Warner Chilcott Earnings Call Insights: ASACOL, Debt Repayment

On Friday, Warner Chilcott PLC Class A (NASDAQ:WCRX) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

ASACOL

Randall Stanicky – Canaccord Genuity: 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 at all and then where should we see that trending to going forward?

Roger M. Boissonneault – CEO and President: I think, I’ll take that one, Randall. It’s Roger. Actually, we’ve 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 the scripts are older scripts for patients who have 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 that the sales force has done an excellent job of getting new starts, so the idea is that this is the preferred form of delivery system for mesalamine not simply take these 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 gastroenterologists.

Paul Herendeen – EVP and CFO: Hey, Randall, it’s Paul, I just yelled, because I love statistics and I think you’re right. I mean, 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’re making what I would call good progress with that franchise. It’s a great franchise for us.

Randall Stanicky – Canaccord Genuity: 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, I mean, it’s pretty minimal for both, especially the HD, but do we see that continuing to migrate towards HD?

Roger M. Boissonneault – CEO and President: Well, it has and like I said, it’s not that – I think, what you’re seeing now is you see – what you have is historical Rxs that have migrated to primary care, so if you look at nearly all patients are started by a gastroenterologist after a colonoscopy, and then that patient migrates. So, you see these historical, so I’m saying 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.

Debt Repayment

John Boris – Citi: First question, if we look at the debt repayment that you’ve 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 sales force that you have, can you remind us how many reps there are, and what you’ve 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 sales force to maintain it going forward.

Roger M. Boissonneault – CEO and President: Thanks, John. You know what, you’ve framed the question and asked why did we use $350 million of capital to retire debt? Why don’t – let me answer the question more broadly so that perhaps it’ll pick up some things I’m highly confident will be asked later on. I mean 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 in R&D projects. Those sorts of investments are always going to return excellent returns. While we think about that we also think about other ways that we might deploy capital to increase shareholder value. What everyone loves to talk about is, if the right deal presents itself on the business development front, you know that would our priority to deploy capital. Those are things like product acquisitions, product rights or even companies. We are also using our capital prepaid debt as we point out in Q1 and reduce our interest expense, we think that as increasing our future debt capacity to fund transactions that we believe are in the best interest of our shareholders. From time to time we also consider transactions in our stock as evidenced by our share redemption program and the special dividend that we paid back in 2010. In some circumstances what’s interesting is, those sorts of transactions may be the way that you can deliver shareholder value, but it’s worth noting that we did some bound all of the things that I just talked about, all of those alternatives are and can be on the table and can be thought about at the same time. I have said many, many times before we think about using our capital to repay debt, shouldn’t think of that as being indicative of or lack of opportunity to invest back in our business and all or even to maintain dry powder to pursue a business development transactions we think of it at the time that’s the way we choose to deploy our capital and we’d go back and reload if we saw a good opportunity. Your question around the derm franchise, I will take it or Roger will take it. He is pointing at me.

Roger M. Boissonneault – CEO and President: Yes, because I know the number. We have 75 sales reps. I think John, you got to think about this is DORYX the asset or is the sales force the asset. We like to think here that the sales force is the asset and since indeed you are a historian, you probably remember that we lead with Vectrin and we introduced Vectrin back several years ago and that was I guess and Paul know the number here. In 1997 and we introduced Vectrin, it had a generic competitor in the marketplace, because we knew had other products coming. We do have other products coming in this particular category disclosed and not disclosed that have been internally developed. So, we remain confident that our sales force will remain focused on the promotion of this particular asset. We do think that dermatologist tend to be loyal. We’re going to hopefully take advantage of that and we’re going remained focused on the promotion of DORYX. In the mean time, Paul has given you financial guidance and we’re going try to take a look at this 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 sales force. They are the asset and we will continue to develop products in this category.

Paul Herendeen – 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 that what Roger said that sales force is being an asset, we’ve been calling continuously in dermatologist office since the latter part of the 1990s. Those relationships and that sales force are an asset to the Company, and so we expect to or we intend to continue to invest in that asset, while we get to whatever comes next in terms of a products in the dermatology space. So, in crafting our guidance, what we have essentially done is to leave those costs in the mix. We’ve reflected our change to our revenue outlook and that’s what you see is the – that’s what really drives the change to both our revenue and bottom line guidance.