Teva Pharmaceutical Industries Ltd (TEVA) 2002 Q4 法說會逐字稿

Good morning, my name is Tanya, and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the SICOR fourth quarter 2002 earnings release conference call.

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

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

If you would like to ask a question during this time, simply press star and the number one on your telephone keypad.

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

Thank you.

Ms. Little, you may begin.

Good morning, and thank you everyone for joining us today to discuss SICOR's fourth quarter and full year 2002 results.

Participating in today's call are Marvin Samson, President and Chief Executive Officer;

Jack Stover, Executive Vice President of Finance, Chief Financial Office and Treasurer;

Art Leblanc, President of Gensia SICOR Pharmaceuticals; and Michael Cannon, Executive Vice President, Chief Scientific Officer.

Before turning the call to Marvin, let me go over the safe harbor briefly.

The following discussion may contain forward-looking statements may contain forward looking statements that are subject to risk and uncertainties.

Actual results may vary materially from those anticipated, believed, estimated or otherwise indicated, including whether market acceptance for SICOR’s product, including Propofol will remain high, whether SICOR’s financial conditions will remain strong, whether SICOR’s will be successful in patent challenges, make possible product or technology acquisition investments in manufacturing capabilities or licensing opportunities, whether the company can capitalize on competitive strengths, have product approval or be first to market with any of its products, whether SICOR will be successful in its vital technology strategy and those matters set forth in the risks factors listed in SICOR's filings on forms 10K and 10Q with the Securities and Exchange Commission.

These forward-looking statements represent the company's judgment as of the day of this conference call, and the company disclaims any intent or obligation to up update these forward-looking statements.

However, we may choose to update them from time to time and if we do so, we will disseminate the updates to the investing public.

I'd like to turn the call over to Mr. Marvin Samson.

Thank you, Laurie.

Good morning.

2002 was another strong year for SICOR and I would like to take this opportunity to highlight our accomplishments.

We began 2002 targeting 20% to 25% revenue growth and earnings per share of $.80 to $.82, representing 25% growth.

I am pleased to say that we delivered 23% top line increase and a 28% bottom line increase, excluding one-time events.

Revenues for the year were $456m. 15% of which came from new product introductions.

Gross margins increased from 49% to 55% in 2002.

We achieved a 28% increase in earnings per share in 2002, despite the increase of the effective tax rate to a normal normalized rate of approximately approximately 37%.

If we had used our 2001 tax rate rate, we would have delivered a 43% increase in net income, demonstrating the strength of our business.

We began to receive media attention as we continued to meet expectation.

We received 11ANDA approvals during the year, including two tentative and two supplement approvals and one approval developed jointly with Baxter.

Annual preferred dividend payments of $6m were eliminated due to repurchase of outstanding convertible preferred stock.

Our BS continues to strengthen as our cash investments grew to over $330m at year end.

This provides us with a source of funding for future acquisitions and other growth opportunities.

In 2002, cash from operations totaled $135m .

As part of the restructure agreement with Abbott, 11 oncology products were returned to our internal sales force strengthening our oncology franchise.

Three new directors with solid credentials in corporate finance, technology and healthcare investing and pharmaceutical sales and marketing were elected to the board.

This group provides SICOR with strong outside use, critical to navigating complexities confronting business today.

We've extended our marketing arrangement with Baxter International to ensure strong growth in the future and to seek opportunities for collaborating on new Propofol formulations.

In addition, under the revised agreement, four of our products previously marketed by Baxter have been placed in our sales portfolio.

Turning to fourth quarter, our U.S. operations continue to drive financial results.

During the quarter we saw 22.3m units, including 5.9m units Of Propofol.

During the fourth quarter, we worked very closely with Abbott laboratories to ensure a smooth transition for our customers.

With our input, Abbott sent out letters to their oncology customers and assigned all contracts to SICOR.

To target business opportunities, we have created direct mail piece, focusing on both the safety and breadth of our oncology line.

During 2003, we plan to double the number of our field representatives.

And several of our sales representatives will dedicate their efforts to calling on oncologists and oncology clinics clinics.

As the result of the additional four Baxter products we're concentrating on creating awareness of our product portfolio with a new marketing campaign and a telemarketing program.

We're very excited about all of these new opportunities.

Currently we have 14ANDAs and two tentative approvals pending at the FDA.

We filed four ANDAs during the fourth quarter and we have filed three ANDAs so far in 2003.

Our Mexican operations continue to follow through on our objective to diversify our customer base and deal effectively with the government sector in Mexico.

In an effort to diversify and reduce dependents on government sales, during 2002, we continued to expand sales efforts in the private sector.

As a result of last October's government tender, we received an award to supply of Psychsporin(ph) for the first four month of 2003 to the Mexican government.

Our expert business in the fourth quarter also continued to increase, with several oncology products being shipped to a new customer in Asia.

Our API business also performed well, contributing 25% of revenue this quarter.

Operations in Italy were solid as we continue development and work on several new products for external customers.

All look promising for the future.

Our Italian facilities also underwent seven successful customer audits during this quarter, confirming the level of our regulatory compliance.

Biotech operations, accounting for less than 1% of revenue this quarter, we invested a great deal of effort working with regulatory agents in Western Europe to refine a pathway generic pharmaceuticals.

Our regulatory staff had follow-up with Western European authorities to solidify for filing an application Interferon and Alpha 2B.

We also continued to work on filing for GCSF in Lithuania which will include a clinical trial and we are hopeful to have approval later this year.

We're in active discussion was several drug delivery partners to develop sustained release versions of our biopharmaceuticals.

We're negotiating with pharmaceutical firms in Western Europe for developing and marketing rights for biopharmaceuticals.

Several global filings are anticipated in 2003 and we are in discussions with regulatory agencies in the U.S. and Europe.

Now, let me turn the call over to Jack to discuss our financials.

Jack?

Thank you, Marvin.

First I'd like to discuss the fourth quarter financials.

Total revenues for the quarter ended December 31st 2002 were $118.7m, compared to $104.1m in the prior year, representing an increase of 14% year over year.

This increase is primarily attributable to increased sales of finished dosage products in the United States including new products introduce introduced in 2002.

Gross margins were 55% for the fourth quarter of 2002, compared to 51% reported for the fourth quarter of 2001.

This increase is primarily due to improvement in product mix towards higher gross profit products, continued expansion of our Propofol business, and manufacturing efficiencies.

Our R&D expenses were relatively flat at $6.9m for the fourth quarter, compared to $7.4m in 2002.

SG&A expenses increased $18.7m for the quarter ended December 31st, 2002, compared to $16.7m in the prior year.

As a percentage SG&A expense rest main flat at 16% of total revenue for the quarter, however total dollars increased as we began ramping up our sales and marketing in anticipation of the Abbott oncology products being returned as well as certain products we previously sold through Baxter.

Our pro forma effective tax rate was 37%, as compared to 17% in the prior year on a comparable basis, as most of you are aware, up until the end of 2001, we were able to utilize our NOLs on a quarterly basis.

This changed at the end of 2001 when accounting rules required us to recognize these NOL benefits annually.

As such, we recorded a tax benefit during the fourth quarter of 2001, and also in the fourth quarter of 2002, amounting to $29m and $29.5m respectively.

We reported net income applicable to shares of $55.5m or 45% on a diluted bases for the fourth quarter of 2002, compared to net income of $47.5m or $.41 on a diluted per share basis in the fourth quarter ended December 31st, 2001.

As a mentioned previously, net income for fourth quarter of 2002 includes a tax benefit of $29m and net income for the fourth quarter of 2001 includes a tax benefit of $25.9m.

Excluding these tax benefits, pro forma net income for the fourth quarter of 2002, would have been $25.5m or $.21 per share as compared to $21.6m or $.18 per share in 2001.

Cash flows were very strong and we have recognized $34m in positive cash flow from operations.

As Marvin mentioned this privileges our cash flow from operations to over $135m for the year.

Total cash and investments currently stand at over $330m year end which has continued to increase from the first month and a half from 2003 and is currently approximately $350m.

Now, for our annual results.

Total revenues for 2002 were $456m, compared to $369.8m in the prior year representing an increase of 23% year over year.

Gross margins for the year were 55% compared to 49% reported in 2001.

R&D expenses were $23.3m compared to $21m.

SG&A expenses increased slightly to $64.3m compared to $60.3m and as a percentage of total revenue, SG&A expenses dropped from 16% in 2001 to 14% in 2002.

Our pro form effective tax rate for the year of 2002 was 37% as compared to 14% in 2001, excluding the effects of the tax benefits reported recorded in 2002 and 2001 as mentioned; this is in line with our expectations.

We reported net income applicable to common shares of $127.7m or $1.06 on a diluted basis for 2002, compared to net income of $73.3m or $.67 per share in 2001.

Again, excluding the tax benefits recorded in 2002 and 2001, and the one-time process R&D charge in 2001 of $21.7m, pro forma net income increased from $69m or $.64 per share in 2001 to $98.7m $.82 per share on a diluted basis in $.82.

Net income and an ESP increase of 43% and 28% respectively.

I would like to turn the call back over to Marvin to talk about guidance for 2003.

Thank you, Jack.

As we stated in our press release, revenue guidance for 2003 is in the range of $525m to $550m.

This projection includes a slight decline in Propofol pricing throughout the year.

At the same time considering that our market presence for Propofol continued to increase.

We do not currently anticipate competition in the near future but we will continue to be diligent and prudent about our projections.

Gross margins are expected to be in the mid-50% range, but expected fluctuations from quarter to quarter, due to changes in product mix and new product introductions.

An important fact of our guidance for 2003 is our objective to increase investment in research and development to fuel our growth in the future.

Our biotechnology division is anticipating to record clinical cost associated with obtaining approvals.

Our proprietary development program is moving ahead with sustained release products.

As a result, our R&D expenses are expected to be 6% of total revenue in 2003, but an increase of over 50% from 2002 spending levels.

SG&A is expected to remain in the range of 14% of revenue and the effective tax rate between 37% and 39%.

We're targeting earnings to be in the $92. to $.98 on a diluted per share basis for 2003.

As always, this guidance could change in the event of revaluation and timing of new product approvals and the impact of additional competition on private portfolio.

Our robust performance in 2002 is a result of strong business fundamentals combined with creativity and determination.

We expect these same factors to move us forward in the coming year as we deliver value to all of our shareholders.

Now I would like to open the call up to questions.

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

We'll pause to compile the Q & A roster.

Your first question comes from Greg Gilbert of Merrill Lynch Global Securities.

Thanks.

I have a few questions.

First of all, easy one, Jack, can you provide us with sales for Propofol as well as total U.S. finished and Mexico finished and whether you expect API to grow in '03 as part of your revenue guidance?

Greg, give that to me again, total sales for Propofol?

Yes, and then total U.S. finished and total Mexico finished.

Greg?

Hello.

Your next question comes from Ken Cacciatore from SG Cowen Securities Corporation.

I'm sorry.

We lost a line for a minute.

Jack, do you want to answer that question?

Mr. Gilbert's line is now open.

I don't know what and there.

Did you get the question, Jack?

I think I did, Greg.

You asked what the total sales for Propofol were and then the total U.S. finish and the Mexican finish; is that right?

That's right.

Total sales of Propofol for the quarter?

Yes.

Were approximately $40m.

Okay.

Total finish for the U.S. -- hang on a second.

I apologize, Greg.

I'll ask Marvin a question while you're getting that.

Marvin, in terms of increased R&D investment should we look at that as a biotech investment or a more aggressive filing schedule?

How shall we think about that?

It seems to be the right strategy but we want more granularity on that.

It's both.

We're spending additional money in the biotech area for clinical studies and product development.

A major portion of that will be spent here in the U.S. for development of sustained released versions of some of our products, and we're working with new technologies, new platforms for introducing generic products in the states, so it's not just biotech, and you know, substantial increase in dollars from 2002 to 2003.

So it's really across the board.

Part is biotech and a major portion is in the states as well well.

Can you give us color on the early stages of the Vinorelbine(ph) launch and if it's going how you had hoped?

Yeah, part of that increased R&D is also to continue developing the proprietary products as well.

Vinorelbine is doing very, very well.

We launched a product and signed several contracts with major buying groups.

So far it looks very positive.

Greg, answering your question about the U.S. finish versus Mexican finish, the U.S. piece was about 66% of our finished sales.

Then we can back into that.

The second part of that question for you, Jack, should API grow in '03 as part of your revenue guidance?

As part of our revenue guidance, yeah, we do see some growth in the API business for the upcoming year, Greg.

It's not significant in terms of dollars as it relates to the finished dosage business, but we're seeing some double digit growth that we expect there.

One more for you Jack.

The margin was strong this quarter.

I wouldn't have expected given the mix with API being so strong strong.

What explains that?

Are there new products there that are much higher margin or something else going on?

Are you talking for the quarter or for the year?

I'm talking about for quarter quarter.

You saw a very big sequential jump even though API is a higher percentage this quarter than last.

While it is a higher percentage of revenue, in terms of sheer dollars and gross profit, it doesn't really drive the overall gross profit margin.

You know, the new product approvals in the fourth quarter were not significant.

What did happen was the increase in the Propofol business drove gross profits and that was a function of efficiencies in the manufacturing process as well.

Those are the two driving factors in the United States.

Thanks, I'll get back in queue.

Your next question comes from Ken Cacciatore of SG Cowan.

Just a quick question or two.

First on Propofol, Marvin, you mentioned that your expecting pricing weakness.

I'm wondering why that would be in the absence of a generic competitor, and as well, if you all could let us know maybe some of your assumptions behind the number of new launches you are expecting that drives the top line and the number of filings you are expecting in '003.

I think, you know, it's been our policy for years to predict slight degradation in Propofol pricing.

Part of that is just getting some new business, we had discussions with Baxter.

Propofol is moving very well.

One of the reasons for the growth is that part of the ESI merger with Baxter -- Baxter has expanded their sales force by almost 40 representatives.

And those 40 representatives not only call on hospitals but also alternate site.

So some of that new business may be a slightly lower prices, but again, it's been part of our model for years.

We continue to do that.

Okay.

As far as product approvals for 2003, we have several key products that we expect to receive approval in 2003.

Of course, the timing of those new products is key.

Any of those, should we expect any of those to be exclusive launches?

Yes, yes.

And your targeted number of filings.

Do you have a target you expected?

I know you have three in Q1.

I would say approximately 10 filings this year.

That's what we've done in the past, and I think we'll be pretty much along this year as well.

Great, thank you.

Your next question comes from Elliot Wilbur of CIBC World Markets

Good morning, just a couple of additional questions on your Propofol franchise, Marvin.

You alluded to your assumption of pricing degradation in '03, but you talked about increasing volume.

I'm wondering if your revenue guidance assumes that all of the Propofol sales are increasing in '03 versus '02 or are essentially flat?

If you are talking about number of units we plan to sell in 2003, we are planning to increase the number.

That is based on forecasts we've received from Baxter so far.

Part that have is what I mentioned before with the expanded sales force.

The pricing degradation, as I said is something that we've just planned on, and we just assume every year.

And it's very minor.

It's not a large price decrease.

Okay, but how would those two in combination work relative to what you did in 2002 in terms of of -- you actually expect Propofol revenue to increase in '03 versus '02?

It should be a slight increase.

Propofol as a product continues to grow.

If you look at the dollar revenues, IMS data for 2000, it was $340ml in 2001, it was $357m; and 2002, it was almost $425m.

The product is very well accepted.

It continues to grow.

It's being used more and more in searchable centers for short procedures.

So you know, it's a very strong product and physicians like it.

It's safe.

It's effective and of course recovery is really quick.

So we see the product continuing to grow.

So does Baxter.

Okay.

Could you just maybe give us a little bit more detail on what your current unit capacity is on Propofol versus maybe where you were at the beginning of '02 and how your -- if you are still seeing a benefit from the shift to the higher -- the larger vial sizes?

If you look at units, our units went from 11m in 2000 almost 15m in 2001, 18m in 2002, and with our current capacity, we can do close to 20m units.

Okay.

Are you still seeing a favorable dollar impact from growing utilization of the 100 milliliter versus the 20 milliliter?

It's leveled off.

It's been pretty flat.

The product mix we see now between 20s, 50s and 100s, and of course we introduce the 10ml size last year as well.

It seems to be pretty consistent now; we don’t see the dramatic growth in the larger sizes.

I have one additional question for you Marvin on the pipeline and then a couple quick financial questions for Jack.

Have any of the 7 filings that you have submitted since the end of the third quarter, have any of those been paragraph 4, ANDAs?

No, they have not.

And Jack, a couple quick questions for you as well.

On your R&D guidance for '03, I'm assuming that that does not include any assumption for technology acquisitions that would result in an end process R&D charge, that's all actual dollar spends?

That's correct, ELI, it does not include in-process acquisition.

And if you have the numbers in front of you, can you give us a sense of what the relative margins, gross margin between finished dose and the API segment this quarter and a little bit more color on why the API level was so strong.

That's close to a record level in terms of dollars sales.

The API side of the business, you know, was strong, at least quarter over quarter.

Hang on one second.

It's actually pretty consistent in terms of the API side of the business was about 40% gross profit and the finish finished dosage side was around 57%.

Okay.

On the API side of the business, we have had a couple of new products in the API side of our business.

You know, that have come through, and I think basically just general volume increases there.

While it looks like record increases, I think it's not unexpected in terms of what we've been looking at.

Okay, thanks.

I'll go ahead and jump back into the queue.

Elliot?

Yes, Marv.

One other thing you should know about the raw material business.

We've kind of taken an approach in some of our raw materials that we're working with certain customers and aside from a transfer price when we sell raw material, some of the arrangements we have now include royalties.

So I believe there were some royalties payments in the last quarter of last year which had an effect on our gross margin for the API business.

Okay.

All right.

I appreciate the additional detail.

Thanks.

Your next question comes from Michael Tong of Wachovia Securities.

Just a couple of quick follow-up questions, one, wondering if you can provide clarity on sequential growth of Propofol.

Do you expect Q1 to be higher than Q4?

And number two, with respect to product approvals in '03, could you give us an idea of the brand dollar size of the combined market?

Thanks.

Marvin Samson Okay.

Mike to answer your question about Propofol, we had a very strong fourth quarter and part of that was because of the ESI Baxter merger.

And so that Baxter felt with the additional sales force, with the 40 reps that ESI had taking their sales represents from 100 to 140, they wanted additional inventory so part of the growth in the fourth quarter, Michael, was because of the expansion of the Baxter sales force.

I can't say that we'll grow again in the first quarter.

I mean, for the year, the forecast is up over last year, but I don't know if you'll see a quarter to quarter increase.

Okay, great, thanks.

And on the --

The dollar volume for the launches for '03.

It's around $800m.

I'm sorry, I'm looking at a list of products.

For the '03 launches, $300m to $400m.

$300m to $400m Thanks very much.

Your next question comes from Jeffrey Long-McGie of A.G.

Edwards and Sons.

Thank you.

If you can discuss the Abbott product transition and the reaction you're getting from GPOs.

And after that, I would like you to talk a little bit about the API pricing environment.

From many of your competitors, we've been hearing that it's very good right now and a lot of people have been able to take pricing increases, especially late this last year, and also, if you could just generally talk about what your strategic goals are for your cash war chest.

You've built a pretty substantial amount of cash now.

What specifically are you looking at.

And now you're really getting into selling your own products to your own injectable products in the U.S.

Does this segue into a branded product in the U.S.?

Where do you see that business going?

Okay, first, the -- Abbott transition, I don't know if you know the details of the Abbott restructuring, but we were in agreement with Abbott for several years to sell and distribute 11 of our oncology products.

That agreement was restructured last year.

Part of our restructuring was to bring the products back in house so our internal sales force could begin selling those products in addition to a line of oncology products that we have.

So I feel it's been a very positive move.

Customers have signed contracts and accepted our contracts for the products that Abbott was marketing, and we see a very strong future in the oncology franchise.

We are basic producer of vertical integrated many of our oncology products.

So the Abbott products along with products in the pipeline, some of the most recent approvals have been oncology products.

It's part of our strategic plan to continue marketing our own products, giving our own sales force products to sell and the Abbott transition is going very, very well.

I don't really know about -- I don't have any feel for price increases in the raw material side of our business.

Our raw material business is a very specialized business.

We manufacturer primarily oncology products and steroids and we specialize in those difficult products to manufacture.

I think business is stable, as Jack mentioned, it's growing, and I think it's a good business business.

As far as pricing increases, I can't comment on that right now.

As you said, we do have cash.

In fact today we have about $375m in cash.

The game plan for that cash is to acquire products, acquire technologies, develop branded products, as you mentioned.

We have several products in our development program that are branded, and of course, a portion of that will be used for our biotechnology business, and we continue to look at acquisitions of products, technologies and possibly companies.

So having the cash is as important to us, but you know, we're looking at deals that are accretive and we continue to evaluate various opportunities.

Thank you.

Also, I may have missed it, but can I get your accounts receive receivable number?

Just a second, we're getting it for you.

Thank you.

We'll get back to you.

Okay.

Thanks.

That's it for me.

Your next question comes from Steve Slaughter of Global Asset Management.

Congratulations on a nice quarter, Marvin.

Thank you.

Piggybacking off the last question, just wondering if you could recap the key branded products that may be moving into newer steps or newer stages of development here in '03.

Any granularity there would be most appreciated.

The branded products that we're working at will be introduced in '03.

We've talked about Luprolite(ph) products, sustained release Luprolite which is in development and it's in clinicals now.

Marvin, just wondering, are we in pivotals there now?

I mean regulatory filings filing trials in essence?

We're currently in phase II studies and then we're developing protocols as far as phase 3 studies and will be initiating those in 2003.

That's helpful.

Any others you might know of or highlight?

We talked about the Onculation(ph) product in the past as well.

And you know, we're working on technologies now for sustained released versions of our biotechnology products as well.

And so some of the delivery systems we're looking at and using we're evaluating for other products as well.

That's great.

Couple other just kind of housekeeping questions, Idarubicin(ph) and Venuralbine(ph), we've launched both now.

Are some of these sole source or kind of the Novation plus type contracts, Marvin?

I don't think –

Novation plus, we have for [inaudible] and Mesna and we're working on a contract with Novation for Penoralbine and a Nova plus contract.

Okay.

Next, if I could, the comment you made about Asian oncology sales.

Are those one-time in nature or are they kind of sustainable?

Are they more like the Mexican government bids or are they some other customer that might be continuing to order?

No, I think Asia is one order order.

I mean, it's -- their business will continue, but we are continuing to increase our export business in Mexico.

You know, Steve, it's very difficult to manufacture products in the states and be competitive in markets like Asia or eastern Europe.

Having a Mexican facility gives us great flexibility.

It's a low cost producer.

Having products made in Mexico is opening up several additional export markets for us.

You mentioned Europe as another.

Are you making headway in Europe with those products as well?

Yes, we're actually doing some additional business now in Europe in oncology products coming out of Mexico.

I believe we mentioned in our last call that we actually had an inspection from the German health authorities which improved our Mexican facility.

Great.

Thanks very much.

You're welcome.

By the way, the receivable balance at the end of the year in the fourth quarter was about $86m.

Your next question comes from Matt Jenkins of Dreyfuss.

A point of clarification.

You mentioned that the revenue number for Propofol will be slightly up in 2003.

I was actually forecasting it down.

Just the language in the release is just a little confusing to me.

You mentioned the Lillie(ph) bump.

Are you baking that in and is that offset by your continued expectations in your projections for competition in the year?

I mean, I notice you said you don't anticipate it, but then you said you are going to be diligent and prudent about its projections.

So I guess my question is, is it it -- is it slightly up a balance between a potential Lillie extra sales force bump up, coupled by later in the year competition?

Thanks.

You know, we're not assuming assuming -- I mean, none of the projections we have assume competition.

But you know, the pricing issue and the Lillie bump, it's hard to say.

The projection we have right now, the unit forecasts are up over next year.

We continually meet with Baxter, reviewing the forecast.

I'm not sure if, you know, I answered your question, Matt.

But I think that all of the data we have now indicates no competition.

As we've done every year for a number of years, we always factor in our price erosion.

It really hasn't happened, but as part of our planning process, we include price erosion.

And I think, Matt, that one other comment that's in there is basically looking that the on a quarter to quarter basis, and with facts and circumstances change, whether it's about Propofol or any products, we'll we'll -- we're obviously modify guidance.

Okay.

Thanks a lot.

Once again, I would like to remind everyone, in order to ask a question, please press star then the number 1 on your telephone keypad.

Your next question comes from Greg Gilbert of Merrill Lynch.

Thanks.

I have a couple follow-ups.

Marvin, you mentioned in your prepared comments that you are in discussion was regulatory authorities, including in the U.S. on biologics.

What's the nature of the discussions in particular in the U.S.?

The nature of the discussions are really, you know, what is the proper pathway and other approaches.

We're in very early discussions now with the agency, just talking about the bio biopharmaceutical industry and what approaches could we consider or should we consider.

They are very, very early stage discussions.

Okay.

Does your guidance include revenue on the contract manufacturing side for biologics?

No, it does not include that.

And what would prevent you from being able to do something like that in '03?

Is it that you want to be careful not to use that capacity for others when you might need it for yourself or are you actively trying to get business there?

We're actively looking at this since we have nothing booked right now.

So our approach is not to count something we don't have yet.

We're continuing to look for a contract in manufacturing.

Totally separate question.

Would injectable iron fit into your ANDA strategy, given that that there is at least product with no patent protection and another that losses its exclusivity in '04.

Of course it would.

We look at all hospital products and oncology products.

We have other products that are sold to dialysis centers.

Injectable iron would be something we would consider.

You were asked about pricing on the API side, I'm curious, Jack, as to whether you can make comments on the finished dosage side in the U.S. in particular.

Is your price component of sales up versus prior year?

Are you talking in total, Greg?

Yes

Yes.

It's really -- you know, it's really a function of the new product approvals over the base.

As we model it, what we model is a slightly declining base, and of course, the increase in pricing as a function and new product approvals and ultimately the efficiency of that in the plant.

So I haven't done the exact map on that to answer your question, but in general, it would show an increase a slight increase in price.

That comment is based on sort of your existing product that's been on the market for over a year is it's stripping out new product sales?

In other words, your core business is about new products price something getting better on average?

Yes.

Okay.

Thank you guys.

Your next question comes from Elliot Wilbur of CIBC World Markets.

Just one quick follow-up questions on the SG&A line.

A little bit higher than normal.

I'm wondering what kind of average quarterly rate we should be looking at in '03.

Well, yeah, well, it's up a little.

Obviously on a quarter by quarter basis, that's a difficult thing for us to specifically deliver.

But I think that if you're looking for SG&A you are in the 14% to 15% range.

That's a reasonable range.

Keep in mind, in terms of dollars, as the dollars in the quarters go up, dollars in SG&A are going to go up and we are spending more money or will be spending more money on selling costs for our rep sales force.

We're trying to balance that with managing our G&A costs effectively.

Okay, thanks, Jack.

Once again, I would like to remind everyone, in order to ask a question, please press star and the number 1 on your telephone keypad.

At this time, there are no further questions.

Are there any closing remarks?

Okay, no really -- the only thing I would like to thank everyone for participating today.

We really appreciate all of the support we've gotten from our shareholders.

So thank you very much.