Perrigo Company PLC (PRGO) 2009 Q2 法說會逐字稿

Good morning. My name is Tamara and I will be your conference operator today. At this time I would like to welcome everyone to the Perrigo fiscal year 2009 second 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). I would now like to turn the call over to Mr. Shannon, Vice President of Investor Relations.

Thank you very much, Tamara. Welcome to Perrigo's second-quarter 2009 earnings conference call. I hope you all had a chance to review our press release which we issued earlier this morning. A copy of the press release is available on our website at www.Perrigo.com.

Before we proceed with the call I would like to remind everyone that the Safe Harbor language contained in today's press release also pertains to this conference call. Certain statements in this call are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and are subject to the Safe Harbor created thereby. Please see the cautionary note regarding forward-looking statements on page 1 of the Company's Form 10-K for the year ended June 28, 2008. I would now like to turn the call over to Perrigo's Chairman and CEO, Joe Papa. Joe?

Thank you, Art, and welcome everyone to block back second quarter fiscal 2009 earnings conference call. Joining me today is a Judy Brown, Executive Vice President and Chief Financial Officer.

For our agenda today, first, I will provide a brief perspective on the quarter. Next, Judy will walk through the detailed financials and then I will elaborate on why we are confident of our growth potential including a new product update and the specific action steps we're taking across the business to address the challenges we face for the second half of the year. This will be followed by an opportunity for a question and answer period.

Overall, let me get started. In the second quarter of fiscal '09 we continued to demonstrate strong top-line growth in our core Consumer Healthcare OTC business, while we worked to mitigate the challenges in our other business segments. We achieved record sales led by our over-the-counter business. They were three main drivers for our OTC business success. First, new products; second, an increasing acceptance of store brand over-the-counter products; and finally, our recently completed strategic acquisitions.

Let's start with a quick review of our new product sales. New product sales were $84 million in the quarter as omeprazole, cetirizine and Famotidine Complete continued to perform well. I am very pleased with the work our team has done to deliver an increasingly broad portfolio of quality, affordable product offerings to our [retailer] shelves.

Our second top-line growth driver is store brand acceptance. As a perspective, the overall domestic OTC consumer market increased 4% in the quarter versus last year. However, nationally advertised brands are essentially flat year-over-year. During the same quarter, store brands gained nearly 17% and Perrigo sales gained 39% on the strength of new product launches and increased market share.

New product launches contributed to our growth rate to be clear, but as several retailers have also commented, store brands are gaining market share. For example, analgesics is a major OTC category that has not seen significant new product innovation in the last few years. The category as a whole has remained relatively flat year-over-year. In this same time period national brands sell more than 2% during the quarter versus last year while store brands in the analgesic category grew more than 5%. This demonstrates that consumers are recognizing the value of store brands in a challenging economy and that Perrigo is uniquely positioned to deliver that value to consumers.

One other consideration, the FY '09 Q2 growth in our store brand business occurred in an environment that retailers reduced their Perrigo inventory or days sales on hand by 8% versus the same period last year. So we've got growth in a time period where inventory on hand at the retailers is down 8%.

Our fiscal second quarter results in our Consumer Healthcare business show that we continue to maintain our focus on delivering quality, affordable health care products to meet the world's growing needs.

The third key driver is strategic acquisitions. We executed a pair of strategic acquisitions at the beginning of the second quarter. We acquired Diba for approximately $25 billion based in Guadalajara, Mexico. This store brand manufacturer of OTC and prescription products helps make us the leading store brand manufacturer in Mexico. We expect the acquisition to add approximately $15 million of annual sales in a country where store brands represent today less than 8% of the OTC category but are growing very quickly.

Perrigo is now the leading store brand manufacturer in the US, Mexico and the UK. We will continue to look at growing internationally.

On November 13 we acquired Unico Holdings for approximately $52 million in cash. Based in Lake Worth, Florida, Unico is the leading manufacturer of store brand pediatric electrolytes, enemas and feminine hygiene products for retail customers in the United States. We expect the acquisition to add approximately $50 million of annual sales, and it is accretive to earnings in the first 12 months.

Now with all of those positives that there is another issue that I want to briefly address, and that is the decline in our CHC FY '09 Q2 gross margins. This was driven by two factors -- product mix where we saw an accelerating sales of our lower-margin vitamin and nutritional products, and a short-term need to invest in external manufacturing output to meet the rapid increases in demand for these products. Judy will provide additional details on this topic.

Also, while Consumer Healthcare has been growing, API has had a very challenging first half of the fiscal year as Judy will explain in detail in a few minutes. First half sales weakened almost 10% from the first two quarters last year as a result of reduced sales of two key products as well as slower demand for others. We are managing through these challenges by focused cost-cutting initiatives and new pricing strategies. I will explain more about that and other areas related to our expectations for the second half later, but first now let me turn it over to Judy. Judy?

Thanks, Joe, and good morning everyone. The team has worked hard this quarter capitalizing on our strengths and adapting to changing market conditions in a dynamic economic environment. In the next few minutes I would like to provide you some quick highlights of the financial results for the quarter and help provide you better detail to better understand why we see that growth continuing and the basis of our financial expectations for the remainder of the year.

Year-over-year we had a strong quarter. Consolidated net sales increased 29% to $561 million, led by $84 million in new product sales across most of the businesses.

Consolidated GAAP gross profit was $154 million, up $24 million or 18% from last year. Consolidated GAAP net income was $25 million, down $34 million from last year. Consistent with our historical practice of providing results on an adjusted operating basis, consolidated adjusted net income was $42 million, up $8 million or 25% from second fiscal quarter 2008.

Before reviewing our operational results I would like to highlight those items that have been excluded from our analysis of the quarterly financials on an adjusted operating basis, consistent with our historical treatment of similar items.

Starting with the most material item this quarter we incurred a charge of $15 million or $0.16 per share related to the write-down of auction rate securities purchased in Israel from Lehman Brothers. These assets were written down from a face value of $18 million and continue to be held as noncurrent assets. While we have discussed the fact that the market for these securities has been illiquid for over 12 months, the creditworthiness of the underlying issuers continued to deteriorate significantly in our fiscal second quarter as concluded in a formal valuation completed in January. As a result and in accordance with US GAAP, the impairment of these securities can no longer be considered to be temporary, and so we have reduced the carrying value of these assets to our best estimate of their current fair market value.

In addition, we had several smaller charges related our acquisitions of JB Labs, Unico and Diba. We incurred charges to cost of sales of $1.4 million after-tax or $0.02 per share for the value of step-ups in inventory for these three acquisitions as well as a charge of $200,000 after-tax for the write-up of in-process research and development related to Diba.

In addition, we had a charge of $1 million after-tax or $0.01 per share related to the impairment of certain fixed assets within Consumer Healthcare.

In total, these items had a $0.19 per share impact in the fiscal quarter. We did not have any such items in the fiscal second quarter 2008. You can view the reconciliation from the reported GAAP numbers to our adjusted non-GAAP numbers in table 2 of the appendix to our press release.

With that behind us, I will take you through the financial analysis of our fiscal second quarter based on adjusted results; that is, GAAP reported figures excluding the previously mentioned charges.

Consolidated second quarter net sales where a record $561 million, an increase of $126 million or 29% from a year ago. The sales growth was driven by $84 million in new products, including strong sales in many of our Consumer Healthcare categories which offset lower sales in API. Adjusted consolidated gross profit was $158 million, up 21% from a year ago. Adjusted gross margin was 28.2% compared with 30% last year. Adjusted consolidated operating income was $65 million, up $15 million or 31% from last year. Adjusted operating margin reached 11.5%, up 20 basis points from last year. Adjusted consolidated net income was $43 million compared with $34 million last year. Adjusted earnings per share were $0.46, up from $0.36 last year.

Now onto the business segments, starting as always with Consumer Healthcare. Consumer Healthcare's second quarter net sales increased $126 million or 39% to an all-time record $446 million. $77 million or 24 percentage points of this improvement came from new products led by the growth of Famotidine Complete and the continued strong sales of omeprazole and cetirizine. Our existing product portfolio also grew this quarter as store brand penetration improved within smoking cessation and analgesic categories and as our share of the nutrition store brand market increased.

Inorganic growth in the US from our acquisition of JB Labs in September and Unico in November contributed 10 percentage points of the sales increase. Our acquisition of Brunel and Galpharm in the UK and Diba in Mexico contributed 6% of inorganic growth internationally. However, this top-line growth is partially offset by unfavorable changes in the value of the British pound and Mexican peso versus the US dollar in this quarter.

Adjusted gross profit of $119 million was up $32 million from last year's $87 million. Adjusted gross margin of 26.6% was down 40 basis points from last year driven by a combination of factors. While the adjusted gross margin benefited significantly from new products and the implementation of new pricing activities in several existing categories, these gains were offset by a combination of higher production costs and a product mix effect of the nutrition product category. As we have noted in the past, the nutrition category has gross margins below the CHC average. As this category saw strong sales growth this quarter, adjusted gross margins had a positive volume impact but a negative price impact to CHC overall.

Operating expenses in CHC increased $11 million from the second quarter last year due to both business growth and acquisitions. R&D spending increased $4 million due mainly to the timing of clinical studies as well as the inclusion of expenses from JB Labs and Galpharm. Distribution and SG&A dollar spend increased due to higher promotional activities and commissions related to higher sales volumes this quarter, the inclusion of JB Labs and Galpharm which added approximately $3 million in the quarter and higher wages and IT investments in this quarter to support our rapid growth.

As a percentage of sales, operating expenses decreased 180 basis points to 13.1% from 14.9% last year, even with the inclusion of the acquisitions.

In total, Consumer Healthcare had adjusted operating income for the second quarter of $60 million, up $21 million or 55% from last year. Adjusted operating margin in this segment was 13.5% of net sales, up 140 basis points from last year.

Looking next at Rx Pharmaceuticals. Second quarter net sales in Rx were $40 million, up $2 million or 5% compared with last year. This increase was due primarily to new product sales of approximately $6 million along with a slight increase in sales volumes on our existing portfolio of products. These increases were partially offset by a $2 million reduction in non-product revenue along with continued pricing pressure due to changes in customer mix and increased competition in the marketplace for generic drugs.

Gross profit was $16 million, down $2 million from last year. Gross margin was 38.8%, a decrease from 45.9% a year ago reflecting the decline in non-product revenues and the pricing pressures I just mentioned as well as unfavorable changes in sales mix of products.

Operating income was $7 million, down from $8 million last year on reduced gross profit contribution, partially offset by a $1 million reduction in operating expenses.

Next, looking at API, where API net sales in the second quarter were $32 million, down from $35 million last year due to lower sales volumes on two key products and unfavorable changes in foreign currency exchange rates. The gross profit was $10 million, down from $12 million a year ago on the lower sales volume of those two key products and a negative impact of foreign currency exchange rates. Operating expenses were $9 million, up 5% from last year due primarily to the recognition of a $400,000 loss on assets that fund Israeli post-employment obligations.

In Israel as required by applicable law we have a deposit of funds managed by financial institutions designated by management that are intended to cover post-employment benefits to our Israeli employees. Israeli law generally requires payments of benefits upon dismissal of an employee or upon termination in other certain circumstances.

The dramatic decline in the financial markets during the second fiscal quarter reduced the value of our funded assets, necessitating a charge to operating expense at the end of the second fiscal quarter.

Operating income in API was $1 million, down from $3 million last year due to the decrease in gross profit and the loss on assets that fund these Israeli post-employment obligations.

In the other category, which is our Israel-based consumer products and pharmaceutical diagnostics businesses, second quarter net sales were $43 million, up 2% or $800,000 from last year. The increase in net sales was driven primarily by favorable changes in foreign currency exchange rates and an increase in existing product sales, partially offset by $2 million related to a change in a customer contract from a product sales to a commission-based model.

Gross profit decreased $1 million or 6% due to increased pricing pressure. Additional unfavorable changes in sales mix and a slight increase in the cost of raw materials negatively impacted gross profit. Offsetting these decreases were favorable changes in foreign currency exchange rates.

Operating expenses were $13 million, up from $11 million last year due primarily to the recognition of a $2 million loss on the assets that fund Israeli post-employment obligations as well as unfavorable changes in the foreign currency rate. Similar to API, the other category was unexpectedly hit by the effects of the decline in the market value of this post-employment fund. As the majority of our Israel-based personnel work within consumer products or Pharma diagnostics, these two businesses were proportionately charged to the majority of this fund's decline. It is worth noting that this is the first time that we have experienced such a dramatic impact in these assets. Operating income in the other category was $500,000 compared with $3 million last year.

Now a brief word about corporate expenses. Adjusted unallocated corporate expenses for the quarter were $4 million, down from $5 million in the second quarter of last year. This decrease was due primarily to lower corporate administrative costs.

Now, let's continue with a recap of the six months year-to-date results. Consolidated net sales for the first six months of fiscal 2009 of $1.42 billion increased $223 million or 27% as compared to a year ago with sales up in Consumer Healthcare and the other category. Consolidated GAAP gross profit was $299 million, up 20% from $248 million in fiscal 2008. Consolidated year-to-date GAAP net income was $63 million, down from last year's $68 million. On a GAAP basis, earnings per share were $0.67 compared to $0.72 last year.

In addition to the items affecting the second quarter which we consider non-operating in nature that I noted earlier, we had a small charge in the first quarter of fiscal 2009 of $600,000 or $0.01 per share related to a loss on an asset exchange in the UK. In total, the adjustments in the first half of fiscal 2009 were $18 million after-tax or $0.20 earnings per share. The reconciliation from the reported GAAP numbers to our adjusted non-GAAP numbers are available in table 2 of the appendix to the press release we just released earlier this morning.

First half fiscal 2009 adjusted consolidated gross profit was $302 million, an increase of $54 million or 22% from last year. Adjusted consolidated gross profit margin decreased 130 basis points to 29% as compared to 30.3% a year ago.

Adjusted consolidated operating income was $124 million, up 29% from $96 million last year driven by strong results in the Consumer Healthcare segment. This translated into a consolidated adjusted operating margin of 11.9% of net sales, up 20 basis points from the same period last year. Adjusted consolidated net income was $81 million, up from $68 million last year and adjusted earnings per share were $0.86 compared to $0.72 last year.

Now, some brief highlights of the six-month operating results by segment, starting with Consumer Healthcare. Year-to-date net sales for the Consumer Healthcare segment were $813 million, an increase of 38% or $224 million compared to fiscal 2008. Included within these sales were $144 million of new product sales led by omeprazole, cetirizine, Famotidine and ranitidine; a $38 million increase from higher domestic sales of existing products and $71 million from our acquisitions of JB Labs, Unico, Galpharm, Brunel and Diba. These increases in sales were partially offset by the absence of $16 million in sales from the divested vitamin, mineral and supplement business in the UK and unfavorable changes in the foreign currency exchange rate of $10 million.

Leveraging this strong sales growth, Consumer Healthcare adjusted gross profit increased to $228 million, a $69 million or 44% improvement from last year. The adjusted profit margin was a 28.1% of sales, a 110 basis point improvement from fiscal 2008. The improvement was driven by increased sales of new higher-margin products and a positive pricing impact on a few key product categories. These were partially offset by a lower gross margin contribution from the growing nutrition product category.

Year-to-date adjusted operating expenses for fiscal 2009 increased 20% or $18 million compared to fiscal 2008. The increase was both inorganic and organic, approximately half or $8 million of the increase related to operating expenses at our new JB Labs, Galpharm, Diba and Unico entities. The remainder of the increase was comprised of an incremental $3 million for research and development spend on clinical studies, $3 million of incremental spend over last year on variable selling activities for new products and incremental spending on IT projects to support our rapid growth.

As a percentage of sales, fiscal 2009 adjusted operating expenses decreased 200 basis points compared to fiscal 2008.

Year-to-date, Rx Pharmaceuticals sales were $74 million, flat compared to the same period last year. New product sales of $11 million and increased sales volumes were partially off by a $6 million reduction in non-product revenue along with continued pricing pressure and increased competition for generic drugs.

Rx operating expenses increased $600,000 for the period and 90 basis points as a percent of sales. The increase was primarily related to recognizing a $500,000 loss on assets that fund Israeli post-employment obligations and increased research and development costs of $400,000. We continue to work on realigning expenses in our Rx business and for the first six months we have reduced administrative expenses by $500,000 from last year.

Net sales for the API segment were $66 million, a decrease of $7 million or 10% from last year. Gross profit was $19 million, down from $27 million a year ago due primarily to lower sales of two key products, unabsorbed production costs on lower volumes and unfavorable changes in foreign currency exchange rates. API operating income was $2 million, down $9 million compared to $11 million last year. This was a result of the lower gross profit along with a year-to-date loss of $500,000 on assets that fund Israeli post-employment obligations.

In the other category net sales were $89 million, up $7 million or 8% compared to last year due primarily to favorable changes in foreign currency exchange rates. Gross profit of $29 million was down $600,000 compared to last year due to unfavorable product sales mix. Operating income for our other category decreased $4 million compared to last year due to the decreased gross profit contribution as well as the $2 million loss on assets that fund Israeli post-employment obligations. Adjusted unallocated corporate expenses for the six months were $8 million compared to $6 million last year. The increase was due primarily to the absence this year of a $2 million favorable settlement of a pre-acquisition legal claim related to August which was recorded in the first quarter of fiscal 2008.

The year-to-date effective tax rate for fiscal 2009 was 30% compared with the actual rate of 23% for the same period in fiscal 2008. Foreign source income before tax for the first six months of fiscal 2009 was 19% of consolidated pre-tax earnings, down from 45% in the same period for fiscal 2008. Foreign source income is generally derived from jurisdictions with a lower tax rate than the US statutory rate and as a result the effective tax rate was higher than the comparable period last year. Also, I should note that in the first quarter of fiscal 2008 we received a favorable tax ruling in Israel which resulted in a onetime tax benefit of $4 million, reducing last year's rate by approximately 450 basis points.

Now let's look at our balance sheet. Working capital, excluding cash and current investments, was $433 million at the end of the quarter versus $333 million last year, an increase of $100 million. Accounts receivable were $359 million compared with $311 million a year ago, reflecting our higher fiscal 2009 sales volume and $28 million related to the newly acquired businesses.

Inventories were $431 million, up from $326 million at this time last year. The increase was driven primarily by the 38% top-line growth of Consumer Healthcare over this time last year and the requirement to have more inventory on hand to service this high demand. We typically respond to increased demand by holding more raw materials to maximize flexibility in our supply chain. In addition, there were $28 million more dollars of inventory on our balance sheet at the end of the second fiscal quarter related to newly acquired businesses.

Accounts payable were $266 million compared with $194 million a year ago related to the aforementioned raw materials build in inventory and the $19 million related to the newly acquired businesses. Cash provided by operations was $35 million in the second quarter compared with $66 million last year. For the first six months of fiscal 2009 cash provided by operations was $36 million compared to $93 million a year ago. The decrease in cash from operations was related primarily to $33 million of higher income tax payments in the first half of this fiscal year versus last year, higher bonus payments in the first fiscal quarter of 2009 related our strong performance of fiscal 2008 versus last year and the higher use of cash in the procure to pay cycle; that is inventory and accounts payable, due to the inventory build I mentioned just a few moments ago.

At the end of the second quarter cash and current investment securities were $162 million, up $60 million from $102 million at the same time last year. As of the end of the quarter we had an additional $200 million of untapped capacity on our existing bank revolver. Our total current and long-term debt on the face of the balance sheet is $909 million, but includes a $400 million back-to-back loan which is completely offset by the $400 million restricted cash deposit in noncurrent assets. Net of the back-to-back loan, our external debt is $509 million. As of December 27 our debt to total capital is 38.1% and our net debt to total capital was 26%. Net debt to total capital has increased from the end of fiscal 2008 as we have put our cash to work through the purchases of JB Labs, Diba and Unico. However, with debt to total capital still below 40% we're still within our target and in a sound position. With our current balance sheet, operating cash flow and access to additional liquidity we believe that our capital structure remains strong.

We repurchased 1 million shares of our common stock for $33 million and 1.1 million shares for $31 million during the second quarter of fiscal 2009 and 2008, respectively. Year-to-date we repurchased 1.8 million shares of our common stock for $62 million and 1.3 million shares for $35 million in fiscal 2009 and 2008, respectively.

While we still have our 10(b)5-1 plan in place we have not been actively repurchasing in the market since November. It is our belief that building and maintaining a strong cash position in this volatile market is one of the best ways to ensure strategic flexibility and to drive shareholder value, and as such we have suspended repurchasing stock at this time. We are continually reevaluating this decision as market events warrant.

In the first half of fiscal 2009 we paid cash dividends of $10 million or $0.105 per share. Additionally, on January 28 our Board of Directors approved another $0.055 quarterly dividend to shareholders of record on February 27, 2009.

With the first half of the year behind us and a challenging economic environment in front of us, we have spent considerable time evaluating both the risks and opportunities for the second half of fiscal 2009. As you just heard, our API and other segments had a challenging second quarter of the fiscal year as demand was much softer than expected, causing sales and gross profit to decline. On top of that, unexpected financial market changes in the fourth calendar quarter of 2008 caused large declines in our Israeli post-employment obligation fund, a force beyond any one organization's control.

For API, our earlier guidance estimated at this business segment would grow between 7% and 10% from fiscal 2008. We're now expecting that we will not be able to make up the API sales shortfall from the first half of the year. Second half sales will improve from the first half and more closely resemble the second half of fiscal 2008.

We now expect the full-year gross margins in API to be in the low to mid 30s. Leveraging lower operating expense levels, operating margins are still expected to be in the low teens, but again on full-year reduced sales volume.

Consumer Healthcare had a strong first half of fiscal 2009 with record sales. However, our adjusted gross margins were lower than we had expected due mainly to some challenges in our nutrition category. We achieved positive market share growth in nutrition at a time when materials pricing was very high and our production capacity in that category was limited. These effects negatively impacted the overall CHC gross margins. We now expect to see the positive effects of new pricing strategies in the second half of the year, but also expect that gross margins in this product category will still be significantly below the CHC average through this year and as a result will be a drain on the overall adjusted gross margin.

We have implemented strict cost containment initiatives already as can be seen in the additional leverage of SG&A as a percent of sales versus last year and we expect to continue to see the influence of these initiatives in the second half of the year.

We now expect that our full-year Consumer Healthcare business will grow by more than 18% but that adjusted gross margins will decline 50 to 100 basis points from the fiscal 2008 adjusted level of 28.7%. We still expect Consumer Healthcare adjusted operating margins to expand from last year's 13.5% with better leverage and operating expenditures partially compensating for the change in gross margins.

As you will recall, we stated in November that you could expect consolidated revenue growth between 13% and 18% for the full year. We are confirming this growth rate. We also stated that we expected the consolidated adjusted gross margin to be stable to the full-year adjusted fiscal 2008 margin of 31.1%. Given the second quarter challenges within API, the other category, the nutrition product category margin dynamic and our expectation for these areas in the second half of the year, we now estimate adjusted consolidated gross margin to be down 100 to 200 basis points from last year. We are still expecting to maintain our 4% consolidated R&D spending level as stated in November in order to keep moving forward toward more new product launches in the future.

Distribution, selling, general and administrative expenses were expected to be 14% of net sales and for the first half of the year we were already below this level. With our additional cost containment activities underway, we expect this ratio to decline another 50 basis points to approximately 13.5% of sales for the full year. We anticipated total operating income margin to be in the 12 to 14% range for the full year. Our adjusted operating margin was 11.9% in the first half of fiscal 2009 and with some operating margin improvements in the second half of the year in Rx, API and other we are forecasting consolidated adjusted operating margin percent to remain in that 12% to 14% range.

Finally, we are continuing to use an effective full year tax rate of approximately 28% in developing our earnings guidance update.

For all of these reasons we're revising our full year fiscal 2009 adjusted earnings guidance range to be between $1.75 and $1.90 per share, as compared to the $1.92 to $2.00 per share quoted in November. For the full year we expect operating cash flow to be between $190 million to $200 million, a reduction from the previous guidance of $210 million to $240 million as a result of the change in net income guidance.

Full-year CapEx is projected to be in the range of $65 million to $70 million and will include expenditures at our newly acquired Michigan, Florida and Mexico facilities as well as production expansion projects underway in South Carolina and Allegan, Michigan.

Now let me turn it back to Joe for a further discussion of the actions behind these updates to our guidance.

Thanks, Judy. Now that Judy has given you all of the details of the first half of our year I would like to provide some additional information on the new product performance for a couple of our key launches and also some of the challenges and action plans we have for the second half of fiscal year '09.

First and foremost, on new products we continue to invest in and launch new products. During the second quarter we added a record $84 million in new product sales. Cetirizine, the store brand comparable to Zyrtec, continues to perform well. Our data as of December 21 shows that cetirizine store brands have averaged in the mid-40s in market share, significantly higher than the traditional 20% to 25% store brand cough and cold category market share. Also, we have [named] our 80%-plus market share of the store brand cetirizine market despite numerous competitors.

Our store brand version of omeprazole OTC has captured nearly 40% of the market. As we projected to you over a year ago, we expect omeprazole to add $150 million to $200 million in annual sales and recent sales data shows that we are on track to meet that goal. On December 29, we announced that we received final approval from the FDA for OTC Ibuprofen PM. We expect the product shipments to retailers in the next few weeks. The product is comparable to Wyeth's Consumer Healthcare's Advil PM tablets indicated as a pain reliever and nighttime sleep aid. Estimated brand sales for the product for the last 12 months ending December 21 were approximately $71 million.

During the first quarter we began shipping Famotidine Complete chewable tablets, the national brand equivalent to Pepcid Complete tablets, to retailers. It is estimated that Pepcid Complete has annual sales of approximately $100 million. The launch is going well as we have 180 days of marketing exclusivity. However, we believe the exclusivity period will effectively last even longer as we are not aware of anyone else having filed an application for marketing approval of this product.

In the smoking cessation category we now have competition in the coated nicotine gum. At the end of December, Watson announced that it was coming to market with a coated mint gum product. They have been competing with us in the uncoated gum category for several years. We expected them to enter the coated gum product line during the calendar year, so this was already in our original guidance.

In our Rx business, we acknowledged a settlement of patent litigation brought by Sanofi Aventis against Barr Laboratories. They developed a Triamcinolone Acetonide Nasal Spray product with us and are awaiting final approval from the FDA. As a reminder, Nasacort had annual sales of approximately $325 million for the 12 months ended in November 2008. We are very focused on gaining final approval for this product which is an important driver for achieving our FY '09 Rx segment profitability.

Now I would like to review some of our challenges and action steps for the second half of FY '09, but to be clear new products will continue to be an important growth driver for Perrigo.

Let me talk about some of the challenges. Our API business has underperformed. Our vitamin and mineral and nutritional supplement, or VMS category, has increased sales but was impacted by constrained raw material supply and higher cost, and clearly the volatile global economy has impacted our results.

Let me start with the API business first. As Judy mentioned, API bore the brunt of the changes in the global foreign currency fluctuations that we experienced. In addition, the weakening global economy has impacted demand for some of our product as customers delayed their orders to manage their costs and inventories. Here are some of the steps we're taking to mitigate the negative impact of these factors to our API plan. We are cutting our costs significantly in our API business and controlling our inventories and raw material supply. Second, we're focusing on increasing sales with potential new product approvals that we are working very hard to gain. Third, we are implementing pricing strategies to offset some of the weakness that we are experiencing in our API business. In the second area, our VNS business, or vitamin and nutritional supplement business, our VNS business grew sales as a result of issues encountered at a competitor's operations during late summer and into the fall. We made the decision to proactively ramp up our operations to meet the customers' need for high-quality products.

In doing so, however, we acquired additional raw materials right when the supply was constraining and the cost registered at all-time highs. The sudden influx of demand in our short-term capacity constraint required us to additionally invest in short-term external production assistance in order to service the high volume. The steps we are taking to meet the challenges in this area include -- number one, we are qualifying additional raw material vendors to lower our cost. Number two, we are improving our facilities to add flexibility to our internal operations. As an example, we have qualified our JB Labs acquisition to give us more manufacturing flexibility in vitamin and mineral supplement business. And finally, we are implementing some pricing strategies to reflect the commodity prices I discussed before. I have been very pleased with our VNS market share gains that have occurred in the past year and look for us to get this business back on track. I believe that this is a growing category. It can be an important contributor for us in the future.

The third challenge this quarter is the volatile global economy. As Judy detailed earlier, Israel requires that all companies maintain the post-employment benefits fund. The depressed global stock market caused a loss on the assets which fund these post-employment benefits. Also, while the swings in the foreign exchange rates added to our challenges during the quarter, in addition to the specific cost initiatives in Israel we put in place in strict cost containment programs around the world which we believe will offset some of our first-half challenges that I just mentioned.

In summary, we are expecting to grow our earnings-per-share by 11% to 20% versus last year. We're going to focus on a couple of key strategic imperatives. First, we will continue to strive to be first to the market in the OTC and prescription Rx business. We have exclusive offerings that we expect to generate more than $1 million of branded sales that we have the exclusivity on that, over the next year or maybe longer we are investing to keep the pipeline robust. We are continuing to make an investment in our R&D programs. We believe that more than $10 billion in branded prescription sales products will switch from prescription to over the counter in the next five years. And, our goal, as it has been in the past, is to be first to market with those products.

Second, to ensure that the API business segment has a stronger second half of the year, my team is focused on increasing sales through new products, implementing a new pricing strategy and making the necessary expense adjustments to be back on track with their revised plan. Third, our operations have been able to meet the demand caused by our tremendous success in the over the counter and vitamin nutritional business. Our top-line CHC growth trajectory has increased dramatically in the last two years and volumes through our plant have risen 30% during that period. During a period of extreme commodity price swings, our supply chain team will focus on continuing to manage the long-term impact of raw material pricing to the Company. We have and continue to ramp up production efficiencies to continue to meet customer demands for quality affordable products.

Certainly there will be challenges to this kind of growth, and Judy talked about some of those early, such as the examples of working capital. But, throughout this rapid period of growth we have maintained our high-quality standard and continue to invest in our quality processes.

Longer-term, our OTC business is the clear leader in the category. We will have major new products on the verge of switching from Rx to OTC and our branded Rx to generic over the next few years. Finally, in the challenging economy we will continue working together with our customers to make consumers more aware of the store brand proposition. Unlike other categories of private label, OTC health care products, the engineered prescription drugs, are FDA approved. The data is showing that consumers are making that value judgment as the store brand continues to grow share. Additionally, we believe the balance sheet is strong and positions Perrigo to stay the course in the current market. Rising health-care costs coupled with an aging population makes Perrigo uniquely positioned to meet the world's growing need for quality, affordable health care products.

Now let's open up the lines, and operator, take your questions.

(Operator Instructions) Daniel Rizzo, Sidoti & Company.

I thank you indicated and maybe you already talked about this, but that customers are lowering their inventories or have lowered their inventories in the second quarter. Is that continuing right now?

The answer to that is that in the over-the-counter area customers, our customers, retailers, have lowered their inventory and we do see that as we sit here today. The approximate number is approximately 8% reduction in inventory in the retailers versus the same time period one year ago.

Okay. And then -- again maybe you talked about this -- but you said that there was additional cost related to capacity constraints because you had to outsource some production capacity, is that right?

That is correct.

What products is that for?

As I mentioned in the script, we experienced tremendous growth in our vitamin and nutritional supplement business as a result of the growth. Because of some of the issues that occurred in a competitor we took on demand that was significantly beyond our past vitamin and nutritional supplement business. As a result of that we needed some help with areas that are within the critical path of manufacturing those products. When we took on that help, obviously we had to pay for that. Now while that is certainly something that affects the near-term, we did feel that strategically it was in the best interest of our shareholders to take on that incremental investment which is what I would call it today knowing that the long-term gains in market share and the profitability from those products is warranted and that is why we feel it was the right thing for us to do at this time.

Okay, but that is still occurring too. Are you still at capacity in those products, correct?

No, we actually -- because of some great activities by our team we have been able to transition out of the external manufacturing into our facility at here -- we have a facility in South Carolina as well as a facility that we recently acquired call JB Laboratories. The combination of the efforts in our South Carolina facility as well as JB Laboratories allowed us to take on the incremental demand required and allowed us to now, we -- going forward from January we no longer are seeking additional external support. There may be a couple of products still coming in from past orders, but no additional product will go forward as a requirement for external manufacturing help.

All right, thank you.

Operator, by the way, we're going to extend the call beyond 11:00 so we have enough time for a few more questions.

Linda Bolton-Weiser, Caris.

Just on the vitamins, can you give us some sense of how much the vitamin and nutritional sales increased year-over-year in the quarter?

Linda, probably the best way I would say it is, we talked about our top-line growth of the CHC business being approximately 39% growth. The vitamin and nutritional supplement business grew faster than that. I don't want to give specific numbers because we don't talk about specific categories, but I can tell you the VNS business grew faster than our overall CHC business.

That is helpful. Thanks. And just going forward in terms of how this -- this impacts the mix of your business kind of on a permanent basis because you are adding in -- certainly vitamins is lower margin than, let's say, a Zyrtec, I would expect, right?

That is correct.

But, can you give us some sense as to how vitamins compares to, say, aspirin and Ibuprofen profitability-wise?

Let me differentiate my comments, some for the quarter comments and then some going forward. For the quarter the vitamin and mineral supplement business was obviously of a lower margin than some of the products you mentioned, like in Ibuprofen. Having said that, we believe that through efforts we are taking on, and those that I outlined in my script, certainly the issues that we are taking on for alternate vendors of raw materials, additionally the ability to move the manufacturing from external sources back internally, we think that is going to help us get those products to a higher gross margin than certainly they were in the quarter and back to levels of products like an aspirin, like an Ibuprofen; not to the levels of a cetirizine, but certainly back to those type of levels. But that is really what we're focused on. We have a laser focus on getting that profitability of our vitamin and mineral supplement business back to the levels that I referred to before.

That is helpful. Thanks. And then just a question on the currency FX. Do you have an FX effect on just the sales growth in the quarter, and then an effect on the bottom-line earnings growth? And also, maybe you could just clarify it more because I'm confused, because you're manufacturing some API and Rx products in Israel which are being supplied somewhat in North America. So that's -- you know the shekel has devalued along with some of the other European currencies. So I am confused as to why this is a negative. Wouldn't this be a positive FX?

I'm going to let Judy address most of the question. Let me just make a couple of comments at the onset. I think first and foremost that we have in the past historically had a little bit of what I would call a natural hedge. Some things have gone up, some things have gone down. I think what has changed in this particular quarter is the magnitude of some of the changes that occurred. And maybe, Judy, you want to talk a little bit about some of the magnitude of some of the changes to address Linda's question.

Absolutely, thanks Joe. So that was a multiple part question there and we highlight normally every quarter what the impact of foreign currency is on the top line absolutely so that you can roll forward your expectations of growth inorganic, organic, as well as impacts like this from foreign currency.

As Joe just said, we are in a normal environment naturally hedged, so if you get down to the operating income line and the net effect of all of the ins and outs of our multiple currencies and the natural impact that happens when you produce and sell in the same currency, we normally net down close to zero. In second quarter in particular, because of the more than two standard deviation move on the pound and the Mexican peso and the continued movement in the Israeli shekel in that quarter we did see some net effect drop through operating income. And on a high-level, just to give you an order of magnitude, as I stated in my earlier comments, the effect of foreign currency on the top line on a consolidated basis versus last year was still, it netted out -- sorry, second quarter only versus last year was about $9 million year-over-year. Year to date though, that netted out to almost zero, just in terms of the full year's six-month impact.

But if you look at the full year to date over last year variance on operating income there still was a net impact. While the natural hedge activity in the Israeli-only consumer products and pharma businesses and the Mexican and UK businesses basically netted themselves out versus last year, there still is a net impact within API. And that is because the API business, while the vast majority of the production is happening is Israeli shekels, they do transact their business in US dollar, in the Euro, in Japanese yen as well as shekel. So that is one where the flows were not able to be naturally hedged.

We are obviously looking at our expectations going forward, particularly how it affects that business and looking at ways to mitigate that. But in general, we do not have a complex hedging strategy for all of the global cash flows. Again, because even with these standard deviation movements, most of the rest of the world does net down to zero. This was a very unusual quarter with the volatility in the market movements around the world.

Thank you.

Derek Leckow, Barrington Research.

Your operating income in the second quarter in your core business is up 45% and the other businesses are down 44% and so your total impact here, you talked a lot about this post-employment issue in the quarter and I guess you are continuing that out to Q3 and Q4. Can you quantify that and separate that out for us so we can see what that impact was?

For the full year-to-date P&L impact of the Israeli post-employment benefit, the net impact for the Company in the first half of the year was about $3 million. Just to give you a sense of what this is, just to put it in context, it's similar in structure to the way a U.S. pension plan would be set up. It's required by law. As employers, we make contributions into the fund every pay period for our employees, and those assets then are held by financial institutions at the behest and the control of ultimately the employees. Like an employee might make a decision about their 401(k) assets. And as those funds then drop dramatically in value as you all saw with the stock market declines in the fourth calendar quarter, that required us by law to take a charge for the decrease in those assets. So, $3 million us the first half of the year, and that is across those Israeli businesses. We cannot predict what will happen in the second half of the year. So at this point we assume that that $3 million is a permanent charge to the P&L for the full year. If in fact the assets recover, we will be able to recover some of that loss. We would call that out obviously for the rest of the year, but right now within our guidance for the second half of the year we don't have any better position then to assume that loss as it stands right now will stand for the remainder of the year.

So do we then project that $3 million across the next two quarters as well, or have you already captured it?

No, right now we do not project a further loss. We assume right now that that loss stands and we breakeven for the second half of the year. We have baked into our own numbers and the normal run rate and operating expenses that you would have in your SG&A as a present to sales ratio, we already put the normal contributions that we make for our employees just as a part of normal payroll costs.

That is exactly right. I think the only thing I would add to what Judy says is, as we look at any forecast for the remainder of the year it's always looking at some things that are going to be some of the positives, some things are going to be the negatives. I think as Judy said, we at this point think we just look at this as being an expense that occurred and one that is going to stay as such and we'll continue to look towards the pluses and minuses for the rest of the year.

So, does comparable profitability for the second half, then, look more flattish compared to last year? Is that fair to say, for those businesses?

You're asking for -- well, obviously the CHC profitability is really going to be a factor by the sales growth. Sales growth numbers are significant with what we have been able to grow both from the acquisitions as well as what we have been able to grow from the new product introductions. So we're clearly going to see top-line revenue growth. And as we projected for the full year we're expecting top-line revenue growth to be in that 13% to 18% range and the EPS in the 11% to 20% earnings per share growth versus the rest of the year.

Sorry, Joe, I was just talking about profitability in the other businesses beside your Consumer Healthcare business. Would those return to a normal level of profitability in the second half, or are we still expecting some erosion there?

I misunderstood your question.

And later when you referenced back to the formal finance comments, tried to line that out for you. For API for the full year, we're expecting the second half of the year sales in API top line to resemble last year's second half. So for the full year we're expecting API top line to be flattish to last year, in total. So we will not fully compensate for the gap in the first half but will get to a better run rate in the second half of the year. And we also expect that the profitability in the second half of the year will improve overall with cost containment activities and timing of some of the new products that Joe referenced in his comments. So second half of the year, definitely expected to be driving more value through operating income dollars in the second half of the year.

In the other business, top line remains fairly consistent with this first half of the year run rate, and overall gross margins there also looking to improve a basis point or two year-over-year. So, similar to the earlier guidance we gain in that business unit.

Okay. And then just shifting over now to the CHC business, in the vitamin and nutritional category this momentum here where you're talking faster than 40% growth, I guess that's going to carry through and that's why -- just to make sure I understood this correctly -- that is why the 50 to 100 basis point decline in CHC -- you said gross margin, that is going to about -- between 100 and 200 now versus prior expectations? And, that's all because of that vitamin business, correct?

It is clearly a product mix issue, but also the issue simply is how we are approaching the improvement in the vitamin mineral supplement business. So there's really a couple of factors that are driving Judy's comments.

And, just to clarify so -- and you can see this as you go through the prepared comments also. What we are expecting in Consumer Healthcare is that the adjusted gross margins will decline 50 to 100 basis points from last year. And, we had originally thought that for the full year that the Consumer Healthcare gross margins would stay flat, so that new products would be offset by certain things but that we would stay flat year-over-year. And now, we are talking about a 50 to 100 basis point decline year-over-year. The 100 to 200 basis point decline that you just referenced in change to adjusted gross margin is specific to the consolidated Company. And that, just wrapping it up again, is the impact both on the change I just mentioned in Consumer Healthcare, coupled with the expectations for the contribution of the API business in the remainder of the year. So I just want to keep those two numbers --

Yes, thank you for clarifying it.

Guidance ranges separate. 50 to 100 change.

In CHC.

CHC, and all of that translates rolled up into a 100 to 200 basis point change for the consolidated Company versus being flat year-over-year.

Things for clarifying that, Judy.

Gregg Gilbert, Banc of America.

Does the $15 million in base business growth exclude nutritionals, or can you talk about that definitionally, Judy, as to what is in that and what is not in that?

Sure. Maybe the easiest way to just conceptually roll forward Consumer Healthcare's growth if I break it down with a little more granularity than I did in the prepared comments, and I will focus on year-to-date and we can break out the Q2 if you would like as well.

In total, Consumer Healthcare grew 38%. As I commented earlier, new products were 23% of that growth. We did some acquisition; in total, international and domestic, about 12% of that growth. So you would say, Judy, we're at 35%, what else is going on? We also divested some business. We divested UK VNS business as outlined in some more detail in the 10-Q, which is going to be filed. We exited some product categories in the domestic CHC business as we talk about always streamlining SKUs, and we also had some FX impact within CHC because of the UK and Mexico. Those three items were 8% -- negative 3% from divestitures, negative 3% from exits and negative 2% from FX, which gets us to 27%. The volume and base business expansion year-to-date in Consumer Healthcare, then, is 9% growth. So, even excluding the new products and excluding the effect of acquisitions and divestitures, the base business of Consumer Healthcare was 9% growth. Similar roll forward for the second quarter where we saw 8% base growth, excluding the effect of divestitures, FX and exits.

Okay, thanks for that. On Rx, what drove the sequential bump in sales, given that scripts were relatively flattish from 1Q to 2Q? And, are there any other launches that you expect for the fiscal year for Rx?

Yes, good question. In the business for our Rx generic business, what has happened is one of the synergies that we have seen within Perrigo is the concept of ORx, and that stands for prescription products -- I should say -- let me say it a little different -- over-the-counter products that are still dispensed by a pharmacist. It's an ORx business that happens with this business. We have capitalized on that as a separate opportunity within our business, led by the generic Rx team and they have found new markets essentially for our products and they have capitalized on that and launched those products. That has been the biggest driver for us in that new product side, with the obviously other new products such as the generic of Olux. But other than that, it is the ORx that has really driven that business.

And launches rest of year there, in Rx?

Yes, we do still expecting some launched for the remaining portion of the year. There is obviously -- as in all of our new product launches, there is some that are going to be -- they way we put a probability factor on any new product as to what will happen. So there are clearly the new product launches that we are expecting for the remainder part of the year. The other part that is very favorable to us though, obviously, we have talked about is Triamcinolone. There is opportunity there to monetize that and that will also be an important driver for the remaining portion of the year.

And lastly, Joe, it sounds like you have some near-term action plans for the API and other segments, but can you talk about to what extent those segments are core to Perrigo and whether you're exploring options for either or for both? Thanks.

Let me start with API. API business still at this point we believe is a core business for us. It allows us to do the vertical integration. It also allows us to be smarter about our procurement of active ingredients across both the Rx business as well as the Consumer Healthcare business. So API business we still are very favorable towards. I will say that, with the other business, the Israeli business, what we have said in the past and which we will continue to say is that we base all of our acquisitions and divestments on an ROIC model, return on invested capital, and we will continue to look at that. There is value in our consumer product Israel business as an example because it helps us to introduce store brand cosmetics into the United States. Having said that, we can look at multiple ways to do that and we will continue to assess our strategic alternatives with the Israeli consumer products business as we go forward.

Thank you.

Randall Stanicky, Goldman, Sachs & Co.

Just a follow-up on the generic question. What percent of I guess both your pipeline and your current portfolio of products is vertically integrated with your API product?

I would say that, currently, it's in the single digits as a percentage. As we go forward, though, we will look to expand beyond single digits, and that is both on the generic Rx as well as our Consumer Healthcare products. So single digits n today is the best answer.

So the vast majority is sold to third parties?

Absolutely.

Okay. Is there any contribution for Nasacort per the settlement that you have factored into your back half outlook?

Yes.

Would you be willing to quantify it?

We don't give out individual product deal details, but there clearly is amounts that we have acknowledged. So for example, in the 10-Q you will see a number at $2.5 million in the second quarter.

Is that linked to approval?

No, that was in the second part (multiple speakers) at this time.

Okay, but there is contribution factored into the back fiscal half?

That is correct.

Okay. And then, did you give us an FX impact for your consumer business for the top line?

For the top line? I did. I commented on that in the script. I believe that the impact year-over-year, FX was approximately $10 million.

And that's just in the consumer business, that $10 million?

That is in Consumer Healthcare, yes.

I may have missed this, but just in terms of widening the EPS range, can you help us understand what the bigger swing factors are?

The issue on the widening of the guidance is really reflecting of the global economy that we are in and some of the ups and downs and positives and negatives that we're trying to assess with the total market that we compete in. If you look, for example at the API business, we haven't loss any customers. Having said that, the customers have pulled in their orders or reduced their orders. There's just more volatility in the market than we have seen in the past. As a result of that, as we looked at all the positives and all the negatives in our forecast, we just felt that a wider expansion of the range was warranted at this time. We clearly still feel very strongly about everything we're doing in the Consumer Healthcare side, the new product side, what we've done in vitamin and mineral supplements. So there's still a lot of positives, but we just felt the economy was one that warranted an expansion in our range at this time.

And the economic pressure, are you seeing this primarily through unit pressure, or is it more on the pricing side as you think about selling to your customer base?

I have to segment my answer on that. In the API side and the generic Rx side, I think there is some unit issue questions relative to how much customers are ordering. I think if you look at the overall Rx market you're seeing some declines in Rx. Declines in the growth rate, of expected growth rates, I should say it that way, is a little differently. Having said that, we think that the inventories have been reduced in API significantly. On a going forward basis, we will see the numbers that Judy talked about for the full year API.

On the Consumer Healthcare side candidly, we are seeing the situation actually accelerating the utilization of store brands. So in fact it's a favorable factor for us on store brands where people are more and more as they go to the shelves, they are looking at here is the national brand, here is the store brand. We are seeing acceleration in utilization of store brand. So really, what we try to do in looking at any forecast is try to weigh the positives and negatives and, I guess I would call it the volatility of the total forecast. And that was really why we got this wider range and why we see some different factors and different weightings on some of the things that we see in API versus some of the things we're seeing in our core Consumer Healthcare store brand business.

You talked historically or recently about seeing pricing stabilize or even improve in Consumer. Is that still the case?

That is true, that is the case. I think historically the way I would say it is that our Consumer Healthcare business has declined in pricing in the 1% to 2% range. Now I think it's fair to say that we have stabilized that pricing decline, and in fact we have a slight upturn in some of our pricing in Consumer Healthcare. And I think that is something that we expect is going to continue to stay.

I'll stop there, thank you guys.

Scott Hirsch, Credit Suisse.

Quick question regarding the new products, can you got the guys give us -- I know you guys indicated, but are acquisitions, the three new tuck-in acquisitions, are they factored into the guidance range now?

The acquisitions are factored in, but not within our new products, if that's what you're asking me.

So those are not part of new products?

They are not part of new products as we define new products.

Okay. But they are now included in your annual expectations? I know previously they might not have been.

The answer to that question is yes. Judy?

So if you wanted to think very high level about our top like guidance, when we came out in November our original guidance said that we would grow as a consolidated Company 13% to 18% top line. We are confirming that guidance and that includes our acquisitions. So excluding our acquisitions we are still looking at a strong 10% to 11% top-line growth. And so you say to me, why are you confirming your guidance range of 13% to 18%? We have acquisitions compensating in our global portfolio for some of the sales weakness Joe just talked about in some detail with regards to particularly the API and the other businesses year-over-year. So as we look at our full -- back at our full guidance for the year, we can confirm that top-line range with the inclusions now of those acquisitions.

And just following up on that, and I might be wrong on these, but I believe you said that JB Labs can do roughly 70 and Unico annualized numbers of 50 and [laboratory versus Diba], so 15. Are they in for second quarter or are they in just for second half of this year? How much do they impact this year, getting a sense of how much they could annualize for next year?

You can assume that all of the acquisitions are in for the second half of the year. We talked about those annualized rates. JB Labs was fully reflected in the second fiscal quarter. Unico was just basically December, so you only have about a month. Diba you pick up about a month. Galpharm was fully in for the first half of the year and Brunel was fully in for the first half of the year. So in order for you to do your math you can use that as a guideline to start annualizing out numbers.

Okay. Just lastly, what are your thoughts on -- was Nicorette a very high gross margin product for you, and are your thoughts that Watson coming in here will be a big impact, you've done really good on competing with cetirizine. Do you think you can do the same with Nicorette?

Yes, first question was -- nicotine is a good product for us; nicotine coated gum, to be clear. So it is a good product for us. It has good gross margins. So, our expectation is that we can compete with this. We expected Watson in. As I mentioned, we have the programs in place that will allow us to continue to have a good, strong coated nicotine gum franchise, and our expectation is that we will be able to do that. Clearly, Watson will gain share but we expect to still hold a majority position in share with a good gross margin product.

Lastly, what was some of the motivation around settling both the Nasacort and Clarinex in the outer years? Was this just a function of what was the best decision at the time, or was there other factors involved?

I think both of those are two separate diverse patterns of facts here. On the Nasacort that was a partnership product. We brought certainty to it, we brought some monetization to it in the near term. We felt it was -- working with our partner Barr, it was good for Barr, it was good for Perrigo, it was good for just going forward in terms of reducing uncertainty.

On the Clarinex opportunity, that potentially is a crowded market depending on whether or not it stays Rx or whether it goes over the counter. We saw the clarity of this direction reducing our expenses, having a clear decision. If it goes over the counter, we will have an opportunity to enter the market earlier and we will be well positioned. If it stays on the Rx side, we'd minimize the expense for that particular issue to fight that legal case and we find ourselves in a good position. So I think different fact patterns, but just certainly we think in both cases a chance to do the best thing for the Perrigo shareholders.

Operator, I think I have time for just one last question. I know we have gone over, but we know there has been a lot of questions and we wanted to try and give you as much detail and information as soon as possible. Operator. are there any more questions?

Louise Chen, Collins Stewart.

Just a few quick questions. Firstly, on the raw material pricing, I guess in general it seems like raw material pricing is coming down. So can you explain a little bit more why the vitamin business raw material cost was high and how long is it going to take to flow through in terms of the inventory? Secondly, just on your end markets, it looks like those are definitely still intact, you did very strong on the consumer business. And can you talk a little bit about your relationship with Medco, and then also just what retailers are doing to promote store brands since you said that the store brand is being increasingly favored by consumers?

Three good questions. First, Louise, on the vitamin and mineral supplements, the raw material that we acquired go back to some of the issues that from a sourcing point of view that occurred during the time period of the late summer, so August September. Some would associate it with the Olympics. The second issue is, I think you may have seen in newspapers, there is some vitamin C pricing. I don't know if I want to call it collusion, but there's certainly some activities that have occurred in vitamin C pricing that are causing some difficulties. I think that has sorted itself out, and ultimately because we have been able to go to alternate vendors of vitamin C we do believe that we can get the vitamin C price of the raw materials under control and back to what I would call a more normal pricing environment for products such as vitamin C.

On the second question on -- so I think that just really reflects what happened. It will work through our system. We will get additional vendors on board, but it just takes some time and that's the activities that I outlined in our action plan.

On the question of Medco, we have very good relations with Medco predominantly in the generic Rx area. But we have had discussions with Medco on a variety of different issues, but good strong relationships with Medco, once again primarily on generic Rx area.

Finally the question on the retailer side, the retailer is looking to store brands as being an important driver for their growth in profitability. They have put additional promotional programs together. I think one of the best ones and most visible one has been the Wal-Mart $4 program where they have taken a $4 approach to their over-the-counter products and bundled that with other products to try to continue to increase the store brand utilization. But I think it goes beyond Wal-Mart, it's -- clearly and the other retailers are doing similar programs to drive utilization of store brand because it is clearly good for the consumer, the ultimate end consumer. It is good for the retailer and obviously it is good for Perrigo.

That really concludes I think your question, Louise. I think everyone for their questions. Maybe just a couple of points.

I know this has caused some questions in your mind. We will be happy to try to answer any questions anyone has. But, basically as I look at it, I think, A, we had a good quarter with record sales. We are still projecting top-line growth of 13% to 18% for the year. We're still projecting growth in our earnings-per-share of 11% to 20% EPS share. And importantly, in a volatile economic environment I think we've taken a lot of steps to ensure for the long-term Perrigo shareholders that we're doing the right things. We're clearly working on making the business of better off by looking at our cost structures. Number two, we are clearly continuing our investment in research and development which we think is very important for the long-term success of our business. Number three, we're clearly taking market share, especially in our Consumer Healthcare core business in the vitamin and nutritional supplements which I mentioned, which we think is also very important over the long-term. And fourth, we are continuing as evidenced by the three acquisitions that have occurred in the last four months going after acquisitions to continue to acquire related businesses that will help us to grow our total Consumer Healthcare franchise. And we think that is the good part of what makes Perrigo uniquely positioned to take advantage of the opportunities we find ourselves in the future.

Thank you very much for your attention today, and we look forward to having further dialogue in the future. Have a great day.

This concludes today's conference call. You may now disconnect.