

Carrie.

With regard to the hypertension data for Vioxx, you were correct that that has just been published and so I do believe that there is a couple of things that could come forward into the marketplace now. One is the budding awareness that was broached during the FDA Advisory Committee meeting, which again has not been well understood, that there may be an issue, and secondly as you say, there

is now the publication of the Celebrex/Vioxx comparative trial, which clearly shows that there is a potential risk with the Vioxx that doesn't seem to exist with Celebrex, so I would agree that's hopefully new information that the market will become aware of. With regards to valdecoxib, again you can appreciate that for competitive reasons it's not appropriate to go into a lot of details, but I am comfortable saying that our expectation is that the profile of valdecoxib and Celebrex are different enough that it will allow us to position the compounds broadly. The indications are different, and as you are aware, with the combination of parecoxib and valdecoxib, that's a very, very strong entry that has not been seen in the market place before. So the ability to have an injectable and an oral form like that with the profile of parecoxib is pretty exciting and we think that will have a positive impact as well. Thanks.

Thanks, Carrie. Operator, we'll take the second to last question. Thank you. Our next question is coming from Jeff Chaffkin of UBS Warburg. Please state your question or comment.

Yes, thank you. Good morning. Two questions. On two conference calls in a row you have talked about intensive reviews of the R&D portfolio as probably the reason the R&D spending is down. Can you give us specific examples of what products have been killed out of the pipeline? Then secondly, just to clarify an earlier question on Ambien, when you do get that payment in the second quarter of next year, are you going to view that as part of operating earnings, i.e., helping make the 20% compound growth rate or is that a one-time item below the line? Thank you.

I know that we have dropped the cancer vaccine program, which is the proGP drug that was in the former Searle company, we have also killed a CNS drug for schizophrenia, PNU1013876, so these are two significant programs that have been terminated

recently. There have also been a number of other smaller terminations that's now resulting in some R&D savings.

Yes. On Ambien, again we're still working on how the accounting is going to work for this transaction, but it will be clear as to what the one-time nature of that is and we will make sure that we clarify what the normal operating earnings are and what the one-time impact is going to be of that payment in the second quarter.

Thank you.

Thank you. And operator, we are ready for the last question. Thank you. Our final question is coming from Richard Stover of Arnhold and Bleichroeder. Please state your question or comment.

Good morning. I was wondering if you could provide us with some update on your pipeline beyond the COX-2 inhibitors and the other products you mentioned with specifically what's going on with eplerenone and also in your cancer products portfolio.

Carrie.

We're going to get into the whole portfolio review in a lot more detail at November meeting that we mentioned. But this a couple of highlights, eplerenone is coming through very nicely. There is data that's becoming available on a regular basis now, so the profile is starting to develop of that compound and I would say it's fairly interesting. At the same time, looking in oncology, you're aware that we've started combination studies with SU-5416 with Camptosar, and that's one that we're pretty comfortable about and pretty excited about that that could give us the opportunity to both introduce a new class of compound, as you know, with the angiogenesis inhibition concept, but also find yet again another way to extend the use of Camptosar in colorectal cancer and maybe go beyond that.

And we are looking as well at ongoing adjuvant studies with Celebrex in oncology, which is an another interesting arena.

Thank you. That was the final question, so there are some concluding remarks from Fred Hassan.

Thank you for your attention this morning. In closing, let me recap just a few of the major points we would like to leave with you. First, we're very pleased with our speed and success in building a strong top tier organization at Pharmacia. The strength of the organization and our products is driving high quality growth. As Chris indicated, we're very comfortable that we'll deliver as expected this year. We also feel very satisfied by the vigorous action we're taking to prioritize our pipelines. And as you've heard, we're also being very aggressive in targeting opportunities to acquire and end license products that'll further build on our strengths while at the same time vigorously protecting our key products. And we have continued to be very committed to securing synergies in the new organization and holding down our costs. I can assure you this commitment will not let up. So in summary, as we said earlier in this call, we feel that Pharmacia is particularly well positioned among our peer groups for the long term. Thank you again for your participation in our call today, and good bye. Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.