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WCRX - Q1 2012 Warner Chilcott PLC Earnings Conference Call EVENT DATE/TIME: MAY 04, 2012 / 12:00PM GMT
OVERVIEW: WCRX reported 1Q12 total revenue decline (including ACTONEL) of 10% and adjusted cash net income per share using fully diluted shares of 251m (adding back certain items) of $1.16. 2012 revenue guidance is $2.4-2.5b and adjusted cash net income per share guidance is $3.30-3.40.
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MAY 04, 2012 / 12:00PM, WCRX - Q1 2012 Warner Chilcott PLC Earnings Conference Call
CO R P O R AT E PA RT I C I PA N T S
Paul Herendeen Warner Chilcott plc - EVP and CFO Roger Boissonneault Warner Chilcott plc - President and CEO
CO N F E R E N C E C A L L PA RT I C I PA N TS
Randall Stanicky Canaccord Adams - Analyst John Boris Citigroup - Analyst Gary Nachman Susquehanna Financial Group - Analyst Chris Schott JPMorgan - Analyst Tim Chiang CRT Capital Group - Analyst Marc Goodman UBS - Analyst Shibani Malhotra RBC Capital Markets - Analyst Gregg Gilbert BofA Merrill Lynch - Analyst Elliot Wilbur Needham & Co. - Analyst Douglas Tsao Barclays Capital - Analyst Michael Tong Wells Fargo Securities - Analyst Jim Molloy ThinkEquity - Analyt Graig Suvannavejh Jefferies & Co. - Analyst David Buck Buckingham Group - Analyst Louise Chen Auriga USA - Analyst Irina Rivkind Cantor Fitzgerald - Analyst
P R E S E N TAT I O N
Operator Good day, ladies and gentlemen, and welcome to the Warner Chilcott announces first-quarter 2012 financial results conference call. At this time, all participants are in a listen-only mode. Later we will have a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Paul Herendeen, Chief Financial Officer. Sir, you may begin.
Paul Herendeen - Warner Chilcott plc - EVP and CFO Thank you, Mary. Good morning. This morning we issued a press release that details our operating results for the first quarter of 2012. The press release is available on our website if you don't already have it. Roger will make a few general comments and then I will provide some additional color around our financial results for the quarter. And then as usual, we will end with a Q&A period.
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Before we get started, let me point out that this call will include forward-looking statements.These statements are subject to a number of risks and uncertainties that could cause the Company's actual results to differ materially from such statements. These risks and uncertainties are discussed in our 2011 Form 10-K and other filings which are available on the SEC's website. The forward-looking statements made during this call are made only as of the date of this call and the Company undertakes no obligation to update such statement to reflect subsequent events or circumstances. In addition, we will make reference during the course of the call to non-GAAP financial measures as defined by the SEC. In accordance with SEC regulations, we have provided reconciliations of these measures in our press release issued this morning to what we believe are the most directly comparable GAAP measures. With that, let me turn things over to Roger Boissonneault, our President and Chief Executive Officer.
Roger Boissonneault - Warner Chilcott plc - President and CEO Thanks, Paul. We are off to a good start in 2012. In the first quarter, we grew our core business and reduced our operating expenses as we have nearly completed our Western European restructuring. In our core business, we saw significant contributions from ESTRACE cream, Asacol, and the Loestrin franchise. Atelvia is also picking up. New to brand grew each month this quarter and we expect the trend to continue. While the conversion is slower than initially expected, we believe that we will get there -- we will get there -- those Rx's and they will be maintained. Asacol HD continues to grow its share of the Asacol franchise. During the first quarter, Asacol HD grew almost a share point and is now 13% on a total Rx basis.These HD scripts are also more profitable. There continues to be opportunities to grow the oral contraceptive franchise. We are focusing our efforts on Lo Loestrin, which we believe will strategically benefit the franchise. We were disappointed to receive a warning letter on our Fajardo Manufacturing facility earlier this year in March. We are working to address the items outlined in the warning letter and aim to get those resolved as quickly as possible. Rather than speculate on timing, I will reassure you that resolution is a top priority for us, one we take seriously and are highly focused on. As most of you have probably seen, earlier this week we learned the judge's decision at the DORYX trial. The judge determined that our DORYX patent is valid but not infringed by either Mylan or Impax. Consequently, we learned that Mylan entered the market with the generic equivalent of our DORYX 150. Paul will discuss how this impacts our guidance. You should understand we are committed to the derm space and plan to continue sales and marketing, R&D, and business development efforts in this area. Speaking of business development, we issued a press release earlier this week disclosing our preliminary discussions with potential offers as well as our evaluation of a broad range of strategic alternatives to enhance shareholder value. We will not -- repeat not -- comment further today on this topic. With that, let me turn it over to Paul for some thoughts about our first-quarter financial performance.
Paul Herendeen - Warner Chilcott plc - EVP and CFO Thanks, Roger. As Roger mentioned but I do want to reiterate, 2012 is off to a strong start with several of our key brands delivering revenue growth in the quarter including ESTRACE cream, the Loestrin franchise, Asacol, and Atelvia. The performance of these key brands coupled with favorable

gross margins in the period and our success in gaining additional leverage over our operating costs allowed us to deliver a solid growth in adjusted cash and income in the quarter, up 9% compared with Q1 of last year. Note that on a per-share basis, adjusted cash and income further benefited from the reduction of shares due to the share redemption program we initiated during the fourth quarter of last year and the adjusted cash and income per share grew 11% versus the prior year. Let me spend a minute and talk about each of our several key brands. ESTRACE cream; net sales continued to grow up 49% compared with the first quarter of 2011 and up 24% sequentially compared with the fourth quarter. ESTRACE cream has really responded to the increased promotional emphasis we placed on the brand. Filled prescriptions in the quarter were up 16% compared with the prior year quarter and ESTRACE cream is a product where gross net factors are more favorable than for some of our other brands, so we benefit more from increases in unit demand and increases in price. I do want to point out our reported net sales for ESTRACE cream in Q1 benefited from a favorable true up of a government rebate program and we are therefore about $5 million higher than they would have been in the absence of that true up. Net sales for the Loestrin franchise, which includes both Loestrin 24 and Lo Loestrin were up $9 million or 7% compared with the prior year quarter. While we think of these two OCs as a franchise, our focus is on growing Lo Loestrin. We believe it is an excellent product and that we have the opportunity to gain significant share with the brand in the US over the next several years. With our promotional focus shifting in to Lo Loestrin, we expect declines in Loestrin 24 net sales. The good news is that we expect Lo Loestrin net sales growth to exceed the decline of Loestrin 24. This trend was seen in Q1 where quarter-over-quarter Lo Loestrin grew $20 million which more than offset the $11 million decline of Loestrin 24 compared to the prior year. Net sales of our Asacol franchise increased 13% in the quarter compared with Q1 of 2011, while filed Rx's as reported by IMS decreased 4%. Now I know that many if not all of you use IMS prescription data in forecasting pharmaceutical product sales. If you use IMS data as either a proxy for units or to gauge growth, you are doing so on the assumption that the relationship between the script data and actual units remains constant. I suggest to you that in the case of Asacol over the last several years, a disconnect may have developed between the raw IMS TRx data for the Asacol franchise and actual unit demand. If you rely on that raw IMS data to forecast Asacol net sales, we believe you might underestimate the strength of the franchise. IMS data suggests that over the last several years units have declined in low single digits. Our internal data suggests that units are more -- I will put quotes around this -- flattish. As Asacol is a large franchise, that difference between flattish and low single-digit decline is meaningful. In addition, we are able with the Asacol franchise to enjoy the benefits of periodic price increases and that's why we think of Asacol as a franchise that can be a solid contributor to sales growth albeit a modest topline grower in percentage terms but off of a large sales base. All that said, Asacol sales in Q1 were higher than expected in the quarter due to pipeline expansion. The quarter would have otherwise been no higher than let's say $200 million. Moving to Atelvia, despite the continued decline in the US's bisphosphonate market, we have been able to grow Atelvia at a modest but consistent clip. Net sales in the quarter totaled $16 million, up $3 million sequentially from Q4 of '11. We continue to expect Atelvia to be a contributor to growth over the next several years. Last amongst the core brands that I want to talk about today, DORYX. As Roger noted, the Court issued its decision in the DORYX trial earlier this week. While DORYX net sales this quarter were as expected, as a result of the April 30 Court decision, the Company expects significant DORYX revenue declines relative to our earlier expectations for the remainder of 2012.The reduction in our expectations for DORYX in 2012 was the main driver in lowering our full-year 2012 revenue guidance to $2.4 billion to $2.5 billion from the range of $2.5 billion to $2.6 billion.

Finally Actonel. As expected, global Actonel revenues were down 37% in the first quarter compared with the prior year quarter. This decline is primarily due to the continued contraction of the US oral bisphosphonate market as well as the loss of exclusivity for Actonel in Western Europe. During the last two conference calls, I have urged you to expect the Actonel business to decline globally about 30% year-over-year. So that's some overview from a product-by-product standpoint, but let me take a step back and look at the quarter in its totality. Total revenue including Actonel in Q1 was down 10% compared with the prior year quarter. As I highlighted on our guidance call, I think of our core business as being comprised of everything other than Actonel. Our core revenues were up $14 million or about 3% compared with the prior year quarter. Pretty good I would say, a good start to the year. Just keep in mind that historically our first quarter is typically a higher revenue quarter for us. Below the revenue line, our gross profit margin as a percentage of total revenue was 89.5%, which was an improvement of about 200 basis points from the prior year quarter excluding the Manati repurposing, by the way.This was largely due to product mix and favorable variances in nonstandard inventory cost items.This is also above the high end of our guidance range of 87% to 88%.We continue to expect our gross margin for the full year to be within the guidance range. SG&A expenses in the quarter were $198 million, down 22% from the first quarter of last year, which was driven primarily by a reduction of operating expenses resulting from the European restructuring. Also contributing to the quarter-over-quarter decrease in costs were the additional expenses we incurred in Q1 of last year for the DTC campaigns to support the launches of Atelvia and Lo Loestrin. G&A expenses were $65 million in the quarter, down 13% from the prior year quarter. We continue to expect SG&A costs for the full year to come in line with our previously announced guidance range of $800 million to $850 million. R&D expense in the quarter was $25 million, a decrease of 19% as compared to Q1 of last year. We expect R&D spend for the year to be heavier in the second half due to the timing of certain projects which are ongoing. We have nearly completed our Western European restructuring this quarter and we recorded an additional $50 million in restructuring costs. We do not expect to record any additional restructuring costs in future periods for Western Europe. However, we expect to record some gains from pension-related curtailments triggered by the Western European restructuring over the next several quarters and we will call those out and exclude them from our adjusted cash net income and adjusted cash net income per share. Adjusted cash net income per share for the quarter which adds back the after-tax impact of amortization and impairment of intangibles, the amortization write-off of deferred financing fees, and our after-tax restructuring costs, was $1.16 per share using fully diluted shares of 251 million for the quarter. Our share count reflects our share redemption activity in Q1. Onto liquidity. We generated net cash from operations totaling $208 million in the quarter compared to $272 million in the prior year quarter. In the quarter, we also redeemed 1.9 million shares at an aggregate $32 million or an average cost of about $16.62 a share. During Q1, we made optional pre-payments totaling $350 million under our senior secured credit facilities. We made an optional pre-payment of $150 million in January and made an additional optional pre-payment of $200 million in March. We ended Q1 with $422 million of cash on hand. On a net debt basis, our leverage was roughly 2.1 times trailing 12 months EBITDA.We ended the quarter with approximately $3.5 billion of gross debt comprised of $2.2 billion of term debt under our senior secured credit facilities and $1.25 billion face amount of 7.75% senior unsecured notes. As a result of the April 30 Court decision, we have lowered our 2012 DORYX expectations and are reducing our full-year 2012 revenue guidance to the range of $2.4 billion to $2.5 billion.

Based on our -- primarily on our reduced sales expectations for DORYX over the balance of the year, we also reduced our full year 2012 guidance for adjusted cash net income per share to the range -- excuse me, we adjusted that range by $0.30 a share to $3.30 to $3.40 per share from $3.60 to $3.70 a share. Lastly, now that we have recorded the full amount of the expected Western European restructuring costs, we will include those in the guidance tables so they are right there for you to see. Please see the guidance table in our press release for more detail. Before we start the Q&A session, I want to reiterate Roger's statement that we will not respond to questions regarding our review of strategic opportunities to enhance shareholder value. We also ask that you please limit yourself to one question so that we might have time to allow more individuals to have the opportunity to ask their question. With that, Mary, if we could open up the line for Q&A.
QUESTIONS AND ANSWERS

Operator (Operator Instructions). Randall Stanicky, Canaccord Genuity.
Randall Stanicky - Canaccord Adams - Analyst Great. Thanks, guys for the question. Just on Asacol, the numbers look good even if we don't assume the pipeline expansion. Can you just maybe, Paul, talk about the HD switch? Have your priorities there changed still? And then where should we see that trending to going forward?
Roger Boissonneault - Warner Chilcott plc - President and CEO I think I will take that one, Randall. It's Roger. Prior to actually -- we have seen some migration to the HD primarily because that's what the gastro is starting their new patients on. You see the 400 maintains itself because a lot of those scripts are older scripts where patients had been started on the 400. So I think we have gone beyond the okay, let's switch everything to the HD to promoting Asacol because I think the salesforce has done an excellent job of getting new starts. So the idea is that this is the preferred form of a delivery system for mesalamine, not simply take your prescriptions and move them from 400 to HD.You're just seeing that as a natural migration because new patients are starting -- more new patients are just normally starting on HD with the gastroenterologist.
Paul Herendeen - Warner Chilcott plc - EVP and CFO Randall, it's Paul. Because I love statistics and I think you are right, the Asacol is doing pretty well and I did call out some of the things you need to think about in the Rx data. That said, using that very same data, the Asacol franchise as a percent of the market grew about 10 basis points, but it grew about 10 basis points in share. Asacol HD as a percent of the franchise went from 24% to about almost 26%. And as Asacol HD as a percent of the market was up from just below 12% to just below 13% and so we are making what I would call good progress with that franchise. It's a great franchise for us.

Randall Stanicky - Canaccord Adams - Analyst Where does that split between the two get to over the next couple of years ? I know obviously from a patent or generic concern issue, it's pretty minimal for both, especially the HD, but do we see that continuing to migrate towards
Paul Herendeen - Warner Chilcott plc - EVP and CFO Well, it has. Like I have said, it is not that -- I think what you're seeing now is you see -- what you have is historical Rx's that have migrated to primary care. So if you look at the nearly all patients are started by a gastroenterologist after the colonoscopy and then that patient migrates, so as you see these historicals -- so you're going to see as we go forward, a greater and greater percentage of HD as a percent of the overall business because that's primarily where the new starts are occurring. How quickly that's going to happen is very difficult to predict.
Randall Stanicky - Canaccord Adams - Analyst Okay, great.Thanks, guys.
Operator John Boris, Citi.
John Boris - Citigroup - Analyst Thanks for taking the questions. Congratulations on the results, Roger and Paul. First question, if we look at the debt repayment that you have taken within the quarter, just your thought process on why debt repayment rather than rechanneling some of that spend into investing in more heavily in some of your products to drive sales? And then on the derm salesforce that you have, can you remind us how many reps there are and what you have reallocated those reps towards? And then would you consider a co-promote on an asset or you're just looking for products to plug into that derm salesforce to maintain it going forward? Thanks.
Paul Herendeen - Warner Chilcott plc - EVP and CFO Thanks, John.You know, you framed the question as to why we use $350 million of capital to retire debt. Let me answer the question more broadly so that perhaps it will pick up some things that I am highly confident will be asked later on. When we think about uses of capital, I think it goes without saying that we make ongoing investments in our everyday business including our sales forces and including R&D projects.Those sorts of investments are always going to return excellent returns. And while we think about that, we also think about other ways that we might deploy capital to increase shareholder value. One everyone loves to talk about is that if the right deal presents itself on the business development front, that will be our priority to deploy capital. Those are things like product acquisitions, product rights, or even companies. We are also using our capital to prepay debt as we point out in Q1 and reduce our interest expense and we think of that as increasing our future debt capacity to fund transactions that we believe are in the best interests of our shareholders. From time to time, we also consider transactions in our stock, as evidenced by our current share redemption program and the special dividend that we paid back in 2010.

In some circumstances, what is interesting is those sorts of transactions may be the way that you can deliver shareholder value. But it's worth noting that within some bounds, all of the things I just talked about, all of those alternatives are and can be on the table and can be thought about at the same time. So I have said many, many times when we think about using our capital to repay debt, you shouldn't think of it as being indicative of a lack of opportunity to invest back in our business and all or even to maintain dry powder to pursue a business development transaction.We think of it at the time that's the way we choose to deploy our capital and we will go -- we would go back and reload if we saw a good opportunity. Your question around the derm franchise, Roger will take it. He's pointing at me.
Roger Boissonneault - Warner Chilcott plc - President and CEO Yes, because I know the number. The number that we have -- we have 75 sales reps. I think, John, you've got to think about this -- is DORYX the asset or is the salesforce the asset? We like to think here that the salesforce is the asset. And since indeed you are a historian, you probably remember that we led with Vectrin and we introduced Vectrin back several years ago. That was I guess -- and Paul knows the number here, 1997 -- and when we introduced Vectrin, it had a generic competitor in the marketplace because we knew we had other products coming. We do have other products coming in this particular category, disclosed and not disclosed, that have internally developed. So we remain confident that our salesforce will remain focused on the promotion of this particular aspect. We do think that dermatologists tend to be loyal. We are going to hopefully take advantage of that and we are going to remain focused on the promotion of DORYX. In the meantime, Paul has given you financial guidance and we're going to try to take a look at this and until we see how this whole thing develops and I think it's going to take four, five, six weeks before we see what's really going on here. But the idea here is we believe in the salesforce. They are the asset and we will -- we'll continue to develop products in this particular category.
Paul Herendeen - Warner Chilcott plc - EVP and CFO I'm going to chime in one more time because I think it is an important point and even goes back, John, to the question you asked about deploying capital.We think of that, as Roger said, that salesforce as being an asset.We have been calling continuously in dermatologist's office since the latter part of the 1990s. Those relationships and that salesforce are an asset to the Company and so we expect to or we intend to continue to invest in that aspect while we get to whatever comes next in terms of our product in the dermatology space. So in crafting our guidance what we have essentially done is to leave those costs in the mix.We have reflected our change to our revenue outlook and that's what you see as the -- that's what really drives the change to both our revenue and bottom-line guidance.
John Boris - Citigroup - Analyst Thanks, guys.
Operator Gary Nachman, Susquehanna Financial.

Gary Nachman - Susquehanna Financial Group - Analyst Good morning. Roger, on the Fajardo facility, could you talk about some contingency plans to get new OCs approved if it takes longer than you hope to resolve the warning letter? And are you still optimistic this could happen hopefully by next year in front of generic Loestrin 24? Thanks.
Roger Boissonneault - Warner Chilcott plc - President and CEO Gary, yes, we have looked on -- we have great confidence in Fajardo, I will say that number one. And we have great confidence that we are going to do everything necessary to put this warning letter behind us.The whole organization is mobilized. So that is strategy A. Strategy B is you are quite right. The warning letter is specific to Fajardo and do we have backup plans? Yes, we do have backup plans, but again, we remain focused on Fajardo and that being priority number one to get Fajardo lifted from the warning letter.
Gary Nachman - Susquehanna Financial Group - Analyst Okay, and however it materializes, you still feel pretty confident that you will have lifecycle extension in place to protect the Loestrin 24 franchise?
Roger Boissonneault - Warner Chilcott plc - President and CEO Yes, we do. We feel better now. We would rather not not have had the warning letter, obviously, but the issue here is yes. And we have other facilities we have other hormone facilities that we can manufacture in. So it's sort of laid out there that we have some of this flexibility. But again, our major focus is Fajardo and we would like to get this thing remedied as quickly as possible.
Gary Nachman - Susquehanna Financial Group - Analyst Okay, and I just want to confirm that the only product that you can ship from there that is currently marketed is OVCON, right? It's not going to affect any of the other marketed OCs?
Roger Boissonneault - Warner Chilcott plc - President and CEO No, and that is our decision.That would be OVCON 50.
Gary Nachman - Susquehanna Financial Group - Analyst All right, thanks.
Operator Chris Schott, JPMorgan.
Chris Schott - JPMorgan - Analyst Thanks very much. My question was on SG&A obviously down significantly year-over-year.When I look at the guidance here for the rest of the year, should we be thinking about SG&A moving higher off of these levels and what is going to drive that increase?

And as just a follow-up to that, can you elaborate a little bit more on the EPS guidance cut we had here? Obviously you are seeing a generic DORYX, but after $1.60 in earnings this quarter, it seems like a fairly conservative number for the rest of the year. I am calculating it is EPS down about $0.40 or so per quarter off these levels. Just elaborate a little bit more what's driving that dynamic and go from there.Thanks.
Paul Herendeen - Warner Chilcott plc - EVP and CFO Sure. I mean, let me start with the field selling expense for the balance of the year. If you looked at last year and just really going from field -- I should say selling expense which includes co-pro, it was clicking downward or clicked down towards the latter part of Q4 and is now down even a little bit further.This is the level that we would expect to see through the balance --roughly the level we expect to see through the balance of 2012 and frankly into 2013 and beyond unless we add other things into the portfolio. So what you're seeing is in part the impact of the restructuring in Western Europe, where we essentially eliminated the field selling resources and replaced that with a distribution model and now the reduced number of sales territories that we have deployed against our products in the US, which totals about 750 territories as we speak. So on the selling side, that is what is going on within SG&A. Your question about the guidance for the balance of the year, and gee it seems -- I made the point but it's worth stating it again and being very clear, revenue in the first quarter if you looked at last year, if you look at this year, revenue in the first quarter is a bit higher than you would expect it to be through the balance of the year. And so if you simply multiplied by 4, you would get the wrong answer. So we feel like with the expectations of revenue from $2.4 billion to $2.5 billion for the entire year and our cost structure, we felt that was about a $0.30 reduction in our prior communicated guidance for the full year. If you took whatever your expectations are -- excuse me -- if you take something in the range of our guidance and subtract out the first quarter and divide it by 3, you probably wouldn't be too far off.
Chris Schott - JPMorgan - Analyst Okay, thanks.
Operator Tim Chiang, CRT Capital.
Tim Chiang - CRT Capital Group - Analyst Thanks, I wanted to ask about inventory levels on Asacol and ESTRACE. Could you just comment on that?
Paul Herendeen - Warner Chilcott plc - EVP and CFO It's Paul speaking. I can give you a rough idea and I tried to work it into my opening remarks. Let's deal with Asacol first. If you looked to Q4, so think about it sequentially. If you looked at Q4, that was kind of a pipeline neutral quarter. And as I called out if you look at Q1, you have pipeline expansion that resulted in us having global revenues -- if I say this wrong, someone will look at me here -- $211 million in the quarter. That's higher than normal and so if you kind of look at Q4 and you look at the actual results of Q1 with my color that says that that include some pipeline expansion, I think you get to a pretty good estimate as you think about the balance of the year. The other one with respect to ESTRACE cream, there really wasn't a whole lot in the way of pipeline in the quarter.What was really going on in that was that I called out that we had a change of a government rebate program where we had some accruals that we carried over from 2011 that were

reversed in Q1. Obviously those are not recurring sustainable things.The impact was about $5 million plus or minus and so that is what's going on in those franchises that's other than normal.
Tim Chiang - CRT Capital Group - Analyst Okay, great.Thanks for the color, Paul.
Operator Mark Goodman, UBS.
Marc Goodman - UBS - Analyst Yes, good morning. First, can you just give us an update on the pipeline, Roger, like you normally do? Then second, just give us a flavor for what's going on in the oral contraceptive world out there as far as competition and just the dynamics behind the scenes. How are your numbers of reps relative to the other guys number of reps? Are they taking them down just because of the problems? And how much of this are you taking share because of those problems? Just give us some more color on what's going on in the market.Thanks.
Roger Boissonneault - Warner Chilcott plc - President and CEO Thanks, Mark. It's a lot of talk about the pipeline. Obviously we have a lot of activity. I think we generally give you an update on the new tetracycline is in Phase II. We hope to get that done. Nothing new on udenafil. I know you guys like to talk about udenafil. We've got an FDA meeting set up with that. We have activities around basically all our major brands. I disclosed that we do have activities in the area of other than the new tetracycline. We do have a activities in the antibiotics and acne. So it is a very busy time at Warner Chilcott. Specifically the OCs, I think what you're getting around in the OC area and where we are seeing a shift is the competitive activity and basically the news around drospirenone and the labeling about drospirenone is not something that we harp on. It's not really our issue, nor is it something that we are going to comment on. It has become part of class labeling. But we indeed are probably the major promotional force out there. And what's new with us is basically we think the market should belong in 10 microgram and I think we have been straddling this with our salesforce and with our promotion and we've been talking about 24 and Lo Lo and probably some of our biggest competitor is our own Loestrin 21 and that is a 20 microgram product. We have had the 10 microgram product in the marketplace for over a year now. We see the profile of 10 microgram product similar to the 20 microgram product. In other words, it is as efficacious as a 20 microgram product, side effect profile similar, in other words bleeding profile similar to 20 microgram. We don't understand why this shouldn't be a 10 microgram market. [We shouldn't] see. So the attitude we are taking right now is we're putting all our emphasis and not dividing emphasis between 24 and Lo Lo; all the emphasis will go on Lo Lo. I think what you might see is some of the market moving from 24 into Lo Lo but I do think we have to transition this into a 10 microgram market. It's half the dose and you get the same efficacy. It's a simple message. Does that answer your question, Marc?
Marc Goodman - UBS - Analyst Sure. I guess on the pipeline, I guess a follow-up. Will we see anything approved next year, this year?
Roger Boissonneault - Warner Chilcott plc - President and CEO You could, but then again we thought we were going to see other things approved, but the FDA is the FDA and sometimes we plan to get things approved and they don't get approved in a timely fashion.There is a possibility but at this point we don't like to speculate on that.
Operator Shibani Malhotra, RBC Capital.
Shibani Malhotra - RBC Capital Markets - Analyst Thank you.Thanks for taking my question. Just I guess it is a follow-up to Marc's question. In terms of the dermatology salesforce and the franchise, you said you were keeping that salesforce because that's the key asset and if tetracycline is still in Phase II, would it make sense or would it be fair if we were to assume that it is possible you could get another kind of version for DORYX approved near-term and that might be why you are keeping the salesforce on? I'm just trying to understand otherwise why you wouldn't redeploy them into something else until you have the tetracycline.
Roger Boissonneault - Warner Chilcott plc - President and CEO I think you answered your own question, so --
Shibani Malhotra - RBC Capital Markets - Analyst Okay, then can I just ask you quickly on the DOJ investigation, is that something -- rather has there been any progress on that front and how are you guys thinking about that?
Roger Boissonneault - Warner Chilcott plc - President and CEO I think Paul has a prepared --
Paul Herendeen - Warner Chilcott plc - EVP and CFO On the DOJ, all we are going to say is really going to parrot what the disclosure is that we and our boys receive -- certain of our nonexecutive employees -- received subpoenas and it's on a wide range of matters including sales and marketing activities, employee training related to all of our Company's key products. We are in the process of responding to the subpoenas. We intend to fully cooperate with the US Attorney's office and just for further information, we will call your attention to our disclosure in our annual report and our other public filings. Beyond that, there's not anything to report. It's a process.
Shibani Malhotra - RBC Capital Markets - Analyst Okay, thank you.
Operator Gregg Gilbert, Bank of America.

Gregg Gilbert - BofA Merrill Lynch - Analyst Good morning, guys.You said you did want to talk about the strategic review or you did not?
Roger Boissonneault - Warner Chilcott plc - President and CEO I knew we could count on you, Gregg.
Gregg Gilbert - BofA Merrill Lynch - Analyst Well, since everyone is ignoring your one question rule, I thought I would ask about that one. My one question for now will be about generic DORYX and I just want to understand your thinking here. And I understand what is in the guidance now and it's very clear. But from an income standpoint it seems like a decision to not participate in the generic market comes down to getting something versus getting nothing and whether that's you launching or someone launching on your behalf and paying you to do that, I don't see how a generic would undermine your commitment to derm on the brand front either. So I guess my question is what am I missing? Is it not as simple as getting nothing versus getting something?
Roger Boissonneault - Warner Chilcott plc - President and CEO Well, I think the idea is you really get anything from an authorized generic and you really have to look at the category and you do have a situation where you have one generic competitor. So in that particular situation, I think history has taught us that you're probably better off without an authorized generic. I don't think authorized generics are really answers to anything particularly for a branded company.
Gregg Gilbert - BofA Merrill Lynch - Analyst Okay, I guess it's debatable. The generic penetration is going to go full steam regardless of whether there's one generic or two. But maybe I'll ask my part two then. Paul, on cash flow from ops, it looks like there was an accrued expense effect that depressed cash flow a little bit in the quarter. Can you just comment on that and the go forward on that issue? Thanks.
Paul Herendeen - Warner Chilcott plc - EVP and CFO Yes, absolutely. Good pickup. I think what we reported when we reported our fourth quarter was our fourth quarter was an abnormally high cash flow quarter because we actually saw a build in those same accruals. A lot of those accruals are around the restructuring and other things that we're doing within the Company. And what you saw during Q1 was sort of settlement of a number of those accruals and so it depressed our cash flow from ops relative to Q4 perhaps a bit lower than what I would consider normal. But again for the full year, we would expect to continue to be the same cash flow, solid cash flow generated that we have been in the past. That's what's going on there. If you looked at the year-end accruals got abnormally high, we held cash. We settled up a lot of things in Q1.
Gregg Gilbert - BofA Merrill Lynch - Analyst Thanks. Good luck on the review, guys.
Operator Elliot Wilbur, Needham & Co.

Elliot Wilbur - Needham & Co. - Analyst Thanks, good morning. Roger, you hit on the dynamics around the OC franchise a little bit earlier but maybe I can just ask a follow-up question to some of your commentary. Just kind of looking back since the launch of Lo Lo and then sort of the trajectory of the overall franchise, scripts in total for Lo and Lo Lo essentially flat since the launch of Lo Loestrin. And we don't have the -- or I don't have the source of script data to have kind of a sense of where those are coming from like you guys have. But I guess are you satisfied that you are still getting what you want in terms of script origination on Lo Lo, meaning that you are not still -- what we would call excessive cannibalization or maybe have you kind of change gears a little bit here and are thinking about maybe trying to switch this franchise from one product to the other more on a lifecycle extension strategy versus just kind of a pure volume perspective? Thanks.
Roger Boissonneault - Warner Chilcott plc - President and CEO I think, Elliot, the trap is that you would like to grow the franchise. Sometimes that's not too simple. Again when we introduced the product, we really had no history. We've got 10 microgram product. We didn't know what the acceptance was going to be like and 24 had done quite well. And I think looking retrospectively, we -- it's kind of hard to grow both products at the same time without one clearly being the lead. And I think the issue here has become clear to us and you probably -- you don't see I guess the granular -- the data that we see but we really look at new to brand and that's our key metric because new Rx will follow, then totals will follow that. And we have seen a good, strong move in Lo Lo with the new strategy and the new strategy being okay, let's relax here. Let's not try to -- it's kind of hard to say -- doctor, I think all your patients should be on a 10 microgram product when you are also promoting a 20 microgram product.You've got to make your mind up. And I think the higher ground here is the 10 microgram product and the fact is we have confidence in that 10 microgram product and that should be the market leader. It works as well as a 20 microgram product or a 30 microgram product. And the issue here is the configuration. It's [24-2-2] and we get the same efficacy with that product as you get with a 20 or a 30 or a 50 and that's where we have to have our conviction. What's going to happen is we're going to lose some business from the 24 because it is a 20 microgram product and we've got to lead with that conviction. And I think that is what is new.
Operator Douglas Tsao, Barclays.
Douglas Tsao - Barclays Capital - Analyst Good morning. Just sort of following up again on the OCs, just broadly in terms of what you are seeing in terms of the trends for new to brand as well as sort of the clinicians' preference or sort of willingness to prescribe brands versus generic OCs. Obviously there are a lot of generic alternatives out there and how you see that dynamic and how has that changed in recent years?
Roger Boissonneault - Warner Chilcott plc - President and CEO The brand segment continues.There are a lot of -- there's Ortho Tri-Cyclen Lo and there's a lot of starts for Ortho Tri-Cyclen Lo and to my knowledge, it is not even being promoted and there are very few samples around. So clinicians indeed do like the confidence of the brand.

And we do believe that -- basically clinicians -- we provide samples to clinicians. The idea being that at least try the product before you continue with the product. And that's what the brand opportunity we have with the use of samples. I think when you look the absolute economics, and we have used patient cards and I think the clinician would prefer to use a brand. He likes to use a simple.The patient likes the sample when they walk out. And I do think you're going to see this particular -- this particular part of the market is going to stay there. It's going to stick.
Douglas Tsao - Barclays Capital - Analyst Just another follow-up, do you continue to see some benefit to your franchise from the safety concerns regarding drospirenone?
Roger Boissonneault - Warner Chilcott plc - President and CEO I think we get some benefit but it's not something that we are out there pursuing. In other words, we're not out there talking about a buyer has issues with drospirenone and they have had to change their label. That is their issue. Obviously that segment of the market, their brands have suffered a bit from the labeling. The bigger issue for us is maybe buyer has whatever share they have is -- that's not the sure that we're looking at.We believe that the higher safety issue is really in the estrogen component.We have a 10 microgram product.There's no generic 10 microgram product.There are plenty of generic 20 microgram products and that's our position.
Douglas Tsao - Barclays Capital - Analyst Okay, great.That's very helpful.Thanks.
Operator Michael Tong, Wells Fargo.
Michael Tong - Wells Fargo Securities - Analyst Roger, good morning. Just a follow-up on sort of the derm asset, whether it be the salesforce or a dermatology product. I suppose as you commented earlier that sometimes things don't work out as well or as planned with the FDA. So the question is how long do you -- would you wait before you redeploy the derm salesforce into other areas or perhaps think about a product acquisition to fill a gap between new products coming and DORYX going generic? Thanks.
Roger Boissonneault - Warner Chilcott plc - President and CEO I think you're right, Michael, and we are patient. We are a patient group here and we do believe that the asset is indeed our salesforce and if an acquisition came up that would fit, we would certainly pursue that. Paul is ready here. He will make -- he will buy assets. He will even buy companies at times because if we can take that asset and put it with our salesforce, we know we can grow it and we can grow it efficiently, we have an excellent return. As stated, we have multiple approaches to this and sometimes when we think we have things well thought out and you can get surprised and -you don't get the product approved that you wanted to get approved and so we also have internal plans for development. And depending how that shakes out either you buy an asset and our first choice is obviously an internally developed asset because they're the most efficient.

But we do believe that salesforce is the core asset and they will be promoting a product that they can add value to.
Paul Herendeen - Warner Chilcott plc - EVP and CFO Yes, it's Paul. I would even follow on on that. Just to put this in perspective, you are saying do you want to deploy that salesforce? We said we want to maintain that relationship.We feel like the salesforce is an asset. I think you can take away from our comments that we are working on something else to put into that salesforce. And then I want to quantify for you at least in round numbers what an annual investment might be to maintain that salesforce with 75-odd reps and figure some advertising and promotional dollars as you will continue to do some things out in those offices. You're talking about an annual investment on a pretax basis of about $25 million. On an after-tax basis, maybe a little bit less. It says it is less than $0.09 a share to maintain a series of relationships in those dermatology offices which we have had since the late '90s. We feel like that's a good investment and it also does speak to our belief, obvious internal belief that we will have another and other products to put through that salesforce.
Michael Tong - Wells Fargo Securities - Analyst Great, thank you.
Operator Jim Molloy, ThinkEquity.
Jim Molloy - ThinkEquity - Analyt Thanks for taking the question. A couple things on the Actonel-Atelvia, any thoughts or any opportunity to move that to a separate vehicle to sort of get this lodestone decline in sales off your neck? And maybe a separate follow-up as well, the Asacol franchise is doing very well. Has there been any additional commentary on what Par may or may not do or do you have any expectations on whether or not they will also drop their challenge to this product?
Paul Herendeen - Warner Chilcott plc - EVP and CFO I will make the Actonel-Atelvia piece.We have absolutely no interest in getting rid of the Atelvia business as we think of it as a contributor to growth here over the course of the next several years. The lodestone or was it the millstone, I can't remember which one you used, of Actonel, honestly the way we -- we think there's a lot of value to be realized through that franchise not just now but for in the future globally because the tail outside the United States is better than it is in the US. And what we -- the way we are choosing to deal with that is we pointed out to investors that you ought to think about it as an asset that declines at a rapid rate but throws off a lot of pretax and cash and so that's the Actonel-Atelvia part. Roger?
Roger Boissonneault - Warner Chilcott plc - President and CEO You can see that Paul gets worked up over Actonel. It is a good asset. It's fine and we would do that nine out of nine times. The return on Actonel has been an incredible return. We will take it. As far as Par, we can't speculate on how Par is doing. We do know that the guidance is changed from a clinical to bioequivalence so we know that from the FDA but as far as how they are handling Par's submission, we have no insight whatsoever.

Jim Molloy - ThinkEquity - Analyt All right, great.Thanks for taking the questions, guys.
Operator Corey Davis, Jefferies.
Graig Suvannavejh - Jefferies & Co. - Analyst Thank you, it's Graig Suvannavejh for Corey. Just one question. Given that you have had a nice rise in the stock price recently and I won't ask you about your strategic options review, but how do you think about share repurchase right now at these levels? And if you could just give a reminder of what is the balance right now in that share repurchase plan?
Paul Herendeen - Warner Chilcott plc - EVP and CFO It's Paul speaking. The overall program was a $250 million program. That program remains active through the balance of the year. We have used approximately $88 million or just below $90 million of the capacity of that $250 million plan. And what we will do is under Irish rules what we are allowed to do is to report to you at the end of every quarter what the results are for repurchase -- excuse me -- redemptions that are made under that plan. So it has been successful for us if you think about it. I think that investing in our stock -- I quoted it is in the mid-16s that we were able to acquire stock during the period ended March 31. It has been a good program for us. It remains in effect and we will from time to time buy shares under that program.
Graig Suvannavejh - Jefferies & Co. - Analyst Okay, and just a quick follow-up on ESTRACE, if you don't mind. How sustainable do you think the growth is on a go-forward basis at these levels, what you saw in the first quarter?
Roger Boissonneault - Warner Chilcott plc - President and CEO I think it's very sustainable.We're still not the market leader. Premarin continues to be the market leader and we've got a lot of -- we are improving I would say -- we are improving our effort against ESTRACE cream from the sales capacity and deployment of our sales reps.We think it's an excellent asset and it has significant room for growth.
Roger Boissonneault - Warner Chilcott plc - President and CEO I think on that one because we certainly see it a lot. I described that asset as one where it's a classic specialty [form] asset. You get a promotional response. When we pay close and careful attention to it and deploy promotional resources against ESTRACE cream, you see the kind of growth that we've been able to generate in Rx terms, which in that case I will use as a proxy for unit growth. But it's really a nice promotion-sensitive asset that we will continue to promote. I did want to point out one more time Q1 a little bit higher because of that reversal of a rebate approval, but good asset.

Graig Suvannavejh - Jefferies & Co. - Analyst I appreciate it.Thank you.
Operator David Buck, Buckingham Group.
David Buck - Buckingham Group - Analyst Yes, thanks for taking the question. I will give you just a couple of quick ones. First for Roger, what's the appropriate time would you say when you won't be promoting Loestrin 24 whatsoever? And secondly, I guess for Roger as well, if we look at the guidance with the cut from generic DORYX essentially you are below the level that you had in 2010. Can you give just conceptually what the growth outlook if you remain a public company would be or how do you see yourselves being able to grow into 2013? Thanks.
Roger Boissonneault - Warner Chilcott plc - President and CEO Okay, we have -- we don't have any negative -- we don't talk negatively about Loestrin 24. It is still a good product.We're talking about not switching people from Loestrin 24 to Lo Lo; we're talking about focusing on new starts on the 10 microgram product. So it's not an active cannibalization program but it is a focus program, where that we believe that new patients, de novo on an oral contraceptive, should begin with the 10 microgram product. So that's the positioning. As far as DORYX and you made some comment about remaining a public company, I don't know where you got that, but the issue is how do we maintain --? Let's take a look at and see what happens with this franchise. We don't -- I don't know what the answer is yet. Let's give it the benefit of a couple months and we will make decisions from those time points.
Paul Herendeen - Warner Chilcott plc - EVP and CFO David, I will go back and the way I describe and we have started to describe going back a couple of quarters now our core business and thinking about the growth, if you separate out the Actonel piece and leave DORYX in, we do have to rebase our expectations for '12 and '13 and '14 based on the revised outlook for DORYX. But suffice it to say that we continue to believe as a Company that we can grow our core franchise ex Actonel, just taking Actonel out of the mix. We have a number of drivers in there. I think we talked about it, whether it is Asacol, ESTRACE cream, Atelvia, the oral contraceptives, and we just from a growth perspective on that core business we've just -- we got to rebase based on the unfortunate loss of DORYX.
David Buck - Buckingham Group - Analyst Okay, but I guess just follow-up with the expectation that at some point you get an additional product in the derm franchise, whether it's this year or next year?
Paul Herendeen - Warner Chilcott plc - EVP and CFO I'm sorry, David?

David Buck - Buckingham Group - Analyst I guess the expectation is that your core business will grow and, Roger, I mentioned it is a public company, because of the comment on seeking alternatives a couple days ago. I'm not asking you to comment today but the assumption for 2013, it sounds like is you think you can grow your core business and potentially would get an additional product approval on DORYX.
Roger Boissonneault - Warner Chilcott plc - President and CEO Yes, exactly. I think that is the strategy. I think Shibani had it right when -- with her question that she conveniently answered.
David Buck - Buckingham Group - Analyst Right. Okay, fair enough.Thanks.
Operator Louise Chen, Auriga.
Louise Chen - Auriga USA - Analyst So my question is I'm not going to ask you about the strategic review but I did want to ask you because we had a lot of questions on this regarding your low tax rate and how that is an asset for Warner Chilcott? And maybe since it's complicated, could you provide any sort of framework on how we can understand how you could leverage that asset to build shareholder value?
Paul Herendeen - Warner Chilcott plc - EVP and CFO Sure, Louise, it's Paul. We do think of our low tax rate as being an advantage to us. How does that come into play? It comes into play in the sense that when we look at assets that we might acquire that we can put into our structure, it enables us to earn after-tax returns that might be favorable vis-a-vis other parties who might be interested in that asset. We work very hard and we try our best to maintain every -- maintain the integrity of our tax structure and to keep that tax rate as something that we can lever as we look at developing new products and acquiring products potentially and even as in the case of the PGP acquisition, the ability to fold some assets into that structure. So I think it remains a strategic advantage for us. I do point out as I often do in some one-on-one meetings people say, well it's a huge advantage relative to all these parties. A lot of the parties we compete with for assets also have tax structures that are favorable. And so it's not always on a one to 10 scale, a 9, but it is certainly an advantage for us and the ability to look at streams of cash flow and say on an after-tax basis that's worth X to us and allows us to potentially clear a deal that others might not be able to. I hope that answers.
Louise Chen - Auriga USA - Analyst It does, thank you. Just another really quick one on Asacol, I know there may never be generic competition in the US, but if generics do enter the market, could you talk about Europe as a proxy and what you see there and if that is a good measure for the US market as well? Thank you.

Roger Boissonneault - Warner Chilcott plc - President and CEO It would be tough. I hesitate to draw any experiences that we have had in Europe and I think you are talking about the UK that would be relevant in the US. The UK is sort of a special market. And sometimes -- although things go generic dramatically there, I don't know if you can say that if it couldn't happen in the UK, can you extrapolate that to the US? I would have a difficult time making that bridge. But I can understand what you are thinking about here, but I don't think we're going to go down that path.
Louise Chen - Auriga USA - Analyst Okay, thank you.
Operator Irina Rivkind, Cantor Fitzgerald.
Irina Rivkind - Cantor Fitzgerald - Analyst Thanks for taking the questions. I just wanted to follow up more on the DORYX salesforce. And it sounds like your next product is fairly nearby and I was just wondering if you could potentially allocate the salesforce temporarily to grow Enablex a little bit or just save some on the ANP and not necessarily lose the entire $25 million as you wait for the new asset. Then as a follow-up to that, just wondering if you do sort of know about the next generation product, then could we expect a guidance update and raise once that is announced? Thanks.
Roger Boissonneault - Warner Chilcott plc - President and CEO The plan is to keep them focused on DORYX. Let's see what happens. It's not easy to take a salesforce and say okay, now spend part of your time -- everyone is -- we've got everyone deployed against targets. So how quickly a new asset appears, we don't want to speculate on. However, we do believe that we are going to continue to as far as is now the status quo, let's see what happens in a month or two from now. But we will [maintain] them focused on -- from an asset and the cost, Paul will talk more about the opportunities cost here but we'd rather have them maintaining those relationships and there's nothing wrong with them promoting DORYX.
Paul Herendeen - Warner Chilcott plc - EVP and CFO I will follow on with that and perhaps the way to think about the investment in that field force. We will keep that field force in place and obviously there has a lot of discussion and we're thinking about what do we do in that derm space as we go forward? That will play out as it plays out. In the interim, we expect to have that salesforce continue to promote DORYX and while I would -- if I were an external party, I would assume that we have limited if any success with that effort, that's not what we're trying to achieve.We're trying to actually achieve some maintenance of DORYX market share with that field force out in the marketplace, and as Roger said, give us a quarter or so and let's see how that plays out. But I suspect that the full amount of the $25 million odd investment on an annual basis, some of that will be recouped and I think that the maintenance of that asset will be of great benefit to us here in the future.

Louise Chen - Auriga USA - Analyst Thanks very much.
Irina Rivkind - Cantor Fitzgerald - Analyst Thanks very much.
Operator Thank you. I would like to turn the conference back to Mr. Paul Herendeen for closing remarks.
Paul Herendeen - Warner Chilcott plc - EVP and CFO Yes, and in closing, I would like to thank everybody for your interest in Warner Chilcott. Setting aside the disappointing outcome of the DORYX situation, I think we are off to a very solid start in 2012 and we are feeling good about our future. So again, thank you for your interest and we'll look forward to talking to you next time.Thanks.
Operator Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect at this time.
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Operator Mark Goodman, UBS.

Operator Shibani Malhotra, RBC Capital.

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Operator Douglas Tsao, Barclays.

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Michael Tong - Wells Fargo Securities - Analyst Great, thank you.

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David Buck - Buckingham Group - Analyst Right. Okay, fair enough.Thanks.

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